<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0596831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3190 Pullman Street 92626
Costa Mesa, California (Zip Code)
(Address of principal
executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 662-7756
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 __________ No X
-
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 11, 1996
- -------------------------------------- --------------------------------
Common Stock, par value $.01 per share 5,025,383 shares
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Index
-----
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - September 30, 1996 (Unaudited)
and March 31, 1996........................................... 3
Consolidated Statements of Operations - Three months
ended September 30, 1996 (Unaudited) compared to three
months ended September 30, 1995 (Unaudited). Six months
ended September 30, 1996 (Unaudited) compared to six months
ended September 30, 1995 (Unaudited)......................... 4
Consolidated Statements of Cash Flows - Six months
ended September 30, 1996 (Unaudited) compared
to six months ended September 30, 1995 (Unaudited)........... 5
Condensed Notes to Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
<CAPTION>
PART II. OTHER INFORMATION:
<S> <C> <C>
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURE........................................................................ 12
</TABLE>
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
-------------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................ $10,309 $12,033
Accounts receivable (Note 4)............. 12,862 16,614
Inventories (Note 4)..................... 5,784 5,315
Prepaid and other........................ 2,043 925
Total current assets................... ------- -------
Property, plant and equipment.............. 30,998 34,887
Other assets............................... 25,547 12,192
18,582 2,752
------- -------
Total assets........................... $75,127 $49,831
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable......................... $ 5,154 $ 8,066
Accrued liabilities...................... 3,902 1,057
Current portion of long-term obligations. 5,006 697
------- --------
Total current liabilities.............. 14,062 9,820
Long-term obligations.................... 17,831 3,087
Other long-term liabilities.............. 6,373 1,580
------- --------
Total liabilities...................... 38,266 14,487
Stockholders' equity:
Common stock, $.01 par value per share,
authorized 10,000,000 shares, issued
and outstanding 5,025,008 shares at
September 30, 1996 and 5,048,500
shares at March 31, 1996................ 51 51
Common stock warrants.................... 1 1
Additional paid-in capital............... 30,058 30,058
Treasury stock, 113,492 shares at
September 30, 1996 and 90,000
shares at March 31, 1996,
at cost................................. (1,647) (1,379)
Retained earnings........................ 8,980 6,979
Cumulative translation adjustment........ (582) (366)
-------- --------
Total stockholders' equity............. 36,861 35,344
Total liabilities and -------- --------
stockholders' equity.................. $75,127 $49,831
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................. $ 18,877 $ 25,317 $ 35,049 $ 49,000
Cost of sales............................. 15,101 21,793 28,681 42,443
---------- ---------- ---------- ----------
Gross profit............................ 3,776 3,524 6,368 6,557
Selling and marketing expense............. 395 234 697 467
General and administrative expense........ 979 1,338 1,823 2,576
Amortization of goodwill.................. 154 0 154 0
---------- ---------- ---------- ----------
Operating income........................ 2,248 1,952 3,694 3,514
Other expense (income).................... 9 30 73 (102)
Interest expense (income), net............ 240 (175) 250 (112)
---------- ---------- ---------- ----------
Income before income taxes................ 1,999 2,097 3,371 3,728
Provision for income taxes................ 851 754 1,370 1,338
---------- ---------- ---------- ----------
Net income.............................. $ 1,148 $ 1,343 $ 2,001 $ 2,390
========== ========== ========== ==========
Earnings per common and common
equivalent share........................ $.23 $.26 $.40 $.50
========== ========== ========== ==========
Weighted average common and common
equivalent shares....................... 5,048,055 5,247,551 5,058,731 4,776,170
========== ========== ========== ==========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
September 30, September 30,
1996 1995
--------------- ----------------
<S> <C> <C>
Cash flow from operating activities:
Net income............................. $ 2,001 $ 2,390
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation......................... 859 488
Amortization......................... 154 0
Changes in assets and liabilities:
Accounts receivable................ 8,073 (4,963)
Inventories........................ 969 (121)
Prepaids and other current
assets............................. (1,113) (517)
Accounts payable................... (4,200) 498
Accrued liabilities................ (216) (788)
Other assets and liabilities....... (514) (229)
-------- -------
Net cash provided by (used for)
operating activities............. 6,013 (3,242)
-------- -------
Cash flow from investing activities:
Additions to property, plant and
equipment............................. (4,928) (1,522)
Acquisition of Phoenix Airbag GmbH..... (22,572) 0
-------- -------
Net cash provided by (used for)
investing activities.................. (27,500) (1,522)
-------- -------
Cash flow from financing activities:
Net proceeds from sale of common
stock................................. 0 16,568
Purchase of treasury stock............. (268) 0
Repurchase of stock warrants........... 0 (94)
Net borrowings (repayments)
under revolver........................ 432 0
Net borrowings (repayments)
under long-term obligations........... 18,602 519
-------- -------
Net cash provided by
financing activities.................. 18,766 16,993
-------- -------
Effect of exchange rate changes on cash.. (15) (284)
-------- -------
Change in cash and cash equivalents...... (2,736) 11,945
Cash and cash equivalents, beginning of
period.................................. 13,045 3,846
-------- -------
Cash and cash equivalents, end of period $ 10,309 $15,791
======== =======
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The information contained in the following Condensed Notes to Consolidated
Financial Statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
1996 annual report on Form 10-K of Safety Components International, Inc. (the
Company) for the year ended March 31, 1996. The Company has experienced, and
expects to continue to experience, variability in net sales and net income from
quarter to quarter. Therefore, the results of the interim periods presented
herein are not necessarily indicative of the results to be expected for any
other interim period or the full year.
The consolidated financial information as of and for the three and six months
ended September 30, 1996 and as of and for the three and six months ended
September 30, 1995 included herein is unaudited but includes all normal
recurring adjustments which, in the opinion of the Company, are necessary to
present fairly the consolidated financial position of the Company as of
September 30, 1996 and the results of its operations and of its cash flows for
the three and six months ended September 30, 1996 and September 30, 1995,
respectively.
2. PUBLIC OFFERING
On June 21, 1995, the Company completed a equity offering (the Offering) of
1,500,000 shares of common stock at $17.00 per share (the Offering Price), of
which the Company sold 1,000,000 shares of previously unissued common stock and
Valentec International Corporation and other selling shareholders sold 500,000
shares. The net proceeds to the Company from the Offering of approximately
$16,500,000 (including the proceeds received pursuant to the exercise of the
over allotment option described below) has been, and will continue to be used to
fund the future growth of the business. In conjunction with the Offering, the
underwriter was granted a 30 day option to purchase up to an aggregate of
225,000 additional shares (of which 75,000 shares were sold by the Company and
150,000 shares were sold by Valentec International Corporation and other selling
shareholders) at the Offering Price, less underwriting discounts. The entire
option was exercised within the 30 day period.
3. ACQUISITION OF PHOENIX AIRBAG GMBH
On August 6, 1996 the Company acquired Phoenix Airbag GmbH ("Phoenix Airbag"), a
major European airbag manufacturer located in Hildesheim, Germany. Pursuant to
the Stock Purchase Agreement, the Company initially acquired eighty percent
(80%) of Phoenix AG's interest in Phoenix Airbag for a purchase price of
approximately $22 million, subject to a net worth adjustment. The Company will
acquire the remaining twenty percent (20%) interest effective December 31, 1998,
but is entitled to all of the income of Phoenix Airbag from the date of the
acquisition. The additional purchase price of up to approximately $7.5 million
for the remaining twenty percent (20%) interest is contingent on Phoenix Airbag
meeting certain annual performance targets for the calendar years 1996 through
1998. If the annual performance targets are met, the contingent purchase price
will be paid in three annual installments commencing April 30, 1997. If the
annual performance targets are not met, the Company will acquire the remaining
twenty percent (20%) without any additional consideration. Additionally, the
Company will, under certain circumstance, be required to provide a bank
guaranty, in August 1997, to secure the payment of up to approximately $4.5
million of the contingent purchase price.
6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITION OF PHOENIX AIRBAG GMBH (CONTINUED)
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company and Phoenix Airbag as if the
acquisition had occurred at the beginning of the fiscal year ended March 31,
1996, with pro forma adjustments to give effect to the amortization of
goodwill, interest on acquisition debt and certain other adjustments, together
with the related income tax effect.
<TABLE>
<CAPTION>
March 31,
(In thousands, except per share amounts) 1996
---------
<S> <C>
Net sales $128,118
Net income $ 5,475
Earnings per share $ 1.10
</TABLE>
4. COMPOSITION OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ---------
<S> <C> <C>
Accounts receivable:
Billed receivables................... $ 8,573 $ 4,779
Unbilled receivables (net of
unliquidated progress
payments of $8,338 and $30,945
at September 30, 1996
and March 31, 1996, respectively) 2,738 8,588
Other............................ 1,551 3,247
------- -------
$12,862 $16,614
======= =======
Inventories:
Raw materials........................ $ 3,096 $ 2,297
Work-in-process...................... 1,772 1,958
Finished goods....................... 916 1,060
------- -------
$ 5,784 $ 5,315
======= =======
</TABLE>
5. LONG-TERM OBLIGATION
On August 1, 1996 the Company entered into a Loan Agreement with Bank of America
National Trust and Savings Association. The Loan Agreement provided the Company
with financing for the acquisition of Phoenix Airbag in the form of a $20
million acquisition term loan, amortizing over a four year period. The Loan
Agreement also provides for a $5.5 million revolving credit facility and a non-
revolving stand-by letter of credit facility to secure payment, if necessary, of
the contingent purchase price for the acquisition of Phoenix Airbag. (The
term loan, revolving credit facility and stand-by letter of credit facility are
collectively referred to as the "Bank of America Facility".) Indebtedness under
the Bank of America Facility is secured by substantially all the assets of the
Company and bear interest at a LIBOR indexed rate plus 2 1/4%. The Bank of
America Facility also contains certain financial covenants, including
limitations on indebtedness and liens, fixed charge coverage ratios, maximum
leverage, minimum ratio of current assets to current liabilities, minimum
tangible net worth and prohibitions as to the payment of dividends.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Due to the Company's historical and anticipated growth, the Company believes
that period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The following discussion should be read in conjunction with the financial
statements and the condensed notes thereto, appearing elsewhere in this Report.
Automotive Division. The Automotive Division commenced operations as part of
Valentec International Corporation ("Valentec") in May 1992. Product
qualification procedures commenced and production began in July 1992 with the
first significant sales beginning in October 1992. In March 1993, the Company
signed a five-year requirements contract with TRW Vehicle Safety Systems, Inc.
("TRW"), contemplating increasing deliveries of airbags over the term of the
contract. In order to obtain the five-year contract, the Company had to
position itself to meet TRW's delivery schedules. As a result, the Company
incurred significant start-up costs in 1992 and 1993 and continues to incur
start-up costs as it expands its operations. The Company signed a two-year
agreement and commenced manufacturing of passenger side airbags in Europe for
TRW in December 1993 and also received orders and commenced manufacturing driver
side airbags in the U.S. for TRW in April 1994. In September 1995, the Company
was awarded a purchase order from Delphi Interior Lighting ("Delphi"), a
subsidiary of General Motors Corporation, pursuant to which Delphi has committed
to purchase from the Company approximately 50% of Delphi's requirements for its
C/K Truck models for model year 1997.
As the Company continues to expand worldwide, it will continue to experience
variability in its operating results. The Company recently acquired Phoenix
Airbag GmbH ("Phoenix Airbag") and may incur additional costs associated with
the integration and the administration of the acquired operations. In addition,
the Company currently subcontracts certain aspects of the manufacturing process
for airbags in Europe to two subcontractors in the Czech Republic and one in
Poland. The Company expects to replace the functions of these subcontractors
with its own facility currently under construction in the Czech Republic. The
Automotive Division's business is also subject to the seasonal characteristics
of the automotive industry in which there are plant shutdowns in the third and
fourth quarters of each calendar year, typically resulting in lower shipment of
airbags during these quarters. Additionally, the Company's operating results
could be impacted by the timing of the introduction of new models of automobiles
for which the Company manufactures airbags, changes in consumer vehicle
preferences and major labor disputes in the automotive industry.
Defense Division. Historically, the demand for the Defense Division's products
has been driven primarily by the U.S. Government's purchase of small and medium
caliber military ammunition. In September 1994, the Company was awarded a
systems contract for $60 million by the U.S. Army for the delivery of 120mm
mortar cartridges (the "Systems Contract"). Under the Systems Contract, the
Company serves as the prime contractor coordinating the manufacture and assembly
of the product components by various subcontractors. The Systems Contract is
accounted for on a percentage of completion basis. Accordingly, the Company
will experience variability in revenues from the Systems Contract because
revenues are based upon the costs incurred in fulfilling this contract. In
December 1995, the Company submitted a bid for a $20 million follow-on order to
the Systems Contract, which was unsuccessful. The Company's failure to receive
the award for the follow-on orders could adversely affect the level of sales in
the Company's Defense Division upon completion of the current Systems Contract.
In light of the variability of the Defense Division's performance and the future
outlook for the U.S. defense ordnance budget, the Company is currently
considering a variety of strategic alternatives for the Defense Division to
enhance shareholder value.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995.
Net Sales. Net sales for the Automotive Division increased to $15,552,000 for
the three months ended September 30, 1996 from $12,269,000 for the same period
in the prior year, principally reflecting the Company's acquisition of Phoenix
Airbag and initial volume shipments to Delphi. This increase was partially
offset by lower sales to TRW as a result of one major program delay in North
America and lower sales volumes in Europe. Period to period, the Company's unit
sales volume increased by approximately 95%.
8
<PAGE>
Net sales for the Defense Division decreased to $3,325,000 for the three months
ended September 30, 1996 from $13,048,000 for the same period in the prior year.
Defense sales were down reflecting the current contract schedule for the systems
Contract, which has been delayed as a result of certain issues between one of
the Company's subcontractors and the U.S. Army. As a result of these issues,
the U.S. Army has extended the time for delivery and the Company now anticipates
that deliveries will begin towards the end of its fiscal year. The reduced
sales volume under the Systems Contract was partially offset by the increased
sales of metal ordnance products.
Gross Profit. Gross profit of the Automotive Division increased to $3,159,000
for the three months ended September 30, 1996 from $1,835,000 for the same
period in the prior year. The increase in gross profit resulted from increased
sales volumes in Europe due to the acquisition of Phoenix Airbag, initial volume
shipments to Delphi and ongoing cost reduction programs, partially offset by
decreased sales to TRW in North America and Europe.
Gross profit for the Defense Division decreased to $617,000 for the three months
ended September 30, 1996 from $1,689,000 for the same period in the prior year.
Gross profit decreased period to period reflecting the lower sales due to delays
in the contract schedule for the Systems Contract, partially offset by improved
margins on metal ordnance products resulting from increased sales volumes,
improved overhead absorption and a change in product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the Automotive Division increased to $1,062,000 for
the three months ended September 30, 1996 from $888,000 for the same period in
the prior year. The increase resulted primarily from greater expenditures
related to the continued expansion of the Company's business and increased
marketing expenses on higher sales volumes, partially offset by lower corporate
overhead expenses.
Selling, general and administrative expenses for the Defense Division decreased
to $312,000 for the three months ended September 30, 1996 from $684,000 for the
same period in the prior year. The decrease reflected lower corporate overhead
expenses.
Operating Income. Operating income for the Automotive Division increased to
$1,943,000 for the three months ended September 30, 1996 from $947,000 for the
same period in the prior year. The increase period to period resulted primarily
from the Company's acquisition of Phoenix Airbag and continued improvement in
the profitability of the North American manufacturing operation partially offset
by lower volumes in certain TRW programs.
Operating income for the Defense Division decreased to $305,000 for the three
months ended September 30, 1996 from $1,005,000 for the same period in the prior
year. Operating income decreased reflecting lower sales due to delays in the
current contract schedule for the Systems Contract, partially offset by improved
margins on metal ordnance products, resulting from increased sales volumes,
improved overhead absorption and product mix.
Net Income. Net income decreased to $1,148,000 for the three months ended
September 30, 1996 from $1,343,000 for the same period in the prior year. The
income tax provision was calculated using a 39% combined federal and state
income tax rate for the U.S. operations and a 48% rate for the European
operations. Interest expense net of interest income was $240,000 for the three
months ended September 30, 1996 compared to $175,000 of net interest income for
the same period in the prior year. Increased interest expense resulted
primarily from the financing for the acquisition of Phoenix Airbag in the form
of a $20 million acquisition term loan.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995.
Net Sales. Net sales for the Automotive Division increased to $26,885,000 for
the six months ended September 30, 1996 from $25,700,000 for the same period in
the prior year, principally reflecting the Company's acquisition of Phoenix
Airbag and initial volume shipments to Delphi. This increase was partially
offset by lower sales to TRW as a result of one major program delay in North
America and lower sales volumes in Europe. Period to period, the Company's unit
sales volume increased by approximately 56%.
Net sales for the Defense Division decreased to $8,164,000 for the six months
ended September 30, 1996 from $23,300,000 for the same period in the prior year.
Defense sales were down reflecting the current contract schedule for the Systems
Contract, which has been delayed as a result of certain issues between one of
the Company's subcontractors and the U.S. Army. As a result of these issues,
the U.S. Army has extended the time for delivery and the Company now anticipates
that deliveries will begin towards the end of its fiscal year.
9
<PAGE>
The reduced sales volume under the Systems Contract was partially offset by the
increased sales of metal ordnance products.
Gross Profit. Gross profit of the Automotive Division increased to $4,929,000
for the six months ended September 30, 1996 from $3,718,000 for the same period
in the prior year. The increase in gross profit resulted from increased sales
volumes in Europe due to the acquisition of Phoenix Airbag, initial volume
shipments to Delphi and ongoing cost reduction programs, partially offset by
decreased sales to TRW in North America and Europe.
Gross profit for the Defense Division decreased to $1,439,000 for the six months
ended September 30, 1996 from $2,839,000 for the same period in the prior year.
Gross profit decreased period to period reflecting the lower sales due to delays
in the contract schedule for the Systems Contract, partially offset by improved
margins on metal ordnance products resulting from increased sales volumes,
improved overhead absorption and a change in product mix.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses for the Automotive Division decreased to $1,788,000 for
the six months ended September 30, 1996 from $1,979,000 for the same period in
the prior year resulting from lower corporate expenses.
Selling, general and administrative expenses for the Defense Division decreased
to $732,000 for the six months ended September 30, 1996 from $1,064,000 for the
same period in the prior year resulting from lower corporate overhead expenses.
Operating Income. Operating income for the Automotive Division increased to
$2,987,000 for the six months ended September 30, 1996 from $1,739,000 for the
same period in the prior year. The increase period to period resulted primarily
from the Company's acquisition of Phoenix Airbag and continued improvement in
the profitability of the North American manufacturing operations partially
offset by lower volumes in certain TRW programs.
Operating income for the Defense Division decreased to $707,000 for the six
months ended September 30, 1996 from $1,775,000 for the same period in the prior
year. Operating income decreased reflecting lower sales due to delays in the
current contract schedule for the Systems Contract, partially offset by
improved margins on metal ordnance products, resulting from increased sales
volumes, improved overhead absorption and product mix.
Net Income. Net income decreased to $2,001,000 for the six months ended
September 30, 1996 from $2,390,000 for the same period in the prior year. The
income tax provision was calculated using a 39% combined federal and state
income tax rate for the U.S. operations and a 45% rate for the European
operations. Interest expense net of interest income was $250,000 for the six
months ended September 30, 1996 compared to $112,000 of net interest income for
the same period in the prior year. Increased net interest expense resulted
primarily from the financing for the acquisition of Phoenix Airbag in the form
of a $20 million acquisition term loan. Other expense was $73,000 for the six
months ended September 30, 1996 compared to $102,000 of income for the same
period in the prior year. The changes in other expense/income are primarily the
result of fluctuations of the German Mark against the British Pound Sterling.
The majority of the Automotive Division's transactions in Europe are conducted
in German Marks.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business has grown, overall cash requirements for equipment and
working capital have historically been met through a combination of the proceeds
from the Company's public offerings, cash flow from operations, equipment
financing and revolving credit borrowings. The Company expects its equipment
and working capital requirements to continue to increase as a result of the
anticipated growth of the Automotive Division.
On June 21, 1995, the Company completed an additional equity offering which
resulted in net proceeds to the Company of approximately $16,500,000, including
the underwriters' exercise of the over allotment option. The Company has and
will continue to use the net proceeds from this offering to expand and enhance
its existing worldwide airbag manufacturing operations, including the
construction of a new facility in the Czech Republic, and the enhancement of
research and development and prototype capabilities.
10
<PAGE>
On August 6, 1996 the Company completed its acquisition of Phoenix Airbag, a
major European airbag manufacturer located in Hildesheim, Germany. Pursuant to
the Stock Purchase Agreement, the Company initially acquired eighty percent
(80%) of Phoenix AG's interest in Phoenix Airbag GmbH for a purchase price of
approximately $22 million, subject to a net worth adjustment. The Company will
acquire the remaining twenty percent (20%) interest effective December 31, 1998,
but is entitled to all of the income of Phoenix Airbag from the date of the
acquisition. The additional purchase price of up to approximately $7.5 million
for the remaining twenty percent (20%) interest is contingent on Phoenix Airbag
meeting certain annual performance targets for the calendar years 1996 through
1998. If the annual performance targets are met, the contingent purchase price
will be paid in three annual installments commencing April 30, 1997. If the
annual performance targets are not met, the Company will acquire the remaining
twenty percent (20%) without any additional consideration. Additionally, the
Company will, under certain circumstance, be required to provide a bank
guaranty, in August 1997, to secure the payment of up to approximately $4.5
million of the contingent purchase price.
On August 1, 1996 the Company entered into a Loan Agreement with Bank of
America. The Loan Agreement provides the Company with financing for the
acquisition of Phoenix Airbag GmbH in the form of a $20 million acquisition term
loan, amortizing over a four year period. The Loan Agreement also provides for
a $5.5 million revolving credit facility and a non-revolving stand-by letter of
credit facility to secure payment, if necessary, of the contingent purchase
price for the acquisition of Phoenix Airbag. Indebtedness under the Bank of
America Facility is secured by substantially all the assets of the Company and
bears interest at a LIBOR indexed rate plus 2 1/4%. The Bank of America
Facility also contains certain financial covenants, including limitations on
indebtedness and liens, fixed charge coverage ratios, maximum leverage, minimum
ratio of current assets to current liabilities, minimum tangible net worth and
prohibitions as to the payment of dividends.
The Company, as of September 30, 1996, has outstanding commitments for capital
expenditures for certain additional equipment of approximately $6 million, which
includes the construction of the Czech facility and the acquisition of
additional equipment to expand the Company's production capacity worldwide. The
Company will pay for these capital expenditures through the use of cash on hand,
from the proceeds of the June 1995 public offering, cash flow from operations,
additional equipment financing and revolving credit borrowings.
This Form 10-Q may contain forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand and market condition risks, cost associated with
integration and administration of acquired operations, the timing of
introduction of new models of automobiles for which the Company manufactures
airbags, changes in consumer vehicle preferences, major labor disputes in the
automotive industry, changes in the strategic direction of defense spending, the
ability of a subcontractor of the Company to resolve its disputes with the U.S.
Army, the timing of defense procurement and specific defense program
appropriation decisions.
11
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 3 and Item 5 are omitted as they are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant held its 1996 Annual Meeting of Stockholders on September 25,
1996.
At the Annual Meeting, the following individual was elected as director:
Director Votes For Votes Withheld
-------- --------- --------------
Joseph J. DioGuardi 4,631,911 393,097
In addition, at the Annual Meeting, the stockholders voted upon, and approved, a
proposal to amend the Company's 1994 Stock Option Plan (the "Plan") to: (i)
increase the number of shares of the Company's Common Stock subject to the Plan
from 400,000 shares in the aggregate to 550,000 shares in the aggregate; and
(ii) increase the size of the annual formula grant to non-employee directors
under the Plan from an option to purchase 1,500 shares of the Company's Common
Stock to an option to purchase 2,500 shares of the Company's Common Stock.
4,475,150 shares were voted in favor of the proposal, 228,895 were voted against
the proposal, 15,915 abstained from voting and 52,951 were broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement of Computation of Per Share Earnings
(b) Reports on Form 8-K - Acquisition of Phoenix Airbag GmbH
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
Date: November 14, 1996 By: /s/ W. Hardy Myers
----------------- -----------------------------
W. Hardy Myers
Chief Financial Officer
(Principal Accounting Officer)
12
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
11.1 Statement of Computation of Per Share Earnings 14
27 Financial Data Schedule 15
</TABLE>
13
<PAGE>
EXHIBIT 11.1
SAFETY COMPONENTS INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
ended ended ended ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 1,343 $ 1,148 $ 2,390 $ 2,001
========== ========== ========== ==========
Primary
- -------
Common stock
Shares outstanding from beginning
of period...................................... 5,138,500 5,025,008 4,060,000 5,048,500
Pro rata shares
Sale of stock................................... 601,428
Purchase of treasury stock...................... (20,864)
Assumed exercise of warrants using the
treasury stock method.......................... 27,067 29,451
Assumed exercise of stock options using the
treasury stock method.......................... 81,984 23,047 85,292 31,095
---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding.............................. 5,247,551 5,048,055 4,776,171 5,058,731
========== ========== ========== ==========
Earnings per common and common equivalent share... $ 0.26 $ 0.23 $0.50 $ 0.40
========== ========== ========== ==========
Fully Diluted
- --------------
Common stock
Shares outstanding from beginning of period..... 5,138,500 5,025,008 4,060,000 5,048,500
Pro rata shares
Sale of stock................................... 601,428
Purchase of treasury stock...................... (20,864)
Assumed exercise of warrants using the treasury
stock method................................... 32,968 32,401
Assumed exercise of stock options using the
treasury stock method........................... 91,804 33,976 90,202 36,559
---------- ---------- ---------- ----------
Fully diluted weighted average common and common
equivalent shares outstanding.................... 5,263,272 5,058,984 4,784,031 5,064,195
========== ========== ========== ==========
Fully diluted earnings per common and common
equivalent share................................. $ 0.26 $ 0.23 $0.50 $ 0.40
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Appendix A to Item 601(c) of Regulation S-K, Commercial and Industrial
Companies, Article 5 of the Regulation S-X (In 000's, except earnings per share
data).
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 10,309
<SECURITIES> 0
<RECEIVABLES> 12,862
<ALLOWANCES> 0
<INVENTORY> 5,784
<CURRENT-ASSETS> 30,998
<PP&E> 28,571
<DEPRECIATION> 3,024
<TOTAL-ASSETS> 75,127
<CURRENT-LIABILITIES> 14,062
<BONDS> 17,831
0
0
<COMMON> 51
<OTHER-SE> 36,810
<TOTAL-LIABILITY-AND-EQUITY> 75,127
<SALES> 35,049
<TOTAL-REVENUES> 35,049
<CGS> 28,681
<TOTAL-COSTS> 31,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 439
<INCOME-PRETAX> 3,371
<INCOME-TAX> 1,370
<INCOME-CONTINUING> 2,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,001
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
