SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A
----------
Amendment No. 1
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
July 24, 1997
(Date of earliest event reported)
SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-23938
(State or other jurisdiction of (Commission File Number)
incorporation or organization)
33-0596831
(I.R.S. Employer Identification No.)
2160 North Central Road
Fort Lee, New Jersey
(Address of principal executive offices)
07024
(Zip Code)
Registrant's telephone number, including area code (201) 592-0008
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
This Form 8-K/A, Amendment Number 1, amends and supplements the Form 8-K
(the "Original Form 8-K") filed by Safety Components International, Inc. on
August 7, 1997. The purpose of this Amendment Number 1 is to amend Item 7 of the
Original Form 8-K as set forth below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Item 7 is hereby amended to read in full as follows:
(a) Financial statements of business acquired
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
JPS AUTOMOTIVE L.P. AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION INTERIM FINANCIAL
STATEMENTS
Balance Sheets as of June 28, 1997 (Unaudited), March 29, 1997 (Unaudited) and
December 28, 1996............................................................... F-1
Statements of Operations for the Period from March 30, 1997, to June 28, 1997
(Unaudited), the Period from December 29, 1996, to March 29, 1997
(Unaudited) and the Period from January 1, 1996, to March 30, 1996 (Unaudited).. F-2
Statements of Cash Flows for the Period from March 30, 1997, to June 28, 1997
(Unaudited), the Period from December 29, 1996, to March 29, 1997 (Unaudited)
and the Period from January 1, 1996, to March 30, 1996 (Unaudited).............. F-3
Notes to Interim Financial Statements.............................................. F-4
JPS AUTOMOTIVE L.P. AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................... F-9
Balance Sheets as of December 28, 1996 and December 31, 1995....................... F-10
Statements of Operations for the Period from December 12, 1996 to December 28, 1996
and the Period from January 1, 1996 to December 11, 1996 and the Year Ended
December 31, 1995 and the period from June 29, 1994, to January 1, 1995......... F-11
Statements of Divisional Equity for the Period from December 12, 1996 to December
28, 1996 and the Period from January 1, 1996 to December 11, 1996 and the Year
Ended December 31, 1995 and the period from June 29, 1994, to January 1, 1995... F-12
Statements of Cash Flows for the Period from December 12, 1996 to December 28, 1996
and the Period from January 1, 1996 to December 11, 1996 and the Year Ended
December 31, 1995 and the period from June 29, 1994, to January 1, 1995......... F-13
Notes to Financial Statements...................................................... F-14
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION OF JPS TEXTILE GROUP, INC.
Report of Independent Accountants.................................................. F-30
Statement of Income for the Period from December 26, 1993 to June 28, 1994......... F-31
Statement of Divisional Equity for the Period from December 26, 1993 to June 28,
1994............................................................................ F-32
Statement of Cash Flows for the Period from December 26, 1993 to June 28, 1994..... F-33
Notes to Financial Statements...................................................... F-34
</TABLE>
1
<PAGE>
(b) Pro Forma Unaudited Financial Information
The unaudited pro forma combined balance sheet of Safety Components
International, Inc. (Safety Components or the Company) and the Air Restraints
and Technical Products Division (the Division) of JPS Automotive L.P. as of June
30, 1997 reflect adjustments as if the acquisition of all of the assets and
certain liabilities, subject to post-closing adjustments, of the Division by
Safety Components had taken place on June 30, 1997. The unaudited pro forma
statement of operations for the twelve months ended March 31, 1997 reflect
adjustments as if the transaction had occurred on April 1, 1996, the beginning
of Safety Components' fiscal year. The acquisition is being accounted for using
the purchase method. Effective May 22, 1997, the Company acquired all of the
issued and outstanding stock of Valentec International Corporation (Valentec),
which was accounted for using the purchase method. Accordingly, the unaudited
pro forma statement of operations for the twelve months ended March 31, 1997
reflects adjustments as if the Valentec transaction had occurred on April 1,
1996. The unaudited pro forma statement of operations for the three months ended
June 30, 1997 reflect adjustments as if the Division transaction had occurred on
April 1, 1997, the beginning of Safety Components' first quarter ended June 30,
1997. Certain transactions occurred subsequent to the acquisition of Valentec
and prior to the Division transaction which are included in the Pro Forma
Unaudited Financial Information under the heading Subsequent Financing
Transactions.
The financial statements of Safety Components are based on the fiscal year
ending March 31. The acquisition of Phoenix Airbag GmbH (Phoenix Airbag) was
consummated on August 6, 1996. In order to present the pro forma combined
financial statements based on Safety Components' fiscal year ended March 31,
1997, Phoenix Airbag's results for the period from April 1, 1996 through August
5, 1996 are being included.
The unaudited pro forma combined financial statements reflect Safety
Components' allocation of the purchase price, including transaction costs, of
approximately $56.9 million to the assets and liabilities of the Division, based
upon Safety Components' appraised values of the relevant assets acquired and
liabilities assumed. The final allocation of the purchase price may vary as
additional information is obtained, and accordingly, the ultimate allocation may
differ from those used in the unaudited pro forma financial statements. Such
final allocation is not expected to be materially different.
The unaudited pro forma combined financial statements should be read in
conjunction with the separate historical financial statements and related notes
of the Division appearing in Item 7 (a) of this current report on Form 8-K/A and
the historical financial statements, related notes and Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations of
Safety Components for the year ended March 31, 1997 and the quarter ended June
30, 1997 previously filed with the Securities and Exchange Commission. The
financial statements of Valentec are available for review, as filed, on Form
8-K/A filed with the Securities and Exchange Commission on August 5, 1997. The
pro forma information is not necessarily indicative of the results that would
have been reported had the acquisitions actually occurred on the dates
specified, nor is it necessarily indicative of the future results of the
combined companies.
2
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Offering and Offering and Subsequent
SCI Valentec JPS Acquisitions Acquisitions Financing
3/31/97 3/31/97 3/29/97 Adjustments Totals Transactions Pro Forma
------- ------- ------- ----------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ................. $ 83,958 $ 14,026 $ 65,570 $ 9,654 (a) $173,208 $ -- $173,208
Cost of sales ............. 64,130 12,144 55,127 6,428 (b) 137,829 -- 137,829
Depreciation .............. 2,043 546 2,306 599 (b) 5,494 -- 5,494
Product launch costs ...... 1,761 -- -- -- 1,761 -- 1,761
-------- -------- -------- -------- -------- -------- --------
Gross Profit ............ 16,024 1,336 8,137 2,627 28,124 -- 28,124
Selling and marketing
expenses ................ 1,375 -- -- 503 (c) 1,878 -- 1,878
General and administrative
expenses ................ 5,697 1,683 3,229 675 (d) 11,284 -- 11,284
Amortization .............. 348 -- 900 352 (e) 1,600 -- 1,600
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............... 8,604 (347) 4,008 1,097 13,362 -- 13,362
-------- -------- -------- -------- -------- -------- --------
Other expense (income) .... 444 (538) 332 605 (f) 843 -- 843
--------
Interest expense, net ..... 1,319 1,183 499 7,341 (g) 10,342 221 (i) 10,563
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes ................... 6,841 (992) 3,177 (6,849) 2,177 (221) 1,956
Provision (benefit) for
income taxes ............ 2,995 (286) 453 (2,058)(h) 1,104 (88)(j) 1,016
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle............... $ 3,846 $ (706) $ 2,724 $ (4,791) $ 1,073 $ (133) $ 940
======== ======== ======== ======== ======== ======== ========
Pro forma income before
extraordinary item and
cumulative effect of
change in accounting
principle per share..... $0.19
=====
Weighted average pro forma
shares outstanding..... 5,021
=====
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SUMMARY OF PRO FORMA ADJUSTMENTS
(in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ref Adjustments March 31, 1997
--- ----------- --------------
<S> <C>
Net sales (a) Revenues of Phoenix prior to August 6, 1996
(date of acquisition) (Note 2) $ 12,381
Eliminate intercompany sales between
SCI and Valentec (2,727)
--------
9,654
Cost of sales (b) Cost of Sales of Phoenix prior to August 6, 1996
(Note 2) 9,155
Depreciation for Phoenix prior to
acquisition (Note 2) 249
Eliminate intercompany cost of sales between
SCI and Valentec (2,727)
Additional depreciation related to JPS property,
plant and equipment (Note 2) 350
--------
7,027
--------
Increase in gross profit 2,627
Selling and marketing expenses (c) Selling and marketing expenses of Phoenix
prior to August 6, 1996 (Note 2) 503
General and administrative (d) General and Administrative expense of Phoenix
expenses prior to August 6, 1996 (Note 2) 675
Goodwill amortization (e) Amortization of Phoenix goodwill prior
to August 6, 1996 (Note 2) 153
Amortization of Valentec goodwill
(Note 1) 672
Eliminate JPS historical goodwill
amortization (Note 1) (884)
Amortization of JPS goodwill (Note 1) 411
--------
352
--------
Increase of operating income 1,097
--------
Other expense (income) (f) Elimination of income from Valentec's
investment in SCI (Note 1) 605
</TABLE>
4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SUMMARY OF PRO FORMA ADJUSTMENTS
(in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ref Adjustments March 31, 1997
--- ----------- --------------
<S> <C>
Interest expense (g) Increase in interest expense due to Notes
issued in Offering (Notes 1 and 4) 9,113
Increase in interest expense due on note
payable to affiliate (Note 4) 140
Increase in interest expense related to
Phoenix prior to August 6, 1996
(Note 2) 83
Increase amortization of deferred
financing costs incurred from KeyBank
(Notes 1 and 2) 40
Increase amortization of deferred
financing costs incurred from Offering
(Notes 1 and 2) 330
--------
Total Interest Expense Pro Forma 9,706
Eliminate historical interest expense for
long-term debt repaid from Offering
proceed (2,365)
--------
Pro Forma Interest Adjustment
Required 7,341
--------
Decrease in income before
income taxes (6,849)
Provision (benefit) for income (h) Income tax benefit attributable to
taxes additional interest on Notes issued in
Offering (Note 5) (2,963)
Income tax benefit attributable to fiscal
year 1997 operating losses from
Valentec (Note 5) (353)
Increase income tax provision to
corporate tax rates for JPS (Note 5) 785
Income taxes of Phoenix prior to August
6, 1996 (Note 5) 473
--------
(2,058)
--------
Decrease in income before
extraordinary item and
cumulative effect of change
in accounting principle $ (4,791)
========
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SUMMARY OF SUBSEQUENT TRANSACTIONS
(in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ref Adjustments March 31, 1997
--- ----------- --------------
<S> <C>
Interest Expense (i) Increase in SCI interest expense due to
mortgage financing from Bank Austria
(Notes 4 and 6) $ 563
Increase in SCI interest expense due to
new equipment financing
(Notes 4 and 6) 160
Increase amortization of deferred financing
costs incurred from Bank Austria
(Notes 1 and 2) 15
Eliminate historical interest expense for
long-term debt repaid from
subsequent transactions (517)
--------
221
Provision (benefit) for income (j) Income tax benefit attributable to additional
taxes interest from subsequent financing
transactions (Note 5) (88)
--------
Decrease in net income $ 133
========
See Unaudited Notes to Pro Forma Financial Data
6
</TABLE>
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Historical Acquisition
SCI JPS Pro Forma
Three Months Three Months Offering and Offering and Subsequent
Ended Ended Acquisitions Acquisitions Financing
6/30/97 6/28/97 Adjustments Totals Transactions Pro Forma
------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net sales................. $ 27,629 $ 20,680 $ -- $ 48,309 $ -- $ 48,309
Cost of sales............. 21,156 17,395 -- 38,551 -- 38,551
Depreciation.............. 805 536 33 (a) 1,374 -- 1,374
-------- -------- -------- -------- -------- --------
Gross Profit............ 5,668 2,749 (33) 8,384 -- 8,384
Selling and marketing
expenses................ 288 -- -- 288 -- 288
General and administrative
expenses................ 2,163 1,223 -- 3,386 -- 3,386
Amortization.............. 185 122 (19)(b) 288 -- 288
-------- -------- -------- -------- -------- --------
Income (loss) from
operations........... 3,032 1,404 (14) 4,422 -- 4,422
-------- -------- -------- -------- -------- --------
Other expenses (income)... 118 (20) -- 98 -- 98
Interest expense, net..... 523 17 1,995 (c) 2,535 104 (e) 2,639
-------- -------- -------- -------- -------- --------
Income (loss) before
taxes................ 2,391 1,407 (2,009) 1,789 (104) 1,685
Provision (benefit) for
income taxes............ 956 -- (260)(d) 696 (42)(f) 654
-------- -------- -------- -------- -------- --------
Net income (loss)......... $ 1,435 $ 1,407 $ (1,749) $ 1,093 $ (62) $ 1,031
======== ======== ======== ======== ======== ========
Net income (loss) per share $ .21
=====
Weighted average number
of shares outstanding... 5,015
=====
See Unaudited Notes to Pro Forma Financial Data
7
</TABLE>
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SUMMARY OF PRO FORMA ADJUSTMENTS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ref Adjustment June 30, 1997
--- ---------- -------------
<S> <C>
Cost of sales (a) Additional depreciation related to JPS
property, plant and equipment (Note 2) $ 33
--------
Decrease in gross profit 33
--------
Goodwill amortization (b) Eliminate JPS historical goodwill
amortization (Note 1) (122)
Amortization of JPS goodwill (Note 1) 103
--------
(19)
--------
Decrease in operating income (14)
--------
Interest expense (c) Increase in interest expense due to Notes
issued in Offering (Notes 1 and 4) 2,278
Increase interest expense due on note
payable to affiliate (Note 4) 17
Increase amortization of deferred
financing costs incurred from KeyBank
(Notes 1 and 2) 5
Increase amortization of deferred
financing costs incurred from Offering
(Notes 1 and 2) 83
--------
Total Interest Expense Pro Forma 2,383
Eliminate historical interest expense for
long-term debt repaid from Offering
proceeds (388)
--------
Pro Forma Interest Adjustment
Required 1,995
--------
Decrease in income before
income taxes (2,009)
--------
Provision (benefit) for income
taxes (d) Income tax benefit attributable to
additional interest on Notes issued in
Offering (Note 5) (798)
Increase income tax provision to
corporate tax rates for JPS (Note 5) 538
--------
(260)
--------
Decrease in net income $ (1,749)
========
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
8
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SUMMARY OF SUBSEQUENT TRANSACTIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ref Adjustments June 30, 1997
--- ----------- -------------
<S> <C>
Interest Expense (e) Increase in SCI interest expense due to mortgage
financing from Bank Austria (Notes 4 and 6) $ 94
Increase in SCI interest expense due to new equipment
financing (Notes 4 and 6) 26
Increase amortization of deferred financing costs
incurred from Bank Austria (Notes 1 and 2) 2
Eliminate historical interest expense for long-term
debt repaid from subsequent transactions (18)
--------
104
Provision (benefit) for income (f) Income tax benefit attributable to additional
taxes interest from subsequent financing (42)
transaction (Note 5) --------
Decrease in net income $ 62
========
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
9
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Historical Acquisition Offering and
SCI JPS Acquisition
6/30/97 6/28/97 Adjustments Pro Forma
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents................... $ 2,772 $ 2 $ 10,622 (a) $ 13,396
Accounts receivable, net.................... 16,000 14,173 -- 30,173
Inventories................................. 7,576 9,094 -- 16,670
Prepaid and other........................... 2,790 262 (203)(b) 2,849
-------- -------- -------- --------
Total current assets...................... 29,138 23,531 10,419 63,088
Property, plant and equipment,
net....................................... 34,032 24,706 2,186 (c) 60,924
Goodwill, net............................... 27,602 14,927 1,511 (d) 44,040
Other assets................................ 3,744 273 3,027 (e) 7,044
-------- -------- -------- --------
Total assets.............................. $ 94,516 $ 63,437 $ 17,143 $175,096
======== ======== ======== ========
Liabilities and Stockholders' Equity
Accounts payable............................ $ 13,221 $ 5,434 $ -- $ 18,655
Accrued liabilities......................... 7,436 1,619 -- 9,055
Current portion of long-term
obligations............................... 5,236 581 (3,000)(f) 2,817
-------- -------- -------- --------
Total current liabilities............. 25,893 7,634 (3,000) 30,527
Long-term obligations....................... 29,135 -- 75,072 (g) 104,207
Other long-term liabilities................. 3,573 874 -- 4,447
-------- -------- -------- --------
Total liabilities...................... 58,601 8,508 72,072 139,181
-------- -------- -------- --------
Stockholders' equity:
Preferred stock............................. -- -- -- --
Common stock................................ 50 -- -- 50
Common stock warrants....................... 1 -- -- 1
Additional paid-in capital.................. 43,754 52,311 (52,311)(h) 43,754
Treasury stock.............................. (15,438) -- -- (15,438)
Retained earnings (accumulated
deficit).................................. 10,828 2,618 (2,618)(h) 10,828
Cumulative translation
adjustment................................ (3,280) -- -- (3,280)
-------- -------- -------- --------
Total stockholders' equity............. 35,915 54,929 (54,929) 35,915
-------- -------- -------- --------
Total liabilities and
stockholders' equity...................... $ 94,516 $ 63,437 $ 17,143 $175,096
======== ======== ======== ========
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
10
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
As of
Ref Adjustment June 30, 1997
--- ---------- -------------
<S> <C>
Cash and cash equivalents (a) Net proceeds from Notes (Notes 1 and 4) $ 90,000
Payment of deferred financing costs for Offering
(Notes 1 and 4) (3,300)
Payment for acquisition fees (Note 1) (600)
Purchases of equipment from
Offering proceeds (Notes 1 and 3) (1,250)
Paydown of SCI's notes payable from Offering
proceeds (Note 4) (17,928)
Purchase of JPS (Note 1) (56,300)
--------
10,622
Prepaid and other (b) Eliminate JPS's current deferred tax assets
(Note 5) (203)
--------
Increase in current assets 10,419
--------
Property, plant and
equipment, net (c) Adjustment to property, plant and equipment to
fair value (1,216)
Eliminate accumulated depreciation accounts 1,216
Adjustment to machinery and equipment to fair
value in connection with the acquisition of JPS
(Notes 1 and 3) 677
Purchases of property and equipment from
Offering proceeds (Note 2) 1,250
Purchased property and equipment from
Offering proceeds (Notes 1 and 3) 259
--------
2,186
Goodwill, net (d) Record goodwill from acquisition of JPS
(Note 1) 16,438
Eliminate historical JPS goodwill (Note 1) (14,927)
--------
1,511
Other assets (e) Record debt acquisition costs related to the
Notes (Notes 1 and 4) 3,300
Eliminate JPS deferred tax assets (273)
Record SCI's investment in JPS for total cash
paid 56,900
Eliminate SCI's investment in JPS in
consolidation (56,900)
--------
3,027
--------
Increase in total assets $ 17,143
========
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
11
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS
(in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
As of
Ref Adjustment June 30, 1997
--- ---------- -------------
<S> <C>
Current portion of
long-term obligations (f) Repayment of SCI's current portion of notes payable
to Bank of America NT&SA (as defined)
(Note 4) $ (3,000)
--------
Decrease in current
liabilities (3,000)
Long-term obligations (g) Issuance of Notes (Notes 1 and 4) 90,000
Repayment of SCI's notes payable to Bank of
America NT&SA (Note 4) (14,928)
--------
75,072
--------
Increase in total liabilities 72,072
--------
Stockholders' equity (h) Eliminate JPS's historical equity (52,311)
Eliminate JPS's historical retained earnings (2,618)
--------
Decrease in stockholders'
equity (54,929)
--------
Increase in total liabilities
and stockholders' equity $ 17,143
========
</TABLE>
See Unaudited Notes to Pro Forma Financial Data
12
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
NOTE 1 TRANSACTIONS
Valentec Acquisition
Valentec is a high-volume manufacturer of stamped and precision machine
products in the automotive, commercial and defense industries. Immediately prior
to the closing of the Valentec Acquisition, Valentec sold its 88.8% owned
subsidiary, Valentec International Limited ("VIL"), for a nominal amount. In
connection with the Valentec Acquisition, the Company assumed a demand note
payable to VIL of $800,000 and a five year term note of $2.0 million (see Note
4) in satisfaction of certain intercompany obligations between Valentec and VIL.
The stock of the Company, 1,379,200 shares, previously held by Valentec was
reacquired and has been recorded as treasury shares at fair value. Goodwill of
approximately $16.8 million has been recorded in the June 30, 1997 balance sheet
and will be amortized over 25 years. Amortization of goodwill has been included
in the accompanying unaudited pro forma consolidated statements of operations
amounting to approximately $672,000 for the year ended March 31, 1997.
Additionally, the Company had certain related transactions, which have been
eliminated for pro forma presentation for the year ended March 31, 1997. For the
three months ended June 30, 1997 the Valentec Acquisition is reflected from the
effective date of acquisition. The operations for the period April 1, 1997 to
May 21, 1997 are not considered significant and, accordingly, have been excluded
from the accompanying unaudited pro forma statement of operations for the three
months ended June 30, 1997.
JPS Acquisition
On July 24, 1997, the Company acquired all of the assets of the
Division for $56.3 million in cash, including 18 looms (approximated value of
$1.5 million) which were delivered to the Company at closing plus the assumption
of certain liabilities, subject to post-closing adjustments. In addition, the
Company made a payment to JPS at the closing to enable it to pay off existing
indebtedness of the Division of approximately $650,000 at the closing.
Subsequently, the Company purchased an adjacent building for approximately $1.3
million. The Company estimates direct acquisition costs to be approximately
$600,000. The JPS Acquisition was accounted for as a purchase, with the excess
of the purchase price over the fair value of the net assets acquired allocated
to goodwill. The Company adjusted property, plant and equipment in the
accompanying historical financial statements of the Division to fair value in
the amount of $677,000. Goodwill has been estimated at $16.4 million and will be
amortized over 40 years. Amortization of goodwill has been included in the
accompanying unaudited pro forma consolidated statements of operations amounting
to approximately $411,000 for the year ended March 31, 1997 and $103,000 for the
three months ended June 30, 1997. Additionally, the Division had preexisting
amortization of goodwill totaling approximately $884,000 for the year ended
March 29, 1997 and $122,000 for the three months ended June 28, 1997 which was
reversed from the accompanying unaudited pro forma consolidated statements of
operations.
On July 24, 1997, the Company issued (the "Offering") $90.0 million
principal amount of its 10 1/8% Senior Subordinated Notes (the "Notes") due July
15, 2007. Interest on the Notes will accrue from July 24, 1997 and will be
payable semi-annually in arrears on each of January 15 and July 15 of each year,
commencing January 15, 1998. Included in the unaudited pro forma statement of
operations is interest expense of $9.1 million for the year ended March 31, 1997
and $2.3 million for the three months ended June 30, 1997. The Notes are general
unsecured obligations of the Company and subordinated in right of payment to all
existing and future senior indebtedness of the Company and structurally
subordinated to all existing and future indebtedness of the Company's
13
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
subsidiaries that have not guaranteed payment of the Notes. All of the Company's
direct and indirect wholly-owned domestic subsidiaries have guaranteed such
payment. A substantial portion of the proceeds of the Notes were used by the
Company to consummate the Division acquisition, repay the term loan and amounts
outstanding under the revolving credit facility with KeyBank National
Association ("KeyBank") as of July 24, 1997, pay certain fees and expenses
associated with the Division acquisition and the Notes and purchase a building
adjacent to the facility acquired in the Division acquisition. The balance of
the proceeds will be used for working capital and general corporate purposes.
The Company incurred approximately $3.3 million of fees and expenses related to
the Offering. Such fees will be deferred and charged to operations over the
expected term of the Notes, not to exceed 10 years.
NOTE 2 PRINCIPLES OF ACCOUNTING FOR UNAUDITED PRO FORMA FINANCIAL DATA
The historical consolidated financial statements include the accounts
of the Company and its substantially-owned subsidiaries. The accounts of Phoenix
Airbag GmbH ("Phoenix" or "Phoenix Airbag"), which was acquired by the Company
on August 6, 1996 (the "Phoenix Acquisition"), have been included in the
Company's historical consolidated financial statements beginning August 6, 1996
(date of acquisition). Accordingly, management adjusted, on a pro forma basis,
the historical accounts for Phoenix based on its actual results of operations
for the year ended March 31, 1997.
For the year ended March 31, 1997, the accompanying unaudited pro forma
statements of operations have been adjusted to reflect, on a pro forma basis,
the historical results of Phoenix for a full year, and management's estimates of
costs and expenses for the period April 1, 1996 through August 5, 1996 as
follows (in thousands):
Net sales..................................................... $12,381
Cost of sales................................................. 9,155
Depreciation.................................................. 249
Selling, general and administrative expenses.................. 1,178
Amortization of goodwill...................................... 153
Interest expense.............................................. 83
Income tax expense............................................ 473
-------
Increase in net income........................................ $ 1,090
=======
NOTE 3 PROPERTY, PLANT AND EQUIPMENT, NET
Property and equipment has been increased for the purchase of a
building for approximately $1.3 million, equipment for $1.5 million to be used
by the Division, and the adjustment to fair value of $677,000 of existing
equipment at the Division. The building and equipment have been purchased with
proceeds received from the Offering. The building has an estimated useful life
of 40 years and the equipment has an estimated useful life of 10 years. The
accompanying unaudited pro forma consolidated statements of operations include
additional depreciation amounting to $350,000 for the year ended March 29, 1997
and $33,000 for the three months ended June 28, 1997, which has been included as
costs of goods sold.
NOTE 4 LONG-TERM OBLIGATIONS
Prior to the consummation of the Offering, the Credit Agreement with
KeyBank provided for a Term Loan (the "Term Loan") in the principal amount of
$15.0 million and a Revolving Credit Facility (the "Revolving Credit Facility")
in the aggregate principal amount of $12.0 million. Upon completion of the
Offering, the Company used the proceeds to repay the Term Loan and amounts then
outstanding under the Revolving Credit Facility. In connection therewith, the
Company's credit facility with KeyBank was converted into a $27.0 million
revolving credit facility (the "New Credit Facility"), bearing interest at LIBOR
plus 1.00% with a commitment fee of 0.25% for any unused portion, with the
remaining terms and conditions being similar to the previous revolving credit
facility. The New Credit Facility under the Credit Agreement will mature on May
31, 2002 and are secured by substantially all the assets of the Company. The
Company incurred approximately $200,000 of financing fees in connection with the
KeyBank credit facility. The Credit Agreement contains certain restrictive
covenants that impose limitations upon, among other things, the Company's
ability to change its business; merge, consolidate or dispose of assets; incur
liens; make loans and investments; incur indebtedness; pay dividends and other
distributions; engage in certain transactions with affiliates; engage in sale
and lease-back transactions; enter into lease agreements; and make capital
expenditures.
14
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
Effective as of May 22, 1997, the Company completed the acquisition of
Valentec. The Company assumed all of Valentec's outstanding obligations as of
that date, including two term notes of approximately $5.1 million (net of assets
held by the lender), a revolving line of credit of approximately $1.7 million,
as of May 22, 1997 and equipment financings of approximately $1.1 million as of
May 22, 1997. Approximately $6.8 million of such indebtedness described in this
paragraph was retired in May and June 1997 with proceeds received from the Bank
Austria mortgage note (see below).
In connection with the Valentec Acquisition, the Company assumed a
demand note payable to VIL of $800,000 and a five year term note of $2.0
million, payable in 60 monthly installments of approximately $39,600, together
with interest at 7.0% per annum. Interest expense of $140,000 has been included
in the unaudited pro forma statement of operations for the year ended March 31,
1997 to reflect this obligation. For the three months ended June 30, 1997
interest is included from May 22, 1997 in the historical results and a pro forma
adjustment has been included in the amount of $17,000 for the period April 1,
1997 through May 21, 1997.
On June 4, 1997, the Company secured a $7.5 million mortgage note
facility with Bank Austria. The note is payable in semi-annual installments
through March 31, 2007 and bears an interest rate of 7.5%. The note is secured
by the assets of the Company's Czech Republic facility. The Company increased
interest expense in the accompanying unaudited pro forma statement of operations
by $563,000 for these borrowings as if they were outstanding for the year ended
March 31, 1997. Additionally, for the three months ended June 30, 1997 the
Company increased interest expense by $94,000.
Deferred Financing Costs
Deferred financing costs, included in other assets, will arise, or
arose, as the case may be, from the issuance of the Notes (see Note 1), the
KeyBank Credit Facility and the Subsequent Transactions (see Note 6). Costs will
be capitalized and amortized using the effective interest method. Amounts
charged to interest expense in the accompanying unaudited pro forma consolidated
statements of operations amounted to $385,000 for the year ended March 31, 1997.
For the three months ended June 30, 1997 the amount charged to interest expense
on a pro forma basis was $90,000.
NOTE 5 INCOME TAXES
The Company adjusted the tax provision of the Division as if it were
taxed as a corporation for the twelve months ended March 29, 1997 and the three
months ended June 28, 1997. The Company also recorded a tax benefit for
additional expenses, which are deductible for income tax purposes and included
in the pro forma presentation.
NOTE 6 SUBSEQUENT TRANSACTIONS
Subsequent to the Valentec Acquisition, the Company entered into
certain financing arrangements. On June 4, 1997, the Company secured a $7.5
million mortgage note facility with Bank Austria (see Note 4). The proceeds were
used to repay approximately $6.8 million of debt obligations assumed by the
Company as part of the Valentec Acquisition. In connection with this mortgage,
the Company incurred approximately $150,000 of financing fees. Additionally, the
Company replaced certain existing capital lease obligations with new capital
lease obligations with similar terms. These transactions are collectively known
as the "Subsequent Transactions."
15
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, MARCH 29, DECEMBER 28,
1997 1997 1996
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 2 $ 2 $ 2
Accounts receivable, net of allowance for doubtful
accounts of $307, $160 and $169.................... 14,173 9,949 9,500
Inventories........................................... 9,094 9,329 7,889
Deferred tax assets................................... 203 210 187
Other current assets.................................. 59 72 116
------- ------- -------
Total current assets.......................... 23,531 19,562 17,694
------- ------- -------
Property, plant and equipment:
Land and land improvements............................ 286 286 250
Buildings and leasehold improvements.................. 881 881 881
Machinery, equipment and furnishings.................. 23,501 22,874 23,049
Construction in progress.............................. 1,254 628 617
------- ------- -------
Total......................................... 25,922 24,669 24,797
Less -- Accumulated depreciation and amortization..... (1,216) (681) (105)
------- ------- -------
Property, plant and equipment, net............ 24,706 23,988 24,692
------- ------- -------
Goodwill, net of amortization........................... 14,927 15,049 14,968
------- ------- -------
Other assets............................................ 273 273 321
------- ------- -------
$63,437 $58,872 $57,675
======= ======= =======
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Current portion of long-term debt..................... $ 581 $ 600 $ 625
Accounts payable...................................... 5,434 3,909 3,028
Accounts payable to related parties................... 0 167 0
Accrued expenses...................................... 1,619 1,275 1,315
------- ------- -------
Total current liabilities..................... 7,634 5,951 4,968
------- ------- -------
Long-term debt.......................................... 0 197 380
------- ------- -------
Other liabilities....................................... 874 817 843
------- ------- -------
Commitments and contingencies (Note 5)
Divisional equity -- Investments and advances from JPS
Automotive L.P........................................ 54,929 51,907 51,484
------- ------- -------
$63,437 $58,872 $57,675
======= ======= =======
</TABLE>
F-1
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 30, DECEMBER 29, JANUARY 1, APRIL 1,
1997 TO 1996, TO 1996, TO 1996 TO
JUNE 28, MARCH 29, MARCH 30, JUNE 30,
1997 1997 1996 1996
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.................................... $ 20,680 $ 16,691 $ 16,052 $17,575
Cost of goods sold........................... 17,931 14,570 13,732 15,789
------- ------- ------- -------
Gross profit................................. 2,749 2,121 2,320 1,789
Selling, general and administrative
expenses................................... 905 754 760 376
Corporate general and administrative
allocated
costs...................................... 440 187 295 295
------- ------- ------- -------
Income from operations....................... 1,404 1,180 1,265 1,115
Interest expense............................. (17) (22) (31) (29)
Interest expense allocated from JPS
Automotive L.P............................. 0 0 (144) (68)
Other income (expense), net.................. 20 0 (17) 0
------- ------- ------- -------
Income before income taxes................... 1,407 1,158 1,073 1,018
Income tax provision......................... 0 442 0 0
------- ------- ------- -------
Net income................................... $ 1,407 $ 716 $ 1,073 $ 1,018
======= ======= ======= =======
</TABLE>
F-2
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
PERIOD FROM PERIOD FROM
DECEMBER 29, JANUARY 1,
1996, TO 1996, TO
MARCH 29, MARCH 30,
1997 1996
------------ -----------
<S> <C> <C>
Operating activities:
Net income........................................................ $ 716 $ 1,073
Adjustments to reconcile net income to net cash provided by
operating activities --
Deferred income tax provision.................................. 25 0
Depreciation and amortization.................................. 670 839
Debt issuance cost amortization................................ 0 34
Loss on disposal of assets..................................... 0 17
Changes in operating assets and liabilities:
Accounts receivable.......................................... (449) (232)
Inventories.................................................. (1,440) (308)
Accounts payable............................................. 1,048 1,438
Other assets and liabilities................................. (22) (414)
------- -------
Net cash provided by operating activities................. 548 2,447
------- -------
Net cash used in investing activities -- Capital expenditures....... (47) (51)
------- -------
Financing activities:
Net transactions with JPS Automotive L.P. ........................ (293) (734)
Repayment of long-term debt....................................... (208) (1,662)
------- -------
Net cash used in financing activities..................... (501) (2,396)
------- -------
Net change in cash.................................................. 0 0
Cash, beginning of period........................................... 2 3
------- -------
Cash, end of period................................................. $ 2 $ 3
======= =======
</TABLE>
F-3
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENTS:
The financial statements include the accounts of the Air Restraint/Industrial
Fabrics division of JPS Automotive L.P. and its subsidiaries ("JPS Automotive").
These financial statements have been prepared without audit pursuant to Rule
10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying financial statements reflect all adjustments
considered necessary for a fair presentation of the financial position, results
of operations and cash flows. Results of operations for interim periods are not
necessarily indicative of results for the full year. For further information,
refer to the audited financial statements and notes thereto for the Air
Restraint/Industrial Fabrics division of JPS Automotive for the period December
12, 1996, to December 28, 1996, the period January 1, 1996, to December 11,
1996, the year ended December 31, 1995 and the period June 29, 1994 to January
1, 1995.
The 1996 Acquisition
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its
subsidiaries, acquired JPS Automotive from Foamex International Inc. ("Foamex")
pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended
December 11, 1996 (the "1996 Acquisition"). The purchase price for the 1996
Acquisition was an aggregate of approximately $220 million, subject to
postclosing adjustment, consisting of approximately $195 million of indebtedness
of JPS Automotive and approximately $25 million in cash paid to Foamex. In the
accompanying financial statements, for periods subsequent to the 1996
Acquisition, the Air Restraint/Industrial Fabrics division is referred to as the
"Division."
Immediately prior to the 1996 Acquisition, JPS Automotive was converted
from a Delaware limited partnership into an association which is taxable as a
corporation for federal, state and local income tax purposes. JPS Automotive is
included in the consolidated federal income tax return of C&A. Income taxes for
periods subsequent to the 1996 Acquisition reflect the pushdown of the
Division's impact on the consolidated tax position of C&A.
The 1994 Acquisition
JPS Automotive L.P. was formed on May 17, 1994, for the purpose of
acquiring a 100% ownership interest in JPS Automotive Products Corp. ("Products
Corp."), which was purchased for nominal consideration on May 25, 1994. On June
28, 1994, subsidiaries of Foamex, the owners of all participating interests in
JPS Automotive, made capital contributions to Products Corp. On June 28, 1994,
Products Corp. acquired the assets of the automotive products and industrial
fabrics divisions of JPS Textile Group, Inc. ("JPS Textile") (the "1994
Acquisition"). Effective October 3, 1994, Products Corp. transferred and
assigned substantially all of its assets, subject to substantially all of its
liabilities, to the Predecessor Company, which agreed to assume such
liabilities. In the accompanying financial statements, for periods prior to
December 12, 1996, the Air Restraint/Industrial Fabrics division is referred to
as the "Predecessor Company."
F-4
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. INVENTORIES:
The components of inventories consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 28, MARCH 29, DECEMBER 28,
1997 1997 1996
-------- --------- ------------
<S> <C> <C> <C>
Raw materials and supplies................ $1,671 $ 2,150 $1,975
Work-in-process........................... 2,830 2,621 2,877
Finished goods............................ 4,593 4,558 3,037
------ ------ ------
Total........................... $9,094 $ 9,329 $7,889
====== ====== ======
</TABLE>
3. GOODWILL:
Goodwill allocated to the Division from the 1996 Acquisition, representing
the excess of purchase price over the fair value of net assets acquired in the
1996 Acquisition, is being amortized on a straight-line basis over the period of
40 years. The Predecessor Company's allocation of the JPS Automotive goodwill
relating to the 1994 Acquisition was also amortized using the straight-line
method over a 40-year period. Amortization of goodwill for the period from March
30, 1997 to June 28, 1997, the period from December 29, 1996, to March 29, 1997,
the period April 1, 1996, to June 30, 1996 and the period from January 1, 1996,
to March 30, 1996, was $122 thousand, $94 thousand and $266 thousand,
respectively. Accumulated amortization at March 29, 1997 and June 28, 1997, was
$126 thousand, $254 thousands and $248 thousand, respectively. The carrying
value of goodwill will be reviewed periodically based on the nondiscounted cash
flows and pretax income over the remaining amortization periods. Should this
review indicate that the goodwill balance will not be recoverable, the
Division's carrying value of the goodwill will be reduced. At March 29, 1997,
management believes its goodwill of approximately $15 million was fully
recoverable.
4. RELATED-PARTY TRANSACTIONS AND ALLOCATIONS:
JPS Automotive performed certain services and incurred certain costs for
the Division and the Predecessor Company. Services provided include treasury,
risk management, employee benefits, legal services, data processing, credit and
collections and other general corporate services. The costs of the services
provided by JPS Automotive have been allocated to the Division and the
Predecessor Company based upon a combination of estimated use and the relative
sales of the business to the total operations of JPS Automotive. Costs allocated
to the Division and the Predecessor Company for these services were $176
thousand, $187 thousand, $295 thousand and $295 thousand for the period from
March 30, 1997, to June 28, 1997, the period from December 29, 1996, to March
29, 1997 the period from April 1, 1996, to June 30, 1996, and the period from
January 1, 1996, to March 30, 1996, respectively.
JPS Automotive provided certain management information systems supporting
the manufacturing operations of the Division and the Predecessor Company. The
costs of the services provided by JPS Automotive have been allocated to the
Division and the Predecessor Company based upon estimated use. Costs allocated
to the Division and the Predecessor Company for these services were $69
thousand, $63 thousand, $71 thousand and $71 thousand for the period from March
30, 1997, to June 28, 1997, and the period from December 29, 1996, to March 29,
1997, the period from April 1, 1996, to June 30, 1997, and the period from
January 1, 1996, to March 30, 1996, respectively. These costs are included in
cost of goods sold in the accompanying statements of operations.
The Division and the Predecessor Company used a warehouse owned by the JPS
Automotive Carpet and Trim division to store and distribute certain finished
goods inventory. Costs charged to the Division and the
F-5
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Predecessor Company by the Carpet and Trim division for rent, utilities and
payroll costs associated with the use of this warehouse were approximately $57
thousand, $57 thousand, $57 thousand and $58 thousand for the period from March
30, 1997, to June 28, 1997, the period from December 29, 1996, to March 29,
1997, the period from April 1, 1996 to June 30, 1996 and the period from January
1, 1996, to March 30, 1996, respectively. These costs are included in cost of
goods sold in the accompanying statements of operations.
JPS Automotive administered its insurance programs on a corporate-wide
basis and charged its individual participating subsidiaries and divisions based
on estimated claims and loss experience. Costs charged by JPS Automotive to the
Division and the Predecessor Company for automotive and general liability,
workers' compensation and employee group health claims and insurance amounted to
$413 thousand and $344 thousand for the period from December 29, 1996, to March
29, 1997, and the period from January 1, 1996, to March 30, 1996, respectively.
Analysis of Net Transactions with JPS Automotive L.P.
Due to the intent to forgive any net balance in investments and advances to
or from JPS Automotive upon the sale of the Division by JPS Automotive, the net
intercompany balance has been classified as a component of divisional equity in
the accompanying financial statements. Significant components of the net
transactions with JPS Automotive have been summarized as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
PERIOD FROM PERIOD FROM
DECEMBER 29, JANUARY 1,
1996, TO 1996, TO
MARCH 29, MARCH 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash transactions --
Corporate general and administrative allocated
costs.......................................... $ 187 $ 295
Corporate management information systems allocated
costs.......................................... 63 71
Corporate administered insurance program costs.... 413 344
Change in allocated debt of JPS Automotive........ 0 1,505
Interest expense allocated from JPS Automotive.... 0 144
Net transfers of cash to JPS Automotive........... (956) (3,093)
----- -------
$ (293) $ (734)
===== =======
</TABLE>
Other Related-party Activities of the Division
At March 29, 1997, Collins & Aikman Products Co. ("C&A Products"), a wholly
owned subsidiary of C&A, has pledged the ownership interests in its significant
subsidiaries, including its partnership interests in JPS Automotive, as security
for debt of C&A Products totaling $458 million.
C&A Products currently provides general administrative services to JPS
Automotive pursuant to a preexisting Services Agreement assigned to C&A Products
by Foamex (the "Existing Services Agreement"). In connection with the 1996
Acquisition, C&A currently contemplates an amendment to the Existing Services
Agreement to expressly provide that the services provided by C&A Products will
include certain administrative and management functions previously conducted by
JPS Automotive. For the period from March 30, 1997, to June 28, 1997, and the
period from December 29, 1996, to March 29, 1997, the Division was charged $207
thousand and $167 thousand, respectively by C&A Products for certain
administrative and management services in accordance with the Existing Services
Agreement.
F-6
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Other Related-party Activities of the Predecessor Company
The Predecessor Company, through JPS Automotive, regularly entered into
transactions with its affiliates in the ordinary course of business.
In connection with the 1994 Acquisition, JPS Automotive entered into a
supply agreement (the "Supply Agreement") with Foamex and certain of its
affiliates. Pursuant to the terms of the Supply Agreement, at the option of JPS
Automotive, Foamex purchased certain raw materials which were necessary for the
manufacture of the Predecessor Company's products, and would resell such raw
materials to the Predecessor Company at a price equal to net cost plus
reasonable out-of-pocket expenses. During the period from January 1, 1996, to
March 30, 1996, the Predecessor Company purchased approximately $6.5 million of
raw materials under the Supply Agreement with Foamex.
Prior to the 1996 Acquisition, outstanding borrowings of JPS Automotive
under its term and revolving loan arrangements were allocated, along with the
related interest expense and deferred debt issuance costs, to the Predecessor
Company based on the ratio of the assets of the Predecessor Company which served
as collateral for the debt, which consisted of accounts receivable and
inventory, to the total of the assets of JPS Automotive which served as
collateral for the debt. The Predecessor Company was allocated interest expense
of approximately $144 thousand for the period from January 1, 1996, to March 30,
1996, associated with these borrowings.
5. COMMITMENTS AND CONTINGENCIES:
From time to time, the Division has been involved in various legal
proceedings. Management believes that such litigation is routine in nature and
incidental to the conduct of its business, and that none of such litigation, if
determined adversely to the Division, would have a material adverse effect on
the financial condition or results of operations of the Division.
The Division is subject to various federal, state and local environmental
laws and regulations that (i) affect ongoing operations and may increase capital
costs and operating expenses and (ii) impose liability for the costs of
investigation and remediation and certain other damages related to on-site and
off-site soil and groundwater contamination. The Division believes it has
obtained or applied for the material permits necessary to conduct its business.
To date, compliance with applicable environmental laws has not had and, in the
opinion of management, based on the facts presently known to it, is not expected
to have a material adverse effect on the Division's financial condition or
results of operations.
Although not named as a potentially responsible party for any
environmentally contaminated sites, the Division and the Predecessor Company
accrued environmental costs at March 29, 1997, and March 30, 1996, of
approximately $325 thousand and $350 thousand, respectively; $48 thousand and
$50 thousand of which are included in current liabilities, respectively. In
addition, at March 30, 1996, the Predecessor Company recorded a $75 thousand
receivable for indemnification of environmental liabilities by JPS Textiles, the
former owner of JPS Automotive.
Although it is possible that new information or future events could require
the Division to reassess its potential exposure relating to pending
environmental matters, management believes that, based on the facts presently
known to it, the resolution of such environmental matters will not have a
material adverse effect on the Division's financial condition or results of
operations. The possibility exists, however, that new environmental legislation
may be passed or environmental regulations may be adopted, or other
environmental conditions may be found to exist, that may require expenditures
not currently anticipated which may be material, and there can be no assurance
that the Division has identified or properly assessed all potential
environmental liability arising from its activities or properties.
F-7
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. SUBSEQUENT EVENT:
On July 24, 1997, JPS Automotive sold all of the assets of the Division to
Safety Components International, Inc. for $56.3 million, including the
assumption of certain liabilities and subject to postclosing adjustments. In
addition, the Company made a payment to JPS at the closing to enable it to pay
off existing indebtedness of the Division of approximately $650,000 at closing.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of JPS Automotive L.P.:
We have audited the accompanying balance sheets of the Air
Restraint/Industrial Fabrics division of JPS Automotive L.P. as of December 28,
1996, and December 31, 1995, and the related statements of operations,
divisional equity and cash flows for the period from December 12, 1996, to
December 28, 1996, the period from January 1, 1996, to December 11, 1996, the
year ended December 31, 1995, and the period from June 29, 1994, to January 1,
1995. 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 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Air Restraint/Industrial
Fabrics division of JPS Automotive L.P. as of December 28, 1996, and December
31, 1995, and the results of its operations and its cash flows for the period
from December 12, 1996, to December 28, 1996, the period from January 1, 1996,
to December 11, 1996, the year ended December 31, 1995, and the period from June
29, 1994, to January 1, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
July 10, 1997, (except with respect
to the matter discussed in Note 16,
as to which the date is July 24, 1997.)
F-9
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 2 $ 3
Accounts receivable, net of allowance for doubtful accounts of
$169
and $317...................................................... 9,500 10,310
Inventories...................................................... 7,889 9,011
Deferred tax assets.............................................. 187 0
Other current assets............................................. 116 211
------- -------
Total current assets..................................... 17,694 19,535
------- -------
Property, plant and equipment:
Land and land improvements....................................... 250 245
Buildings and leasehold improvements............................. 881 2,331
Machinery, equipment and furnishings............................. 23,049 26,104
Construction in progress......................................... 617 1,036
------- -------
Total.................................................... 24,797 29,716
Less -- Accumulated depreciation and amortization................ (105) (2,503)
------- -------
Property, plant and equipment, net....................... 24,692 27,213
------- -------
Goodwill, net of amortization...................................... 14,968 41,054
------- -------
Other assets....................................................... 321 641
------- -------
$ 57,675 $ 88,443
======= =======
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Current portion of long-term debt................................ $ 625 $ 630
Current portion of allocated long-term debt of JPS Automotive
L.P. ......................................................... 0 358
Accounts payable................................................. 3,028 1,893
Accounts payable to related parties.............................. 0 798
Accrued expenses................................................. 1,315 1,675
------- -------
Total current liabilities................................ 4,968 5,354
------- -------
Long-term debt..................................................... 380 954
------- -------
Allocated long-term debt of JPS Automotive L.P. ................... 0 5,842
------- -------
Other liabilities.................................................. 843 746
------- -------
Commitments and contingencies (Notes 10, 12 and 13)................
Divisional equity -- Investments and advances from JPS Automotive
L.P. ............................................................ 51,484 75,547
------- -------
$ 57,675 $ 88,443
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-10
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1, JUNE 29,
1996, TO 1996, TO YEAR ENDED 1994, TO
DECEMBER 28, DECEMBER 11, DECEMBER 31, JANUARY 1,
1996 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales...................................... $2,110 $ 62,821 $ 73,080 $41,888
Cost of goods sold............................. 1,916 54,679 62,299 33,257
------ ------- ------- -------
Gross profit................................... 194 8,142 10,781 8,631
Selling, general and administrative expenses... 147 3,029 3,347 1,439
Corporate general and administrative allocated
costs........................................ 39 1,028 1,074 399
------ ------- ------- -------
Income from operations......................... 8 4,085 6,360 6,793
Interest expense............................... 0 (100) (165) (110)
Interest expense allocated from JPS Automotive
L.P.......................................... 0 (552) (594) (316)
Other income (expense), net.................... 21 (370) 11 2
------ ------- ------- -------
Income before income taxes..................... 29 3,063 5,612 6,369
Income tax provision........................... 11 0 0 0
------ ------- ------- -------
Net income..................................... $ 18 $ 3,063 $ 5,612 $ 6,369
====== ======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-11
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
STATEMENTS OF DIVISIONAL EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
PREDECESSOR COMPANY:
Pushdown of acquisition basis and initial contributions by JPS Automotive
L.P. ........................................................................ $ 69,473
Net income...................................................................... 6,369
Net transactions with JPS Automotive L.P........................................ (2,175)
--------
Balance, January 1, 1995........................................................ 73,667
Net income...................................................................... 5,612
Net transactions with JPS Automotive L.P........................................ (3,732)
--------
Balance, December 31, 1995...................................................... 75,547
Net income...................................................................... 3,063
Net transactions with JPS Automotive L.P........................................ (6,808)
--------
Balance, December 11, 1996...................................................... 71,802
Acquisition of JPS Automotive L.P. by Collins & Aikman Corporation.............. (71,802)
--------
$ 0
========
- --------------------------------------------------------------------------------------------
JPS AUTOMOTIVE:
Pushdown of acquisition basis and initial contributions by partners............. $ 50,050
Net income...................................................................... 18
Net transactions with JPS Automotive L.P........................................ 1,416
--------
Balance, December 28, 1996...................................................... $ 51,484
========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-12
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1, JUNE 29,
1996, TO 1996, TO YEAR ENDED 1994, TO
DECEMBER 28, DECEMBER 11, DECEMBER 31, JANUARY 1,
1996 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Operating activities:
Net income................................... $ 18 $ 3,063 $ 5,612 $ 6,369
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities --
Depreciation and amortization............. 137 3,238 2,880 1,212
Debt issuance cost amortization........... 0 128 247 83
Loss on disposal of assets................ 0 322 82 0
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable..................... (242) 1,052 3,351 (1,747)
Inventories............................. 520 602 781 (285)
Accounts payable........................ (1,876) 2,213 (4,140) 625
Other assets and liabilities............ 27 (237) (692) (727)
------- ------- ------- -------
Net cash provided by (used in)
operating activities............... (1,416) 10,381 8,121 5,530
------- ------- ------- -------
Net cash used in investing
activities -- Capital expenditures........... 0 (829) (4,106) (3,785)
------- ------- ------- -------
Financing activities:
Net transactions with JPS Automotive L.P. ... 1,416 (6,808) (4,429) (2,175)
Proceeds from (repayments of) of long-term
debt, net................................. 0 (2,745) 414 433
------- ------- ------- -------
Net cash provided by (used in)
financing activities............... 1,416 (9,553) (4,015) (1,742)
------- ------- ------- -------
Net change in cash............................. 0 (1) 0 3
Cash, beginning of period...................... 2 3 3 0
------- ------- ------- -------
Cash, end of period............................ $ 2 $ 2 $ 3 $ 3
======= ======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-13
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
The Air Restraint/Industrial Fabrics division of JPS Automotive L.P. and
subsidiaries ("JPS Automotive") operates in the automotive products and
industrial fabrics segments, including the design, manufacture and sale of
airbag fabric for passenger cars and light trucks and other specialty industrial
fabrics.
On December 11, 1996, all of the outstanding equity of JPS Automotive was
acquired from Foamex International, Inc. ("Foamex") by Collins & Aikman
Corporation ("C&A"), through its subsidiaries (the "1996 Acquisition"). (See
Note 3). In the accompanying financial statements, for periods subsequent to the
1996 Acquisition, the Air Restraint/Industrial Fabrics division is referred to
as the "Division."
JPS Automotive was formed on May 17, 1994, for the purpose of acquiring a
100% ownership interest in JPS Automotive Products Corp. ("Products Corp."),
which was purchased for nominal consideration on May 25, 1994. On June 28, 1994,
subsidiaries of Foamex, the owners of all partnership interests in JPS
Automotive, made capital contributions to Products Corp. On June 28, 1994,
Products Corp. acquired the assets of the automotive products and industrial
fabrics divisions of JPS Textile Group, Inc. ("JPS Textile") (the "1994
Acquisition"). Effective October 3, 1994, Products Corp. transferred and
assigned substantially all of its assets, subject to substantially all of its
liabilities, to JPS Automotive, which agreed to assume such liabilities. In the
accompanying financial statements, for the periods from June 29, 1994, through
December 11, 1996, the Air Restraint/Industrial Fabrics division is referred to
as the "Predecessor Company."
2. BASIS OF PRESENTATION:
The Division and the Predecessor Company
The balance sheet as of December 28, 1996, and the statements of
operations, cash flows and divisional equity for the period from December 12,
1996, to December 28, 1996, pertain to the Division. The balance sheet as of
December 31, 1995, and the statements of operations, cash flows and divisional
equity for the period from January 1, 1996, to December 11, 1996, for the year
ended December 31, 1995 and the period from June 29, 1994, to January 1, 1995,
pertain to the Predecessor Company.
Transfers of operating funds between the Division (or the Predecessor
Company) and JPS Automotive occur on a noninterest-bearing basis, with the net
amount of these transfers reflected as investments and advances from JPS
Automotive L.P. in the accompanying financial statements. The net balance in
investments and advances from JPS Automotive L.P. at December 28, 1996, of $51.4
million is classified as divisional equity in the accompanying balance sheet due
to the intent to forgive any net balance in investments and advances from JPS
Automotive L.P. upon the sale of the Division by JPS Automotive.
As indicated above, the accompanying financial statements present the
financial position, results of operations and cash flows of the Division and the
Predecessor Company as if it were a separate entity for all periods presented.
In accordance with Staff Accounting Bulletin ("SAB") No. 54 of the Securities
and Exchange Commission, JPS Automotive's investment in the Division (or the
Predecessor Company) is reflected in the financial statements of the Division
and the Predecessor Company ("pushdown accounting") during the applicable
periods. The accompanying financial statements reflect the allocation of the
purchase price in excess of the net assets acquired on the same basis as in the
financial statements of JPS Automotive.
For the periods up through December 11, 1996, as required by SAB No. 73, a
portion of certain term and revolving bank debt and the related debt issuance
costs and interest expense of JPS Automotive has been allocated to the
Predecessor Company as a result of certain of the Predecessor Company's assets,
which consist of accounts receivable and inventory, serving as security for such
debt. The debt was retired in connection with the 1996 Acquisition (see Note 7).
The allocations have been made based upon the ratio of the assets of the
Predecessor Company which served as collateral for the debt to the total of the
assets of JPS
F-14
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Automotive which served as collateral for the debt. The average interest
rates on this debt for the period from January 1, 1996, to December 11, 1996,
the year ended December 31, 1995, and the period from June 29, 1994, to January
1, 1995, were 9.3%, 9.2% and 10.4%, respectively. Interest has not been computed
on the remaining intercompany balances.
JPS Automotive performed certain services and incurred certain costs for
the Division and the Predecessor Company. Services provided include treasury,
risk management, employee benefits, legal services, data processing, credit and
collections and other general corporate services. The costs of the services
provided by JPS Automotive have been allocated to the Division and the
Predecessor Company based upon a combination of estimated use and the relative
sales of the business to the total operations of JPS Automotive. Costs allocated
to the Division and the Predecessor Company for these services were $39
thousand, $1 million, $1.1 million and $399 thousand for the period from
December 12, 1996, to December 28, 1996, the period from January 1, 1996, to
December 11, 1996, the year ended December 31, 1995, and the period from June
29, 1994, to January 1, 1995, respectively. In the opinion of management, the
method of allocating these costs is believed to be reasonable. However, the
costs of these services charged to the Division and the Predecessor Company are
not necessarily indicative of the costs that would have been incurred if the
Division or the Predecessor Company had performed these functions.
JPS Automotive administered its insurance programs on a corporate-wide
basis and charged its individual participating subsidiaries and divisions based
on estimated claims and loss experience. Costs charged by JPS Automotive to the
Division and the Predecessor Company for automotive and general liability,
workers' compensation and employee group health claims and insurance amounted to
$60 thousand, $1.4 million, $1.9 million and $614 thousand in the period from
December 12, 1996, to December 28, 1996, the period from January 1, 1996, to
December 11, 1996, the year ended December 31, 1995, and the period from June
29, 1994 to January 1, 1995, respectively. The accompanying balance sheets
include amounts for automotive and general liability, workers' compensation and
employee group health claims.
Collins & Aikman Products Co. ("C&A Products"), a wholly owned subsidiary
of C&A, currently provides general administrative services to JPS Automotive
pursuant to a preexisting Services Agreement assigned to C&A Products by Foamex
(the "Existing Services Agreement"). For the period from December 12, 1996, to
December 28, 1996, no amounts were paid or accrued by JPS Automotive or the
Division under this agreement.
3. JPS AUTOMOTIVE ACQUISITIONS:
The 1996 Acquisition
As discussed in Note 1, on December 11, 1996, C&A, through its
subsidiaries, acquired JPS Automotive from Foamex pursuant to an Equity Purchase
Agreement dated August 28, 1996, as amended December 11, 1996. The purchase
price for the 1996 Acquisition was an aggregate of approximately $220 million,
subject to postclosing adjustment, consisting of approximately $195 million of
indebtedness of JPS Automotive and approximately $25 million in cash paid to
Foamex.
The 1996 Acquisition has been accounted for as a purchase and, pursuant to
the provisions of SAB No. 54 and the rules of pushdown accounting, the 1996
Acquisition gave rise to a new basis of accounting for JPS Automotive. The
purchase price and related acquisition expenses exceeded the fair value of the
net assets acquired by approximately $126.4 million, which was pushed down and
recorded by JPS Automotive as goodwill and is being amortized over 40 years. The
allocation of the total purchase price to the Division resulted in reported
goodwill of $15.0 million related to the 1996 Acquisition.
In addition to the pushdown of goodwill, adjustments to certain assets and
liabilities of the Predecessor Company were recorded as a result of the 1996
Acquisition and the application of pushdown accounting. A
F-15
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
comparison of the Division's assets and liabilities after the 1996
Acquisition to those of the Predecessor Company prior to the 1996 Acquisition is
as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 11, DECEMBER 12,
1996 1996
------------ ------------
<S> <C> <C>
Current assets..................................... $ 17,828 $ 17,981
Property, plant and equipment, net................. 25,528 24,793
Goodwill........................................... 40,031 15,000
Other assets....................................... 415 332
Current liabilities................................ 8,348 6,891
Long-term debt..................................... 2,947 380
Other liabilities.................................. 705 785
======= =======
</TABLE>
The above December 12, 1996, balances, which are subject to postclosing
adjustment, reflect the revaluation of the Division's assets and liabilities to
their estimated fair values at the date of the 1996 Acquisition.
Unaudited pro forma net income of the Division for the period from January
1, 1996, to December 28, 1996, and for the year ended December 31, 1995,
assuming that the 1996 Acquisition occurred at the beginning of each period,
would have been approximately $3.8 million and approximately $6.4 million,
respectively. The pro forma adjustments, which would not affect net sales,
reflect primarily reduced depreciation, goodwill amortization and interest
expense offset by the pro forma impact of income taxes.
The 1994 Acquisition
On June 28, 1994, JPS Automotive acquired the businesses and assets of the
automotive products and industrial fabrics divisions of JPS Textile. The
acquired assets included property, plant and equipment, inventories and certain
contract rights, as well as certain stock and limited and general partnership
interests in joint ventures. As a part of the 1994 Acquisition, agreements were
reached relating to the purchase of assets, the granting of a reciprocal
easement, a provision for certain services, the supply of certain materials and
the sharing of taxes. The 1994 Acquisition was made pursuant to the terms of an
asset purchase agreement, dated as of May 25, 1994 (the "Asset Purchase
Agreement"), by and among JPS Textile, its affiliates and Foamex. The aggregate
consideration for the 1994 Acquisition was $290.3 million, which included
acquisition costs of $8.3 million and the assumption of long-term debt of $15.6
million. The cost of the acquisition was allocated on the estimated basis of the
fair value of the assets acquired and the liabilities assumed. The acquisition
was funded by (i) the net proceeds from the sale by JPS Automotive of $180
million principal amount of its 11 1/8% Senior Notes due 2001 ("Senior Notes"),
(ii) $90 million in cash and (iii) the net proceeds of $10 million in term loan
borrowings by JPS Automotive. Goodwill was approximately $168 million, which
included 1995 payments of approximately $4.5 million in settlement of certain
matters contained in the Asset Purchase Agreement and a 1995 adjustment of $5.6
million to adjust the original estimated appraised values of property, plant and
equipment. As a result of the allocation of the total purchase price, goodwill
reported by the Predecessor Company from the 1994 Acquisition was $42.6 million,
which included $2.2 million relating to the 1995 payments and adjustments.
F-16
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
As a result of the 1996 Acquisition, the Division's fiscal year ends on the
last Saturday of December. Prior to that time, the Predecessor Company's fiscal
year ended on the Sunday closest to the thirty-first day of December.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Cash
The Division and the Predecessor Company were a party to JPS Automotive's
centralized cash management system pursuant to which cash receipts and
disbursements were processed on a combined basis. Accordingly, for financial
reporting purposes, the only amounts presented in the accompanying balance
sheets as cash are petty cash funds, with amounts for unapplied cash receipts
and outstanding disbursement checks presented as a component of divisional
equity.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets. The
range of useful lives estimated for buildings is 25 to 40 years, and the range
for machinery, equipment and furnishings is 3 to 15 years. Leasehold
improvements are amortized over the shorter of the terms for the respective
leases or the estimated lives of the leasehold improvements. For income tax
reporting purposes, the Division uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized. Upon retirement or other disposition of items
of plant and equipment, cost of items and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations.
In connection with the 1996 Acquisition, the Division's property, plant and
equipment was recorded at the appraised values reflecting the intended future
use of the facilities and equipment.
Long-Lived Assets
In 1996, the Predecessor Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of carrying
F-17
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount or fair value less cost to sell. The adoption of SFAS No. 121 did
not have a material impact on the Predecessor Company's results of operations.
As a result of its ongoing assessment of long-lived assets, during the
period from January 1, 1996, to December 11, 1996, the Predecessor Company
recorded a charge of approximately $117 thousand for the write-down of certain
machinery and equipment to their estimated realizable values as the assets were
assessed by management to have no continuing use. The write-down of machinery
and equipment is included in other income (expense), net in the accompanying
statement of operations.
Debt Issuance Costs
Debt issuance costs recorded by the Predecessor Company reflect an
allocation of certain amounts incurred by JPS Automotive in obtaining financing
under the term and revolving bank debt discussed in Notes 2 and 7. These costs
are amortized over the term of the related debt using the interest method.
Accumulated amortization as of December 31, 1995, was approximately $214
thousand.
In connection with the 1996 Acquisition and the subsequent retirement of
debt, the debt issuance costs allocated to the Division were eliminated as a
result of the application of pushdown accounting (see Notes 2 and 3).
Goodwill
As discussed in Note 3, the acquisition of JPS Automotive by C&A has been
accounted for as a purchase and, pursuant to SAB No. 54 and the rules of
pushdown accounting, gave rise to a new basis of accounting. As a result, a
proportionate share of the JPS Automotive goodwill relating to the 1996
Acquisition was allocated to the Division. The goodwill is being amortized over
a 40-year period, and accumulated amortization as of December 28, 1996, was
approximately $32 thousand. The carrying value of goodwill will be reviewed
periodically based on the undiscounted cash flows and pretax income over the
remaining amortization period. Should this review indicate that the goodwill
balance will not be recoverable, the Division's carrying value of goodwill will
be reduced. At December 28, 1996, management believes the goodwill is fully
recoverable.
The Predecessor Company's allocation of the JPS Automotive goodwill
relating to the 1994 Acquisition was amortized using the straight-line method
over a 40-year period (see Note 3). Accumulated amortization as of December 31,
1995, was approximately $1.6 million.
Environmental Matters
The Division records its best estimate when it believes it is probable that
an environmental liability has been incurred and the amount of loss can be
reasonably estimated. The Division also considers estimates of certain
reasonably possible environmental liabilities in determining the aggregate
amount of environmental reserves. Accruals for environmental liabilities are
generally included in the balance sheet as other noncurrent liabilities at
undiscounted amounts and exclude claims for recoveries from insurance or other
third parties. Accruals for insurance or other third-party recoveries for
environmental liabilities are recorded when it is probable that the claim will
be realized.
Postemployment Benefits
Effective June 29, 1994, the Predecessor Company adopted SFAS No. 112,
"Employers' Accounting for Post-Employment Benefits." Under this method of
accounting, benefits are accrued when it becomes probable that such benefits
will be paid and when sufficient information exists to make reasonable estimates
of the amounts to be paid.
F-18
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Division recognizes revenue from product sales when it has shipped the
goods or ownership has been transferred to the customer for goods to be held for
future shipment at the customer's request. The Division generally allows its
customers the right of return only in the case of defective products. The
Division provides a reserve for estimated defective product based on sales.
Income Taxes
Income taxes for all periods are determined in accordance with SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires the use of the
liability method in which deferred income taxes are provided for temporary
differences between the financial reporting and income tax basis of assets and
liabilities using the income tax rates, under existing legislation, expected to
be in effect at the date such temporary differences are expected to reverse.
Immediately prior to the 1996 Acquisition, JPS Automotive was converted
from a Delaware limited partnership into an association which is taxable as a
corporation for federal, state and local income tax purposes. JPS Automotive is
included in the consolidated federal income tax return of C&A. Income taxes for
periods subsequent to the 1996 Acquisition reflect the pushdown of the
Division's impact on the consolidated tax position of C&A.
Prior to the 1996 Acquisition, JPS Automotive, as a limited partnership,
was not subject to federal income taxes and, therefore, no current or deferred
income tax provision has been provided for such taxes in the accompanying
financial statements of the Predecessor Company.
JPS Automotive had a tax-sharing agreement that provided for payment to the
partners of amounts that would be required to be paid if JPS Automotive were a
corporation filing separate income tax returns. At the time of the 1996
Acquisition, Foamex assigned to C&A Products the tax-sharing agreement.
Newly Issued Accounting Standard
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities." SOP 96-1 provides authoritative guidance on specific accounting
issues related to the recognition, measurement, display and disclosure of
environmental remediation liabilities. SOP 96-1 addresses only those actions
undertaken in response to a threat of litigation or assertion of a claim. It
does not address accounting for pollution control costs with respect to current
operations or for costs of future site restoration on closure required upon
cessation of operations. SOP 96-1 is effective for fiscal years beginning after
December 15, 1996. The Division does not expect that adoption of this standard
will have a material impact on its financial position or results of operations.
5. INVENTORIES:
The components of inventories consist of (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies......................... $1,975 $2,652
Work-in-process.................................... 2,877 2,325
Finished goods..................................... 3,037 4,034
------ ------
Total.................................... $7,889 $9,011
====== ======
</TABLE>
F-19
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Payroll and employee benefits...................... $ 765 $1,109
Property taxes..................................... 413 404
Other.............................................. 137 162
------ ------
Total.................................... $1,315 $1,675
====== ======
</TABLE>
7. LONG-TERM DEBT:
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Equipment financing................................ $1,005 $1,584
Allocation of JPS Automotive term and revolving
loans............................................ 0 6,200
------ ------
Subtotal................................. 1,005 7,784
Less -- Current portion............................ 625 988
------ ------
Long-term debt..................................... $ 380 $6,796
====== ======
</TABLE>
Equipment Financing
Certain equipment has been purchased with financing provided by a financial
institution. Although JPS Automotive is the actual borrower under these
agreements, the liabilities for this financing have been reflected in the
accompanying balance sheets since the liabilities are secured by the Division's
and the Predecessor Company's equipment. The financing agreements bear interest
between 8.05% and 9.67% and amounts are payable in monthly installments.
Interest expense of $0, $100 thousand, $165 thousand and $110 thousand for the
period from December 12, 1996, to December 28, 1996, the period from January 1,
1996, to December 11, 1996, the year ended December 31, 1995, and the period
from June 29, 1994, to January 1, 1995, respectively, is recorded in the
accompanying statements of operations, and the annual cash payments for interest
approximates the amounts expensed. The final installments under the agreements
occur at various dates through December 1998. The Division's future installment
payments are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year --
1997...................................................... $ 625
1998...................................................... 380
------
$1,005
======
</TABLE>
Allocation of JPS Automotive Term and Revolving Loans
In conjunction with the 1994 Acquisition, JPS Automotive entered into a
credit agreement which provided for loans of up to $35 million, of which $10
million was available as a term loan and up to $25 million was available under a
revolving line of credit. In connection with the 1996 Acquisition, the
outstanding
F-20
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
borrowings at December 11, 1996, of $9.2 million under the term loan were
repaid. At December 11, 1996, there were no outstanding borrowings under the
revolving line of credit. The credit agreement was subsequently terminated.
As discussed in Note 2, outstanding borrowings of JPS Automotive under the
term and revolving loan arrangements were allocated, along with the related
interest expense and deferred debt issuance costs, to the Predecessor Company
based on the ratio of the assets of the Predecessor Company which served as
collateral for the debt, which consisted of accounts receivable and inventory,
to the total of the assets of JPS Automotive which served as collateral for the
debt. At December 31, 1995, the accompanying balance sheet includes $498
thousand of unamortized deferred debt issuance costs and $6.2 million of debt
allocated to the Predecessor Company associated with these loans. In addition,
the Predecessor Company was allocated interest expense of approximately $552
thousand, $594 thousand and $316 thousand for the period from January 1, 1996,
to December 11, 1996, the year ended December 31, 1995, and the period from June
29, 1994 to January 1, 1995, respectively, associated with these borrowings.
8. EMPLOYEE BENEFIT PLANS:
The 1996 Acquisition did not significantly affect the employee benefit
plans offered to the employees of the Division.
Defined Benefit Pension Plan
Effective January 1, 1995, the Predecessor Company began participating in
the Retirement Pension Plan for Employees of JPS Automotive L.P. (the "Plan")
for salaried and certain hourly employees. Benefits are based on the employees'
final average compensation, years of benefit service, the covered compensation
in effect at retirement and the employees' ages when payment begins. Actuarially
determined calculations for the Division and the Predecessor Company as a
stand-alone entity are included in the accompanying financial statements.
As part of the 1996 Acquisition, the Division recognized all prior service
cost, net losses and minimum liabilities. Accordingly, the period from December
12, 1996, to December 28, 1996, does not reflect any net amortization or
deferrals.
The actuarially determined net periodic pension cost includes the following
components (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------
PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1,
1996, TO 1996, TO YEAR ENDED
DECEMBER 28, DECEMBER 11, DECEMBER 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost.................................. $6 $119 $62
Interest cost................................. 1 17 4
Actual return on plan assets.................. 0 (6) 0
Net amortization and deferral................. 0 14 4
-- ---- ---
Total............................... $7 $144 $70
== ==== ===
</TABLE>
Funding of retirement costs for this plan both satisfies the minimum
funding requirements of the Employee Retirement Income Security Act of 1974 and
does not exceed the full funding limitations of the Internal Revenue Code
("IRC") of 1986, as amended. Plan investments consist primarily of cash
equivalents.
F-21
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the actuarially determined portion of the
Plan's funded status and the amounts recognized in the accompanying balance
sheets as of December 28, 1996, and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations --
Vested benefits.......................................... $ (226) $ (89)
Nonvested benefits....................................... (22) (7)
----- -----
Accumulated benefit obligations....................... $ (248) $ (96)
===== =====
Total projected benefit obligations........................ $ (381) $ (127)
Fair value of plan assets.................................. 190 4
----- -----
Plan assets less than projected benefit obligations........ (191) (123)
Unrecognized prior service cost............................ 0 53
Unrecognized net loss...................................... 0 3
Additional minimum liability............................... 0 (26)
----- -----
Accrued pension cost.................................. $ (191) $ (93)
===== =====
</TABLE>
Significant assumptions used in determining the plan's unfunded status are
as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Expected long-term rate of return on plan assets........... 8.0% 8.0%
Discount rate on projected benefit obligations............. 7.5 7.3
Rates of increase in compensation levels (where
applicable).............................................. 4.5 4.3
=== ===
</TABLE>
Defined Contribution Plan
The Division participates in JPS Automotive's defined contribution plan
which qualifies under Section 401(k) of the IRC and covers eligible
employees. Employee contributions are voluntary and subject to certain
limitations as imposed by the IRC. The Division, through JPS Automotive, makes a
matching contribution of 25% of each employee's contribution with a maximum
matching contribution of 1 1/2% of each employee's base compensation. The
Predecessor Company, through JPS Automotive, also provided an additional 25%
match of each employee's contribution to a fund which invested in Foamex common
stock with a maximum contribution of 3% of each employee's base compensation.
The contributions of the Division and the Predecessor Company were approximately
$5 thousand for the period from December 12, 1996, to December 28, 1996, $86
thousand for the period from January 1, 1996, to December 11, 1996, $51 thousand
for the year ended December 31, 1995, and $21 thousand for the period from June
29, 1994, to January 1, 1995.
Postretirement Benefits
JPS Automotive provides postretirement health care and life insurance
benefits for eligible employees and retirees of the Division and retirees of the
Predecessor Company. These plans are unfunded, and JPS Automotive retains the
right to modify or eliminate these benefits. Actuarially determined calculations
for the Division and the Predecessor Company as a stand-alone entity are
included in the accompanying financial statements.
F-22
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The actuarially determined net periodic postretirement benefit cost
includes the following components (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1, JUNE 29,
1996, TO 1996, TO YEAR ENDED 1994, TO
DECEMBER 28, DECEMBER 11, DECEMBER 31, JANUARY 1,
1996 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost for benefits earned..... $1 $ 13 $ 12 $ 5
Interest cost on liability........... 2 32 46 26
Net amortization..................... 0 5 0 0
-- ---- ---- ----
Net periodic postretirement benefit
cost............................... $3 $ 50 $ 58 $ 31
== ==== ==== ====
</TABLE>
The following table sets forth the actuarially determined amount of net
postretirement benefit obligation included in the accompanying balance sheets
(in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Retirees.................................................... $243 $245
Fully eligible active plan participants..................... 143 144
Other active plan participants.............................. 89 90
---- ----
Accumulated postretirement benefit obligation............... 475 479
Unrecognized prior service gain from plan amendments........ 0 (231)
Unrecognized net gain....................................... 0 198
---- ----
Net postretirement benefit obligation....................... $475 $446
==== ====
</TABLE>
As part of the 1996 Acquisition, the Division recognized all previously
unrecognized net gains and losses.
Since JPS Automotive has capped its annual liability per person and all
future cost increases will be passed on to retirees, the annual rate of increase
in health care costs does not affect the Division's postretirement benefit
obligation. The discount rate used in determining the accumulated postretirement
benefit obligation as of December 28, 1996, and December 31, 1995, was 7.5% and
7.8%, respectively.
Postemployment Benefits
JPS Automotive provides certain postemployment benefits to former or
inactive employees of the Division and the Predecessor Company and their
dependents during the time period following employment but before retirement. On
June 29, 1994, the Predecessor Company adopted SFAS No. 112. The Predecessor
Company's adoption of SFAS No. 112 did not have a significant impact on the
consolidated statements of operations. As of December 28, 1996, and December 31,
1995, the Division's and the Predecessor Company's actuarially determined
portion of the liability for postemployment benefits was $26 thousand for each
period and is included in other noncurrent liabilities in the accompanying
balance sheets.
9. INCOME TAXES:
Immediately prior to the 1996 Acquisition, JPS Automotive was converted
from a Delaware limited partnership into an association which is taxable as a
corporation for federal, state and local income tax purposes. JPS Automotive
remains a Delaware limited partnership for all purposes other than federal and
state income taxes.
F-23
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Division, through JPS Automotive, is included in the consolidated
federal income tax return of C&A. Income taxes for periods subsequent to the
1996 Acquisition reflect the pushdown of the Division's impact on the
consolidated tax position of C&A, which approximate income taxes computed on a
separate return basis. Income taxes for the periods prior to the 1996
Acquisition are provided on a separate return basis. As discussed in Note 4, JPS
Automotive was a party to a tax-sharing agreement with Foamex that was assigned
to C&A Products at the time of the 1996 Acquisition. Although no payments were
made by JPS Automotive to either Foamex or C&A Products under the tax-sharing
agreement as a result of consolidated operations from June 29, 1994, to December
28, 1996, calculation of income taxes on a stand-alone basis for the Division
and the Predecessor Company in accordance with the tax-sharing agreement would
have resulted in obligations to Foamex of approximately $2.0 million for the
period from June 29, 1994, to January 1, 1995, and approximately $270 thousand
for the year ended December 31, 1995. No amounts would have been payable under
the tax-sharing agreement for the period from January 1, 1996, to December 11,
1996.
Components of the provision for income taxes subsequent to the 1996
Acquisition are summarized as follows (in thousands):
<TABLE>
<S> <C>
Federal --
Current...................................................... $ 0
Deferred..................................................... 9
---
9
---
State --
Current...................................................... 0
Deferred..................................................... 2
---
2
---
$11
===
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1, JUNE 29,
1996, TO 1996, TO YEAR ENDED 1994, TO
DECEMBER 28, DECEMBER 11, DECEMBER 31, JANUARY 1,
1996 1996 1995 1995
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Statutory income tax................ $ 10 $ 1,215 $ 2,099 $ 2,132
State income taxes, net of
federal........................... 1 0 0 0
Permanent difference on partnership
income............................ 0 (1,215) (2,099) (2,132)
--- ------- ------- -------
$ 11 $ 0 $ 0 $ 0
=== ======= ======= =======
</TABLE>
As a result of the change in JPS Automotive's tax status that resulted from
the 1996 Acquisition, deferred tax assets and liabilities are provided on the
temporary differences between the financial reporting and tax bases of the
Division's assets and liabilities. While the equity purchase of JPS Automotive
results in carryover tax basis in the assets, such carryover basis reflects the
fair market value as a result of the deemed taxable sale and revaluation to fair
market value in the hands of the seller just prior to the purchase by C&A
F-24
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and its subsidiaries. The components of the net deferred tax assets as of
December 28, 1996, were as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets --
Pension and postretirement benefits................................. $253
Other employee benefits............................................. 143
Other liabilities and reserves...................................... 117
----
513
Deferred tax liability -- Goodwill amortization....................... (5)
----
Net deferred tax assets............................................... $508
====
</TABLE>
The above amounts have been classified in the December 28, 1996, balance
sheet as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets --
Current............................................................. $187
Noncurrent, included in other noncurrent assets..................... 321
----
$508
====
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Division is obligated under various noncancelable lease agreements for
rental of machinery and computer equipment which remained outstanding following
the 1996 Acquisition. Many of the leases contain renewal options with varying
terms and escalation clauses that provide for increased rentals based upon
increases in the Consumer Price Index, real estate taxes and lessors' operating
expenses. Total minimum rental commitments required under operating leases at
December 28, 1996, are (in thousands):
<TABLE>
<S> <C>
1997...................................................... $ 92
1998...................................................... 41
1999...................................................... 19
2000...................................................... 7
----
$159
====
</TABLE>
Rental expense charged to operations under operating leases by the Division
approximated $6 thousand for the period from December 12, 1996, to December 28,
1996, $113 thousand for the period from January 1, 1996, to December 11, 1996,
$197 thousand for the year ended December 31, 1995 and $115 thousand for the
period from June 29, 1994, to January 1, 1995. Substantially all such rental
expense represented the minimum rental payments under operating leases.
11. RELATED-PARTY TRANSACTIONS AND ALLOCATIONS:
As discussed in Note 2, JPS Automotive performed certain services and
incurred certain costs for the Division and the Predecessor Company. Services
provided include treasury, risk management, employee benefits, legal services,
data processing, credit and collections, and other general corporate services.
The costs of the services provided by JPS Automotive have been allocated to the
Division and the Predecessor Company based upon a combination of estimated use
and the relative sales of the business to the total operations of JPS
Automotive. Costs allocated to the Division and the Predecessor Company for
these services were $39 thousand, $1 million, $1.1 million and $399 thousand for
the period from December 12, 1996, to December 28,
F-25
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996, the period from January 1, 1996, to December 11, 1996, the year ended
December 31, 1995 and the period from June 29, 1994, to January 1, 1995,
respectively.
JPS Automotive provided certain management information systems supporting
the manufacturing operations of the Division and the Predecessor Company. The
costs of the services provided by JPS Automotive have been allocated to the
Division and the Predecessor Company based upon estimated use. Costs allocated
to the Division and the Predecessor Company for these services were $0, $260
thousand, $262 thousand and $115 thousand for the period from December 12, 1996,
to December 28, 1996, the period from January 1, 1996, to December 11, 1996, the
year ended December 31, 1995, and the period from June 29, 1994, to January 1,
1995, respectively. These costs are included in cost of goods sold in the
accompanying statements of operations.
The Division and the Predecessor Company used a warehouse owned by the JPS
Automotive Carpet and Trim division to store and distribute certain finished
goods inventory. Costs charged to the Division and the Predecessor Company by
the Carpet and Trim division for rent, utilities and payroll costs associated
with the use of this warehouse were approximately $20 thousand, $215 thousand,
$118 thousand and $28 thousand for the period from December 12, 1996, to
December 28, 1996, the period from January 1, 1996, to December 11, 1996, the
year ended December 31, 1995, and the period from June 29, 1994, to January 1,
1995, respectively. These costs are included in cost of goods sold in the
accompanying statements of operations.
Analysis of Net Transactions with JPS Automotive L.P.
Due to the intent to forgive any net balance in investments and advances to
or from JPS Automotive upon the sale of the Division by JPS Automotive, the net
intercompany balance has been classified as a component of divisional equity in
the accompanying financial statements. Significant components of the net
transactions with JPS Automotive have been summarized as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1, JUNE 29,
1996, TO 1996, TO YEAR ENDED 1994, TO
DECEMBER 28, DECEMBER 11, DECEMBER 31, JANUARY 1,
1996 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Cash transactions --
Corporate general and administrative
allocated costs..................... $ 39 $ 1,028 $ 1,074 $ 399
Corporate management information
systems allocated costs............. 0 260 262 115
Corporate administered insurance
program costs....................... 60 1,400 1,900 614
Change in allocated debt of JPS
Automotive.......................... 0 2,165 (1,199) (1,000)
Interest expense allocated from JPS
Automotive.......................... 0 552 594 316
Net transfers of cash from (to) JPS
Automotive.......................... 1,317 (12,213) (7,060) (2,619)
------ ------- ------- ------
1,416 (6,808) (4,429) (2,175)
Other activity --
Adjustment to goodwill allocation...... 0 0 697 0
------ ------- ------- ------
$1,416 $ (6,808) $ (3,732) $(2,175)
====== ======= ======= ======
</TABLE>
Other Related-party Activities of the Division
At December 28, 1996, C&A Products has pledged the ownership interests in
its significant subsidiaries, including its partnership interests in JPS
Automotive, as security for debt of C&A Products totaling $640.6 million.
F-26
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 2, C&A Products currently provides general
administrative services to JPS Automotive pursuant to the Existing Services
Agreement. In connection with the 1996 Acquisition, C&A currently contemplates
an amendment to the Existing Services Agreement to expressly provide that the
services provided by C&A Products will include certain administrative and
management functions previously conducted by JPS Automotive. For the period from
December 12, 1996, to December 28, 1996, no amounts were paid or accrued by the
Division.
Other Related-party Activities of the Predecessor Company
The Predecessor Company, through JPS Automotive, regularly entered into
transactions with its affiliates in the ordinary course of business.
In connection with the 1994 Acquisition, JPS Automotive entered into a
supply agreement (the "Supply Agreement") with Foamex and certain of its
affiliates. Pursuant to the terms of the Supply Agreement, at the option of JPS
Automotive, Foamex would purchase certain raw materials which were necessary for
the manufacture of the Predecessor Company's products, and resell such materials
to the Predecessor Company at a price equal to net cost plus reasonable
out-of-pocket expenses. During the period from January 1, 1996, to December 11,
1996, the year ended December 31, 1995, and the period from June 29, 1994, to
January 1, 1995, the Predecessor Company purchased $20.2 million, $33 million
and $0, respectively, of raw materials under the Supply Agreement with Foamex.
12. ENVIRONMENTAL:
The Division is subject to various federal, state and local environmental
laws and regulations that (i) affect ongoing operations and may increase capital
costs and operating expenses and (ii) impose liability for the costs of
investigation and remediation and certain other damages related to on-site and
off-site soil and groundwater contamination. The Division believes it has
obtained or applied for the material permits necessary to conduct its business.
To date, compliance with applicable environmental laws has not had and, in the
opinion of management, based on the facts presently known to it, is not expected
to have a material adverse effect on the Division's financial condition or
results of operations.
Although not named as a potentially responsible party for any
environmentally contaminated sites, the Division and the Predecessor Company
accrued environmental costs at December 28, 1996, and December 31, 1995, of
approximately $325 thousand and $354 thousand, respectively, $48 thousand and
$54 thousand of which is included in current liabilities, respectively. In
addition, as of December 31, 1995, JPS Automotive had a receivable of $500
thousand for indemnification of environmental liabilities from JPS Textile,
former owner of JPS Automotive, of which $75 thousand was allocated to and
included in noncurrent assets of the Predecessor Company based on an allocation
of the total JPS Automotive environmental liability. The environmental
receivable was written off during the period from January 1, 1996, to December
11, 1996, as JPS Automotive management believes that the realization of the
receivable established for indemnification is remote.
Although it is possible that new information or future events could require
the Division to reassess its potential exposure relating to pending
environmental matters, management believes that, based on the facts presently
known to it, the resolution of such environmental matters will not have a
material adverse effect on the Division's financial condition or results of
operations. The possibility exists, however, that new environmental legislation
may be passed or environmental regulations may be adopted, or other
environmental conditions may be found to exist, that may require expenditures
not currently anticipated which may be material, and there can be no assurance
that the Division has identified or properly assessed all potential
environmental liability arising from its activities or properties.
F-27
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. LITIGATION:
From time to time, the Division has been involved in various legal
proceedings. Management believes that such litigation is routine in nature and
incidental to the conduct of its business, and that none of such litigation, if
determined adversely to the Division, would have a material adverse effect on
the financial condition or results of operations of the Division.
14. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK:
Concentration of Credit Risk
Financial instruments which potentially subject the Division to significant
concentrations of credit risk consist primarily of trade accounts receivable.
The Division's customers operate primarily in the automotive and industrial
fabrics industries. The Division performs ongoing credit evaluations of its
customers and generally does not require collateral. The Division maintains
allowance accounts for potential losses and such losses have been within
management's expectations. The percentage of sales to the three principal
customers were as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1, JUNE 29,
1996, TO 1996, TO YEAR ENDED 1994, TO
DECEMBER 28, DECEMBER 11, DECEMBER 31, JANUARY 1,
1996 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Allied Signal.................... 17% 23% 33% 37%
TRW.............................. 11 18 23 23
Travis Textiles.................. 17 7 8 5
== == == ==
</TABLE>
Accounts receivable due from the three principal customers as a percentage
of total accounts receivable are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------
DECEMBER 28, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Allied Signal.............................................. 21% 30%
TRW........................................................ 14 23
Travis Textiles............................................ 11 6
== ==
</TABLE>
The Division's exposure to credit risk associated with nonpayment by these
customers is affected by conditions or occurrences primarily within the
automotive and industrial fabrics segments. Substantially all trade receivables
from these three customers were current at December 28, 1996.
Disclosure About Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for the Division's
financial instruments, which consist primarily of accounts receivable, accounts
payable, accrued liabilities and long-term debt approximate fair value based on
the Division's assessment of available market information and appropriate
valuation methodologies. Fair value estimates are made at a specific point in
time, based on relevant market information about the financial instruments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-28
<PAGE>
JPS AUTOMOTIVE L.P.
AIR RESTRAINT/INDUSTRIAL FABRICS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reliance on Principal Supplier
One supplier currently supplies substantially all of the Division's
requirements for nylon yarn, the principal raw material used in the Division's
airbag products. While the Division believes that there are adequate alternative
sources of supply from which it could fulfill its nylon yarn requirements, the
unanticipated termination of the current supply arrangement or a prolonged
interruption in shipments could have a material adverse effect on the Division.
15. QUARTERLY FINANCIAL DATA (UNAUDITED):
The quarterly financial data of 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------
FIRST SECOND THIRD FOURTH FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1996(1) --
Net sales....................................... $16,052 $17,575 $14,980 $14,214 $ 2,110
Gross profit.................................... 2,320 1,949 1,784 2,089 194
Net income...................................... 1,073 685 373 932 18
======= ======= ======= ======= ======
1995 --
Net sales....................................... $22,753 $18,456 $16,200 $15,671 N/A
Gross profit.................................... 3,291 3,667 1,930 1,893 N/A
Net income...................................... 2,160 2,377 682 393 N/A
======= ======= ======= ======= ======
</TABLE>
- ---------------
(1) The fourth quarter results of the Predecessor Company are through December
11, 1996, and include the $117 thousand write-down of certain machinery and
equipment (see Note 4). The Division's fourth quarter results are only for
the period from December 12, 1996, to December 28, 1996, the period
following the acquisition of JPS Automotive by C&A.
16. SUBSEQUENT EVENT:
On July 24, 1997, JPS Automotive sold all of the assets of the Division to
Safety Components International, Inc. for $56.3 million, including the
assumption of certain liabilities and subject to postclosing adjustments.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Collins & Aikman Corporation:
We have audited the accompanying statements of income, divisional equity
and cash flows of the Air Restraint/Industrial Fabrics (the "Division") Division
of JPS Textile Group, Inc. ("JPS Textile") for the period from December 26, 1993
to June 28, 1994. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As more fully discussed in Note 2, to these financial statements, the
Division was acquired by Foamex International, Inc. on June 28, 1994 and the
Division subsequently was acquired in 1996 by Collins & Aikman Corporation
("C&A"). In June 1997 C&A entered into a letter of intent to sell the Division.
These financial statements do not include any adjustments arising from such sale
transactions.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, divisional equity and cash
flows of the Air Restraint/Industrial Fabrics Division of JPS Textile Group,
Inc. from December 26, 1993 to June 28, 1994, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Spartanburg, South Carolina
July 10, 1997
F-30
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM DECEMBER 26, 1993 TO JUNE 28, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales.......................................................................... $40,157
Cost of goods sold................................................................. 33,738
------
Gross profit............................................................. 6,419
Selling, general and administrative expenses....................................... 1,320
Corporate general and administrative allocated costs............................... 908
------
Income from operations................................................... 4,191
Interest expense................................................................... 562
Other expense, net................................................................. 80
------
Income before income taxes............................................... 3,549
Provision for income taxes......................................................... 1,313
------
Net income............................................................... $ 2,236
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
STATEMENT OF DIVISIONAL EQUITY
FOR THE PERIOD FROM DECEMBER 26, 1993 TO JUNE 28, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance, December 25, 1993........................................................ $ 17,831
Net income...................................................................... 2,236
Net transactions with JPS Textile............................................... (1,219)
--------
Balance, June 28, 1994............................................................ $ 18,848
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 26, 1993 TO JUNE 28, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating activities:
Net income..................................................................... $ 2,236
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation................................................................ 1,086
Loss on disposal of assets.................................................. 82
Deferred taxes.............................................................. 281
Changes in operating assets and liabilities:
Accounts receivable....................................................... (2,134)
Inventories............................................................... (1,760)
Accounts payable.......................................................... 3,824
Accrued expenses.......................................................... 532
Other assets and liabilities.............................................. (13)
-------
Net cash provided by operating activities.............................. 4,134
-------
Net cash (used in) investing activities, capital expenditures.................... (4,364)
-------
Financing activities:
Net transactions with JPS Textile.............................................. (1,219)
Allocated long-term debt (Note 2).............................................. 1,444
-------
Net cash provided by financing activities.............................. 225
-------
Net change in cash..................................................... (5)
Cash, beginning of period........................................................ 5
-------
Cash, end of period.............................................................. $ -0-
=======
Supplemental cash flow information, cash paid for interest....................... $ 562
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The Air Restraint/Industrial Fabrics Division (the "Division") of JPS
Textile Group, Inc. ("JPS Textile") operates in the automotive products and
industrial fabrics segments, including the design, manufacture and sale of
airbag fabric for passenger cars and light trucks and other specialty industrial
fabrics.
The statements of income, divisional equity and cash flows for the period
from December 26, 1993 to June 28, 1994 pertain to the Division.
2. DIVISION ACQUISITIONS
JPS Automotive L.P. ("JPS Automotive") was formed on May 17, 1994, for the
purpose of acquiring a 100% ownership interest in JPS Automotive Products Corp.
("Products Corp."), which was purchased for nominal consideration on May 25,
1994. On June 28, 1994, subsidiaries of Foamex International, Inc. ("Foamex"),
the owners of all partnership interests in JPS Automotive, made capital
contributions to Products Corp. On June 28, 1994, Products Corp. acquired the
assets of the automotive products and industrial fabrics divisions of JPS
Textile. Effective October 3, 1994, Products Corp. transferred and assigned
substantially all of its assets, subject to substantially all of its
liabilities, to JPS Automotive, which agreed to assume such liabilities. In the
accompanying financial statements, the Air Restraint/Industrial Fabrics division
is referred to as the Division.
On December 11, 1996, all of the outstanding equity of JPS Automotive was
acquired from Foamex by Collins & Aikman Corporation ("C&A"), through its
subsidiaries.
On July 24, 1997, C&A sold all of the assets of the Division to Safety
Components International Inc. for $56.3 million in cash, including the
assumption of certain liabilities and subject to postclosing adjustments. In
addition, Safety Components International, Inc. made a payment to JPS Automotive
at the closing to enable it to pay off existing indebtedness of the Division of
approximately $650,000 at the closing.
Transfers of operating funds between the Division and JPS Textile occur on
a noninterest-bearing basis, with the net amount of these transfers reflected as
investments and advances from JPS Textile. The net balance in investments and
advances from JPS Textile at June 28, 1994 and December 25, 1993 of $18.8 and
$17.8 million, respectively, is classified as divisional equity in the
accompanying balance sheets.
As indicated above, the accompanying financial statements present the
results of operations and cash flows of the Division as if it were a separate
entity for the period presented.
For the period ended June 28, 1994, as required by Staff Accounting
Bulletin No. 73 of the Securities and Exchange Commission, a portion of certain
term and revolving bank debt interest expense of JPS Textile has been allocated
to the Division as a result of certain of the Division's assets, which consist
of accounts receivable and inventory, serving as security for such debt. The
allocations have been made based upon the ratio of the assets of the Division
which served as collateral for such debt to the total of the assets of JPS
Textile which served as collateral for the debt. The average interest rate on
this debt for the period ended June 28, 1994, was approximately 7%. Interest has
not been computed on the remaining intercompany balances.
JPS Textile performed certain services and incurred certain costs for the
Division. Services provided include treasury, risk management, employee
benefits, legal services, data processing, credit and collections and other
general corporate services. The costs of the services provided by JPS Textile
have been allocated to the Division based upon a combination of estimated use
and the relative sales of the business to the total operations of JPS Textile.
Costs allocated to the Division for these services were $908 thousand for the
period ended June 28, 1994. In the opinion of management, the method of
allocating these costs is believed to be
F-34
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reasonable. However, the costs of these services charged to the Division
are not necessarily indicative of the costs that would have been incurred if the
Division had performed these functions.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of the Division financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Environmental Matters
The Division records its best estimate when it believes it is probable that
an environmental liability has been incurred and the amount of loss can be
reasonably estimated. The Division also considers estimates of certain
reasonably possible environmental liabilities in determining the aggregate
amount of environmental reserves. Accruals for environmental liabilities are
generally included in the balance sheet as other noncurrent liabilities at
undiscounted amounts and exclude claims for recoveries from insurance or other
third parties. Accruals for insurance or other third-party recoveries for
environmental liabilities are recorded when it is probable that the claim will
be realized.
Revenue Recognition
The Division recognizes revenue from product sales when it has shipped the
goods or ownership has been transferred to the customer for goods to be held for
future shipment at the customer's request. The Division generally allows its
customers the right of return only in the case of defective products. The
Division provides a reserve for estimated defective products based on sales.
Income Taxes
Income taxes for all periods are determined in accordance with SFAS No.109,
"Accounting for Income Taxes". SFAS No.109 requires the use of the liability
method in which deferred income taxes are provided on the temporary differences
between the financial reporting and income tax basis of assets and liabilities
using the income tax rates, under existing legislation, expected to be in effect
at the date such temporary differences are expected to reverse. Income taxes of
the Division for the period ended June 28, 1994 are computed as if it filed a
separate tax return.
Newly Issued Accounting Standard
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities". SOP 96-1 provides authoritative guidance on specific accounting
issues related to the recognition, measurement, display and disclosure of
environmental remediation liabilities. SOP 96-1 addresses only those actions
undertaken in response to a threat of litigation or assertion of a claim. It
does not address accounting for pollution control costs with respect to current
operations or for costs of future site restoration on closure required upon
cessation of operations. SOP 96-1 is effective for fiscal years beginning after
December 15, 1996. The Division does not expect adoption of this standard will
have a material impact on its financial position or results of operations.
F-35
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. BENEFIT PLANS
Defined Benefit Pension Plan
Substantially all of the Division's employees are covered by defined
benefit pension plans sponsored by JPS Textile. The plans provide pension
benefits that are based on the employees' compensation during the last ten years
of employment. The Division's policy is to fund the annual contribution required
by applicable regulations. Expense for the Defined Benefit Pension Plans was not
material.
401(k) Savings Plans
The Division also participated in JPS Textile's salaried employees'
savings, investment and profit-sharing plan which is available to employees
meeting eligibility requirements. The Division's expense was approximately $20
thousand for the period ended June 28, 1994.
Postretirement Benefits
The Division provides postretirement health care and life insurance
benefits for eligible employees and retirees of the Division. These plans are
unfunded, and the Division retains the right to modify or eliminate these
benefits. Actuarially determined calculations for the Division and as a
stand-alone entity are included in the accompanying financial statements.
Expense for the period ended June 28, 1994 totaled approximately $40
thousand.
Since JPS Textile has capped its annual liability per person and all future
cost increases will be passed on to retirees, the annual rate of increase in
health care costs does not affect the Division's postretirement benefit
obligation.
5. INCOME TAXES
The provision for income taxes for the period ended June 28, 1994 includes
the following:
<TABLE>
<S> <C>
Federal:
Current........................................... $ 949
Deferred.......................................... 258
------
1,207
------
State:
Current........................................... 83
Deferred.......................................... 23
------
106
------
$1,313
======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Division is obligated under various noncancelable lease agreements for
rental of machinery and computer equipment. Many of the leases contain renewal
options with varying terms and escalation clauses that provide for increased
rentals based upon increases in the Consumer Price Index, real estate taxes and
F-36
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
lessors' operating expenses. Total minimum rental commitments required under
operating leases at June 28, 1994 are (in thousands):
<TABLE>
<S> <C>
1995.................................................. $193
1996.................................................. 187
1997.................................................. 181
1998.................................................. 122
1999 and thereafter................................... 4
</TABLE>
Rental expense charged to operations under operating leases by the Division
approximated $100 thousand for the period ended June 28, 1994. Substantially all
such rental expense represented the minimum rental payments under operating
leases.
7. RELATED-PARTY TRANSACTIONS AND ALLOCATIONS
As discussed in Note 2, JPS Textile performed certain services and incurred
certain costs for the Division. Services provided include treasury, risk
management, employee benefits, legal services, data processing, credit and
collections, and other general corporate services. The costs of the services
provided by JPS Textile has been allocated to the Division based upon a
combination of estimated use and the relative sales of the business to the total
operations of JPS Textile. Costs allocated to the Division for these services
were approximately $843 thousand for the period ended June 28, 1994. JPS Textile
provided certain management information systems supporting the manufacturing
operations of the Division. The costs of the services provided by JPS Textile
has been allocated to the Division based upon estimated use. Costs allocated to
the Division for these services were $65 thousand for the period ended June 28,
1994. The cost is included in the accompanying statement of income.
The Division used a warehouse owned by JPS Textile to store and distribute
certain finished goods inventory. Costs charged to the Division by JPS Textile
for rent, utilities and payroll costs associated with the use of this warehouse
were approximately $150 thousand for the period ended June 28, 1994. These costs
are included in selling, general and administrative expenses in the accompanying
statement of income.
Analysis of Net Transactions with JPS Textile
The net intercompany balance has been classified as a component of
divisional equity in the accompanying financial statements. Significant
components of the net transactions with JPS Textile have been summarized for the
period ended June 28, 1994 as follows (in thousands):
<TABLE>
<S> <C>
Cash transactions:
Corporate general and administrative allocated costs..................... $ 843
Corporate management information systems allocated costs................. 65
Interest expense allocated from JPS Textile.............................. 373
Change in allocated debt of JPS Textile.................................. (2,138)
Net transfers of cash to JPS Textile..................................... (362)
-------
$(1,219)
=======
</TABLE>
8. ENVIRONMENTAL
The Division is subject to various federal, state and local environmental
laws and regulations that (i) affect ongoing operations and may increase capital
costs and operating expenses and (ii) impose liability for the costs of
investigation and remediation and certain other damages related to on-site and
off-site soil and
F-37
<PAGE>
AIR RESTRAINT/INDUSTRIAL FABRICS
DIVISION OF JPS TEXTILE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
groundwater contamination. The Division believes it has obtained or applied
for the material permits necessary to conduct its business. To date, compliance
with applicable environmental laws has not had and, in the opinion of
management, based on the facts presently known to it, is not expected to have a
material adverse effect on the Division's financial condition or results of
operations.
Although it is possible that new information or future events could require
the Division to reassess its potential exposure relating to pending
environmental matters, management believes that, based on the facts presently
known to it, the resolution of such environmental matters will not have a
material adverse effect on the Division's financial condition or results of
operations.
The possibility exists, however, that new environmental legislation may be
passed or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated which may be material, and there can be no assurance that the
Division has identified or properly assessed all potential environmental
liability arising from its activities or properties.
9. LITIGATION
From time to time, the Division has been involved in various legal
proceedings. Management believes that such litigation is routine in nature and
incidental to the conduct of its business, and that none of such litigation, if
determined adversely to the Division, would have a material adverse effect on
the financial condition or results of operations of the Division.
10. CONCENTRATION OF RISK
The Division's customers operate primarily in the automotive and industrial
fabrics industries. The Division performs ongoing credit evaluations of its
customers and generally does not require collateral. The Division maintains
allowance accounts for potential losses and such losses have been within
management's expectations.
The percentage of sales to the three principal customers for the period
ended June 28, 1994, respectively was as follows:
<TABLE>
<S> <C>
Allied Signal........................................... 28%
TRW..................................................... 10
Travis Textiles......................................... 6
</TABLE>
The Division's exposure to credit risk associated with nonpayment by these
customers is affected by conditions or occurrences primarily within the
automotive and industrial fabrics segments. Substantially all trade receivables
from these three customers were current at June 28, 1994.
Reliance on Principal Supplier -- One supplier currently supplies
substantially all of the Division's requirements for nylon yarn, the principal
raw material used in the Division's airbag products. While the Division believes
that there are adequate alternative sources of supply from which it could
fulfill its nylon yarn requirements, the unanticipated termination of the
current supply arrangement or a prolonged interruption in shipments could have a
material adverse effect on the Division.
11. SUBSEQUENT EVENT
On July 24, 1997, C&A sold all of the assets of the Division to Safety
Components International, Inc. for $56.3 million in cash, including the
assumption of certain liabilities and subject to postclosing adjustments. In
addition, Safety Components International, Inc. made a payment to JPS Automotive
at the closing to enable it to pay off existing indebtedness of the Division of
approximately $650,000 at the closing.
F-38
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
By: /s/ JEFFREY J. KAPLAN
-------------------------------------
Name: Jeffrey J. Kaplan
Title: Executive Vice President and
Chief Financial Officer
Date: October 6, 1997
