UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
                           OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File No. 1-11474

                            BREED TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                                        22-2767118
(State or other jurisdiction of            (I.R.S. Employer  Identification No.)
incorporation or organization)

5300 Old Tampa Highway
Lakeland, Florida                                        33811
(Address of principal  executive offices)              (Zip Code)

Registrant's telephone number, including area code: (941) 668-6000

Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of each exchange
      Title of each class                                on which registered
      -------------------                                -------------------
  Common Stock, $.01 par value                          New York Stock Exchange

Securities registered pursuant to section 12(g) of the act:  None

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of July 31, 1997, the  approximate  aggregate  market value of the voting and
non-voting stock held by non-affiliates of the registrant was $263,834,000 based
on the last reported  sale price of the  Company's  Common Stock on the New York
Stock  Exchange  as of the  close of  business  on July  31,  1997.  There  were
31,679,217 shares of Common Stock outstanding as of July 31, 1997.

                  DOCUMENTS OR PARTS INCORPORATED BY REFERENCE

                                                    Form 10K Part into Which the
Document                                             Document is Incorporated
--------                                             ------------------------
Proxy Statement                                      Part III 
relating to Registrant's Annual Meeting         
of Stockholders to be held on November 20, 1997 


<PAGE>


                                     PART I

ITEM 1. BUSINESS

BREED  Technologies,   Inc.  (the  "Company"  or  "BREED")  designs,   develops,
manufactures  and sells a complete  range of occupant  safety  systems and other
components including electronic and electromechanical  sensors,  airbag modules,
inflators,  steering wheels, and plastic exterior and interior  components.  The
Company's  reed  switch and silicon  micro  sensor  products  are used in a wide
variety of automotive as well as industrial  sensor and switching  applications.
Headquartered  in  Lakeland,  Florida,  BREED  is  one of  the  world's  leading
suppliers of automotive  occupant safety systems and steering wheels,  providing
its global automotive  customers with research and development,  engineering and
manufacturing  support through its global network of facilities in 13 countries.
BREED employs more than 11,100 people at its 57 facilities worldwide.

BREED has acquired nine  companies in the past three years,  five in the area of
electronic components and subassemblies and four in the area of steering wheels,
interior/exterior  components and automotive accessories.  Throughout the world,
BREED  subsidiaries - A(2)M, BREED Italia,  Custom Trim, Force Imaging,  Gallino
Plasturgia,  Hamlin,  Italtest,  MOMO,  United Steering Systems and VTI Hamlin -
provide leading technologies to automotive, industrial and commercial markets.

Recent  Developments

Recent  acquisitions  provide  BREED  with  strategic  vertical  and  horizontal
integration,  and  strengthen  our position as a major global  supplier of fully
integrated   occupant  safety  systems.   BREED  completed   several   strategic
acquisitions in fiscal 1997, including:

o In July 1996, the steering wheel and plastic exterior and interior  components
business of the Gallino Group.

o  In  October  1996,  the  steering  wheel  business  of  United   Technologies
Automotive,  renamed United Steering Systems, which provided additional patented
technologies and expanded BREED's customer base, and;

o In March 1997, Custom Trim Ltd., the automobile industry's primary supplier of
leather-wrapped steering wheels and shift knobs.

These acquisitions, combined with the Company's acquisition of MOMO, established
BREED as the world's largest supplier of steering wheels.  This position enables
BREED to bid on global  steering wheel contracts and provides an entry point for
bidding other global supply agreements in the area of occupant safety. To better
integrate these acquisitions,  and to enhance customer support and focus product
development in the Company's core business,  BREED  restructured its business in
three  product  divisions  during  the  year.  The new  structure  reflects  the
significant  shift in BREED's  product  mix toward  integrated  occupant  safety
systems.  The new  business  units are  Electronics/Sensors,  Steering  Wheels &
Interiors, and Air Bags/Inflators.

On  August  27,  1997,  BREED  entered  into an Asset  Purchase  Agreement  with
AlliedSignal,   Inc.  to  acquire  its  automotive  safety  restraint  business.
AlliedSignal Safety Restraint Systems has annual sales in excess of $900 million
and  employs  7,700  people in 14 plants in seven  countries.  It is the largest
supplier  of  seatbelts  and third  largest  supplier  of  airbags in the United
States.  Management believes that this strategic  combination will make BREED an
even stronger global competitor in fully integrated occupant safety systems. The
transaction is expected to be completed following  regulatory review, as well as
other legal  requirements in various  countries where these businesses  operate.

                                    Products

Electronic Products

The  Company's  principal  electronic  product  line  consists of its  component
products,  including  sensors for airbag and non-airbag  applications  and other
reed switch and reed relay products.

In the airbag sensor market, the Company sells a range of electromechanical
(EMS) sensors, which are based on its proprietary technology. These EMS sensor
products include both ball-in-tube designs and reed switch designs which are
used in vehicles sold in Europe and North America. The Company has manufactured
and sold in excess of 90 million EMS sensors since 1987, and continues to
maintain a significant market position in EMS sensors. These sensors are used as
both complete sensing systems (typically two or three EMS sensors coupled with a
diagnostic module) and in conjunction with electronic sensors (typically one or
two EMS sensors per vehicle).

Many vehicle manufacturers are considering and/or commencing the use of
electronic sensing diagnostic systems (located in the occupant compartment of a
vehicle). Increased use of electronic sensing diagnostic systems will reduce the
use of EMS components in the crash sensing market. In response to this industry
trend, the Company has completed development, and

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commenced  marketing a series of electronic  airbag sensing  diagnostic  modules
(SDM) which include electronic discriminating sensors,  electromechanical safing
sensors  and  diagnostic  circuitry.  These SDM  products  are  designed to meet
vehicle manufacturer  requirements for passenger compartment electronic sensing.
Planned for this next model year is the 'next  generation'  BREED SDM,  offering
greater  functionality  while reducing costs.

In order to maintain the Company's rigid cost and quality  standards,  BREED has
vertically  integrated the next generation of electronic sensors through Hamlin,
VTI Hamlin and A2M (Enhanced Algorithm  Capabilities).  This enables the Company
to control  sourcing for the most critical  components of its SDM. In non-airbag
applications,  the Company sells reed switch and silicon  capacitive sensors for
use in an increasing number of automotive and non-automotive  (e.g.,  industrial
and medical) products. Reed switch sensor products are used to sense position or
proximity in a wide range of commercial equipment (photocopy machines,  exercise
equipment,  security  systems,  cellular phones,  etc.).  The Company's  silicon
sensor  products,  which  include  designs to sense  acceleration,  pressure  or
angular rate changes, are used in automotive applications such as electronically
controlled  suspension,  antilock  braking,  fuel vapor  recovery  and  manifold
absolute pressure products.

In April 1996 the Company  acquired  Italtest.  This  company  has  high-quality
electronics   manufacturing   capabilities   and  is  currently  making  sensing
diagnostic modules for BREED Italia's airbag systems.

In May 1996 the Company acquired Force Imaging  Technologies,  Inc. (FIT).  This
company has a unique  patented  technology  of variable  force sensors that have
many applications, including multi-funtion steering wheel capabilities, occupant
sensing and automated seat belt tensioning.

In November 1996 the Company acquired A2M. This company specializes in algorithm
development and signal processing techniques.

Airbag Systems and Components (Inflators,  Modules and AMS)

The  Company  produces  driver-side,  passenger-side,  and  side  impact  airbag
systems.  The Company has been supplying  mechanically  initiated  inflators and
modules since 1989,  electronically  initiated  inflators and modules since 1994
and  passenger  side  inflators  and  modules  since 1995.  The  Company  offers
inflators  for use in full size  airbag  systems (US  requirement),  its smaller
FacebagTM systems (European requirement) and side impact systems. These inflator
products  include  inflators  using  sodium  azide-based   propellants,   hybrid
(compressed gas and propellant),  "Eco-safe" non-sodium azide-based  propellant,
and stored gas designs.

Steering Wheel/Leather Wrapping

The Company acquired Gallino (July 1, 1996) and MOMO (April 15, 1996),  steering
wheel  suppliers to OEMs in Europe,  Asia and the U.S. On October 25, 1996,  the
Company  acquired the North American and United Kingdom  steering wheel business
of United  Technologies.  This acquisition allows the Company to supply steering
wheels to OEMs in the United States,  Canada,  Mexico and the United Kingdom. It
further  enhances the Company's  ability to provide complete  integrated  airbag
steering  wheels to OEMs.  Additionally,  the Company  acquired the stock of BTI
Investments,  whose  principal  business  is  conducted  under the trade name of
Custom Trim. It primarily provides leather wrapping services for steering wheels
and other automotive accessories.

                                    Customers

BREED's future  success in the airbag  business will depend in large part on its
ability to supply complete occupant  protection  systems (crash sensors,  airbag
modules,  steering  wheels and  integrated  airbag/steering  wheels) to meet the
changing requirements of automobile manufacturers.

Sales by the Company to Ford for fiscal 1995,  1996 and 1997  accounted for 37%,
33% and 25%,  respectively,  of the Company's total net sales for these periods.
Sales by the Company to GM and Delphi  (including  Delco) for fiscal 1995,  1996
and 1997 accounted for 40%, 26% and 13%,  respectively,  of the Company's  total
net sales for these  periods.  Sales by the Company to the Fiat Group for fiscal
1996 and 1997 accounted for 14% and 32% , respectively, of the Company's sales.

The Company  supplies its sensor  products  primarily to vehicle  OEMs,  such as
Ford,  Fiat,  Nissan,  Mazda,  and to Tier 1 suppliers,  such as Delphi (through
Delco).  Although the Company has multi-year EMS supply agreements with Ford and
Delphi (through Delco), these contracts do not commit such customers to purchase
any  specified  quantities  of  products  from  the  Company,  and  each  of the
agreements is subject to termination under certain  conditions.  Ford and GM are
replacing EMS sensors with electronic sensors;  however, BREED's EMS sensors are
being used as  auxiliary  sensors in certain  vehicles.  BREED has  expanded its
product lines to include  down-sized  EMS sensors,  electronic  SDMs and silicon
microsensors,  as well as  additional  EMS sensors  designed for use in SDMs. In
order to meet the  demands  of the  increasing  electronic  sensor  market,  the
Company has micromachining  manufacturing,  electronic assembly capabilities and
algorithm technology. As the EMS sensor market shifts

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to electronic,  BREED is adversely affected since there can be no assurance that
these new products will achieve as broad a market position for the Company as it
achieved with its current EMS sensor products; however, additional product lines
including electronic sensing and steering wheels are favorably impacting BREED.

The Company  supplies Fiat, Ford of Australia,  Chrysler,  Jaguar,  Proton,  and
Ssangyong with airbag modules, and Delphi, Mazda and Suzuki with inflators.  The
Company has entered into a multi-year supply agreement with Fiat, Delphi, Proton
and Nihon Plast under which the Company  supplies  inflators and airbag modules;
these supply agreements are subject to termination under certain conditions.  In
addition, the Company supplies Fiat electronic sensing diagnostic modules.

BREED has positioned itself through the acquisitions of MOMO, Gallino and United
Steering  Systems as the  world's  largest  supplier  of  steering  wheels.  The
Company's  wood and  leather  steering  wheels,  light  alloy  wheels  and other
high-end  car   accessories   are  sold  primarily  to  OEMs  such  as  Ferrari,
Lamborghini,  Jaguar,  Porsche,  Honda, Fuji Heavy and Nissan. In addition,  the
Company  sells  these  products  to the  aftermarket  through  its  distribution
centers.  High-volume  steering  wheel  customers  include Ford, the Fiat Group,
Chrysler and Nissan.  Ford has changed their agreement  structure from long-term
agreements to Total Cost Management ("TCM") agreements.  The major customers for
the Company's leather wrapping business are TRW, Delphi, Petri, Toyota Gosei and
Centoco.

The Company sells its reed switch and silicon sensor  products to a large number
of   manufacturers   of  equipment  sold  for   automotive  and   non-automotive
applications.   Significant   customers   include  Delphi   (including   Delco),
Morton/Autoliv, Siemens, Bosch, Temic, TRW, Xerox, SMP and Nordic Track, as well
as vehicle OEM customers, including Mitsubishi, Toyota and GM.

Sales and Engineering Support

The Company's  customers  require early  involvement  of their  suppliers in the
design and engineering aspects of product development.  Automobile manufacturers
seek the Company's assistance in airbag sensor and system design and calibration
and the Company has assumed  engineering  responsibility  for the development of
certain  components of these sensor airbag  systems,  including the  performance
testing  necessary to ensure  compliance with the standards and  specifications.
The Company has dedicated certain of its engineering staff to the support of its
major customers.

                           Suppliers and Raw Materials

The Company purchases many of the components for its products (including certain
plastic parts,  certain  stampings,  magnets,  precision steel balls,  contacts,
certain  electronic  assemblies,  certain wire harnesses,  airbag  doors/covers,
printed wire boards,  certain ignitor  assemblies,  labels,  aluminum propellant
cups,  rubber/silicon  seals,  aluminum,  leather) as finished  components,  and
purchases raw  materials  (including  chemicals  for the  production of inflator
propellent,  resin and hardener for potting compound,  impacted aluminum blanks,
steel  rod,  raw  stampings  to be  welded,  airbag  fabric,  and  wire  harness
sub-components) from third parties pursuant to supply agreements.

The  Company has  agreements  to purchase  most or all of its  requirements  for
certain  components from single sources,  typically when the tooling for such is
reimbursed by the OEM customer.  Examples include certain plastic parts, certain
stampings,  magnets,  contacts,  certain  electronic  assemblies,  certain  wire
harnesses, airbag doors/covers,  certain ignitor assemblies, aluminum propellent
cups and resin and hardener for the potting compound.  The Company believes that
alternative  sources for these single source items are available at  competitive
prices.  No significant  supply problems have been  encountered in recent years,
and relationships with suppliers have generally been good.

                        Patents, Trademarks and Licenses

The Company  currently  owns a  significant  number of United States and related
foreign  patents in certain  countries,  which expire on varying dates from 1997
through 2016. It also has trademarked several corporate icons. While the Company
considers its patents and trademarks to be valuable assets,  it does not believe
that its competitive position is dependent on patent and/or trademark protection
or that its operations are dependent on any individual patent.

The  Company  has  granted  licenses  to  specified  portions  of the  Company's
technology in exchange for ongoing  royalties and other payments.  The Company's
licensees  include Sensor  Technology Co. Ltd.,  Tokai Rika and Oki. The Company
pays royalties to United  Technologies  Corporation in connection  with the sale
and licensing of certain of the Company's EMS airbag sensor products.

                                     Backlog

For  automotive  customers,  the Company does not  manufacture  or ship products
until it has received a purchase order and material  release which specifies the
quantity ordered and specific delivery dates. Generally these orders are shipped
within  two  weeks of  receipt  of the final  material  release.  The  Company's
non-automotive  products  are produced  for stock based on sales  forecasts  and
historical demand. The backlog at June 30, 1997 is not significant.

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                      Engineering Research and Development

The  Company  places   significant   emphasis  on  new  product  and  technology
development and has increased its research and development activities in each of
the last three years. During fiscal 1995, 1996 and 1997,  engineering,  research
and development  expenses were  approximately  $18.5 million,  $23.6 million and
$36.1 million, respectively.

The Company's research and development  activities are focused on development of
new airbag sensor,  inflator and module products  including  integrated  airbag,
steering wheels with  multifunction  membrane  sensors and  enhancements or cost
improvements  for existing  products.  New airbag sensor products and technology
which are subjects of this research and development activity include a series of
electronic sensing diagnostic modules, down-sized spring-bias  electromechanical
sensors, and side impact and predictive sensing systems. New inflator and module
products and  technologies  which are subjects of this research and  development
activity include mechanically and electrically initiated passenger-side systems,
non-sodium  azide-based  products and side impact  systems.  The Company also is
developing  a  new  series  of  down-sized   silicon   capacitive   sensors  for
acceleration, pressure and angular rate applications as well as membrane sensors
for accessory function and occupant detection systems. In addition,  the company
is also working on developing micro machined and ultrasonic sensors for occupant
detection systems.

                                   Competition

The Company  competes  with  independent  suppliers of steering  wheels,  airbag
sensors,  systems  and their  components.  In  addition,  many of the  Company's
customers  are  integrated  manufacturers  which  produce  or  could  produce  a
substantial portion of their own requirements for certain airbag components. The
Company  competes  primarily  on  the  basis  of  its  product  quality,  price,
reliability, engineering support and production capabilities.

The Company  principally  competes for new steering  wheel sensor,  inflator and
leather  wrapping  business at the beginning of the  development  of new vehicle
models. The Company also competes for new business upon the redesign of existing
models  by its  customers  or,  in the  case  of  inflators  and  modules,  as a
replacement  supplier for existing  models.  The  development  of new models and
redesign of existing models generally begin three to five years and two to three
years, respectively, prior to the marketing of such models to the public.

Airbag Sensors

The Company's principal competitor in the market for  electromechanical  sensors
is TRW. The Company's  sensors also compete with  electronic  sensors  currently
offered or under  development  by  competitors  such as TRW,  Robert  Bosch GmbH
("Bosch"),  Siemens,  Morton/Autoliv,  Temic,  Nippondenso  and Delphi  (through
Delco) and the internal electronics divisions of Ford.

Inflators

The  current  market for airbag  inflators  is  dominated  by a small  number of
companies,  most of which have significant  financial and other  resources.  The
Company's principal competitors in the sale of inflators are Autoliv/Morton, TRW
and Takata, which offer inflator products on a worldwide basis, and Temic, which
offers  inflator  products  in Europe.  In  addition,  a number of  competitors,
including  AlliedSignal,  Inc., Magna,  Morton/Autoliv  and OEA Inc., have joint
ventures for the development and sale of alternative inflator technologies.  The
Company's ability to compete effectively in the sale of inflator products may be
limited by pre-existing  contractual  relationships  between its competitors and
certain automobile manufacturers.

Airbag Systems

The  Company  believes  that its AMS systems  are the only  currently  available
airbag system using mechanical sensing and initiation. In selling these systems,
the Company competes with independent suppliers of electrically initiated airbag
systems and components  and, in Japan,  the Company's  licensees,  STC and Tokai
Rika. The Company's competitors with respect to complete electrically  initiated
airbag systems include TRW,  Takata Inc.,  Morton/Autoliv,  AlliedSignal,  Inc.,
Morton,  Magna,  Temic and  manufacturers  of airbag  components  for  customers
assembling their own airbag systems.

Reed Switch Products

The primary  competition  for the sale of reed switches are  Phillips,  N.V. and
Oki. In addition,  there are a number of small regional reed switch producers in
North America,  Europe and Asia. For  value-added  reed switch  products such as
position sensors,  there are also several small regional  competitors.  For reed
relay products, the primary competitors are C.P. Claire and Coto-Wabash.

Silicon Sensor Products

There exists a significant number of competitors in the market for various kinds
of silicon  microsensors,  some of which have broad product offerings comparable
to or greater than those of the Company.  These include such  companies as Texas
Instruments,  Inc.,  Motorola,  Inc., Analog Devices,  Inc., E.G.& G/IC Sensors,
Inc.,  Sensonor,  and the internal  operations of certain  vehicle and equipment
manufacturers.  However, the Company's sensor designs are proprietary and unique
to the

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Company, and only a limited number of the Company's silicon sensor competitors
offer capacitive technology.

Steering Wheels and Road Wheels

The North American steering wheel operations competes on sales to OEMs with TRW,
Petri,  Centoco,  Toyota Gosei and Neaton. The European steering wheel companies
compete in OEM sales with  Morton/Autoliv,  Dalphi Metal,  Delphi and Petri. The
luxury steering wheels of the Company compete with NARDI. In Italy,  competitors
for road wheels include Fondmetal, OZ, and Speedline.  Other competitors include
BBS and ATS in Germany, Boid in the United States, and Taneisha in Japan.

                             Government Regulations
Automotive Regulations

Airbag systems  installed in  automobiles  sold in the United States must comply
with   government   regulations.   The  Company's   customers  are  required  to
self-certify that airbag systems installed in vehicles sold in the United States
satisfy these requirements.

Environmental Regulations

The Company uses various  hazardous and toxic  substances  in its  manufacturing
processes  including  certain  solvents,  lubricants,  sodium  azide  and  other
pyrotechnic materials. The Company's operations are subject to numerous Federal,
state and local  laws,  regulations  and  permit  requirements  relating  to the
handling,  storage,  disposal and transportation of certain of these substances.
The Company's foreign  operations are also subject to various  environmental and
transportation-related  statutes  and  regulations.   Generally,  these  foreign
requirements  tend to be no more  restrictive than those in effect in the United
States. The Company believes that it is in substantial  compliance with existing
laws and  regulations  and has obtained or applied for the necessary  permits to
conduct its  business  operations.  Compliance  by the Company  with  applicable
environmental  laws  has not had a  material  adverse  effect  on the  Company's
financial condition or competitive  position to date. Although no assurances can
be  given,   the  Company  does  not  believe  that   compliance  with  existing
environmental  or other  governmental  laws or regulations  will have a material
adverse effect in the future.

                                Product Liability

The sale of airbag  systems and  components  entails an inherent risk of product
liability claims.  Although the Company  maintains product liability  insurance,
there can be no assurance  that the coverage  limits of the Company's  insurance
policies will be adequate. Such insurance can be expensive and in the future may
not be available on  acceptable  terms,  if at all. A successful  claim  brought
against the Company resulting in a recovery in excess of its insurance  coverage
could have a material  adverse effect on the Company's  financial  condition and
results of  operations.  However,  there are no  lawsuits  pending  against  the
Company which the Company believes at this time, to be material.  With regard to
the pending acquisition of AlliedSignal's Safety Restraint Systems Division, the
Company will not be responsible for any pending product liability matters.

                                    Employees

As of  September  1,  1997,  the  Company  has  approximately  11,100  full time
employees worldwide.  The Company's United States employees are unionized in two
locations,  representing  approximately  26%  of  the  domestic  workforce.  The
Company's hourly employees in Mexico, Italy and Finland are represented by labor
unions.  The Company has not  experienced any legal work stoppages and considers
its relations  with its  employees to be good.  Wages are  negotiated  under the
Company's  Mexican  union  agreements  in December  of each year,  with the full
contract negotiation every two years.




                      Executive Officers of the Registrant

Information regarding the Executive Officers of the Company are set forth as
follows:

Allen K. Breed                 70    Chairman of the Board of Directors
Johnnie Cordell Breed          53    Co-Chairman and Chief Executive Officer
Charles J. Speranzella, Jr.    41    Vice Chairman
Fred J. Musone                 53    President, Chief Operating Officer
Robert M. Rapone               41    Executive Vice President, 
                                     Operations Worldwide
Frank J. Gnisci                47    Executive Vice President, 
                                      Chief Financial Officer
Arthur R. Schauffert, Jr.      46    Treasurer
Lizanne Guptill                42    Secretary

Mr.  Breed,  founder of the Company,  has been Chairman of the Company since its
inception. Mr. Breed served as Chief Executive

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Officer through August, 1997. Mr. Breed is also Chairman, President and owner of
BREED  Corporation,  a real estate holding Company.  Mr. Breed is the husband of
Johnnie Cordell Breed.

Mrs. Breed was elected  Co-Chairman of the Board and Chief Executive  Officer of
the Company on August 27, 1997 and has been a director of the Company  since its
inception.  Mrs.  Breed served as  President  and Chief  Operating  Officer from
September,  1995. Mrs. Breed also serves as Vice President of BREED Corporation.
In 1982,  Mrs. Breed  co-founded  Transcor,  Inc., a provider of  transportation
travel services. She is currently the Secretary,  Treasurer and sole stockholder
of Transcor, Inc. Mrs. Breed is the wife of Allen K. Breed.

On August 27, 1997,  Mr.  Speranzella  was elected Vice Chairman of the Company.
Mr. Speranzella joined the Company as General Counsel and Assistant Secretary in
September,  1994. He became Managing Senior Vice President,  General Counsel and
Assistant  Secretary in February,  1995. Mr.  Speranzella was elected  Corporate
Secretary in May,  1995. He was promoted to Executive  Vice  President,  General
Counsel and Secretary in July, 1995. Mr.  Speranzella  became President of BREED
European  Holdings,  Inc. in June 1996. From 1979 until joining the Company,  he
held various senior  positions at Matra  Hachette's  Fairchild Space and Defense
Corporation and Martin Marietta.

Mr.  Musone  joined the  Company on  September  2, 1997 as  President  and Chief
Operating  Officer.  Prior to joining the Company,  Mr. Musone was President and
Chief  Operating   Officer  of  Morton   International   ASP/Autoliv,   Inc.,  a
manufacturer  of  automotive  safety  products,  since  1995.  He  held  various
management  positions with Federal Mogul Corporation from 1972 through 1995, the
most recent position being President of Worldwide Manufacturing Operations.

Mr. Rapone joined the Company as Executive Vice President,  Operations Worldwide
on September 2, 1997.  Since 1995,  Mr. Rapone was Vice  President of Operations
for Morton International ASP/Autoliv,  Inc., a manufacturer of automotive safety
products. From 1989-1995,  Mr. Rapone was employed by Federal Mogul Corporation,
serving most recently as Director of  Connectivity.  From 1983-1989,  Mr. Rapone
was employed by Texas Instruments in various management positions.

Mr.  Gnisci  joined the Company as Executive  Vice  President,  Chief  Financial
Officer on September 8, 1997. Prior to joining the Company,  Mr. Gnisci was Vice
President  of  Finance  for Terex  Corporation,  a  manufacturer  of heavy  duty
construction vehicles and equipment,  since 1994. From 1991-1994, Mr. Gnisci was
Vice  President  of Finance for Babcock  Industries,  Inc.,  a  manufacturer  of
conveyor systems. Mr. Gnisci was employed by Gold Fields Mining Corporation from
1987-1991 as Vice  President  and  Controller.  From  1979-1987,  Mr. Gnisci was
employed  by Chicago  Pneumatic  Tool  Company in various  financial  positions,
including Assistant Controller and Director of Corporate Audit.

Mr. Schauffert  joined the Company in 1993 as Treasurer.  Prior to that time, he
was Treasurer and Assistant Secretary of Moog Automotive, Inc. He joined Moog in
1988  from  St.  Joe  Minerals  Corporation,  where he held  various  positions,
including Treasurer, from 1980 until 1987.

Ms.  Guptill  joined the  Company in 1993 as a Legal  Assistant  to the  General
Counsel,  specializing  in  corporate  and  business  law.  Prior to joining the
Company,  Ms. Guptill was a Legal Assistant with the Corporate Legal  Department
of Marriott International,  Inc. since 1990. Ms. Guptill was employed as a Legal
Assistant with the General  Corporate  division of Hayt,  Hayt & Landau in Miami
from 1984 - 1990.

  Financial Information About Foreign and Domestic Operations and Export Sales

The  information  required by this Item is contained in the Company's  financial
statement  footnote 9 under the heading  "Information  Related to Customers  and
Operations in Different Geographic Areas" on page F-11 appearing elsewhere in 
this report.

ITEM 2. PROPERTIES

The  following  table  provides  certain  information  regarding  the  Company's
significant facilities (in excess of 25,000 square feet):

<TABLE>
<CAPTION>
                                Approximate      Type of
Location                      Square Footage     Interest             Description of Use          Name of Company
--------                      --------------     --------             ------------------          ---------------
<S>                               <C>             <C>          <C>                                <C>                             
Lakeland, Florida                 195,000         Owned             Corporate Headquarters        BREED Technologies, Inc.
                                                                Manufacturing and Engineering

Brownsville, Texas                51,000          Owned        Distribution and Administration    BREED Manufacturing of Texas, Inc.

Farmington Hills, Michigan        25,452          Leased              Technical Center:           BREED Technologies, Inc.
                                                                 Engineering, Sales, Customer     USS, Inc.
</TABLE>


                                        7

<PAGE>


<TABLE>
<CAPTION>

<S>                               <C>             <C>            <C>                                <C>                            
                                                                    Support and Research &          A2M
                                                                         Development

Valle Hermoso, Mexico             139,000         Owned                 Manufacturing               BREED Mexicana, S.A. de C.V.

Matamoros, Mexico                 103,000         Owned                 Manufacturing               PEBAC

Grabill, Indiana                  174,000         Owned                 Manufacturing               USS, Inc.

Niles, Michigan                   173,000         Leased                Manufacturing               USS, Inc.

Santa Catarina, Mexico            45,000          Leased                Manufacturing               USS, Inc.

Birmingham, England               150,000         Owned                 Manufacturing               USS, Clifford Ltd.

Lake Mills, Wisconsin             70,000          Owned            Manufacturing, Sales and         Hamlin, Inc.
                                                                         Engineering

Aqua Prieta, Mexico               34,000          Owned                 Manufacturing               Hamlin, S.A. de C.V.

Diss, England                     44,000          Owned          Vacant-Facility is for sale        Hamlin Electronics Europe, Ltd.

Diss, England                     61,000          Owned                 Manufacturing               H.E.E.L.

Torino, Italy                     50,000          Leased                Manufacturing               BREED Italia, S.r.L.

Milan, Italy                      57,000          Owned               Manufacturing and             MOMO SpA
                                                                         Engineering

Tregnago, Italy                   371,000         Owned                 Manufacturing               DUE LM Srl.

Torino, Italy                     52,000          Owned                 Manufacturing               Gallino AG International

Torino, Italy                     82,000          Leased                Manufacturing               Gallino Rivalta

Torino, Italy                     56,000          Owned                 Manufacturing               Gallino San Benigno

Milano, Italy                     50,000          Leased                Manufacturing               Gallino Macchi Renate 1


Milano, Italy                     70,000          Leased                Manufacturing               Gallino Macchi Renate 2

Torino, Italy                     160,000         Owned                 Manufacturing               Gallino Copiano

Milano, Italy                     52,000          Leased                Manufacturing               Gallino AutoAvio

Frosinone, Italy                  113,000         Owned                 Manufacturing               Gallino A.P. Co.

Waterloo, Ontario                 100,000         Leased                Manufacturing               Custom Trim Ltd.

Matamoros, Mexico                 120,000         Owned                 Manufacturing               Auto Trim de Mexico (ATM)

Tamaulipas, Mexico                40,000          Leased                Manufacturing               Custom Trim de Mexico (CTM1)
</TABLE>


ITEM 3. LEGAL PROCEEDINGS

There are no material  pending legal  proceedings,  other than ordinary  routine
litigation  incidental  to the business,  to which the  registrant or any of its
subsidiaries is a party.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the year ended June 30, 1997.

                                        8

<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's  stock is traded on the New York Stock  Exchange  under the symbol
BDT. There were 1,160  stockholders  of record of the Company's stock as of July
31,  1997.  On August 31,  1994,  the Board of  Directors  declared a  quarterly
dividend  of 5 cents per share on its common  stock,  the first  dividend  since
becoming a public Company in November 1992.  Additional  information required by
this  Item  is  contained  in the  Company's  financial  statement  footnote  10
"Quarterly Financial Information  (Unaudited)" on page F-12 appearing elsewhere
in this report.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated  financial data presented below as of and for the five
years in the period ended June 30, 1997, have been derived from the consolidated
financial  statements  of the  Company,  which  financial  statements  have been
audited by Ernst & Young LLP, independent certified public accountants.

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
In thousands, except per share data                                1997           1996          1995           1994          1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>            <C>            <C>           <C>     
Operational Data
Net sales.....................................................    $794,880      $431,689       $400,972       $324,673      $191,564
Cost of sales.................................................     631,283       277,044        244,551        206,828       133,869
------------------------------------------------------------------------------------------------------------------------------------
Gross profit..................................................     163,597       154,645        156,421        117,845        57,695
Selling, general and administrative...........................      70,583        38,243         33,098         28,872        22,814
Engineering research and development..........................      36,121        23,588         18,506         14,755         9,592
Amortization of intangibles...................................       6,310         2,001            286             --            --
------------------------------------------------------------------------------------------------------------------------------------
Operating income..............................................      50,583        90,813        104,531         74,218        25,289
Interest income (expense), net................................     (24,460)       (1,137)           704            529       (1,135)
Other income (expense), net...................................       3,524         8,662          4,898         (1,738)        3,484
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes..................................      29,647        98,338        110,133         73,009        27,638
Income taxes..................................................      14,800        35,300         37,800         28,386         9,334
------------------------------------------------------------------------------------------------------------------------------------
Net earnings..................................................    $ 14,847      $ 63,038       $ 72,333       $ 44,623      $ 18,304
------------------------------------------------------------------------------------------------------------------------------------


Common Stock Data
Earnings per share............................................    $    .47      $   2.00       $   2.30       $   1.43      $    .62
Cash dividends................................................    $  8,864      $  7,575       $  6,292             --            --
Dividends per share...........................................    $    .28      $    .24       $    .20             --            --
Average shares outstanding....................................      31,648        31,550         31,434         31,247        29,555


Balance Sheet Data
Current assets................................................    $315,524      $266,623       $131,975       $137,188      $ 94,216
Current liabilities...........................................    $362,728      $176,452       $ 56,488       $ 42,498      $ 30,523
Working capital (deficiency)..................................    $(47,204)     $ 90,171       $ 75,487       $ 94,690      $ 63,693
Current ratio.................................................     .9 to 1      1.5 to 1       2.3 to 1       3.2 to 1      3.1 to 1
Property, plant and equipment, net............................    $276,450      $171,653       $127,577       $ 66,631      $ 51,106
Total assets..................................................    $877,153      $503,802       $278,698       $206,340      $147,503
Long-term debt................................................    $231,700      $ 42,123        $ 1,868       $ 11,126      $ 10,846
Stockholders' equity..........................................    $266,419      $275,080       $218,721       $151,248      $104,671


Other Data
Capital expenditures..........................................    $ 75,851      $ 45,370       $ 69,268       $ 23,601      $ 16,978
Depreciation and amortization.................................    $ 48,534      $ 20,091       $ 13,895        $ 8,890       $ 7,484
</TABLE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
audited Consolidated Financial Statements and accompanying notes thereto
appearing elsewhere in this report.
                                       9
<PAGE>

OVERVIEW

During fiscal 1997, BREED continued to implement its strategic plan to
reposition the Company as a world leader in fully integrated vehicle occupant
safety systems and automotive steering wheels. Three major acquisitions were
made during the year. In July 1996, the Company acquired the Gallino group, an
Italian based manufacturer of steering wheels and plastic instrument panels and
bumpers. In October 1996, the Company acquired the steering wheel operations of
united technologies. The company, United Steering Systems (USS), produces
steering wheels, airbag covers, horn pads and related molded products in the
U.S., Mexico and England. Additionally, in February 1997, the Company acquired
the Custom Trim group. These operations, located in Canada and Mexico, produce
leather wrapped steering wheels and other automotive leather wrapped products.
the Company acquired MOMO, an original equipment manufacturer and aftermarket
supplier of luxury steering wheels and alloy wheels, in the fourth quarter of
fiscal 1996. The revenues and operating results of BREED were significantly
impacted by the results of operations and the costs related to the integration
of these acquired companies and, as a result, comparison of 1997 to 1996 results
are not as meaningful as in prior years.

RESULTS OF OPERATIONS

1997 Compared to 1996

     Net sales increased by $363 million in 1997 due to $435 million of net
sales related to the acquisitions made during the year and the fourth quarter of
fiscal 1996. This increase was partially offset by a $61 million decrease in
electromechanical sensor sales as a major customer shifted to "in-house"
electronic sensors. Consolidated gross profit decreased to 20.6% in 1997 from
35.8% in 1996. Gross profit on the sales of steering wheel products to original
equipment manufacturers are lower as a percent of sales compared to margins on
the Company's sensor products and complete airbag systems. Additionally, plant
consolidation costs contributed to the decrease in gross profit. Operating
expenses increased primarily as a result of the acquisitions and to increased
research and development spending related to new product development for
non-azide/reduced sized inflators, electronic sensing (including occupant,
weight and horn) and side impact technology. Net interest expense increased $23
million primarily as a result of borrowings used to finance recent acquisitions
and to the existing debt of the acquired companies. Other income (expense), net
decreased as a result of a reduction in royalty income from its Japanese
licencees. The higher effective tax rate of 49.9% in 1997 compared to 35.9% in
1996 was primarily due to the amortization of goodwill without tax benefit and
higher foreign tax rates. 1996 also included a benefit related to a reduction in
taxes provided in prior years.

1996 Compared to 1995

     The increase in net sales was due primarily to MOMO, acquired in April
1996, and to increases in sales of complete airbag systems. Unit sales for
airbag systems increased from 396,000 in 1995 to 700,000 in 1996, due primarily
to increased sales to Ford and Fiat. Emphasis on worldwide opportunities and
global expansion in 1996 resulted in international sales growth outpacing the
domestic growth rate. Significant contributions from operations outside the
United States as well as export activities underscored the Company's expanded
presence in international markets. The decrease in gross profit percent was
primarily due to a shift to a lower margin product mix and higher costs related
to new customer product launches. The increased engineering, research and
development expense was primarily related to the development and testing of
electronic sensors products, including occupant sensing and accelerometer
development; the next generation inflator family, including non-azide and
down-sized inflators; new side-impact products; and the development of
technologies related to modules, steering wheels, airbag material and associated
components. Other income (expense), net increased primarily as a result of
foreign currency exchange gains. The higher effective tax rate of 35.9% in 1995
compared to 34.3% in 1995 was primarily due to the absence of a current tax
benefit for losses of certain foreign entities.

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities was a primary source of liquidity and
amounted to $89 million in 1997,  $41 million in 1996,  and $69 million in 1995.
Cash  provided  by  operations  have  been used  primarily  to  finance  capital
expenditures,   provide  working  capital,   support  research  and  development
activities,  and pay  dividends.  In 1997,  the company  invested $76 million in
property,  plant  and  equipment  to  expand  capacity  and tool  new  products.
Investments  continue  to be made in new  equipment  throughout  the  Company to
support productivity improvements,  cost reduction programs, and to add capacity
for existing and new products.  Working  capital needs included higher levels of
accounts  receivable  relating to higher sales volume,  and increased  inventory
levels to support sales growth and to maintain  service  levels during  facility
relocations undertaken as part of the Company's restructuring actions.

As discussed in note 12 of the Notes to Consolidated  Financial  Statements,  on
August 27, 1997 the Company  entered into an agreement to acquire the  worldwide
automotive  occupant restraint systems of AlliedSignal Inc., for $710 million in
cash. The Company is considering  various methods of financing the  transaction,
including  additional bank borrowings and the private placement of equity and/or
debt securities.

                                       10

<PAGE>

     The Company restructured its worldwide credit facilities during 1997
resulting in the refinancing of domestic and international debt with a
combination of short-term revolving credit lines and longer-term debt. The
Company has relationships with foreign and domestic banks that have provided
$450 million under two credit agreements, expiring through April 2002, to fund
fluctuations in working capital and acquisitions. As of June 30, 1997, $92
million was available for borrowing under the facilities. Bank debt has been
used primarily to finance acquisitions. The Company is actively seeking
acquisition candidates that complement or support the Company's core
competencies and, depending upon the size and structure of such acquisitions,
additional financing may be required.

     The Company has historically relied upon cash generated from operations and
bank credit lines to satisfy its capital needs and finance its growth. The
Company believes that cash from operations and available bank credit lines will
be sufficient to satisfy its working capital and capital expenditure needs for
1998. The Company also believes it can access additional financing and equity
capital to finance major transactions beyond its normal working capital and
capital expenditure requirements.

ACQUISITIONS

     During 1997, the Company completed three acquisitions. In July 1996, the
Gallino group, an Italian manufacturer of steering wheels and automotive
plastics interior and exterior parts, was acquired for $74 million in cash and
$52 million of debt and personnel-related liabilities. In October 1996, the
Company completed the acquisition of certain assets and the assumption of
certain liabilities of the North American steering wheel operations of United
Technologies and all of the outstanding shares of United Technologies
Automotive, U.K. for $154 million. The companies produce steering wheels, airbag
covers, horn pads and related molded products. In February 1997, the Company
acquired the Custom Trim group of companies for $70 million. The acquired
operations produce leather-wrapped steering wheels, shift knobs and boots,
injection molded levers and leather sewing of armrests, headrests and seating.

ENVIRONMENTAL MATTERS

     The Company believes it is substantially in compliance with all applicable
environmental laws and regulations and that the cost of maintaining compliance
with such laws and regulations will not be material to its financial results.

DIVIDENDS

     In 1997, the Company declared cash dividends of $.28 per share, or $8.9
million. These dividends represent 60 percent of net earnings in 1997 compared
to dividends representing 12 percent of net earnings in 1996. Debt covenants
permit the Company to continue paying dividends at the current rate provided
that the Company demonstrates compliance with the minimum net worth covenant
prior to and following the declaration of any such dividends.

SAFE HARBOR STATEMENT

     Except for the historical information contained herein, certain matters
discussed in this annual report are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995, which involve risks and
uncertainties, and are subject to change based on various important factors. The
forward-looking statements in this document are intended to be subject to the
safe harbor protection provided by Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. For a discussion identifying
some important factors that could cause actual results to vary materially from
those anticipated in the forward-looking statements, such as the economic,
currency, regulatory, legal, technological, and competitive changes which may
affect the Company's operations, products and markets, see the Company's
Securities and Exchange Commission filings.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in Item 14(a)(1) are included in this report
beginning on page F-1.

ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

None.

                                       11

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information  required by this Item is  incorporated  herein by  reference to the
information  under the  heading " Nominees  for  Election as  Directors"  in the
Company's definitive Proxy Statement to be used in connection with the Company's
1997 Annual Meeting of  Stockholders,  which has been filed with the Commission.
Information  concerning executive officers of registrant are set forth in Item I
of this 10K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the
information  under the  heading  "Compensation  of  Executive  Officers"  in the
Company's definitive Proxy Statement to be used in connection with the Company's
1997 Annual Meeting of Stockholders, which will be filed with the Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference to the
information under the heading "Stock Ownership of Certain  Beneficial Owners and
Management" in the Company's definitive Proxy Statement to be used in connection
with the Company's  1997 Annual  Meeting of  Stockholders,  which has been filed
with the Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this Item is  incorporated  by  reference  to the
information under the heading "Certain Transactions" in the Company's definitive
Proxy  Statement to be used in connection with the Company's 1997 Annual Meeting
of Stockholders, which has been filed with the Commission.







                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  The following documents are filed as part of this report:

          (1)  Financial Statements.


                  Consolidated Balance Sheets at June 30, 1996 and 1997     F-1
                  Consolidated Statements of Earnings for the years
                    ended June 30, 1995, 1996 and 1997                      F-2
                  Consolidated Statements of Stockholders' Equity
                    for the years ended June 30, 1995, 1996 and 1997        F-3
                  Consolidated Statements of Cash Flows for the years
                    ended June 30, 1995, 1996 and 1997                      F-4
                  Notes to Consolidated Financial Statements                F-5
                  Report of Certified Public Accountants                    F-12

          (2)  Financial statements schedules. None. The required information is
               either not applicable or is included in the financial  statements
               or notes thereto.

          (3)  Exhibits.  The Exhibits  listed in the Exhibit Index  immediately
               preceding  such  Exhibits are filed as part of this Annual Report
               on Form 10-K

     (b)  Reports on Form 8-K filed during the last quarter of fiscal 1997: None

                                       12

<PAGE>


CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                                    June 30,
In thousands                                                                                                   1997          1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>          <C>     
ASSETS
Current Assets
  Cash and cash equivalents...............................................................................    $ 18,707     $ 95,830
  Accounts receivable, principally trade..................................................................     207,951      110,656
  Inventories.............................................................................................      75,347       52,890
  Prepaid expenses........................................................................................      13,519        7,247
------------------------------------------------------------------------------------------------------------------------------------
Total Current Assets......................................................................................     315,524      266,623
------------------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
  Land....................................................................................................      15,206       10,805
  Buildings...............................................................................................     106,122       73,342
  Machinery and equipment.................................................................................     212,542      126,947
  Construction in progress................................................................................      28,013       14,417
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               361,883      225,511
  Less accumulated depreciation...........................................................................     (85,433)     (53,858)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               276,450      171,653
------------------------------------------------------------------------------------------------------------------------------------
Intangible Assets.........................................................................................     220,956       45,053


Net Assets Held For Sale..................................................................................      52,620           --

Investments and Other Assets..............................................................................      11,603       20,473
------------------------------------------------------------------------------------------------------------------------------------
Total Assets..............................................................................................    $877,153     $503,802
====================================================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Notes payable and current portion of long-term debt.....................................................    $191,744     $120,688
  Accounts payable........................................................................................     121,505       33,940
  Employee compensation and benefits......................................................................      16,818       13,844
  Accrued expenses........................................................................................      32,661        7,980
------------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities.................................................................................     362,728      176,452
Long-Term Debt............................................................................................     231,700       42,123
Other Long-Term Liabilities...............................................................................      16,306       10,147
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities.........................................................................................     610,734      228,722
------------------------------------------------------------------------------------------------------------------------------------

Stockholders' Equity
  Common stock............................................................................................         317          316
  Additional paid-in capital..............................................................................      77,470       76,652
  Retained earnings.......................................................................................     207,964      201,981
  Foreign currency translation adjustments................................................................     (18,843)      (2,927)
  Unearned compensation...................................................................................        (489)        (942)
------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity................................................................................     266,419      275,080
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity................................................................    $877,153     $503,802
====================================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements

                                      F-1
<PAGE>


CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                                                                        Year ended June 30,
In thousands, except for per share data                                                          1997          1996           1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>            <C>           <C>     
Net Sales..................................................................................    $794,880       $431,689      $400,972
Cost of sales..............................................................................     631,283        277,044       244,551
------------------------------------------------------------------------------------------------------------------------------------
Gross profit...............................................................................     163,597        154,645       156,421
------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative........................................................      70,583         38,243        33,098
Engineering, research and development......................................................      36,121         23,588        18,506
Amortization of intangibles................................................................       6,310          2,001           286
------------------------------------------------------------------------------------------------------------------------------------
Operating income...........................................................................      50,583         90,813       104,531
Interest income (expense), net.............................................................     (24,460)        (1,137)          704
Other income (expense), net................................................................       3,524          8,662         4,898
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes...............................................................      29,647         98,338       110,133
Income taxes...............................................................................      14,800         35,300        37,800
------------------------------------------------------------------------------------------------------------------------------------
Net Earnings...............................................................................    $ 14,847       $ 63,038      $ 72,333
====================================================================================================================================

Earnings per Share.........................................................................    $   0.47       $   2.00      $   2.30
====================================================================================================================================

Cash Dividends per Share...................................................................    $   0.28        $  0.24      $   0.20
====================================================================================================================================

Average Shares Outstanding.................................................................      31,648         31,550        31,434
====================================================================================================================================
</TABLE>


See Notes to Consolidated Financial Statements

                                      F-2

<PAGE>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                           Foreign
                                                                               Additional                 Currency
                                                         Common Stock            Paid-In     Retained    Translation     Unearned
In thousands, except for per share data              Shares         Amount       Capital     Earnings    Adjustments   Compensation
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>              <C>         <C>         <C>           <C>               <C> 
Balance at June 30, 1994........................    31,342,033       $313        $71,395     $ 80,477     $   (937)       $    --
  Shares issued under Stock Option Plans........        52,024          1            686           --           --             --
  Shares sold under Employee Stock
    Purchase Plan...............................        51,843         --          1,054           --           --             --
  Shares terminated under Stock Incentive
    Plan, net of granted shares.................        69,490          1          1,927           --           --         (1,927)
  Compensation expense..........................            --         --             --           --           --            296
  Net earnings..................................            --         --             --       72,333           --             --
  Translation adjustments.......................            --         --             --           --         (606)            --
  Cash dividends--$.24 per share................            --         --             --       (6,292)          --             --
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995........................    31,515,390        315         75,062      146,518       (1,543)        (1,631)
  Shares issued under Stock Option Plans........        67,561          1            786           --           --             --
  Shares sold under Employee Stock
    Purchase Plan...............................        60,906         --          1,038           --           --             --
  Shares terminated under Stock Incentive
    Plan, net of granted shares.................       (17,200)        --           (459)          --           --            459
  Compensation expense..........................            --         --             --           --           --            230
  Tax benefit from exercise of stock options....            --         --            225           --           --             --
  Net earnings..................................            --         --             --       63,038           --             --
  Translation adjustments.......................            --         --             --           --       (1,384)            --
  Cash dividends--$.24 per share................            --         --             --       (7,575)          --             --
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996........................    31,626,657        316         76,652      201,981       (2,927)          (942)
  Shares issued under Stock Option Plans........        38,695          1            537           --           --             --
  Shares sold under Employee Stock
    Purchase Plan...............................        27,082         --            529           --           --             --
  Shares terminated under Stock Incentive
    Plan, net of granted shares.................       (12,992)        --           (364)          --           --            364
  Compensation expense..........................            --         --             --           --           --             89
  Tax benefit from exercise of stock options....            --         --            116           --           --             --
  Net earnings..................................            --         --             --       14,847           --             --
  Translation adjustments.......................            --         --             --           --      (15,916)            --
  Cash dividends--$.28 per share................            --         --             --       (8,864)          --             --
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997........................    31,679,442       $317        $77,470     $207,964     $(18,843)       $  (489)
====================================================================================================================================
</TABLE>

Preferred stock: Authorized 5,000,000 shares, par value $.001 per share. To
date, none of these shares has been issued. Common stock: Authorized 50,000,000
shares, par value $.01 per share.

See Notes to Consolidated Financial Statements.

                                      F-3


<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                        Year ended June 30,
In thousands                                                                                     1997           1996         1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>             <C>          <C>     
Cash Flows from Operating Activities
Net earnings............................................................................      $  14,847       $ 63,038     $ 72,333
Adjustments:
  Depreciation of plant and equipment...................................................         42,224         18,090       13,609
  Amortization of intangible assets.....................................................          6,310          2,001          286
  Deferred income taxes.................................................................          1,157          1,665       (1,550)
  Loss (gain) from sale of assets.......................................................            634         (1,517)      (1,349)
  Compensation related to stock plan....................................................             89            230          296
  Changes in operating assets and liabilities, net of effects from acquisitions:
    Accounts receivable.................................................................        (16,284)       (30,667)      (5,473)
    Inventories.........................................................................          2,234         (1,548)      (6,526)
    Prepaid expenses....................................................................           (720)          (717)        (334)
    Accounts payable....................................................................         37,047            843        1,915
    Accrued expenses....................................................................         (7,597)        (9,215)      (3,173)
    Other assets and liabilities........................................................          9,418         (1,000)        (891)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities...............................................         89,359         41,203       69,143
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property, plant and equipment..............................................        (75,851)       (45,370)     (69,268)
Sale (purchases) of short-term investments, net.........................................             --         10,601       12,386
Cost of acquisitions, net of cash acquired..............................................       (291,922)       (48,507)      (6,941)
Deposit on Gallino acquisition..........................................................             --        (10,299)          --
Investment in and advances to affiliates................................................           (874)            --       (6,376)
Proceeds from sale of assets............................................................          1,382          2,742        1,349
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities...................................................       (367,265)       (90,833)     (68,850)
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from short-term borrowings.....................................................        577,688         86,957        5,486
Repayments of long-term debt and other borrowings.......................................       (412,830)        (6,356)      (9,333)
Proceeds from long-term debt............................................................         45,441         45,000           --
Cash dividends paid.....................................................................         (8,861)        (6,938)      (4,715)
Common stock issued--options and stock plans.............................................         1,182          2,050        1,741
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities.....................................        202,620        120,713       (6,821)
Effect of Exchange Rate Changes on Cash.................................................         (1,837)        (1,608)        (587)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents....................................        (77,123)        69,475       (7,115)
Cash and cash equivalents at beginning of year..........................................         95,830         26,355       33,470
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year................................................      $  18,707       $ 95,830     $ 26,355
====================================================================================================================================

Supplemental Disclosures of Cash Flow Information Cash paid during the year for:
  Interest..............................................................................      $  20,776       $  2,347     $  1,794
  Income taxes..........................................................................         12,914         32,230       39,520

Cost of Acquisitions:
  Working capital (deficiency), net of cash acquired....................................      $ (23,534)      $    125     $  6,824
  Property, plant and equipment.........................................................       (144,995)       (18,021)      (4,483)
  Patents...............................................................................        (16,000)            --       (5,272)
  Cost in excess of net assets of businesses acquired...................................       (158,073)       (35,718)      (3,634)
  Other assets..........................................................................         (2,231)        (3,066)        (451)
  Long-term debt and other long-term liabilities........................................         52,911          8,173           75
------------------------------------------------------------------------------------------------------------------------------------
  Net cost of acquisitions..............................................................      $(291,922)      $(48,507)    $ (6,941)
====================================================================================================================================
</TABLE>


See Notes to Consolidated Financial Statements.
                                      F-4


  <PAGE>

  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

     The consolidated financial statements include the accounts of BREED
Technologies, Inc. (the Company) and its wholly-and majority-owned subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Inventories

     Inventories are stated at the lower of cost or market. Cost is determined
primarily using the first-in, first-out method for inventories in North America
and primarily using the average cost method for inventories in Europe.

Property, Plant and Equipment

     Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method applied to individual items based on estimated
useful lives of the assets which range from 5 to 40 years for buildings and
improvements, and 3 to 10 years for machinery, computer and office equipment.
Replacements and betterments that extend the lives of assets are capitalized,
while maintenance and repairs are expensed as incurred.

Intangible Assets

     Cost in excess of net assets of businesses acquired (goodwill) is being
amortized on a straight-line basis over a period of 3 to 40 years and is stated
net of accumulated amortization of $6,247,000 and $895,000 at June 30, 1997 and
1996, respectively. Goodwill is reevaluated when business events and
circumstances indicate that the carrying amount may not be recoverable.
Reevaluation is based on projections of undiscounted future cash flows.

     Patents are stated at cost less accumulated amortization of $1,271,000 and
$527,000 at June 30, 1997 and 1996, respectively. These items, which were
acquired in connection with the VTI Hamlin OY (VTI) and USS acquisitions, as
discussed in Note 3, are capitalized and amortized on a straight-line basis over
the average remaining life of the related patents.

Translation of Foreign Currencies and
Foreign Exchange Contracts

     All assets and liabilities in the balance sheets of foreign subsidiaries
whose functional currency is other than the U.S. dollar are translated at
year-end exchange rates except stockholders' equity which is translated at
historical rates. Translation gains and losses are accumulated as a separate
component of stockholders' equity. Foreign currency transaction gains and losses
are included in determining net earnings.

     The Company uses foreign exchange contracts to hedge certain foreign
denominated payables and receivables and also to hedge firm sales and purchase
commitments. Realized and unrealized gains and losses are deferred and
recognized as the related transactions are settled. The Company does not enter
into foreign exchange contracts for trading purposes. At June 30, 1997, the
Company had outstanding Canadian contracts to buy $43 million, maturing through
January 1999 and to sell $9 million, maturing through August 1997. At June 30,
1996, the Company had outstanding contracts to sell 10.5 million German marks,
maturing through June 1997.

Earnings Per Share

     Earnings per share is computed by dividing net earnings by the weighted
average shares of common stock outstanding during the year. The effect on
earnings per share resulting from the assumed exercise of outstanding options is
not material.

                                      F-5
<PAGE>

Reclassifications

     Certain amounts in the prior years' Consolidated Financial Statements have
been reclassified to conform to the current year's presentation.

2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

     Financial instruments consist primarily of cash equivalents, short-term
investments, accounts receivable, accounts payable and bank debt. At June 30,
1997, the fair value of these financial instruments approximates the carrying
amount because of the short-term maturity of these items.

     The Company has entered into various agreements with three major customers
to secure certain long-term sales contracts, however these do not commit the
customers to purchase specific quantities of products from the Company. The
agreement with Ford expires at the end of the 1999 model year. The Company is in
the process of negotiating its long-term contract through the model year 2000
with Delco-GM. In addition, a long-term sales agreement with Fiat expires on
December 31, 1999. Sales by the Company to Fiat in 1997 and 1996, accounted for
32% and 14%, respectively, of the Company's sales for such years. Sales by the
Company to Ford in 1997, 1996 and 1995, accounted for 25%, 33% and 37%,
respectively, of the Company's sales for such years. Sales by the Company to
Delco-GM in 1997, 1996 and 1995, accounted for 13%, 26% and 40%, respectively,
of the Company's sales for such years.

     Concentrations of credit risk with respect to trade accounts receivable are
limited due to the strong financial condition of the Company's customer base.
However, as of June 30, 1997,


the Company's receivables from Fiat, Ford, and Delco-GM amounted to 38%, 12% and
8% respectively, of total trade accounts receivable.

3.   ACQUISITIONS

     During the three years ended June 30, 1997, the Company made the
acquisitions set forth below. The Hamlin merger was accounted for as a pooling
of interests. All of the other acquisitions were accounted for by the purchase
method of accounting; accordingly, the purchased assets and liabilities have
been recorded at their estimated fair value at the date of acquisition, and the
consolidated financial statements include the operating results of each business
from the date of acquisition.

Fiscal 1995

Hamlin

     On August 31, 1994, the Company completed a merger with Hamlin,
Incorporated (Hamlin), a manufacturer of crash sensors and reed switch products,
with operations in the United States, Mexico and Europe. The Company issued
838,324 shares of common stock for all of the outstanding common stock of
Hamlin. There were no adjustments necessary to conform the companies' methods of
accounting. There were no significant transactions between the companies prior
to the merger.

VTI

     In June 1995, the Company acquired VTI, a Finnish company that designs and
manufactures silicon capacitive micro machined acceleration, angular rate and
differential pressure sensors, for $1.7 million in cash. Additionally, the
Company issued stock warrants to certain of the former stockholders of VTI which
enable the holders to purchase up to 100,000 shares of common stock between 
July 1, 1998 and June 30, 2000, at a purchase price of $25.75 ($2 above the 
market  value of the  Company's  common stock at the date of  acquisition).  The
purchase  price  exceeded  the  fair  value  of  the  net  assets   acquired  by
approximately  $4.5  million.  The  resulting  goodwill is being  amortized on a
straight-line basis over seven years.  Concurrent with the purchase, the Company
acquired, for $5.3 million in cash, technology rights to use awarded and pending
patents and related intellectual property.

Fiscal 1996

MOMO

     On April 15, 1996, the Company acquired all of the outstanding shares of
MOMO S.p.A. And G. Holding, S.r.l. (collectively "MOMO"), an original equipment
manufacturer and aftermarket supplier of luxury steering wheels and alloy
wheels, for $45.2 million in cash. The purchase price exceeded the fair value of
the net assets acquired by $31.1 million. The resulting goodwill is being
amortized over 40 years.

Italtest

     On April 22, 1996, the Company acquired all of the outstanding shares of
Italtest S.r.l., an Italian manufacturer of printed circuit boards for the
automotive, computer and telecommunications markets for $1.8 million in cash.
The purchase price exceeded the fair value of the net assets acquired by $1.8
million. The resulting goodwill is being amortized over 10 years.


                                      F-6

<PAGE>

Force Imaging Technologies, Inc.

     On May 31, 1996, the Company acquired all of the outstanding shares of
Force Imaging Technologies, Inc., a manufacturer of thin-profile variable force
sensors for multi-function automotive capabilities for $3 million in cash. The
purchase price exceeded the fair value of the net assets acquired by $2.8
million. The resulting goodwill is being amortized over 5 years.

   The pro forma  unaudited  results of operations  for the years ended June 30,
1996 and 1995, assuming the purchase of the acquisitions had been consummated as
of July 1, 1994, are as follows:

In thousands, except per share data      1996           1995
--------------------------------------------------------------

Net sales...........................   $493,845       $482,885
Net earnings........................   $ 59,768       $ 65,377
Net earnings per share..............   $   1.89       $   2.08

Fiscal 1997

Gallino

     On July 1, 1996, the Company completed the acquisition of Gallino
Plasturgia, S.r.l. and affiliates ("Gallino") from IAO Industrie Riunite S.p.A.
Gallino manufactures steering wheels, instrument panels, bumpers and other
plastic trim components used in automotive original equipment and aftermarket
applications. The aggregate purchase price was $126 million, comprised of cash
of $74 million and liabilities assumed of $52 million. The acquisition was
financed through borrowings on the Company's revolving credit agreements. The
purchase price exceeded the fair value of net assets acquired by approximately
$40 million. The resulting goodwill is being amortized on a straight-line basis
over 40 years.

United Steering Systems (USS)

     On October 25, 1996, the Company completed the acquisition of certain
assets and the assumption of certain liabilities of the "North American Steering
Wheels Operation" of United Technologies and all of the shares of United
Technologies Automotive Clifford Limited. USS produces steering wheels, airbag
covers, horn pads and related molded products in the


U.S., Mexico and England. The purchase price was $154 million, financed through
borrowings under the Company's Revolving Credit Agreements. The purchase price
exceeded the fair value of net assets acquired by approximately $75 million. The
resulting goodwill is being amortized on the straight-line basis over 40 years.

Custom Trim

     On February 25, 1997, the Company completed the acquisition of the stock of
BTI Investments, Inc. ("BTI"), a holding company that owned the Custom Trim
group of companies, for $70 million. Additionally, up to $5 million may be paid
on September 1, 2002, contingent upon BTI attaining certain operating profit
targets for each of the years subsequent to the acquisition date. The acquired
operations produce leather-wrapped steering wheels, shift knobs and shift boots,
injection molded levers and leather/vinyl cloth sewing of armrests, headrests
and seating in Canada and Mexico. The funds used by the Company to acquire BTI
were obtained from borrowings under the Company's Revolving Credit Agreements.
The purchase price exceeded the fair market value of net assets acquired by $48
million. The allocation of the purchase price is subject to change pending
completion of the Company's integration plans. The resulting goodwill is being
amortized on a straight-line basis over 40 years.

     The pro forma unaudited results of operations for the years ended June 30,
1997 and 1996, assuming the purchase of the acquisitions had been consummated as
of July 1, 1995, are as follows:

In thousands, except per share data      1997          1996
--------------------------------------------------------------

Net sales...........................   $901,058     $1,056,588
Net earnings........................   $ 20,965     $   45,897
Net earnings per share..............   $    .66     $     1.45

4.   NET ASSETS HELD FOR SALE

     The Company acquired Gallino in July 1996 primarily for the steering wheel
business. However, in order to acquire the steering wheel business it was
necessary to also acquire Gallino's instrument panel, bumper and other plastic
trim component business (non-steering wheel business). In 1997, the Company
evaluated whether the non-steering wheel business of Gallino could be integrated
into the core business of the Company.

     During the fourth quarter of fiscal 1997, the Company committed to a plan
to dispose of Gallino's instrument panel, bumper and other plastic trim
component business (non-steering wheel business). In July 1997, the Company
signed a letter of intent to sell approximately 65 percent of substantially all
of the net assets of Gallino's non-steering wheel business.

The Company is negotiating with other prospective buyers for the remaining
portion of Gallino's non-steering wheel business. For financial reporting
purposes, the assets and liabilities attributable to all of Gallino's
non-steering wheel business, which are recorded at amounts approximating their
net realizable value, have been classified in the consolidated balance sheet as
"Net assets held for sale" and consist of the following at June 30, 1997:


                                      F-7

<PAGE>


In thousands
-----------------------------------------------------------------
Current assets....................................    $ 42,221
Property, plant and equipment, net................      62,739
Other noncurrent assets...........................         977
-----------------------------------------------------------------
  Total assets....................................     105,937
-----------------------------------------------------------------
Current liabilities...............................      31,661
Other liabilities.................................      21,656
-----------------------------------------------------------------
  Total liabilities...............................      53,317
Net assets held for sale..........................    $ 52,620
=================================================================


5.   INCOME TAXES

   The components of earnings before income taxes are as follows:

In thousands                        1997      1996      1995
-------------------------------------------------------------
Domestic.......................   $23,699   $98,285  $107,521
Foreign........................     5,948        53     2,612
-------------------------------------------------------------
                                  $29,647   $98,338  $110,133
=============================================================


     The components of income tax expense are as follows:

In thousands                        1997      1996      1995
-------------------------------------------------------------
Current
  Federal......................   $ 6,442   $30,818  $ 37,214
  Foreign......................     6,434     2,001       750
  State........................       767       816     1,386
-------------------------------------------------------------
    Total current..............    13,643    33,635    39,350
Deferred
  Federal......................     1,501     1,665    (1,550)
  Foreign......................      (344)       --        --
-------------------------------------------------------------
    Total deferred.............     1,157     1,665    (1,550)
Income taxes...................   $14,800   $35,300  $ 37,800
=============================================================

     A provision for income taxes has not been made for the undistributed
earnings of foreign subsidiaries of approximately $10 million at June 30, 1997,
which have been or are intended to be permanently reinvested in expanded foreign
business operations.


     The provision for income taxes differs from the expected federal tax
provision as follows:

In thousands                        1997     1996       1995
---------------------------------------------------------------
Tax at U.S. statutory rate......  $10,260   $34,418   $38,547
State taxes, net of Federal
  tax benefit...................      498       530       900
Change in valuation allowance...    1,816     2,161    (2,115)
Amortization of goodwill, without
  tax benefit...................    1,300        --        --
Foreign rate differential.......      677        --        --
Reduction of taxes provided in
  prior years...................       --    (1,154)       --
Other...........................      249      (655)      468
---------------------------------------------------------------
                                  $14,800   $35,300   $37,800
===============================================================

     The temporary differences that give rise to significant portions of the
deferred tax assets and liabilities as of June 30, 1997 and 1996, respectively,
are presented below.


                                   F-8


<PAGE>


In thousands                              1997          1996
---------------------------------------------------------------
Deferred tax assets
  Accrued expenses....................  $ 5,132       $ 1,842
  Net operating losses................    3,977            --
  Other...............................      923           961
  Valuation allowance.................   (3,977)           --
---------------------------------------------------------------
                                          6,055         2,803
---------------------------------------------------------------
Deferred tax liabilities
  Depreciation and amortization.......   (7,845)         (892)
  Acquisition related asset
    basis differences.................       --        (2,544)
--------------------------------------------------------------
                                         (7,845)       (3,436)
--------------------------------------------------------------
                                        $(1,790)      $  (633)
==============================================================


     Management has determined, based on the Company's history of domestic
taxable income and its expectation of the future, that domestic operating income
of the Company will likely be sufficient to fully recognize the net deferred tax
assets.
 
     At June 30, 1997, the Company has foreign net operating loss carryforwards
(NOLs) for tax purposes of $11.7 million of which $6.1 million expires in the
year 2006 and $1.7 million expires in the year 2007. The remaining NOLs have no
expiration date. For financial reporting purposes, a valuation allowance of $4.0
million has been recognized to reduce the deferred tax assets related to those
NOLs.

6. NOTES PAYABLE AND LONG-TERM DEBT

     During 1997, the Company replaced its $200 million unsecured domestic
credit agreement. The Company now maintains two multi-currency credit agreements
totaling $450 million that expire on April 29, 1998 ($250 million) and April 30,
2002 ($200 million). The amount outstanding under the new agreements at June 30,
1997, was $358 million of which $200 million is due April 30, 2002. The interest
rate under the agreements is at or below the prime rate or, at the Company's
option, LIBOR plus a margin. The weighted average interest rate on the
outstanding borrowings at June 30, 1997, was 6.7%. A commitment fee of between
 .125% and .3% per year is paid on the unused portion of the commitment dependent
upon the Company's level of leverage as set forth in the agreements. Under the
terms of the agreements, the Company must maintain acceptable ratios, such as
leverage ratio, minimum net worth, and interest coverage ratio. At June 30,
1997, the Company was in compliance with all covenants.

     The Company's subsidiaries outside of the United States have short-term
lines of credit aggregating approximately $100 million from various banks
worldwide. Most of these arrangements are reviewed periodically for renewal. The
amounts outstanding under these lines of credit with banks at June 30, 1997 and
1996 were $27.3 million and $34.1 million, respectively. Interest rates are
generally based on the prevailing bank prime rate in the various countries in
which the Company has operations. Additionally, the subsidiaries have
outstanding mortgage and equipment financing loans amounting to $38.1 million.

7.   OTHER FINANCIAL DATA

     The components of inventories consist of the following:

In thousands                        1997     1996
---------------------------------------------------
Finished goods.................. $ 24,832   $19,439
Work in process.................   23,385    14,417
Raw materials...................   27,130    19,034
---------------------------------------------------
                                 $ 75,347   $52,890
===================================================

   Other income (expense), net consists of the following:

In thousands                        1997      1996       1995
---------------------------------------------------------------
Foreign exchange gain (loss), net $ 2,161   $ 2,385    $ (352)
Gain (loss) on disposition of
  property, plant and equipment.     (634)    1,517     1,349
Royalty income..................       93     3,976     3,483
Government grant................    1,000        --        --
Other, net......................      904       784       418
---------------------------------------------------------------
                                 $  3,524   $ 8,662    $4,898
===============================================================


                                      F-9

<PAGE>


8.   EMPLOYEE BENEFIT PLANS
  
     The Company's Omnibus Stock Plan provides for the granting of 2,500,000
shares of Common Stock for awards of options under the Company's 1992 Stock
Option Plan, the 1992 Employee Stock Purchase Plan, and the 1994 Stock Incentive
Plan.

     Under the 1992 Stock Option Plan, options to purchase up to 1,500,000
shares of common stock may be granted to officers, employees and consultants to
the Company. The Company may grant options that are either qualified (Incentive
Stock Options) or nonqualified under the Internal Revenue Code of 1986, as
amended. Options under the Plan will generally vest over a three-year period and
the option term may not exceed ten years. Total options granted under this plan
amounted to 48,313 in 1997 and 45,000 in 1996.


     The Company's 1992 Employee Stock Purchase Plan provides that eligible
employees may contribute up to 10% of their base earnings toward the semiannual
purchase of the Company's common stock, at a price equal to 85% of the lower of
the market value of the common stock on the first and last day of the applicable
period. There are limitations on the number of shares that can be purchased in
any period. Total shares issued under this plan were 27,082 in 1997 and 60,906
in 1996. Since the plan is noncompensatory, no charges to operations have been
recorded.

     The 1994 Stock Incentive Plan permits the issuance of options of common
stock in the form of incentive stock options, nonstatutory stock options, stock
appreciation rights, performance shares, restricted stock or unrestricted stock
to selected employees of the Company. Options under the plan vest over a
four-year period. Stock appreciation rights entitle recipients to receive an
amount determined in whole or in part by appreciation in the fair market value
of the stock between the date of the award and the date of exercise. Performance
share awards entitle recipients to acquire shares of stock upon attainment of
specified performance goals. Restricted stock awards entitle recipients to
acquire shares of stock, subject to the right of the Company to repurchase under
certain circumstances all or part of the shares at their purchase price (or to
require forfeiture of such shares if purchased at no cost) from the recipient.
Restricted shares vest over a five-year period. Unearned compensation,
representing the fair market value of the shares at the date of issuance, is
charged to earnings over the vesting period. Total options granted under this
plan amounted to 63,744 in 1997 and 648,873 in 1996. No stock appreciation
rights or performance shares were granted in 1997 or 1996.

     In addition to the above plans, the Company's 1992 Director Stock Option
Plan provides for the grant of nonqualified stock options to the Company's
nonemployee directors. The total number of shares to be issued under this plan
may not exceed 50,000 shares. Options granted under the 1992 Director Stock
Option Plan have an exercise price equal to the fair market value of the common
stock on the date of the grant and a term equal to ten years. Total options
granted under this plan amounted to 5,310 in 1997 and 14,600 in 1996.

   Following is a summary of the option and warrant  transactions  for the years
1997 and 1996:

                                       Shares               Price
---------------------------------------------------------------------------
Balance at June 30, 1995..........     622,028         $ 3.14 -  $32 1/4
  Granted.........................     708,473         16 3/4 -  20 3/8
  Exercised.......................     (67,561)          3.14 -  24
  Canceled........................    (113,704)            12 -  28 3/8
---------------------------------------------------------------------------
Balance at June 30, 1996..........   1,149,236             12 -  32 1/4
  Granted.........................     117,367         21 3/8 -  28 1/4
  Exercised.......................     (38,695)        19 3/4 -  28
  Canceled........................    (127,547)        16 3/4 -  28 5/8
---------------------------------------------------------------------------
Balance at June 30, 1997..........   1,100,361             12 -  32 1/4
                                                     
Exercisable at June 30, 1997......     318,996             12 -  32 1/4
                                                
Shares reserved for future issuance  2,175,262
===========================================================================


     The Company maintains a 401(k) retirement plan which covers substantially
all full-time U.S. employees. Under the plan, the Company will match employee
contributions at rates which are determined annually by management. Employer
contributions for the years ended June 30, 1997, 1996 and 1995 amounted to
$762,000, $911,000 and $669,000, respectively.

     The Company adopted Statement of Financial Accounting Standard No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," in fiscal 1997, but
elected to continue to measure compensation cost using the intrinsic value
method, in accordance with APB Opinion No 25 ("APB 25"), "Accounting for Stock
Issued to Employees." Accordingly, no compensation cost for stock options has
been recognized. If compensation cost had been determined based on the estimated
fair value of options granted in 1997 and 1996, consistent with the methodology
in SFAS 123, the pro forma effects on the Company's net earnings and income per
share would not have been material.


                                      F-10

<PAGE>


9. INFORMATION RELATED TO CUSTOMERS AND OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS

     The Company operates in one principal industry segment: the design,
manufacture, and sale of automotive occupant safety systems--which represents
more than 90% of consolidated net sales. The following financial information
relates to operations in different geographic areas. Net sales to unaffiliated
customers is based on the location of Company's operating entity. Transfers
between geographic areas are recorded at amounts above cost and in accordance
with the rules and regulations of the respective governing tax authorities.
Identifiable assets of geographic areas are those assets used in the Company's
operations in each area. Corporate assets include cash and cash equivalents, 
intangibles, long-term investments, and deferred income taxes.

In thousands                               1997            1996          1995
--------------------------------------------------------------------------------
Net sales to unaffiliated customers:
  North America.................         $379,270       $324,565      $345,640
  Europe........................          415,610        107,124        55,332
--------------------------------------------------------------------------------
Total net sales.................         $794,880       $431,689      $400,972
--------------------------------------------------------------------------------
Transfers between geographic areas                                   
  (eliminated in consolidation):                                     
  North America.................         $ 42,809       $ 51,057      $ 27,018
  Europe........................           35,043         21,832        22,689
--------------------------------------------------------------------------------
Total transfers.................         $ 77,852       $ 72,889      $ 49,707
--------------------------------------------------------------------------------
Earnings before income taxes                                         
Operating income:                                                    
  North America.................         $ 46,597       $ 90,372      $100,800
  Europe........................            3,986          2,442         4,017
Other income (expense), net.....          (20,936)         7,525         5,602
--------------------------------------------------------------------------------
Earnings before income taxes....         $ 29,647       $ 98,338      $110,133
--------------------------------------------------------------------------------
Identifiable assets:                                                 
  North America.................         $447,076       $196,776      $185,574
  Europe........................          410,577        219,340        38,410
  Corporate assets..............           19,500         87,686        54,714
--------------------------------------------------------------------------------
                                                                     
Total assets....................         $877,153       $503,802      $278,698
================================================================================

     The Company also had foreign export sales from the United States amounting
to $34,559,000, $27,354,000 and $24,515,000 for the years ended June 30, 1997,
1996 and 1995, respectively.

     The Company operates its Mexican manufacturing facilities under the
"Maquiladora" program. Pursuant to this program, materials and components owned
by the Company are transferred to the Mexican subsidiaries where they are used
to produce finished goods. The finished goods are returned to the United States
and the Company reimburses the Mexican subsidiaries for their manufacturing
costs without any intended significant profit or loss of consequence.
Accordingly, the Mexican sales, transfers, and income amounts are excluded from
the above geographic area information.

10.  COMMITMENTS AND CONTINGENCIES

     The Company is the subject of various lawsuits, claims and environmental
contingencies. In the opinion of management, the expected liability resulting
from these matters is adequately covered by amounts accrued, and will not have a
material adverse effect on the Company's consolidated financial position or
future results of operations.


                                      F-11


<PAGE>


11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
    The following tables set forth selected quarterly financial information.

<TABLE>
<CAPTION>
                                                    First            Second           Third             Fourth             Total
In thousands, except per share data                Quarter           Quarter         Quarter            Quarter             Year
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>              <C>                <C>               <C>          
1997
Net sales.................................        $158,671          $182,567         $209,409           $244,233          $794,880
Gross profit..............................          41,648            36,690           37,955             47,304           163,597
Operating income..........................          18,210             9,330            7,128             15,915            50,583
Net earnings..............................           7,846             3,150            1,501              2,350            14,847
Earnings per share........................             .25               .10              .05                .07               .47
Cash dividends per share..................             .07               .07              .07                .07               .28
Market price range........................   18 1/2-27 7/8     22 5/8-28 1/2    19 1/4-27 1/4          17 3/8-23     17 3/8-28 1/2
                                                                                                                    
1996                                                                                                                
Net sales.................................        $ 92,601          $105,655         $103,927           $129,506          $431,689
Gross profit..............................          34,864            42,844           35,841             41,096           154,645
Operating income..........................          19,446            26,854           19,671             24,842            90,813
Net earnings..............................          12,601            17,842           14,892             17,703            63,038
Earnings per share........................             .40               .57              .47                .56              2.00
Cash dividends per share..................             .05               .05              .07                .07               .24
Market price range........................   19 1/8-24 1/4         17-20 1/4    16 3/8-19 5/8      18 3/4-24 1/4     16 3/8-24 1/4
                                                                                                                    
1995                                                                                                                
Net sales.................................        $ 87,359          $ 99,001         $109,876           $104,736          $400,972
Gross profit..............................          28,999            39,016           44,846             43,560           156,421
Operating income..........................          17,538            26,488           31,759             28,746           104,531
Net earnings..............................          11,231            18,191           21,984             20,927            72,333
Earnings per share........................             .36               .58              .70                .66              2.30
Cash dividends per share..................             .05               .05              .05                .05               .20
Market price range........................   25 1/4-33 3/4     25 1/2-36 3/8        20 1/4-29      18 3/8-24 1/4     18 3/8-36 3/8
</TABLE>                                     

     The Company recognized a charge during the fourth quarter of 1997 which
decreased net income by $2.2 million. This charge increased income tax expense
to reflect an increase in the effective tax rate for the year due to loss
carryforwards in foreign countries that could not be utilized as management had
originally anticipated. This adjustment reduced fourth quarter net income per
share by $.07.


12. SUBSEQUENT EVENT

     On August 27, 1997, the Company entered into an Asset Purchase Agreement
with Allied Signal, Inc. ("Allied") to acquire substantially all of the assets
and certain liabilities of Allied's worldwide automotive occupant restraint
products and systems (the "Division"). These products include seat belt and
airbag assemblies and components. The purchase price is $710 million in cash and
is subject to post-closing adjustments based on the net asset value of the
Division as of the closing date. Consummation of the acquisition is subject to
several conditions, including clearance of the transaction by appropriate
government agencies, consent of certain customers, and customary conditions to
closing. Management is confident that the contingencies will be resolved
favorably. The Company is considering various methods of financing the
transaction, including additional bank borrowings and the private placement of
equity and/or debt securities. For the year ended December 31, 1996, the
Division had unaudited revenues of $951 million and unaudited operating income
of $86 million.


REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
BREED Technologies, Inc.


     We have audited the accompanying consolidated balance sheets of BREED
Technologies, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of MOMO S.p.A., a wholly-owned subsidiary acquired April
15, 1996, which statements reflect total assets of $106,398,000 as of June 30,
1997 and net sales of $73,093,000 for the year then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for MOMO S.p.A., is based solely
on the report of the other auditors. The consolidated financial statements of
BREED Technologies, Inc. and subsidiaries for the year ended June 30, 1995, were
audited by other auditors whose report dated July 21, 1995, expressed an
unqualified opinion on those statements.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, based on our audits and the report of other auditors, the
1997 and 1996 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BREED
Technologies, Inc. and subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

/s/Ernst & Young LLP



July 31,  1997,  except  for Note 12, 
as to which the date is  August  27,  1997
Tampa, Florida


                                      F-12


<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                        BREED TECHNOLOGIES, INC.



Date: September 25, 1997                By:  /s/ Charles J. Speranzella, Jr.
                                             Charles J. Speranzella, Jr.
                                             Vice Chairman


Pursuant to the requirement of the Securities  Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.



<TABLE>
<S>                                  <C>                                   <C> 
/s/ Allen K. Breed                   Chairman of the Board of              September 25, 1997
--------------------------           Directors
Allen K. Breed            


/s/ Johnnie Cordell Breed            Co-Chairman and Chief Executive       September 25, 1997
 -------------------------           Officer (Principal Executive
Johnnie Cordell Breed                Officer)


/s/ Frank J. Gnisci                  Executive Vice President              September 25, 1997
--------------------------           and Chief Financial Officer
Frank J. Gnisci                      (Principal Financial Officer)


/s/ Thomas F. Dugan                  Corporate Controller                  September 25, 1997
--------------------------           (Principal Accounting Officer)
Thomas F. Dugan           


/s/ Peter A. Lewis                   Director                              September 25, 1997
--------------------------
Peter A. Lewis


/s/ Larry W. McCurdy                 Director                              September 25, 1997
--------------------------
Larry W. McCurdy
</TABLE>



<PAGE>

                                  EXHIBIT INDEX

2.1    Agreement and Plan of Merger dated August 3, 1994 relating to Hamlin,
       Inc. (filed as Exhibit 3 to the Company's Form 8-K, filed September 15,
       1994 and incorporated herein by reference)

2.2    Stock Purchase Agreement - MOMO S.p.A. and G. Holding S.r.l., dated March
       29, 1996, and Stock Purchase Agreement - LANEBROOK LTD., dated March 29,
       1996, (filed as Exhibits 2.1 and 2.2 to the Company's Form 8-K/A, filed
       June 28, 1996, and incorporated herein by reference)

2.3    Stock Purchase Agreement, dated April 22, 1996, between the Company and
       Alberto Zucchelli and Andrea Zucchelli for the acquisition of Italtest
       S.r.l. and Italtest Due S.r.l. (filed as Exhibit 2.3 to the Company's
       Form 10K filed on September 23, 1996, and incorporated herein by
       reference)

2.4    Stock Purchase Agreement, dated May 31, 1996, between the Company and
       Felt Products Mfg. Co. for the acquisition of Force Imaging Technologies,
       Inc. (filed as Exhibit 2.4 to the Company's Form 10K filed on September
       23, 1996, and incorporated herein by reference)

2.5    Master Agreement dated July 1, 1996 related to the "Gallino Group"
       acquisition.

2.6    Amended and Restated Purchase Agreement, dated as of October 25, 1996
       among UT Automotive, Inc., United Technologies Automotive Systems, Inc.,
       United Technologies Automotive Systems de Mexico A.A. de C.V., IPCO, Inc.
       and BREED Technologies, Inc. (filed as an Exhibit to the Company's Form
       8K dated November 7, 1996, and incorporated herein by reference)

2.7    Stock Purchase Agreement dated January 3, 1997, as amended February 25,
       1997, between BREED Technologies, Inc. and BTI Investments, Inc. (filed
       as an Exhibit to the Company's Form 8K dated March 5, 1997, and
       incorporated herein by reference)

3.1    Second Restated Certificate of Incorporation of the Company (filed as
       Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File No.
       33-54988) (the "Form S-8") and incorporated herein by reference)

3.2    Amended and Restated By-Laws of the Company (filed as Exhibit 3.3 to the
       Company's Registration Statement on Form S-1 (File No. 33-51868 (the Form
       S-1") and incorporated herein by reference)

4.1    Specimen Certificate of Common Stock of the Company (filed as Exhibit 4.1
       to the Form S-1 and incorporated herein by reference)

4.2    Description of Capital Stock (contained in the Second Restated
       Certificate of Incorporation of the Company filed as Exhibit 4.1 to the
       Form S-8 and incorporated herein by reference)

10.1   Company's 1992 Stock Option Plan (filed as Exhibit 10.12 to the Form S-1
       and incorporated herein by reference)

10.2   Company's 1992 Director Stock Option Plan (filed as Exhibit 10.13 to the
       Form S-1 and incorporated herein by reference)

10.3   Company's 1992 Employee Stock Purchase Plan, as amended (filed as Exhibit
       28 to the Form S-8 and incorporated herein by reference)

10.4   Company's Employees' Retirement Savings Plan (filed as Exhibit 10.15 to
       the Form S-1 and incorporated herein by reference)

10.5   Company's Employee Incentive Program (filed as Exhibit 10.16 to the Form
       S-1 and incorporated herein by reference)

10.6   Company's 1994 Stock Incentive Plan filed with the Form S-8, dated
       February 25, 1997

10.7   Five-Year Credit Agreement and 364 day credit agreement dated April 30,
       1997 and First Amendments to Five-Year Credit Agreement and 364 day 
       credit agreement dated June 28, 1997 among First Union National Bank of 
       Florida (Administrative Agent), The Chase Manhattan Bank 
       (Documentation Agent) and certain other financial institution lenders.

21     Subsidiaries of the Company

23.1   Consent of KPMG Peat Marwick LLP, Independent Auditors

23.2   Consent of Ernst & Young LLP, Independent Auditors

23.3   Opinion of KPMG Peat Marwick LLP, Tampa, Independent Auditors

23.4   Opinion of KPMG Peat Marwick LLP, Milan, Independent Auditors

27     Financial Data Schedule