FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-7872

BREEZE-EASTERN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-4062211
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
35 Melanie Lane
Whippany, New Jersey	07981
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (973) 602-1001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 23, 2013, the total number of outstanding shares of common stock was 9,643,736.

INDEX

		Page No.
PART 1	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)		3
	Condensed Consolidated Balance Sheets June 30, 2013 (Unaudited) and March 31, 2013		4
	Condensed Consolidated Statements of Operations for the Three Month Periods Ended June 30, 2013 and June 30, 2012 (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended June 30, 2013 and June 30, 2012 (Unaudited)		6
	Notes to Condensed Consolidated Financial Statements (Unaudited)		7 - 18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19 - 26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27
Item 4.	Controls and Procedures		28
PART II.	Other Information
Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		28
Item 2.	Unregistered Sales of Equity Securities and use of Proceeds		28
Item 3.	Defaults Upon Senior Securities		28
Item 4.	Mine Safety Disclosures		28
Item 5.	Other Information		28
Item 6.	Exhibits		28
SIGNATURES			29
EXHIBITS

2

PART I. FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The results reflected in the unaudited Condensed Consolidated Statement of Operations for the three month period ended June 30, 2013 are not necessarily indicative of the results to be expected for the entire fiscal year. The following unaudited Condensed Consolidated Financial Statements should be read in conjunction with the notes thereto, Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, as well as the audited financial statements and related notes thereto contained in the Company’s Annual Report on Form 10-K filed on June 6, 2013 with the Securities and Exchange Commission (“SEC”) for the fiscal year ended March 31,2013. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules.

When the Company refers to its fiscal year in this Quarterly Report on Form 10-Q, the Company is referring to the fiscal year ended on March 31. Presently the Company is operating in its fiscal year 2014, which commenced on April 1, 2013 and will end on March 31, 2014. Unless the context expressly indicates a contrary intention, all references to years in this filing are to the Company’s fiscal years. Figures in this Quarterly Report on Form 10-Q are in thousands, except for share amounts or where expressly noted.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

3

BREEZE-EASTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars, Except Share Data)

ASSETS	(Unaudited) June 30,  2013			(Audited) March 31,  2013
CURRENT ASSETS:
Cash	$	6,756		$	6,688
Accounts receivable (net of allowance for doubtful accounts of $296 at June 30, 2013 and $292 at March 31, 2013)		13,739			15,955
Inventories – net		20,851			17,790
Prepaid expenses and other current assets		1,893			1,506
Deferred income taxes		6,867			6,757
Total current assets		50,106			48,696
PROPERTY:
Property and equipment		19,052			18,770
Less accumulated depreciation and amortization		12,415			12,084
Property – net		6,637			6,686
OTHER ASSETS:
Deferred income taxes – net		3,561			4,289
Goodwill		402			402
Real estate held for sale		3,800			3,800
Qualification units and pre-qualification assets – net		4,319			4,350
Other		5,203			5,190
Total other assets		17,285			18,031
TOTAL ASSETS	$	74,028		$	73,413
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility	$	—		$	—
Current portion of long-term debt		—			—
Accounts payable – trade		7,132			5,526
Accrued compensation		2,427			3,325
Accrued income taxes		215			741
Other current liabilities		4,979			5,070
Total current liabilities		14,753			14,662
LONG-TERM DEBT, NET OF CURRENT PORTION		—			—
OTHER LONG-TERM LIABILITIES		14,321			15,679
COMMITMENTS AND CONTINGENCIES (Note 14)		—			—
TOTAL LIABILITIES		29,074			30,341
STOCKHOLDERS’ EQUITY
Preferred stock – authorized, 300,000 shares; none issued		—			—
Common stock – authorized, 100,000,000 shares of $.01 par value; issued, 10,048,081 at June 30, 2013 and 9,987,200 at March 31, 2013		100			100
Additional paid-in capital		97,622			97,113
Accumulated deficit		(45,612	)		(46,985	)
Accumulated other comprehensive loss		(184	)		(184	)
		51,926			50,044
Less treasury stock, at cost – 443,678 shares at June 30, 2013 and March 31, 2013, respectively		(6,972	)		(6,972	)
Total stockholders’ equity		44,954			43,072
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	74,028		$	73,413

See notes to condensed consolidated financial statements.

4

BREEZE-EASTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In Thousands of Dollars, Except Share and Per Share Data)

	Three Months Ended
	June 30, 2013		June 30, 2012
Net sales	$	19,568	$	14,413
Cost of sales		12,763		8,902
Gross profit		6,805		5,511
Selling, general, and administrative expenses		2,733		3,272
Engineering expense		1,819		3,469
Operating income (loss)		2,253		(1,230	)
Interest expense		18		173
Other expense – net		21		25
Income (loss) before income taxes		2,214		(1,428	)
Income tax provision (benefit)		841		(600	)
Net income (loss)	$	1,373	$	(828	)
Earnings (loss) per common share:
Basic net income (loss) per share	$	0.14	$	(0.09	)
Diluted net income (loss) per share		0.14		(0.09	)
Weighted-average basic shares outstanding		9,568,000		9,493,000
Weighted-average diluted shares outstanding		9,667,000		9,493,000

See notes to condensed consolidated financial statements.

5

BREEZE-EASTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands of Dollars)

	Three Months Ended
	June 30, 2013			June 30, 2012
Cash flows from operating activities:
Net income (loss)	$	1,373		$	(828	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		389			364
Non-cash reserve accretion		90			101
Stock based compensation		175			253
Provision for losses on accounts receivable		4			4
Deferred taxes-net		618			(500	)
Changes in assets and liabilities:
Decrease in accounts receivable and other receivables		2,212			7,322
Increase in inventories		(3,061	)		(4,922	)
(Increase) decrease in other assets		(402	)		242
Increase in accounts payable		1,606			1,992
Decrease in accrued compensation		(898	)		(306	)
Decrease in accrued income taxes		(526	)		(199	)
Decrease in other liabilities		(1,539	)		(362	)
Net cash provided by operating activities		41			3,161
Cash flows from investing activities:
Capital expenditures		(282	)		(32	)
Capitalized qualification units and pre-qualification assets		(25	)		(1,353	)
Net cash used in investing activities		(307	)		(1,385	)
Cash flows from financing activities:
Payments on long-term debt		—			(10,679	)
Net borrowings (repayments) of other debt		—			—
Exercise of stock options		334			1
Net cash provided by (used in) financing activities		334			(10,678	)
Increase (decrease) in cash		68			(8,902	)
Cash at beginning of period		6,688			12,683
Cash at end of period	$	6,756		$	3,781
Supplemental information:
Interest payments	$	9		$	51
Income tax payments		751			98
Non-cash financing activity for stock option exercise		—			122

See notes to condensed consolidated financial statements.

6

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

NOTE 1. Financial Presentation

The unaudited, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows are of Breeze-Eastern Corporation and its consolidated subsidiaries (collectively, the “Company”). These reports reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods reflected therein. Certain prior year amounts may have been reclassified to conform to the current period presentation.

NOTE 2. Earnings (Loss) Per Share

The computation of basic earnings (loss) per share is based on the weighted-average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the foregoing as well as the exercise of all dilutive stock options using the treasury stock method. The diluted loss per share is computed using the same weighted-average number of shares as the basic earnings (loss) per share computation.

The components of the denominator for basic earnings (loss) per common share and diluted earnings (loss) per common share are reconciled as follows.

	June 30, 2013		June 30, 2012
Basic earnings (loss) per Common Share:
Weighted-average common shares outstanding for basic earnings (loss) per share calculation		9,568,000		9,493,000
Diluted earnings (loss) per Common Share:
Weighted-average common shares outstanding		9,568,000		9,493,000
Stock options (a)		99,000		—
Weighted-average common shares outstanding for diluted earnings (loss) per share calculation		9,667,000		9,493,000

(a) During the three month periods ended June 30, 2013 and June 30, 2012, options to purchase 433,000 and 748,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the exercise prices of these options were greater than the average market price of the common share and the effect of their conversion would be antidilutive.

NOTE 3. Stock-Based Compensation

The Company follows guidance provided by Accounting Standards Codification (“ASC 718”), “Accounting for Stock-Based Compensation”. Compensation cost is recognized for all awards granted and modified based on the grant date fair value of the awards. Net income (loss) for the three month periods ended June 30, 2013 and June 30, 2012, includes stock-based compensation expense of $109 net of tax, or $0.01 per diluted share, and $147 net of tax, or $0.02 per diluted share, respectively. Stock based compensation expense is included in selling, general and administrative expenses. Additional compensation cost will be recognized as new stock-based grants are awarded.

The Company maintains the 1999 Long-Term Incentive Plan (the “1999 Plan”), the 2004 Long-Term Incentive Plan (the “2004 Plan”), the 2006 Long-Term Incentive Plan (the “2006 Plan”), and the 2012 Incentive Compensation Plan (the “2012 Plan” and together with the 1999 Plan, the 2004 Plan and the 2006 Plan collectively, the “Plans”).

7

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

Under the terms of the 2012 Plan, 750,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors, certain employees, and other key individuals of the Company through October 2022. Under the terms of the 2006 Plan, 500,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors, and certain employees of the Company through July 2016. Under the terms of the 2004 Plan, 200,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors, and certain employees of the Company through September 2014. The 1999 Plan expired in July 2009, and no further grants or awards may be made under this plan. Under the 1999 Plan, unexercised options granted in fiscal years 2006, 2007 and 2008 remain outstanding.

Under each of the Plans, option exercise prices equal the fair market value of the common shares at their respective grant dates. Options granted to officers and employees expire no later than 10 years after the date of the grant. In most circumstances prior to fiscal year 2014, options granted to directors, officers, and employees generally vest ratably over three years beginning one year after the date of the grant. In certain circumstances, including a change of control of the Company (as defined in the various Plans), option vesting may be accelerated.

The Black-Scholes option-pricing model uses dividend yield, volatility, risk-free rate, expected term, and forfeiture assumptions to value stock options and was used to value 19,000 of the total 158,000 options granted in fiscal 2014 and 77,000 of the total 551,000 options granted in fiscal 2013. The Black-Scholes weighted-average value at each grant date per option granted in fiscal 2014 was $3.03 and $3.01 and in fiscal 2013 was $3.05, $3.02, $3.02 and $2.82. Expected volatilities are based on historical volatility of the Company’s common stock and other factors, and the risk-free rate for periods within the option’s contractual life is based on the U.S. Treasury yield curve at the time of the grant. The Company uses historical data to estimate the expected option term and assumed no forfeitures because of the limited number of employees at the executive and senior management levels who receive stock options, past employment history, and current stock price projections. The Company used the following assumptions to estimate the fair value of option grants under the Black-Scholes method:

	Dividend yield			Volatility			Risk-free interest rate			Expected term of options (in years)		Forfeiture adjustment
2014 $3.03 value per option		0.0	%		31.2	%		1.3	%		7.0		0.0	%
2014 $3.01 value per option		0.0	%		31.2	%		1.3	%		7.0		0.0	%
2013 $3.05 value per option		0.0	%		34.0	%		1.2	%		7.0		0.0	%
2013 $3.02 value per option		0.0	%		35.5	%		1.2	%		7.0		0.0	%
2013 $3.02 value per option		0.0	%		34.9	%		1.1	%		7.0		0.0	%
2013 $2.82 value per option		0.0	%		30.9	%		1.3	%		7.0		0.0	%

The remaining 139,000 options granted in fiscal 2014 had a weighted-average value per option of $2.13 and $1.92. The remaining 474,000 options granted in fiscal 2013 had a weighted-average value per option of $1.86, $1.75 and $1.75 at the grant date. These valuations used a Monte Carlo simulation because the option vesting was based on service and market conditions. Expected volatilities are based on the historical volatility of the Company’s common stock and other factors and the risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company uses

8

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

the option contractual life for the expected option term and assumes a forfeiture rate using historical data for Company officers who receive stock options. The Company used the following assumptions to estimate the fair value of option grants under the Monte Carlo simulation:

	2014 $2.13 value per option			2014 $1.92 value per option			2013 $1.86 value per option			2013 $1.75 value per option			2013 $1.75 value per option
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		34.9	%		34.9	%		34.0	%		34.9	%		30.1	%
Risk-free interest rate		1.9	%		1.9	%		1.8	%		1.1	%		1.3	%
Expected term of options (in years)		10.0			10.0			10.0			10.0			10.0
Forfeiture adjustment		0.2	%		0.3	%		0.2	%		0.2	%		0.2	%
Suboptimal behavior factor		1.9			1.9			1.9			1.9			1.9

The following table summarizes stock option activity under all Plans and other grants authorized by the Board of Directors.

	Number of Shares			Aggregate Intrinsic Value		Approximate Remaining Contractual Term (Years)		Weighted- Average Exercise Price
Outstanding at March 31, 2013		1,231,498		$	720		7	$	8.20
Granted		158,000			—		10		8.58
Exercised		(49,167	)		91		—		6.80
Canceled or expired		(108,667	)		—		—		9.08
Outstanding at June 30, 2013		1,231,664			1,093		8		8.22
Options exercisable at June 30, 2013		602,997			764		6		8.17
Unvested options expected to become exercisable after June 30, 2013		628,667			329		9		8.28
Shares available for future option grants at June 30, 2013 (a)		428,477

(a) May be decreased by restricted stock grants.

Cash received from stock option exercises during the first three months of fiscal 2014 was approximately $334. The aggregate intrinsic value of options exercised during the first three months of fiscal 2014 was approximately $19. The intrinsic value of stock options is the amount by which the market price of the stock on the date of exercise exceeded the market price of stock on the date of grant. There was no tax benefit generated to the Company from options granted prior to April 1, 2006 and exercised during fiscal 2014.

During the first three months of fiscal 2014 and fiscal 2013, stock option compensation expense recorded in selling, general and administrative expenses was $127 and $203, respectively, before taxes of $48 and $85, respectively. As of June 30, 2013, there was $940 of unrecognized compensation cost related to stock options granted-but-not-yet-vested that are expected to become exercisable. This cost is expected to be recognized over a weighted-average period of approximately three years.

9

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

Except as otherwise authorized by the Board of Directors, it is the general policy of the Company that the stock underlying the option grants consists of authorized and unissued shares available for distribution under the applicable Plans. Under the Plans, the Incentive and Compensation Committee of the Board of Directors (made up of independent directors) may at any time offer to repurchase a stock option that is exercisable and has not expired.

A summary of restricted stock award activity under all Plans follows.

	Number of Shares		Weighted – Average Grant Date Fair Value
Non-vested at March 31, 2013		24,125	$	7.51
Granted		11,714		8.35
Vested		—		—
Cancelled		—		—
Non-vested at June 30, 2013		35,839		7.78

Restricted stock awards are utilized both for director compensation and awards to officers and employees, and are distributed in a single grant of shares which are subject to forfeiture prior to vesting and have voting and dividend rights from the date of issuance. Outstanding restricted stock awards to officers and employees have forfeiture and transfer restrictions that lapse ratably over three years beginning one year after the date of the award.

Restricted stock awards granted to non-employee directors prior to fiscal 2012 contain forfeiture provisions that lapse after one year and transfer restrictions that lapse six months after the person ceases to be a director. In certain circumstances, including a change of control of the Company as defined in the various Plans, forfeiture lapses on restricted stock may be accelerated.

The fair value of restricted stock awards is based on the market price of the stock at the grant date and compensation cost is amortized to expense on a straight-line basis over the requisite service period as stated above. The Company expects no forfeitures during the vesting period with respect to unvested restricted stock awards granted. During the first three months of fiscal 2014 and fiscal 2013, compensation expense related to restricted stock awards recorded in selling, general and administrative expenses was $48 and $50, respectively, before taxes of $18 and $21, respectively. As of June 30, 2013, there was approximately $140 of unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a period of approximately two years.

NOTE 4. Inventories

Inventories are summarized as follows:

	June 30, 2013			March 31, 2013
Finished goods	$	735		$	1,024
Work in process		7,564			7,350
Purchased and manufactured parts		16,162			12,532
		24,461			20,906
Reserve for slow moving and obsolescence		(3,610	)		(3,116	)
Total	$	20,851		$	17,790

10

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

Inventory obsolescence is determined by identifying specific items based on the age of inventory and by establishing a general reserve based on annual purchases. Analyzing inventory by age showed little movement once items have aged five years, and historical trends showed that 1.1% of purchases would eventually be scrapped. Accordingly, the Company uses these two factors in determining the amount of the reserve.

NOTE 5. Property, Equipment, and Related Depreciation and Amortization

Property and equipment are recorded at cost, and equipment is depreciated on a straight-line basis over its estimated economic useful life. Leasehold improvements are amortized using the shorter of the estimated economic useful life or the term of the lease. Depreciation and amortization expense for the three month periods ended June 30, 2013 and June 30, 2012 was $331 and $338, respectively.

Average estimated useful lives for property are as follows:

Machinery and equipment	3 to 10 years
Furniture and fixtures	3 to 10 years
Computer hardware and software	3 to 5 years
Leasehold improvements	10 years

The Company classified as real estate held for sale on the condensed consolidated balance sheets a property owned in Glen Head, New York that is subject to a sales agreement. The closing of the sale agreement for the property is subject to the buyer receiving development approvals and the Company completing environmental obligations and reviews. Presently, the Company anticipates that the net sale proceeds will be $3,800. See Note 14 for a discussion of environmental matters related to this site.

NOTE 6. Product Warranty

Equipment has a one year warranty for which a reserve is established using historical averages and specific program contingencies when considered necessary. Changes in the carrying amount of accrued product warranty costs for the three month period ended June 30, 2013 are summarized as follows:

Balance at March 31, 2013	$	221
Warranty costs incurred		(45	)
Change in estimates to pre-existing warranties		—
Product warranty accrual		19
Balance at June 30, 2013	$	195

11

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

NOTE 7. Other Current Liabilities

Other current liabilities consists of the following:

	June 30, 2013		March 31, 2013
Engineering project reserves	$	1,530	$	1,530
Environmental reserves – Note 14		1,857		1,890
Accrued medical benefits cost		598		640
Accrued commissions		201		126
Other		793		884
Total	$	4,979	$	5,070

NOTE 8. Income Taxes

Income taxes for the three month period ended June 30, 2013 was computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management.

At June 30, 2013, the Company has an Alternative Minimum Tax Credit of approximately $847 and is available to reduce future federal taxes. A valuation allowance of $318 exists for the Company’s state deferred tax assets, as required under ASC 740. This occurred because of favorable changes in the New Jersey tax law that will significantly reduce the Company’s New Jersey income tax apportionment factor and the overall state effective tax rate in future periods. A valuation allowance of $265 exists relating to other items, as it is management’s belief that it is more likely than not that a portion of this deferred asset is not realizable.

At June 30, 2013, the Company had no unrecognized tax benefits for uncertain tax positions and the Company does not expect the liability for uncertain tax positions to increase during the fiscal year.

NOTE 9. Long-Term Debt Payable to Banks

Senior Credit Facility - The Company has a 60-month, $33,000 senior credit facility consisting of a $10,000 revolving line of credit (the “Revolver”) and, at the inception of the credit agreement in August 2008, a term loan totaling $23,000 (the “Senior Credit Facility”). The term loan had quarterly principal payments of $821 over the life of the loan and $6,571 due at maturity in August 2013. In June 2012, the Company paid in full the term loan in the amount of $10,679.

The Senior Credit Facility bears interest at either the “Base Rate” or the London Interbank Offered Rate (“LIBOR”) plus applicable margins based on the Company’s leverage ratio. The leverage ratio is equal to consolidated total debt divided by consolidated EBITDA (the sum of net income, depreciation, amortization, other non-cash charges and credits to net income, interest expense, and income tax expense minus charges related to debt refinancing) for the most recent four quarters and is calculated at each quarter end. The Base Rate is the higher of the Prime Rate or the Federal Funds Open Rate plus 0.50%. The applicable margins for the Base Rate based borrowings are between 0% and 0.75%. The applicable margins for LIBOR-based borrowings are between 1.25% and 2.25%. During the first three months of fiscal 2014, the Senior Credit Facility had a blended interest rate of approximately 0.375%, which represents a commitment fee on the average daily unused portion of the Revolver.

The Senior Credit Facility is secured by all of the Company’s assets and allows the Company to issue letters of credit against the total borrowing capacity of the facility. As of June 30, 2013, there were no outstanding borrowings under the Revolver, $202 in outstanding (standby) letters of credit, and $9,798 in Revolver

12

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

availability. The Senior Credit Facility contains certain financial covenants which require a minimum fixed charge coverage ratio that is not permitted to be less than 1.25 : 1.0 and a leverage ratio that is not permitted to be more than 2.5 : 1.0. The fixed charge coverage ratio is equal to consolidated EBITDA divided by fixed charges (the sum of cash interest expense, cash income taxes, dividends, cash environmental costs, scheduled principal installments on indebtedness adjusted for prepayments, capital expenditures, and payments under capitalized leases). As of June 30, 2013, the Company was in compliance with the covenant provisions of the Senior Credit Facility.

The Senior Credit Facility expires in August, 2013, and the Company is currently evaluating debt financing and capital structure options including a new senior credit facility.

NOTE 10. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

• Level 1 - Unadjusted quoted prices for identical assets or liabilities in active markets;

• Level 2 - Inputs other than quoted prices in active markets for identical assets or liabilities that are observable whether directly or indirectly for substantially the full term of the asset or liability; and

• Level 3 - Unobservable inputs for the asset or liability, which include management’s own assumptions about what the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company develops unobservable inputs based on the best information and analysis available. The source of this information may include internal Company functional experts and external sources. The analysis includes internal valuation input and judgments and the significance of any unobservable inputs and data.

The carrying amount reported in the condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The carrying amount for borrowings under the revolving portion of the Senior Credit Facility, if applicable, would approximate fair value because of the variable market interest rate charged to the Company for these borrowings.

NOTE 11. Employee Benefit Plans

The Company has a defined contribution plan covering all eligible employees. Contributions are based on certain percentages of an employee’s eligible compensation. Expenses related to this plan were $282 and $175, respectively, for the three month periods ended June 30, 2013 and June 30, 2012.

The Company provides postretirement benefits to certain union employees. The Company funds these benefits on a pay-as-you-go basis. The measurement date is March 31.

In February 2002, the Company’s subsidiary, Seeger-Orbis GmbH & Co. OHG, now known as TransTechnology Germany GmbH (the “Selling Company”), sold its retaining ring business in Germany to Barnes Group Inc. (“Barnes”). German law prohibits the transfer of unfunded pension obligations which have vested for retired and former employees, so the legal responsibility for the pension plan that related to the business (the “Pension Plan”) remained with the Selling Company. At the time of the sale and subsequent to the sale, that pension liability was recorded based on the projected benefit obligation since future compensation levels will not affect the level of pension benefits. The relevant information for the Pension

13

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

Plan is shown below under the caption Pension Plan. The measurement date is December 31. Barnes has entered into an agreement with the Company whereby Barnes is obligated to administer and discharge the pension obligation as well as indemnify and hold the Selling Company and the Company harmless from these pension obligations. Accordingly, the Company has recorded an asset equal to the benefit obligation for the Pension Plan of $3,315 and $3,266 as of June 30, 2013 and March 31, 2013, respectively. This asset is included in other long-term assets and it is restricted in use to satisfy the legal liability associated with the Pension Plan.

The net periodic pension cost is based on estimated values provided by independent actuaries. The following tables provide the components of the net periodic benefit cost.

	Postretirement Benefits				Pension Plan
	Three Months Ended				Three Months Ended
	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Interest cost	$	7	$	8	$	28	$	35
Amortization of net loss		8		2		—		—
Net periodic cost	$	15	$	10	$	28	$	35

NOTE 12. Concentration of Credit Risk

The Company is subject to concentration of credit risk primarily with its cash and accounts receivable. At times, the Company maintains its cash in bank deposit accounts in excess of the FDIC insured amount, which effective January 1, 2013 is $250,000. The Company grants credit to certain customers who meet pre-established credit requirements, and generally requires no collateral from its customers. Estimates of potential credit losses are provided for in the Company’s condensed consolidated financial statements and are within management’s expectations. As of June 30, 2013, the Company had no other significant concentrations of credit risk.

NOTE 13. New Accounting Standards

In February 2013, the FASB issued ASU No. 2013-02, Other Comprehensive Income. The amendments in this Update supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 (issued in June 2011) and 2011-12 (issued in December 2011) for all public and private organizations. The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this Update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The guidance provided by this update becomes effective prospectively for reporting periods beginning after December 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, or cash flows.

14

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

NOTE 14. Contingencies and Legacy Environmental Commitments

Environmental Matters

The Company is involved in environmental proceedings and potential proceedings relating to soil and groundwater contamination and other environmental matters at several former facilities that were never required for its current operations. These facilities were part of businesses disposed of by TransTechnology Corporation, the former parent Company. Environmental cleanup activities usually span several years, which make estimating liabilities a matter of judgment because of various factors, including changing remediation technologies, assessments of the extent of contamination, and continually evolving regulatory environmental standards. The Company considers these and other factors as well as studies and reports by external environmental consultants to estimate the amount and timing of any future costs that may be required for remediation actions. The Company follows ASC 450 in recording and disclosing environmental liabilities and records a liability for its best estimate of remediation costs. Because the Company believes it has a more-definitive best estimate of the environmental liability, the Company does not calculate a range in accordance with ASC 450.

At June 30, 2013 and March 31, 2013, the aggregate environmental liability was $11,243 and $12,684, respectively, included in other current liabilities and other long term liabilities on the balance sheets, before cost-sharing of approximately $1,472 at both June 30, 2013 and March 31, 2013, respectfully, that is classified mostly as a non-current asset.

In the first three months of fiscal 2014 and fiscal 2013, the Company spent $324 and $239, respectively, on environmental costs, and for the entire fiscal 2013, the Company spent $1,245. The Company has a detailed plan by property to manage its environmental exposure. These costs will be charged against the environmental liability reserve and will not impact income. The Company performs quarterly reviews of its environmental sites and the related liabilities.

The Company continues to participate in environmental assessments and remediation work at ten locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to thirty years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. The Company does not discount the recorded liabilities.

Although the Company takes great care in developing these risk assessments and future cost estimates, the actual amount of remediation costs may be different from those estimated as a result of a number of factors including but not limited to the following: changes to federal and state environmental regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and actual remediation expenses that differ from those estimated. The Company does not include any unasserted claims that it might have against others in determining its potential liability for such costs, and, except as noted with specific cost sharing arrangements, has no such arrangements, nor has it taken into consideration any future claims against insurance carriers that the Company may have in determining its environmental liabilities. In those situations where the Company is considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in the Company’s liability at such a site.

There are a number of former operating facilities that the Company is monitoring or investigating for potential future remediation. In some cases, although a loss may be probable, it is not possible at this time to reasonably estimate the amount of any obligation for remediation activities because of uncertainties assessing the extent of the contamination or the applicable regulatory standard. The Company is also pursuing claims for contribution to site investigation and cleanup costs against other potentially responsible parties (PRPs), including the U.S. Government.

15

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

Glen Head, New York

In the first quarter of fiscal 2003, the Company entered into a consent order for a former facility in Glen Head, New York, which is currently subject to a contract for sale, pursuant to which the Company developed a remediation plan for review and approval by the New York Department of Environmental Conservation (“NYDEC”). The Company was advised in fiscal 2010 that the NYDEC required additional offsite groundwater delineation studies. Based upon the characterization work performed to date and this latest request, the Company’s reserve is $3,211 for the Glen Head site at June 30, 2013. The amounts and timing of payments are subject to the approved remediation plan and additional discussions with NYDEC.

The property is classified as “held for sale” for $3,800 after allowing for certain costs. In July 2001, the Company entered into a sales contract for the Glen Head, New York property for $4,000. The property’s appraised value was $3,300 in July 2001 and was $4,200 in 2005, the date of the last appraisal. These appraisals did not reflect the Company’s estimated remediation costs.

Neither the consent order nor the remediation plan affect the buyer’s obligation to close under the sales contract. The contract does not include a price adjustment clause and, although there are conditions precedent to the buyer’s obligation to close, the contract does not allow for termination. Thus, the buyer cannot unilaterally terminate the contract without liability, a buy-out, or some other settlement negotiated with the Company. There is no set date for closing, and the Company must provide the buyer with a funded remediation plan and environmental insurance prior to the buyer’s obligation to close. The buyer indicated its intent to build residential housing on this former industrial site and has been engaged in the lengthy process of securing the necessary municipal approvals.

Saltzburg, Pennsylvania (“Federal Labs”)

The Company sold the business previously operated at the property owned in Saltzburg, Pennsylvania. The Company presented an environmental cleanup plan during the fourth quarter of fiscal 2000 for a portion of Federal Labs site pursuant to a consent order and agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) in fiscal 1999 (“1999 Consent Order”). PaDEP approved the plan during the third quarter of fiscal 2004, and the Company paid $200 for past costs, future oversight expenses, and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $200 paid subsequently.

The Company concluded a second consent order with PaDEP in the third quarter of fiscal 2001 for a second portion of the Federal Labs site (“2001 Consent Order”), and concluded a third Consent Order for the remainder of the Federal Labs site in the third quarter of fiscal 2003 (“2003 Consent Order”). The Company submitted an environmental cleanup plan for the portion of the Federal Labs site covered by the 2003 Consent Order during the second quarter of fiscal 2004.

The Company is administering a settlement, concluded in the first quarter of fiscal 2000, under which the U.S. Government pays 50% of the ongoing direct and indirect environmental costs for the Federal Labs site subject to the 1999 Consent Order. The U.S. Government cost-sharing receivable is classified primarily as other assets on the condensed consolidated balance sheets. The Company also concluded an agreement in the first quarter of fiscal 2006, under which the U.S. Government paid an amount equal to 45% of the estimated environmental response costs for the Federal Labs site subject to the 2001 Consent Order. No future payments are due under this second agreement.

The Company is currently party to a tolling agreement with the Federal Government with the remainder of the Federal Labs site while negotiating a cost-sharing arrangement subject to the 2003 Consent Order. There can be no assurance the Company will be successful in these negotiations or any litigation seeking to enforce its rights to contribution or indemnification from the U.S. Government. The Company’s environmental liability reserves are not reduced for any potential cost-sharing payments.

16

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

At June 30, 2013, the environmental liability reserve at Federal Labs was $5,404. The Company expects that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

Wyoming, Illinois

The Company has been conducting investigation and cleanup activities at its formerly-owned property in Wyoming, Illinois. This work was being conducted pursuant to a voluntary agreement entered into with the Illinois Environmental Protection Agency (“IEPA”). The Company sold the property in 2004.

In fiscal 2013, the Company successfully implemented a soil remediation project and provided final investigation and cleanup reports to the IEPA. On April 12, 2013, the IEPA issued a No Further Remediation Letter to the Company approving the remedial action and releasing the Company from further obligations associated with the known contamination at the property provided that the Company complete, among other things, required notice and deed recording obligations, including notice to the current property owner of the No Further Remediation Letter and recording in the county land use records. The Company completed these obligations in June 2013 and believes that no further on-site work is required.

The Company has no other known environmental obligations with respect to the Wyoming Illinois site. The remaining technical fees from the Company’s technical advisors and oversight fees from the IEPA are not expected to exceed $35. Accordingly, the Company reduced the remaining environmental liability for this site by $1,207 as there is no further known obligation.

There are other properties that have a combined environmental liability of $2,628 at June 30, 2013.

The environmental activity is summarized as follows:

Balance at March 31, 2013	$	12,684
Environmental costs incurred		(324	)
Interest accretion		90
Reduction of environmental reserve-Wyoming Illinois		(1,207	)
Balance at June 30, 2013	$	11,243

Litigation

The Company is also engaged in various other legal proceedings incidental to its business. It is the opinion of management that, after taking into consideration information furnished by its counsel, these matters will have no material effect on the Company’s financial position or the results of operations or cash flows in future periods.

NOTE 15. Segment, Geographic Location and Customer Information

Our products and related services aggregate into one reportable segment - sophisticated mission equipment for specialty aerospace and defense applications. The nature of the production process (assemble, inspect, and test) is similar for all products, as are the customers and distribution methods.

17

Notes To Unaudited Condensed Consolidated Financial Statements

($ In Thousands Except Share Amounts)

(Unaudited)

During the three month period ended June 30, 2013, 33%, 18% and 14% of net sales were made to three major customers, respectively. During the three month period ended June 30, 2012, 30%, 18% and 15% of net sales were made to three major customers, respectively.

As of June 30, 2013, 19%, 10% and 10% of net accounts receivable were derived from three major customers, respectively. As of June 30, 2012, 23%, 12% and 12% of net accounts receivable were derived from three major customers, respectively.

Net sales below show the geographic location of customers for the three month periods ended June 30, 2013 and June 30, 2012:

Location	June 30, 2013		June 30, 2012
United States	$	12,393	$	8,816
Italy		2,653		1,850
England		324		658
Other European countries		892		687
Pacific and Far East		591		454
Other International		2,715		1,948
Total	$	19,568	$	14,413

NOTE 16. Subsequent Events

Management has evaluated all events occurring through the date that the Condensed Consolidated Financial Statements have been issued, and has determined that all such events that are material to the Condensed Consolidated Financial Statements have been fully disclosed.

18

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Unless otherwise indicated or the context otherwise requires, all references in this report to the “Company,” the “registrant” “we,” “us” or “our” and similar terms refer to Breeze-Eastern Corporation and its subsidiaries. All dollar amounts stated herein are in thousands except per share amounts. All references to years in this report refer to the fiscal year ended March 31 of the indicated year unless otherwise specified. This report reflects all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for fair presentation of the results of operations for the periods reflected. Certain prior fiscal year amounts may have been reclassified to conform to the current fiscal year presentation.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: changes in business conditions, changes in applicable laws, rules and regulations affecting us in locations in which we conduct business, interest rate trends, a decline or redirection of the United States (“U.S.”) defense budget, the failure of Congress to approve a budget or continuing resolution, continuation of the current sequestration, the termination of any contracts with the U.S. Government, changes in our sales strategy and product development plans, changes in the marketplace, developments in environmental proceedings that we are involved in, continued services of our executive management team, competitive pricing pressures, security breaches, market acceptance of our products under development, delays in the development of products, changes in spending allocation or the termination, postponement, failure to fund one or more significant contracts by the U.S. Government or other customers, determination by us to dispose of or acquire additional assets, events impacting the U.S. and world financial markets and economies, and such other factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings and other public announcements including those set forth under “Item 1A. Risk Factors” contained in the Company’s Annual Report on Form 10-K filed with the SEC on June 6, 2013 for the fiscal year ended March 31, 2013, and under and Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report.

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Readers are cautioned not to place undue reliance on our forward-looking statements. Except as required by law, we assume no duty to update or revise our forward-looking statements.

OVERVIEW

We design, develop, manufacture, sell, and service sophisticated engineered mission equipment for specialty aerospace and defense applications. We have long been recognized as a leading global designer, manufacturer, service provider, and supplier of mission-critical rescue hoists. We also manufacture weapons-handling systems, cargo winches, cargo hook systems and tie-down equipment. Our products are designed to be efficient and reliable in extreme operating conditions and are used to complete rescue operations and military insertion/extraction operations, move and transport cargo, and load weapons onto aircraft and ground-based launching systems.

19

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Our primary strategy is to continue to expand our position as a market leader in the design, development, and service of sophisticated mission equipment for specialty aerospace and defense applications. We intend to maintain our position by continuing to focus on our principal customers and on geographic areas where we have developed our reputation as a premier provider of aircraft hoist and lift equipment, and by expanding both our customer base and product lines. We believe that continued spending on research and development to improve the quality of our product offerings and remaining on the leading edge of technological advances in our chosen markets is also crucial to our business. In this regard, we will continue to commit resources to product research and development.

Our business is affected by global economic and geo-political conditions. As U.S. military activity in Iraq and Afghanistan declines, United States defense spending reductions and redirections could have a material impact on our revenues and earnings in future periods. Similarly, European government military and spending reductions could have a material impact on revenues and earnings in future periods. However, we believe that the primary military missions that drive procurement and the use of our equipment (search and rescue, special operations, and cargo delivery) will continue to get a relatively high funding priority.

We have experienced product development schedule slippage and increased investment due to OEM customer extended development timetables and due to our own product development progress. The Airbus A400M military transport aircraft development has taken longer than originally anticipated, and we currently expect revenues related to this project starting in calendar 2013.

CORE BUSINESS

Our core business is aerospace and defense products. We believe we are the world’s leading designer, manufacturer, service provider, and supplier of mission-critical rescue hoists and cargo hook systems. We also manufacture weapons handling systems, cargo winches, and tie-down equipment. These products are sold primarily to military and civilian agencies and aerospace contractors. Our emphasis is on the engineering, assembly, testing, service, and support of our products.

PRODUCTS AND SERVICES

Our products and related services aggregate into one reportable segment. The nature of the production process (assemble, inspect, and test), customers, and product distribution are similar for all products. We sell our products through internal marketing representatives and independent sales representatives and distributors.

Products

As a pioneer of helicopter rescue hoist technology, we continue to develop sophisticated helicopter hoist and winch systems, including systems for the current generation of Sikorsky H-60 Blackhawk and Naval Hawk, CH-53K Super Stallion, Bell-Boeing V-22 Osprey, Boeing CH-47 Chinook, Eurocopter Ecureuil, Dolphin, EH-101 Merlin/Cormorant, Changhe Z-11, Agusta Westland A-W109, AW119 and AW139 helicopters. We also design, market, sell and service a broad line of hydraulic and electric aircraft cargo winch systems with capacities from 900 pounds to over 7,000 pounds.

Our external cargo hook systems are original equipment on leading military medium and heavy lift helicopters. These hook systems range from smaller 1,000-pound capacity models up to the largest 36,000-pound capacity hooks employed on the Sikorsky CH-53 Super Stallion helicopter. Our latest designs incorporate load sensing and display technology and automatic load release features. We also manufacture cargo and aircraft tie-downs which are included in this product line.

We make static-line retrieval and cargo winches for military cargo aircraft including the Boeing C-17, Alenia C-27J, CASA CN-235, and CASA C-295. In addition, we have a contract with Airbus to develop and produce products for the new cargo winch and retrieval winch systems for the A400M cargo aircraft and expect to be the sole supplier of these products with anticipated delivery beginning in the 2013 calendar year.

20

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Once our products are qualified and approved for use with a particular aircraft model, sales of products and services generally continue for the life of the aircraft model, which can be for decades. It is expensive and difficult for a second supplier’s product to become qualified and approved on the same aircraft.

Our weapons handling systems include weapons handling equipment for land-based rocket launchers and munitions hoists for loading missiles and other loads using electric power or exchangeable battery packs. We supply this equipment for the United States, Japanese, and European Multiple-Launch Rocket Systems (MLRS) and the United States High Mobility Artillery Rocket System (HIMARS). We also provide actuators and specialty gear boxes for specialty weapons applications.

Services

We perform overhaul, repair, and maintenance services for all of our products. Most of these services are performed at our Whippany, New Jersey facility. We have also licensed third-party vendors around the world to perform these services.

In addition to performing research and development to design new products, improve existing products, and add new features to our product line, we also provide engineering services to adapt our products to customer specific needs and aircraft models on a fee-for-service basis.

We discuss segment information in Note 15 of our “Notes to Condensed Consolidated Financial Statements” contained in Item 1 of Part I of this report.

STRATEGY

Our primary strategy is to continue to expand our position as a market leader in the design, development, and service of sophisticated mission equipment for specialty aerospace and defense applications. We intend to maintain our position by continuing to focus on our principal customers and on geographic areas where we have developed our reputation as a premier provider of aircraft hoist and lift equipment, and by expanding both our customer base and product lines. We believe that continued spending on research and development to improve the quality of our product offerings and remaining on the leading edge of technological advances in our chosen markets is also crucial to our business. In this regard, we will continue to commit resources to product research and development.

CRITICAL ACCOUNTING POLICIES

For information regarding our critical accounting policies, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended March 31, 2013, as filed with the SEC on June 6, 2013, under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and our Notes to Consolidated Financial Statements included therein.

21

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Results of Operations

Three Months Ended June 30, 2013 Compared with Three Months Ended June 30, 2012

	Three Months Ended						Increase/(Decrease)
	June 30, 2013			June 30, 2012			$			%
Products	$	13,556		$	10,700		$	2,856			26.7	%
Services		6,012			3,713			2,299			61.9
Net sales		19,568			14,413			5,155			35.8
Products		8,610			6,925			1,685			24.3
Services		4,153			1,977			2,176			110.1
Cost of sales		12,763			8,902			3,861			43.4
Gross profit		6,805			5,511			1,294			23.5
As a % of net sales		34.8	%		38.2	%		N/A			(3.4	)%Pt
Selling, general, and administrative expenses		2,733			3,272			(539	)		(16.5	)%
Engineering expense		1,819			3,469			(1,650	)		(47.6	)
Operating income (loss)		2,253			(1,230	)		3,483			283.2
Interest expense		18			173			(155	)		(89.6	)
Income tax provision (benefit)		841			(600	)		1,441			240.2
Effective tax rate		38.0	%		42.0	%		N/A			(4.0	)%Pt
Net income (loss)	$	1,373		$	(828	)	$	2,201			265.8	%

Net Sales. Fiscal 2014 first quarter net sales of $19,568 were $5,155, or 35.8%, above net sales of $14,413 in the fiscal 2013 first quarter. Fiscal 2014 first quarter products sales of $13,556 were $2,856, or 26.7%, above prior year primarily due to higher new equipment hoist & winch and cargo hook volume to international and domestic OEMs and to higher spare parts cargo hook volume to the U.S. Government.

Fiscal 2014 first quarter services sales of $6,012 were higher by $2,299, or 61.9%, compared with the prior year primarily due to increased overhaul & repair volume to the U.S. Government and higher engineering billing.

The timing of U.S. Government awards, availability of U.S. Government funding, and product delivery schedules are among the factors that affect the period of recording revenues. Over the past several years, revenues in the second half of the fiscal year exceeded revenues in the first half of the fiscal year. We expect fiscal 2014 revenues will be consistent with this historical pattern.

Cost of Sales. Products cost of sales of $8,610 in the fiscal 2014 first quarter were $1,685, or 24.3%, higher than the same period in fiscal 2013 primarily due to increased new production and spare parts volume. Cost of services provided of $4,153 in the fiscal 2014 first quarter was $2,176, or 110.1%, higher than the prior year due primarily to shipping engineering qualification units at a loss and to higher engineering volume. In the fiscal 2014 first quarter, manufacturing overhead was favorably over-absorbed by $700, or 3.6% of sales. In the prior year, under-absorbed overhead was $125, or 0.9% of sales. The absorption split between products and services was 81% and 19%, respectively.

22

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Gross profit. Gross profit of $6,805 in the fiscal 2014 first quarter was $1,294, or 23.5%, above the same period in fiscal 2013. The increase is primarily due to increased overhaul & repair and spare parts volume, partly offset by lower profitability for new production and engineering. The new production mix was unfavorable due to higher volume to large domestic and international OEMs, and engineering profitability was reduced by shipping new product qualification units at a loss and overspending on other billable engineering projects. As a percent of sales, the gross profit margin was 34.8% for the fiscal 2014 first quarter compared with 38.2% for the prior year. Gross profit as a percent of sales declined primarily due to new production and engineering.

Operating Expenses. Total operating expenses were $4,552, or 23.3% of net sales, in the first quarter of fiscal 2014 compared with $6,741 or 46.8% of net sales in the comparable prior year period. Selling, general, and administrative (“SG&A”) expenses were $2,733 in the fiscal 2014 first quarter compared with $3,272 in the first quarter of fiscal 2013, a decrease of $539 due primarily to a $1,207 environmental liability reduction in the first quarter of 2014 because we received a No Further Remediation Letter from the state of Illinois for a previously-owned property in Wyoming, Illinois. This was partly offset by higher selling costs as we invest in marketing and improving customer service. As a percent of sales, SG&A was 14.0% in the fiscal 2014 first quarter versus 22.7% in the comparable period last year. The decrease as a percent of sales is due primarily to reducing the environmental liability and also to the higher sales in the 2014 fiscal first quarter.

Engineering expenses were $1,819 in the first quarter of fiscal 2014 compared with $3,469 in the first quarter of fiscal 2013. The decrease reflects lower new product development for awarded aerospace platforms, primarily the A400M. We anticipate total gross engineering costs to be lower for fiscal 2014.

Interest Expense. Interest expense was $18 during the first quarter of fiscal 2014 versus $173 in the first quarter of fiscal 2013 which included expensing $95 of deferred debt acquisition costs after we pre-paid our $10,679 term loan in full during the fiscal 2013 first quarter.

Income tax provision (benefit). Income tax provision was $841 in the first quarter of fiscal 2014, compared with an income tax benefit, due to reporting a loss, of $600 in the first quarter of fiscal 2013. Income taxes for the three month periods ended June 30, 2013 and June 30, 2012 were computed using the effective tax rate of 38.0% and 42.0%, respectively, estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation. The lower effective tax rate in fiscal 2014 is due to primarily to a lower New Jersey state tax rate. Income taxes and income tax rates are discussed further in Note 8 of the “Notes to Condensed Consolidated Financial Statements” contained in Part I, Item 1 of this report.

Net Income (loss). Net income was $1,373, or $0.14 per diluted share, in the first quarter of fiscal 2014, compared with a loss of $828, or a negative $0.09 per diluted share, in the fiscal 2013 first quarter. The increase is due to the higher gross profit resulting from the sales increase, lower SG&A and engineering costs, lower interest expense from pre-paying debt a year ago, and a lower effective tax rate.

New Orders. New products and services orders received during the three months ended June 30, 2013 increased by 8.0% to $15,972 compared with $14,783 during the three months ended June 30, 2012. The increase was due primarily to new equipment cargo hooks and also to overhaul & repair and engineering, partly offset by reduced spare parts orders.

Backlog. We measure backlog by the amount of products or services that customers committed by contract to purchase as of a given date. Backlog may vary substantially over time due to the size and timing of orders. Backlog of approximately $37,754 at June 30, 2013 is scheduled for shipment during the next twelve months. Although significant cancellations of purchase orders or substantial reductions of product quantities in existing contracts seldom occur, such cancellations or reductions could substantially and materially reduce backlog. Therefore, backlog information may not represent the actual amount of shipments or sales for any future period.

23

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Backlog at June 30, 2013 was $111,506, compared with $115,102 at March 31, 2013, and $111,554 at June 30, 2012. These figures include $70,816, $71,070, and $71,466, respectively, for the Airbus A400M military transport aircraft scheduled to commence shipping in calendar 2013.

The book-to-bill ratio is computed by dividing the new orders received during a period by the sales for the same period. A book-to-bill ratio in excess of 1.0 is potentially indicative of continued overall growth in sales. The book to bill ratio was 0.8 for the fiscal 2014 first quarter and 1.0 for the fiscal 2013 first quarter.

Liquidity and Capital Resources

Our principal sources of liquidity are cash on hand, cash generated from operations, and our Senior Credit Facility. At times, we maintain our cash in bank deposit accounts in excess of the FDIC insured amount, which effective January 31, 2013 is $250,000.

Our liquidity requirements depend on a number of factors, many of which are beyond our control, including the timing of production under contracts with the U.S. Government. Our working capital needs fluctuate between periods as a result of changes in program status and the timing of payments by program. Additionally, because sales are generally made on the basis of individual purchase orders, liquidity requirements vary based on the timing and volume of orders. Based on cash on hand, future cash expected to be generated from operations, and the Senior Credit Facility, we expect to have sufficient cash to meet liquidity requirements for the next twelve months. The Senior Credit Facility is discussed in Note 9 of the “Notes to Condensed Consolidated Financial Statements” contained elsewhere in this report.

The Senior Credit Facility expires in August 2013, and we are currently evaluating debt financing and capital structure options including a new senior credit facility.

In fiscal 2011 and fiscal 2012, we accelerated term-loan payments by making a total of five quarterly term-loan pre-payments totaling $4,107. During the first quarter of fiscal 2013 due to our strong cash position and to gain additional flexibility on our fixed-charge debt covenant, we pre-paid our entire term loan balance of $10,679, of which $6,571 would become due when the term loan expired in August 2013. We believe we have adequate cash flow and revolver debt availability to meet our operating needs.

We are involved in environmental proceedings and potential proceedings relating to soil and groundwater contamination and other environmental matters at some of our former parent company’s facilities that were never required for our current operations. In fiscal 2014, we anticipate spending approximately $1,890 on environmental characterization and remediation costs. These costs will be charged against our environmental liability reserve and will not impact income.

Working Capital

Net working capital at June 30, 2013 was $35,353, an increase of $1,319, versus $34,034 at March 31, 2013. The ratio of current assets to current liabilities was 3.4:1.0 at June 30, 2013 compared with 3.3:1.0 at the beginning of fiscal 2014. The net working capital increase resulted primarily from an increase in inventory of $3.1 million in order to improve customer service with better overhaul & repair turnaround time and product delivery. Other significant working capital changes were decreases in accounts receivable of $2,216, accrued compensation of $898, and an increase in accounts payable of $1,606.

The accounts receivable days outstanding decreased to 62.5 days at June 30, 2013, from 71.8 days at June 30, 2012. Inventory turnover increased to 2.7 turns at June 30, 2013 versus 1.9 turns at June 30, 2012. Inventory turns are higher due to the increased cost of goods sold from the higher sales volume.

24

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

Capital Expenditures

Capital expenditures for the three months ended June 30, 2013 and 2012 were $282 and $32, respectively. Fiscal 2014 first quarter and fiscal 2013 first quarter spending was for production test equipment. Capitalized qualification units and pre-qualification assets for the three months ended June 30, 2013 and 2012 were $25 and $1,353, respectively. The lower fiscal 2014 first quarter reflects approaching the end of reaching qualification for production.

Senior Credit Facility

The Senior Credit Facility is discussed in Note 9 of the “Notes to Condensed Consolidated Financial Statements” contained in Part I, Item 1 of this report.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations in future fiscal years.

	Payments Due By Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Operating leases	$	6,206	$	1,029	$	1,942	$	1,849	$	1,386
Purchase obligations (a)		—		—		—		—		—
Total	$	6,206	$	1,029	$	1,942	$	1,849	$	1,386

(a) Our supplier purchase orders contain provisions allowing vendors to recover certain costs in the event of “cancellation for convenience” by us. We believe that we do not have ongoing purchase obligations with respect to our suppliers that are material in amount or that would result, individually or collectively, in a material loss exposure to us if cancelled for convenience. Furthermore, purchase obligations for capital assets and services historically have not been material in amount.

INFLATION

Neither inflation nor deflation has had, and we do not expect it to have, a material impact upon operating results. We cannot be certain that our business will not be affected by inflation or deflation in the future.

CONTINGENCIES AND LEGACY ENVIRONMENTAL COMMITMENTS

Environmental matters - At June 30, 2013 and March 31, 2013 the aggregate environmental liability was $11,243 and $12,684, respectively, included in other current liabilities and other long term liabilities on the balance sheets, before cost-sharing of approximately $1,472 at both June 30, 2013 and March 31, 2013, respectfully, that is classified mostly as a non-current asset.

In the first three months of fiscal 2014 and fiscal 2013, we spent $324 and $239, respectively, on environmental costs, and for the entire fiscal 2013, we spent $1,245. We have a detailed plan by property to manage our environmental exposure. Based on this plan, we anticipate spending $1,890 on environmental matters in fiscal 2014. These costs will be charged against the environmental liability reserve and will not impact income. We perform quarterly reviews of our environmental sites and the related liabilities.

In fiscal 2013, we successfully implemented a soil remediation project and provided final investigation and cleanup reports to IEPA for its formerly owned property in Wyoming, Illinois. On April 12, 2013, the IEPA

25

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ In Thousands Except Share Amounts)

issued a No Further Remediation Letter releasing us from further obligations associated with the known contamination at the property. We have no known environmental obligations with respect to the former Wyoming Illinois site. The remaining technical fees from our technical advisors and oversight fees from the IEPA are not expected to exceed $35. Accordingly, we reduced the remaining environmental liability for this site by $1,207 as there is no further known obligation.

Environmental matters are discussed in Note 14 of the “Notes to Condensed Consolidated Financial Statements” contained in Part 1, Item 1 of this report.

Litigation - Litigation is discussed in Note 14 of the “Notes to Condensed Consolidated Financial Statements” contained in Part 1, Item 1 of this report.

RECENTLY ISSUED ACCOUNTING STANDARDS

The recent accounting pronouncements are discussed in Note 13 of the “Notes to Condensed Consolidated Financial Statements” contained in Part 1, Item 1 of this report.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2013, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

26

($ In Thousands Except Share data)

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, primarily changes in interest rates associated with our Senior Credit Facility. At June 30, 2013, we had no borrowings under our Senior Credit Facility.

At times we maintain our cash in bank deposit accounts in excess of the FDIC insured amount, which effective January 31, 2013 is $250,000.

27

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15(b). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) during the first three months of fiscal 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are engaged in various other legal proceedings incidental to the Company’s business. Management believes that, after taking into consideration information furnished by its counsel, these matters will not have a material effect on the financial position, results of operations, or cash flows in future periods.

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, the user/reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as filed with the SEC on June 6, 2013, and incorporated herein by reference, which factors could materially affect our business, financial condition, financial results or future performance.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

Item 3. DEFAULT S UPON SENIOR SECURITIES.

None

Item 4. MINE SAFETY DISCLOSURES.

None.

Item 5. OTHER INFORMATION.

None.

Item 6. EXHIBITS

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* The Interactive Data Files on Exhibit 101 hereto (XBRL (Extensible Business Reporting Language) information) is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		BREEZE-EASTERN CORPORATION
		(Registrant)
Dated: July 31, 2013	By:	/s/ Mark D. Mishler
		Mark D. Mishler, Senior Vice President,
		Chief Financial Officer and Treasurer *

* On behalf of the Registrant and as Principal Financial and Accounting Officer.

29