SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
Commission File Number 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
2160 North Central Road, New Jersey, 07024
(Address and zip code of principal executive offices)
33-0596831
(IRS Employer Identification Number)
(201) 592-0008
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $.01 par value
per share, as of August 10, 1998, was 5,109,216.
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
PART I
FINANCIAL INFORMATION
The unaudited consolidated financial information at June 27, 1998 and for
the thirteen week period ended June 27, 1998 and the audited consolidated
financial information at March 28, 1998 relate to Safety Components
International, Inc. and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of June 27, 1998 and
March 28, 1998 3
Consolidated Statements of Operations for the
thirteen weeks ended June 27, 1998 and the
three months ended June 30, 1997 4
Consolidated Statements of Cash Flows for the
thirteen weeks ended June 27, 1998 and the
three months ended June 30, 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 2. QUANTATIVE AND QUALATATIVE DISCLUSURES
ABOUT MARKET RISK 14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
2
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and per share data)
<TABLE>
<CAPTION>
June 27, March 28,
1997 1998
------------ --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 4,384 $ 6,049
Accounts receivable, net ................................... 40,312 39,208
Inventories ................................................ 24,700 19,935
Prepaid and other .......................................... 4,367 4,196
-------- --------
Total current assets .......................... 73,763 69,388
Property, plant and equipment, net ...................................... 69,486 66,279
Receivable from affiliate ............................................... 2,771 1,206
Intangible assets, net .................................................. 58,370 55,923
Other assets ............................................................ 5,708 6,101
-------- --------
Total assets .................................. $210,098 $198,897
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $24,866 $23,009
Earnout payable ............................................ - 1,958
Accrued liabilities ........................................ 15,130 12,558
Current portion of long-term obligations ................... 2,336 2,375
-------- --------
Total current liabilities ..................... 42,332 39,900
Long-term obligations ................................................... 31,126 24,739
Senior subordinated debt ................................................ 90,000 90,000
Other long-term liabilities ............................................. 5,188 5,064
-------- --------
Total liabilities ............................. 168,646 159,703
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.10 par value per share - 2,000,000 shares
authorized; no shares outstanding at
June 27, 1998 and March 28, 1998 .................... - -
Common stock: $.01 par value per share - 10,000,000 shares
authorized; 6,586,908 and 6,538,075 shares issued and
5,094,216 and 5,045,383 shares outstanding at
June 27, 1998 and March 28, 1998, respectively....... 66 65
Common stock warrants ...................................... 1 1
Additional paid-in-capital ................................. 44,686 44,040
Treasury stock, 1,492,692 shares at June 27, 1998
and March 28, 1998 respectively, at cost ............ (15,439) (15,439)
Retained earnings .......................................... 16,734 15,191
Cumulative translation adjustment .......................... (4,596) (4,664)
-------- --------
Total stockholders' equity .................... 41,452 39,194
-------- --------
Total liabilities and stockholders' equity .... $210,098 $198,897
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and per share data)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Ended Months Ended
June 27, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net Sales ...................................................... $51,449 $27,629
Cost of sales, excluding depreciation .......................... 40,318 21,156
Depreciation ................................................... 1,866 805
------- -------
Gross profit ...................................... 9,265 5,668
Selling and marketing expenses ................................. 647 288
General and administrative expenses ............................ 2,571 2,163
Amortization of goodwill ....................................... 560 185
------- -------
Income from operations ............................ 5,487 3,032
Other expense .................................................. 44 118
Interest expense ............................................... 2,803 523
------- -------
Income before income taxes ........................ 2,640 2,391
Provision for income taxes ..................................... 1,093 956
------- -------
Net income ..................................................... $ 1,547 $ 1,435
======= =======
Net income per share, basic .................................... $ 0.31 $ 0.29
======= =======
Net income per share, assuming dilution ........................ $ 0.30 $ 0.29
======= =======
Weighted average number of shares outstanding, basic ........... 5,068 5,021
======= =======
Weighted average number of shares outstanding, assuming dilution 5,224 5,021
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Ended Months Ended
June 27, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net cash (used in) provided by operating activities ............. $ (623) $ 2,088
-------- --------
Cash Flows From Investing Activities:
Additions to property, plant and equipment ............. (5,595) (1,828)
Additional consideration and costs for Phoenix Airbag .. (1,958) (2,386)
Acquisition costs and andvances for Valentec ........... (135) (1,557)
Acquisition costs for JPS .............................. (133) (163)
-------- -------
Net cash used in investing activities ............. (7,821) (5,934)
-------- -------
Cash Flows From Financing Activities:
Proceeds from KeyBank term note ........................ - 15,000
Proceeds from Bank Austria mortgage .................... - 7,500
Proceeds from Transamerica financing ................... - 2,000
Repayment of Bank of America NT&SA term note ........... - (16,812)
Net proceeds from sale of common stock ................. 520 -
(Repayments) borrowing of debt and long-term obligations (776) (8,483)
Net borrowing on revolving credit facility ............. 7,124 (3)
-------- -------
Net cash provided in financing activities ......... 6,868 (798)
-------- -------
Effect of exchange rate changes on cash ......................... (89) (904)
-------- -------
Change in cash and cash equivalents ............................. (1,665) (5,548)
Cash and cash equivalents, beginning of period .................. 6,049 8,320
-------- -------
Cash and cash equivalents, end of period ........................ $ 4,384 $ 2,772
======== =======
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest .............................................. $ 474 $ 523
Income taxes .......................................... 341 $ -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Safety Components International, Inc. ("SCI" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from this report, as is permitted by such rules
and regulations; however, SCI believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended March 28, 1998. The Company has experienced, and
expects to continue to experience, variability in net sales and net income from
quarter to quarter. Therefore, the results of the interim periods presented
herein are not necessarily indicative of the results to be expected for any
other interim period or the full year. In the opinion of management, the
information furnished reflects all adjustments, all of which are of a normal
recurring nature, necessary for a fair presentation of the results for the
reported interim periods.
Effective as of May 22, 1997, the Company acquired all of the outstanding
capital stock of Valentec International Corporation ("Valentec") in a tax free
stock-for-stock exchange (the "Valentec Acquisition"). Valentec is a high-volume
manufacturer of stamped and precision-machined products for the automotive,
commercial and defense industries. Valentec was the Company's largest
shareholder immediately prior to the Valentec Acquisition owning approximately
27%, or 1,379,200 shares of the issued and outstanding shares of common stock,
$.01 par value per share, of the Company (the "Common Stock"). The Company
issued an aggregate of 1,369,200 newly issued shares of Common Stock to the
shareholders of Valentec. The acquisition was accounted for as a purchase. The
purchase price aggregated approximately $15.2 million, including estimated
direct acquisition costs of approximately $1.4 million. In addition, the Company
advanced Valentec approximately $1.3 million for the purpose of funding
operations prior to the Valentec Acquisition. The operations of Valentec are
included in the accounts of the Company for the entire thirteen week period
ended June 27, 1998 and beginning on May 22, 1997 for the three-month period
ended June 30, 1997. Management of the Company allocated the purchase
consideration for Valentec assets, net of liabilities assumed, at fair market
value, with the excess allocated to goodwill. Goodwill of $19.9 million will be
amortized over twenty-five years on a straight-line basis.
On July 24, 1997, the Company, through a newly formed wholly-owned subsidiary,
Safety Components Fabric Technologies, Inc. ("SCFTI"), acquired ("the JPS
Acquisition") all of the assets and assumed certain liabilities of the Air
Restraint/Technical Fabrics Division of JPS Automotive L.P. SCFTI is a leading,
low-cost supplier of airbag fabric in North America and is also a leading
manufacturer of value-added technical fabrics used in a variety of niche
industrial and commercial applications. The JPS Acquisition was accounted for as
a purchase. The purchase price aggregated approximately $58.9 million, after
giving effect to post-closing adjustments. The purchase price also included the
repayment of approximately $650,000 of capital lease obligations, direct
acquisition costs of approximately $1.0 million, and approximately $1.2 million
for the purchase of a building in conjunction with the JPS Acquisition. The
operations of SCFTI are included in the accounts of the Company for the entire
thirteen-week period ended June 27, 1998. Management of the Company allocated
the purchase consideration for SCFTI assets, net of liabilities assumed, at fair
market value, with the excess allocated to goodwill. Goodwill of $18.5 million
will be amortized over forty years based on a straight line method.
6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additionally, on December 22, 1997, the Company acquired all of the issued and
outstanding capital stock of CSSC, Inc. (formerly known as Champion Sales and
Service Company) ("Champion") for an aggregate amount of $3.4 million including
direct acquisition costs of approximately $125,000 (the "Champion Transaction").
In conjunction with the Champion Transaction, the Company has entered into a
management services agreement with the former shareholders of Champion. The
terms of such management services agreement prohibits the Champion shareholders
from competing with certain businesses of the Company for a period of five
years. Each such management services agreement also provides that the Company
has the option, at its sole discretion, to extend the non-competition period for
three successive five-year periods, upon payment of a nominal extension fee.
Accordingly, the Company has allocated the purchase consideration to these
non-compete agreements. In connection with the Champion Transaction, the Company
also entered into a definitive Put Agreement (the "Put Transaction") with an
associate of Champion (the "Associate") who had the right to a portion of any of
the sales commissions actually received by Champion. Pursuant to the Put
Transaction, the Associate has the option to put to the Company, subject to
certain conditions, all of the issued and outstanding capital stock of Duchi &
Associates, Inc., an affiliated entity, for a put price of $740,000. The Put
Transaction will include (as a condition to its exercise), a twenty year
management services agreement and non-compete agreement between the Company and
the Associate. The Company believes the Put Transaction will be exercised, and
accordingly, has recorded $740,000 as an intangible asset and accrued for the
Put Transaction as part of accrued liabilities, during fiscal year 1998. The
Associate has not exercised his put option as of June 27, 1998.
NOTE 2 COMPOSITION OF CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS
(in thousands)
<TABLE>
<CAPTION>
June 27, 1998 March 28, 1998
----------------- --------------
<S> <C> <C>
Accounts receivable:
Billed receivables $ 29,921 $29,034
Unbilled receivables (net of unliquidated progress
payments of $7,240 and $9,846 at June 27, 1998 and
March 28, 1998, respectively) 8,240 8,759
Other 2,151 1,415
------- -------
$40,312 $39,208
======= =======
Inventories:
Raw materials $ 6,826 $ 6,072
Work-in-process 10,584 6,743
Finished goods 7,290 7,120
------- -------
$24,700 $19,935
======= =======
Property, plant and equipment:
Land and building $ 9,317 $ 9,134
Machinery and equipment 70,724 65,846
------- -------
80,041 74,980
Less - accumulated depreciation and amortization (10,555) (8,701)
------- -------
$69,486 $66,279
======= =======
</TABLE>
7
<PAGE>
NOTE 3 LONG-TERM OBLIGATIONS (in thousands)
<TABLE>
<CAPTION>
June 27, 1998 March 28, 1997
------------------ --------------
<S> <C> <C>
Senior Subordinated Notes due July 15, 2007, bearing
interest at 10 1/8% $90,000 $ 90,000
KeyBank revolving credit facility due May 05, 2002, bearing
interest at 1.0% over LIBOR 21,300 14,176
Bank Austria mortgage note, due March 31, 2007, bearing
interest at 1.0% over LIBOR 6,750 7,125
Note payable, principal due in annual installments of $212
beginning January 12, 1999 to January 12, 2002, with interest
at 7.22% in semiannual installments, secured by assets of
the Company's United Kingdom subsidiary 831 847
Capital equipment notes payable, due in monthly installments
with interest at 8.53% to 16.0% maturing at various rates
through June 2002, secured by machinery and equipment 4,581 4,966
-------- --------
123,462 117,114
Less - current portion (2,336) (2,375)
-------- --------
$121,126 $114,739
======== ========
</TABLE>
On July 24, 1997, the Company issued $90.0 million aggregate principal amount of
its 10 1/8% Senior Subordinated Notes due 2007, Series A (the "Old Notes") to BT
Securities Corporation, Alex. Brown & Sons Incorporated and BancAmerica
Securities, Inc. in a transaction not registered under the Securities Act of
1933, as amended, in reliance upon an exemption thereunder (the "Debt
Offering"). On September 2, 1997, the Company commenced an offer to exchange
(the "Exchange Offer", together with the Debt Offering, the "Offering") the Old
Notes for $90.0 million aggregate principal amount of its 10 1/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes", together with the
Old Notes, the "Notes"). All of the Old Notes were exchanged for Exchange Notes
pursuant to the terms of the Exchange Offer, which expired on October 1, 1997.
Interest on the Notes accrue from July 24, 1997 and is payable semi-annually in
arrears on each of January 15 and July 15 of each year. The first semi-annual
interest payment was made on January 15, 1998 to the holders for an aggregate of
$4.4 million. The Company has also accrued through June 27, 1998, as part of
accrued liabilities, approximately $4.0 million of interest, which was paid on
July 15, 1998 as part of the second semi-annual payment. The Company incurred
approximately $3.9 million of fees and expenses related to the Offering. Such
fees have been deferred and will be charged to operations over the expected term
of the Notes, not to exceed 10 years. The Notes are general unsecured
8
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
obligations of the Company and are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture, pursuant
to which the Notes were issued) and to all existing and future indebtedness of
the Company's subsidiaries that are not Guarantors, as defined herein. All of
the Company's direct and indirect wholly-owned domestic subsidiaries are
Guarantors.
The Company, Phoenix Airbag and Automotive Safety Components International
Limited entered into an agreement with KeyBank National Association, as
administrative agent ("KeyBank"), dated as of May 21, 1997 as amended (the
"Credit Agreement"). The Credit Agreement consists of a $27.0 million revolving
credit facility for a five year term, bearing interest at LIBOR (5.65625% as of
June 27, 1998) plus 1.00% with a commitment fee of 0.25% per annum for any
unused portion. The proceeds from KeyBank were used to repay the Bank of America
NT&SA term loan and revolving credit. KeyBank was subsequently repaid with the
proceeds from the Offering. The Company incurred approximately $470,000 of
financing fees and related costs. These costs have been deferred and will be
charged to operations over the expected term of the Credit Agreement not to
exceed 5 years. The indebtedness under the Credit Agreement is secured by
substantially all the assets of the Company. 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. Subsequent to June 27, 1998, the
Company and KeyBank entered into Amendment No. 3 to the Credit Agreement to
increase the limits on certain capital expenditures and lease covenants. The
Company has used and will continue to use the revolving credit facility to fund
working capital. Letters of credit outstanding were $3.9 million and $3.4
million at June 27, 1998 and March 28, 1998, respectively.
On June 4, 1997, the Company secured a $7.5 million mortgage note facility with
Bank of Austria. The note is payable in semi-annual installments of $375,000
through March 31, 2007 and bears interest at 1.0% over LIBOR. The note is
secured by the assets of the Company's Czech Republic facility. The Company
incurred approximately $437,000 of financing fees and related costs. These costs
have been deferred and will be charged to operations over the expected term of
the note not to exceed 5 years.
During fiscal year 1997, the Company entered into a sale-leaseback of certain
equipment which is accounted for as a capital lease. The Company received
proceeds (which approximated the carrying value of the asset at the time of
sale) of approximately $1.5 million; no gain or loss was recorded in connection
with this transaction. The agreement requires that specified machinery and
equipment used in the Company's operations be pledged as collateral, among other
criteria. The Company imputed interest at 9% per annum. The Credit Agreement
consists of a $27.0 million revolving credit facility for a five year term,
bearing interest at LIBOR (5.65625% as of June 27, 1998) plus 1.00% with a
commitment fee of 0.25% per annum for any unused portion.
Subsequent to June 27, 1998, the Company entered into a $10.0 million financing
arrangement with Key Corporate Capital Inc. ("KeyCorp"). The Company applied the
entire proceeds to satisfy outstanding indebtedness under the KeyBank revolving
credit facility, thereby reducing the amount outstanding under the revolving
credit facility. The KeyCorp financing agreement has a seven-year term, bears
interest at 7.09%, and requires monthly payments of $150,469, secured by certain
equipment located at SCFTI.
9
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - RECONCILIATION TO DILUTED EARNINGS PER SHARE (in thousands)
The following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock.
<TABLE>
<CAPTION>
Thirteen Three
Weeks Ended Months Ended
June 27, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net income $1,543 $1,435
====== ======
Weighted average number of
common shares used in basic
earnings per share 5,068 5,021
Effect of dilutive securities:
Stock options 142 -
Warrants 14 -
----- -----
Weighted average number of
common shares and dilutive
potential common stock used
in diluted earnings per share 5,224 5,021
===== =====
</TABLE>
Options on approximately 76,000 and 599,000 shares of common stock were not
included in computing diluted earnings per share as of June 27, 1998 and June
30, 1997, respectively, because their effects were antidilutive. Warrants to
purchase 104,400 shares of Common Stock were not included in computing diluted
earnings per share as of June 30, 1997 because their effects were antidilutive.
NOTE 5 - COMPREHENSIVE INCOME (in thousands)
During the first quarter of fiscal year 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income", which became effective for fiscal years
beginning after December 15, 1997. This Statement requires disclosure of
comprehensive income, defined as the total of net income and all other non-owner
changes in equity, which under generally accepted accounting principles, are
recorded directly to the stockholders' equity section of the consolidated
balance sheet and, therefore bypass net income. In SCI's case, the only
non-owner change in equity relates to the foreign currency translation
adjustment. Comprehensive income is as follows:
Thirteen Three
Weeks Ended Months Ended
June 27, 1998 June 30, 1997
------------- -------------
Net Income $1,543 $1,435
Tax benefit from stock options exercised 112 -
Foreign currency translation adjustment 68 (912)
------ ------
Comprehensive income $1,723 $ 523
====== ======
10
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - UNAUDITED PRO FORMA INFORMATION
The unaudited pro forma revenues, net income and net income per common share,
assuming that each of: (i) the Valentec Acquisition; (ii) the JPS Acquisition;
(iii) the completion of the debt offering (Note 3) and application of the
proceeds therefrom; and (iv) the Champion Transaction was consummated on April
1, 1997 are as follows below, in thousands, except per share data. The unaudited
pro forma information does not purport to represent what the Company's results
of operations actually would have been if those transactions had been
consummated on the date or for the periods indicated, or what such results will
be for any future date or for any future period.
Pro Forma Pro Forma
Three Months Year Ended
June 30, 1997 March 28, 1998
------------- --------------
(unaudited) (unaudited)
Revenues $48,309 $194,635
Net sales $ 1,063 $ 5,420
Net income per common share, basic $ 0.21 $ 1.08
Net income per common share, assuming dilution $ 0.21 $ 1.05
NOTE 7 - SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Notes are guaranteed on a senior unsecured basis, jointly and severally, by
each of the Company's principal wholly-owned domestic operating subsidiaries and
certain of its indirect domestic wholly-owned subsidiaries (the "Guarantors").
Certain condensed consolidating information of the guarantors are presented
below as of June 27, 1998.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
GUARANTOR NONGUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets................ $ 52,317 $ 19,359 $ 2,087 $ - $ 73,763
======= ======= ======= ====== =======
Total assets.................. $144,440 $ 61,268 $ 13,293 $(8,903) $210,098
======= ======= ======= ====== =======
Current liabilities........... $ 30,044 $ 20,282 $ (7,994) $ - $ 42,332
======= ======= ======= ====== =======
Total liabilities............. $130,145 $ 50,158 $(11,657) $ - $168,646
======= ======= ======= ====== =======
Revenues...................... $ 37,754 $ 15,206 $ - $(1,511) $ 51,449
======= ======= ======= ====== =======
Gross Profit.................. $ 6,382 $ 2,883 $ - $ - $ 9,265
======= ======= ======= ====== =======
Income from operations........ $ 4,477 $ 2,144 $ (1,134) $ - $ 5,487
======= ======= ======= ====== =======
Income before taxes........... $ 4,774 $ 1,618 $ (3,752) $ - $ 2,640
======= ======= ======= ====== =======
Net Income.................... $ 2,934 $ 849 $ (2,236) $ - $ 1,547
======= ======= ======= ====== =======
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
First Quarter Ended June 27, 1998 Compared to First Quarter Ended June 30, 1997
Net Sales. Net sales increased by $23.8 million or 86.2% to $51.4
million for the first quarter of fiscal year 1999 compared to the first quarter
of fiscal year 1998. The increase was primarily attributable to increased sales
volume in North America due to the acquisition of SCFTI and Valentec during
fiscal year 1998. SCFTI was acquired on July 24, 1997 and included in the
Company's entire first quarter of fiscal year 1999 whereas in the first quarter
of fiscal year 1998 SCFTI had not yet been acquired. Sales at SCFTI were
approximately $18.5 million for the first quarter of fiscal year 1999. Valentec
was acquired effective May 22, 1997 and included in the Company's entire first
quarter of fiscal year 1999 whereas in the first quarter of fiscal year 1998
Valentec was included for a portion of the quarter. Sales at Valentec increased
approximately $2.8 million for the first quarter of fiscal year 1999. The
remaining increase in sales during the first quarter of fiscal year 1999 was due
to increased volumes in the European automotive operations and higher sales in
the defense operations due to the resumption in delivery under the Company's 120
millimeter mortar systems contract with the U.S. Army. The increase in sales was
offset in part by the effects of the General Motors strike and price decreases
to the Company's customers. The General Motors strike, while not material in the
first quarter of fiscal year 1999, is expected to have a greater impact on the
Company's earnings in the second quarter of fiscal year 1999.
Gross Profit. Gross profit increased by $3.6 million or 63.5% to $9.3
million for the first quarter of fiscal year 1999 compared to the first quarter
of fiscal year 1998. The increase was primarily attributable to the acquisition
of SCFTI, which contributed approximately $3.0 million to gross profit. The
remaining increase was attributable to the inclusion of Valentec for the entire
first quarter of fiscal year 1999 and increased shipments of the defense
operations, which were partially offset by lower margins in Europe due to price
reductions.
Gross profit as a percentage of sales decreased to approximately 18.0%
for the first quarter of fiscal year 1999 from 20.5% for the first quarter of
fiscal year 1998. The decrease as a percentage was due to the historically lower
gross margins at SCFTI. The textile industry generally produces margins in the
range of 13% to 14% due to the capital intensive production process.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $767,000 or 31.3% to $3.2 million for the
first quarter of fiscal year 1999 compared to the first quarter of fiscal year
1998. The increase was primarily attributable to the acquisitions of SCFTI and
Valentec. Selling, general and administrative expenses as a percentage of sales
decreased to 6.3% for the first quarter of fiscal year 1999 from 8.9% for the
first quarter of fiscal year 1998 due to the increased sales volumes.
Operating Income. Operating income increased by $2.5 million or 81.0%
to $5.5 million for the first quarter of fiscal year 1999 compared to the first
quarter of fiscal year 1998. The increase was primarily attributable to the
acquisition of SCFTI and Valentec.
Interest Expense. Interest expense increased $2.3 million to $2.8
million for the first quarter of fiscal year 1999 compared to the first quarter
of fiscal year 1998. This increase was attributable to the issuance of the Notes
(as defined herein) the proceeds of which were used primarily to acquire SCFTI.
12
<PAGE>
Income Taxes. The income tax rate applied against pre-tax income was
41.4% for the first quarter of fiscal year 1999 compared to 40.0% for the first
quarter of fiscal year 1998. The tax rate increased due to the non-deductible
goodwill amortization at Valentec, offset by the lower tax rate at SCFTI.
Net Income. Net income increased to $1.5 million for the first quarter
of fiscal year 1999 compared to $1.4 million for the first quarter of fiscal
year 1998. This increase is a result of the items discussed above.
Liquidity and Capital Resources
As the Company's business continues to grow, its equipment and working
capital requirements are also expected to continue to increase. The Company
expects to fund this growth through a combination of cash flow from operations,
equipment financing, revolving credit borrowings and the proceeds from potential
future Company public offerings.
The Company, Phoenix Airbag and Automotive Safety Components
International Limited entered into an agreement with KeyBank National
Association, as administrative agent ("KeyBank"), dated as of May 21, 1997 as
amended (the "Credit Agreement"). The Credit Agreement consists of a $27.0
million revolving credit facility for a five year term ($21.3 million
outstanding as of June 27, 1998), bearing interest at LIBOR (5.65625% as of June
27, 1998) plus 1.00% with a commitment fee of 0.25% per annum for any unused
portion. The Company incurred approximately $470,000 of financing fees and
related costs. These costs have been deferred and will be charged to operations
over the expected term of the Credit Agreement not to exceed 5 years. The
indebtedness under the Credit Agreement is secured by substantially all the
assets of the Company. 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. Subsequent to June 27, 1998, the Company and KeyBank entered into
Amendment No. 3 to the Credit Agreement to increase the limits on certain
capital expenditures and lease covenants. The Company has used and expects to
continue to use the revolving credit facility to fund working capital. Letters
of credit outstanding were $3.9 million at June 27, 1998. Subsequent to June 27,
1998, the Company entered into a $10.0 million equipment financing arrangement
with Key Corporate Capital Inc. ("KeyCorp"). The Company applied the entire
proceeds to satisfy outstanding indebtedness under the KeyBank revolving credit
facility, thereby increasing the availability under the revolving credit
facility. The KeyCorp financing agreement has a seven-year term, bears interest
at 7.09% per annum, and requires monthly payments of $150,469, secured by
certain equipment located at SCFTI.
On July 24, 1997, the Company issued $90.0 million aggregate principal
amount of its 10 1/8% Senior Subordinated Notes due 2007, Series A (the "Old
Notes") to BT Securities Corporation, Alex. Brown & Sons Incorporated and
BancAmerica Securities, Inc. in a transaction not registered under the
Securities Act of 1933, as amended, in reliance upon an exemption thereunder
(the "Debt Offering"). On September 2, 1997, the Company commenced an offer to
exchange (the "Exchange Offer", together with the Debt Offering, the "Offering")
the Old Notes for $90.0 million aggregate principal amount of its 10 1/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes", together with the
Old Notes, the "Notes"). All of the Old Notes were exchanged for Exchange Notes
pursuant to the terms of the Exchange Offer, which expired on October 1, 1997.
Interest on the Notes accrues from July 24, 1997 and is payable semi-annually in
arrears on each of January 15 and July 15 of each year. The first semi-annual
interest payment was made on January 15, 1998 to the holders for an aggregate of
$4.4 million. The Company paid on July 15, 1998 the second semi-annual payment
to the holders for an aggregate of $4.6 million. The Company incurred
13
<PAGE>
approximately $3.9 million of fees and expenses related to the Offering. Such
fees have been deferred and will be charged to operations over the expected term
of the Notes, not to exceed 10 years. The Notes are general unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture, pursuant
to which the Notes were issued) and to all existing and future indebtedness of
the Company's subsidiaries that are not Guarantors. All of the Company's direct
and indirect wholly-owned domestic subsidiaries are Guarantors.
During the first quarter of fiscal year 1999, net cash generated used
by operations was $623,000, cash used by investing activities was $7.8 million
and cash used for capital expenditures was $5.6 million. The Company also paid
additional consideration in connection with the acquisition of Phoenix Airbag,
which was the $2.0 million earn-out accrued at the end of fiscal year 1998. In
addition, the Company incurred certain costs in connection with the acquisitions
of Valentec and SCFTI of approximately $135,000 and $133,000, respectively. Net
cash provided by financing activities in the first quarter of fiscal year 1999
was $6.9 million. These activities resulted in a net decrease in cash of $1.7
million in the first quarter of fiscal year 1999.
Capital expenditures were $5.6 million in the first quarter of fiscal
year 1999. Capital expenditures in the first quarter of fiscal year 1999 were
used for the acquisition of additional equipment to expand the Company's
production capacity worldwide.
Due the General Motors strike, the Company expects that it will incur
an unfavorable impact on net sales and net income during the second quarter of
fiscal year 1999, as a result of reductions of requirements by major customers.
The above discussion may contain forward-looking statements that
involve risks and uncertainties, including, but not limited to, the impact of
competitive products and pricing, product demand and market condition risks, the
ability of Safety Components to realize anticipated cost savings and earnings
projections by Valentec; the ability of the Company to realize the proceeds of
the delay claim against the Government related to the Systems Contract; the
continued performance by SCFTI at or above historical levels; the impact of the
General Motors strike on the operating results of the Company; world-wide
economic conditions; dependence of revenues upon several major module suppliers
and pricing pressures.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Not Applicable.
14
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibits
----------- ------------------------------------------------
10.1 SCI 1994 Stock Option Plan
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
(b) Reports on Form 8-K
-------------------
Not applicable.
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
(Registrant)
DATED: August 11, 1998 BY: /s/ JEFFREY J. KAPLAN
----------------------------
Jeffrey J. Kaplan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
15
SAFETY COMPONENTS INTERNATIONAL, INC.
1994 STOCK OPTION PLAN
Section 1. Purpose
The purposes of this Safety Components International, Inc. 1994 Stock
Option Plan (the "Plan") are to encourage selected employees, consultants and
directors of Safety Components International, Inc. (together with any successor
thereto, the "Company") and its Affiliates (as defined below) to acquire a
proprietary interest in the growth and performance of the Company, to generate
an increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of its
stockholders, and to enhance the ability of the Company and its Affiliates to
attract and retain qualified individuals upon whom, in large measure, the
sustained progress, growth, and profitability of the Company depend.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or through one
or more intermediaries, is controlled by, controls or is under common control
with the Company and (ii) any entity in which the Company has a significant
equity interest, as determined by the Committee.
(b) "Board" shall mean the Board of Directors of the Company.
(c)"Change of Control" of the Company shall mean and include each of
the following: (i) the acquisition, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 of the Rules and Regulations) by any
person or entity or any group of persons or entities who constitute a group
(within the meaning of Section 13(d)(3) of the Rules and Regulations) (other
than Robert A. Zummo, a member of his immediate family, a trust or similar
estate planning vehicle established by Mr. Zummo, or an entity in which Mr.
Zummo owns, directly or indirectly, a majority of the equity securities or
voting rights), of any securities of the Company such that, as a result of such
acquisition, such person, entity or group either (A) beneficially owns (within
the meaning of Rule l3d-3 of the Rules and Regulations), directly or indirectly,
more than 30% of the Company's outstanding voting securities entitled to vote on
a regular basis for a majority of the members of the Board or (B) otherwise has
the ability to elect, directly or indirectly, a majority of the members of the
Board; (ii) a change in the composition of the Board such that a majority of the
members of the Board are not Continuing Directors; (iii) the closing date of a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which results in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company; or (v) the
closing date of the sale or disposition by the Company (if consummated in more
than one transaction, the initial closing date) of all or substantially all of
the Company's assets, following shareholder approval of such sale or
disposition. Notwithstanding the foregoing, the preceding events shall not be
deemed to be a Change of Control if, prior to any transaction or transactions
causing such change, a majority of the Continuing Directors shall have voted not
to treat such transaction or transactions as resulting in a Change of Control.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not less than two directors, each
of whom is both a "Non-Employee Director" within the meaning of Rule 16b-3 and
an "outside director" as that term is defined for purposes of Section 162(m) of
the Code.
<PAGE>
(f) "Consultant" shall mean any Person who contracts to provide
services to the Company as an independent contractor.
(g) "Continuing Director" shall mean, as of any date of determination,
any member of the Board who (i) was a member of the Board on May 28, 1998 (the
effective date of the amendment to the Plan which added the Change of Control
provisions) or (ii) was nominated for election or elected to such board with the
affirmative vote of a majority of the Continuing Directors who were members of
the Board at the time of such nomination or election.
(h) "Fair Market Value" shall mean, with respect to Shares or other
securities (i) the closing price per Share of the Shares on the principal
exchange on which the Shares are then trading, if any, on such date, or, if the
Shares were not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Shares are not traded on an
exchange but are quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Shares are then listed as a National Market Issue under the
NASDAQ National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Shares on such
date as reported by NASDAQ or such successor quotation system; or (iii) if the
Shares are not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Shares on such date as determined in good faith by the Committee; or
(iv) if the Shares are not publicly traded, the fair market value established by
the Committee acting in good faith.
(i) "Incentive Stock Option" shall mean an option granted under Section
6 of the Plan that meets the requirements of Section 422 of the Code or any
successor provision thereto.
(j) "Independent Director" shall mean each member of the Board who is
not an employee of the Company or any Affiliate.
(k) "Key Employee" shall mean any officer, director or other key
employee (as determined by the Board) who is a regular full-time employee of the
Company or its present and future Affiliates.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6 of the Plan that is not an Incentive Stock Option or an Option granted
under Section 7.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(n) "Option Agreement" shall mean a written agreement, contract, or
other instrument or document evidencing an Option granted under the Plan.
(o) "Participant" shall mean a Key Employee, Consultant or Independent
Director who has been granted an Option under the Plan.
(p) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation thereto.
(r) "Rules and Regulations" shall mean the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended.
(s) "Shares" shall mean the common stock of the Company, $.01 par
value, and such other securities or property as may become the subject of
Options pursuant to an adjustment made under Section 4(b) of the Plan.
(t) "Ten Percent Stockholder" shall mean a Person, who together with
his or her spouse, children and trusts and custodial accounts for their benefit,
immediately at the time of the grant of an Option and assuming its immediate
<PAGE>
exercise, would beneficially own, within the meaning of Section 424(d) of the
Code, Shares possessing more than ten percent (10%) of the total combined voting
power of all of the outstanding capital stock of the Company.
Section 3. Administration
(a) Generally. The Plan shall be administered by the Committee. Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Option shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Option, any stockholder of the Company or any Affiliate, and any employee of the
Company or of any Affiliate.
(b) Powers. Subject to the terms of the Plan and applicable law and
except as provided in Section 7 hereof, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Options to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by Options; (iv) determine the terms and
conditions of any Option; (v) determine whether, to what extent, and under what
circumstances Options may be settled or exercised in cash, Shares, other
Options, or other property, or canceled, forfeited, or suspended, and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) interpret and administer the Plan and any instruments or
agreements relating to, or Options granted under, the Plan; (vii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (viii)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.
(c) Reliance, Indemnification. The Committee may employ attorneys,
consultants, accountants or other persons and the Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Committee shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, or Options granted thereunder, and all members
of the Committee shall be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
Section 4. Shares Available for Options
(a) Shares Available. Subject to adjustment as provided in Section
4(b):
(i) Limitation on Number of Shares. Options issuable under the
Plan are limited such that the maximum aggregate number of Shares which
may issued pursuant to, or by reason of, Options is 1,050,000, of which
975,000 may be issued pursuant to, or by reason of, Options granted to
Key Employees and Consultants and 75,000 may be issued pursuant to, or
by reason of, Options granted to Independent Directors. Further, no
Participant shall be granted Non-Qualified Stock Options to purchase
more than 200,000 Shares in any one fiscal year. To the extent that an
Option granted to a (A) Key Employee or Consultant or (B) an
Independent Director ceases to remain outstanding by reason of
termination of rights granted thereunder, forfeiture or otherwise, the
Shares subject to such Option shall again become available for award
under the Plan to (x) Key Employees and Consultants and (y) Independent
Directors, respectively; provided, however, that in the case of the
cancellation or termination of a Non-Qualified Stock Option in the same
fiscal year that such Non-Qualified Stock Option was granted, both the
canceled Non-Qualified Stock Option and the newly granted Non-Qualified
Stock Option shall be counted in determining whether the recipient has
received the maximum number of such Options under the Plan for such
fiscal year.
(ii) Accounting for Awards. For purposes of this Section 4,
the number of Shares covered by an Option to a (A) Key Employee or Consultant or
(B) Independent Director shall be counted on the date of grant of such Option
against the aggregate number of Shares available for granting Options under the
<PAGE>
Plan to (x) Key Employees and Consultants or (y) Independent Directors,
respectively.
(iii) Sources of Shares Deliverable Under Options. Any Shares
delivered pursuant to an Option may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that
any (i) subdivision or consolidation of Shares, (ii) dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), (iii) recapitalization or other capital adjustment of the Company or
(iv) merger, consolidation or other reorganization of the Company or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event, affects the Shares such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
necessary to prevent dilution or enlargement of the benefits or potential
benefits intended to be made under the Plan, adjust any or all of (x) the number
and type of Shares which thereafter may be made the subject of Options, (y) the
number and type of Shares subject to outstanding Options, and (z) the grant,
purchase, or exercise price with respect to any Option or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Option; provided, however, in each case, that (i) with respect to Incentive
Stock Options no such adjustment shall be authorized to the extent that such
adjustment would cause the Plan to violate Section 422 of the Code or any
successor provision thereto; (ii) each such adjustment shall be made in such
manner as not to constitute a cancellation and reissuance of a Non-Qualified
Stock Option for purposes of Section 162(m) of the Code, or the regulations
promulgated thereunder, to the extent that such reissuance would result in the
grant of such Options in excess of the maximum permitted to be granted to any
Participant in any fiscal year; and (iii) the number of Shares subject to any
Option denominated in Shares shall always be a whole number.
Section 5. Eligibility
In addition to Section 7, Options may be granted only to Key Employees,
Independent Directors and Consultants; provided, that Incentive Stock Options
may be granted only to Key Employees of the Company, any parent corporation or
any subsidiary, as these terms are defined in Section 424 of the Code. In
determining the Persons to whom Options shall be granted and the number of
Shares to be covered by each Option, the Committee shall take into account the
nature of the Person's duties, such Person's present and potential contributions
to the success of the Company and such other factors as it shall deem relevant
in connection with accomplishing the purposes of the Plan. A Key Employee or
Consultant who has been granted an Option or Options under the Plan may be
granted an additional Option or Options, subject to such limitations as may be
imposed by the Code on the grant of Incentive Stock Options.
Section 6. Option
The Committee is hereby authorized to grant Options to Participants
upon the following terms and the conditions (except to the extent otherwise
provided in Section 7) and with such additional terms and conditions, in either
case not inconsistent with the provisions of the Plan, as the Committee shall
determine:
(a) Exercise Price. The purchase price per Share purchasable
under Options shall not be less than 100% of the Fair Market Value of a
Share on the date of grant; provided that the purchase price per Share
purchasable under Incentive Stock Options granted to Ten Percent
Stockholders shall be not less than 110% of the Fair Market Value of a
Share on the date of grant.
(b) Option Term. The term of each Non-Qualified Stock Option
shall be fixed by the Committee but generally shall not exceed 10 years
from the date of grant. The term of each Incentive Stock Option shall
in no event be more than 10 years from the date of grant, or in the
case of an Incentive Stock Option granted to a Ten Percent Stockholder,
5 years from the date of grant.
<PAGE>
(c) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms in
which, payment of the option price with respect thereto may be made or
deemed to have been made (including, without limitation, (i) cash,
Shares, outstanding Options or other consideration, or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant option price and (ii) a broker-assisted cashless exercise
program established by the Committee), provided in each case that such
methods avoid "short-swing" profits to the Participant under Section
16(b) of the Securities Exchange Act of 1934, as amended. The payment
of the exercise price of an Option may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee.
(d) Early Termination. The unexercised portion of any Option
granted to a Key Employee under the Plan will generally be terminated
(i) thirty (30) days after the date on which the Key Employee's
employment is terminated for any reason other than (A) Cause (as
defined below), (B) retirement or mental or physical disability, or (C)
death; (ii) immediately upon the termination of the Key Employee's
employment for Cause; (iii) three months after the date on which the
Key Employee's employment is terminated by reason of retirement or
mental or physical disability; or (iv)(A) 12 months after the date on
which the Key Employee's employment is terminated by reason of the
death of the Key Employee, or (B) three months after the date on which
the Key Employee shall die if such death shall occur during the
three-month period following the termination of the Key Employee's
employment by reason of retirement or mental or physical disability.
The term "Cause," as used herein, shall mean (w) the Key Employee's
willful misconduct or fraud in the performance of his duties under such
Key Employee's employment arrangement with the Company, (x) the
continued failure or refusal of the Key Employee (following written
notice thereof) to carry out any reasonable request of the Board for
the provision of services under such Key Employee's employment
arrangement with the Company, (y) the material breach by the Key
Employee of his employment arrangement with the Company or (z) the
entering of a plea of guilty or nolo contendere to or the conviction of
the Key Employee for a felony or any other criminal act involving moral
turpitude, dishonesty, theft or unethical business conduct. For
purposes of this paragraph (d), no act shall be considered willful
unless done or omitted to be done not in good faith and without
reasonable belief that such action or omission was in the best interest
of the Company.
(e) Incentive Stock Options. All terms of any Incentive Stock
Options granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision
thereto, and any regulations promulgated thereunder.
(f) No Cash Consideration for Awards. Awards shall be granted
for no cash consideration or such minimal cash consideration as may be
required by applicable law.
(g) Limits on Transfer of Options. Subject to Code Section
422, no Option and no right under any such Option, shall be assignable,
alienable, saleable, or transferable by a Participant otherwise than by
will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder;
provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee, designate
a beneficiary or beneficiaries to exercise the rights of the
Participant, and to receive any property distributable, with respect to
any Option upon the death of the Participant. Each Option, and each
right under any such Option, shall be exercisable during the
Participant's lifetime, only by the Participant or, if permissible
under applicable law with respect to any Option that is not an
Incentive Stock Option, by the Participant's guardian or legal
representative. No Option and no right under any such Option, may be
pledged, alienated, attached, or otherwise encumbered, and any
purported pledge, alienation, attachment, or encumbrance thereof shall
be void and unenforceable against the Company or any Affiliate.
<PAGE>
(h) Term of Options. Except as set forth in Section 6(b) and
Section 7, the term of each Option shall be for such period as may be
determined by the Committee.
(i) Share Certificates. All certificates for Shares or other
securities of the Company delivered under the Plan pursuant to any
Option or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations, and other restrictions of the
Securities and Exchange Commission, any stock exchange upon which such
Shares or other securities are then listed, and any applicable Federal
or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(j) Change of Control. Notwithstanding anything contained to
the contrary herein, upon the occurrence of a Change of Control, all
Options granted under the Plan that are outstanding and not yet vested
(including Options granted to Independent Directors under Section 7
hereof), will become immediately 100% vested effective on the date on
which the Change of Control occurs and shall be thereafter exercisable
in accordance with the terms of the Plan (including, without
limitation, as provided in Sections 6(d)) and any applicable award
agreement; provided, however, that the foregoing shall not apply to the
extent that such acceleration of vesting shall make a "pooling of
interests" accounting unavailable in the case of a Change of Control
transaction which is intended to be effected as a "pooling of
interests" transaction.
Section 7. Options Awarded to Independent Directors
Each Independent Director who is a member of the Board on December 31
of a year during the term of the Plan beginning in calendar year 1998 shall
automatically be granted a Non-Qualified Stock Option to purchase 4,000 Shares
on January 1 of the following year. All Options granted pursuant to this Section
7 shall (a) be at an exercise price per Share equal to 100% of the Fair Market
Value of a Share on the date of the grant; (b) have a term of 10 years; (c)
terminate (i) upon termination of an Independent Director's service as a
director of the Company for any reason other than mental or physical disability
or death, (ii) three months after the date the Independent Director ceases to
serve as a director of the Company due to physical or mental disability or
(iii)(A) 12 months after the date the Independent Director ceases to serve as a
director due to the death of the Independent Director or (B) three months after
the death of the Independent Director if such death shall occur during the three
month period following the date the Independent Director ceased to serve as a
director of the Company due to physical or mental disability; and (d) be
otherwise on the same terms and conditions as all other Options granted pursuant
to the Plan.
Section 8. Amendment and Termination
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Plan may be wholly or partially amended
or otherwise modified, suspended or terminated at any time or from time to time
by the Board, but no amendment without the approval of the stockholders of the
Company shall be made if stockholder approval would be required under Section
162(m) of the Code, Section 422 of the Code, Rule 16b-3 or any other law or rule
of any governmental authority, stock exchange or other self-regulatory
organization to which the Company is subject. Neither the amendment, suspension
nor termination of the Plan shall, without the consent of the holder of such
Option, alter or impair any rights or obligations under any Option theretofore
granted.
(b) Adjustments of Options Upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards in connection
with the acquisition of another business or another corporation or business
entity, the Committee may make such adjustments, not inconsistent with the terms
of the Plan, in the terms of Options as it shall deem appropriate in order to
achieve reasonable comparability or other equitable relationship between the
assumed awards and the Options granted under the Plan as so adjusted.
<PAGE>
(c) Adjustments of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make adjustments in
the terms and conditions of, and the criteria included in, Options in
recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 4(b) hereof) affecting the Company, any
Affiliate, or the financial statements of the Company or any Affiliate or of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits to be made
available under the Plan.
(d) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 9. Election to Have Shares Withheld
(a) In combination with or in substitution for cash withholding or any
other legal method of satisfying federal and state withholding tax liability, a
Participant may elect to have Shares withheld by the Company in order to satisfy
federal and state withholding tax liability (a "share withholding election"),
provided, (i) the Committee shall not have revoked its advance approval of the
holder's share withholding election; and (ii) the share withholding election is
made on or prior to the date on which the amount of withholding tax liability is
determined (the "Tax Date"). If a Participant elects within thirty (30) days of
the date of exercise to be subject to withholding tax on the exercise date
pursuant to the provisions of Section 83(b) of the Code, then the share
withholding election may be made during such thirty (30) day period.
Notwithstanding the foregoing, a holder whose transactions in Common Stock are
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, may
make a share withholding election only if the following additional conditions
are met: (i) the share withholding election is made no sooner than six (6)
months after the date of grant of the Option, except, however, such six (6)
month condition shall not apply if the Participant's death or disability (as
shall be determined by the Committee) occurs within such six (6) month period;
and (ii) the share withholding election is made (x) at least six (6) months
prior to the Tax Date, or (y) during the period beginning on the third business
day following the date of release of the Company's quarterly or annual financial
results and ending on the twelfth business day following such date.
(b) A share withholding election shall be deemed made when written
notice of such election, signed by the Participant, has been hand delivered or
transmitted by registered or certified mail to the Secretary of the Company at
its then principal office. Delivery of said notice shall constitute an
irrevocable election to have Shares withheld.
(c) If a Participant has made a share withholding election pursuant to
this Section 9; and (i) within thirty (30) days of the date of exercise of the
Option, the Participant elects pursuant to the provisions of Section 83(b) of
the Code to be subject to withholding tax on the date of exercise of the Option,
then such Participant will be unconditionally obligated to immediately tender
back to the Company the number of Shares having an aggregate fair market value
(as determined in good faith by the Committee), equal to the amount of tax
required to be withheld plus cash for any fractional amount, together with
written notice to the Company informing the Company of the Participant's
election pursuant to Section 83(b) of the Code; or (ii) if the Participant has
not made an election pursuant to the provisions of Section 83(b) of the Code,
then on the Tax Date, such Participant will be unconditionally obligated to
tender back to the Company the number of Shares having an aggregate fair market
value (as determined in good faith by the Committee), equal to the amount of tax
required to be withheld plus cash for any fractional amount.
Section 10. Vesting Limitation on Incentive Stock Options
The Fair Market Value of Shares subject to Incentive Stock Options
(determined as of the date such Incentive Stock Options are granted) exercisable
for the first time by any individual during any calendar year shall in no event
exceed $100,000.
<PAGE>
Section 11. General Provisions
(a) No Rights to Awards. No Key Employee or Consultant shall have any
claim to be granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Key Employees or Consultants or holders or
beneficiaries of Options under the Plan. The terms and conditions of Options
need not be the same with respect to each recipient.
(b) No Limit on Other Plans. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect other
or additional compensation arrangements and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Option
Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal law.
(e) Severability. If any provision of the Plan or any Option is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Option under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan, such provision shall be deemed void, stricken and the remainder of
the Plan and any such Option shall remain in full force and effect.
(f) No Trust or Fund Created. Neither the Plan nor any Option shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Option, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(g) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(h) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision hereof.
Section 12. Effective Date of the Plan
The Plan is effective as of May 13, 1994.
Section 13. Term of the Plan
The Plan shall continue until the earlier of (i) the date on which all
Options issuable hereunder have been issued, (ii) the termination of the Plan by
the Board or (iii) May 12, 2004. However, unless otherwise expressly provided in
the Plan or in an applicable Option Agreement, any Option theretofore granted
may extend beyond such date and the authority of the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Option or to waive any
conditions or rights under any such Option, and the authority of the Board to
amend the Plan, shall extend beyond such date.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
INCOME.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-END> JUN-27-1998
<CASH> 4,384
<SECURITIES> 0
<RECEIVABLES> 40,575
<ALLOWANCES> 263
<INVENTORY> 24,700
<CURRENT-ASSETS> 73,763
<PP&E> 80,041
<DEPRECIATION> 10,555
<TOTAL-ASSETS> 210,098
<CURRENT-LIABILITIES> 42,332
<BONDS> 90,000
0
0
<COMMON> 66
<OTHER-SE> 41,386
<TOTAL-LIABILITY-AND-EQUITY> 210,098
<SALES> 51,449
<TOTAL-REVENUES> 51,449
<CGS> 42,184
<TOTAL-COSTS> 42,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,803
<INCOME-PRETAX> 2,640
<INCOME-TAX> 1,093
<INCOME-CONTINUING> 1,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,547
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
