UNITED STATES
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 October 10, 2000
Commission File Number 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0596831
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
29 Stevens Street, Greenville, South Carolina 29605
(Address and zip code of principal executive offices)
(864) 240-2600
(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 [_]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [_]
The number of shares outstanding of the issuer's common stock, $0.01 par value
per share, as of November 29, 2000 was 5,000,000.
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
The unaudited consolidated financial information at October 10, 2000 and for the
fifteen week and twenty-eight week periods then ended, unaudited consolidated
statements of operations and of cash flows for the thirteen and twenty-six weeks
ended September 25, 1999 (as restated) and the audited consolidated financial
information at March 25, 2000 relate to Safety Components International, Inc.
and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of October 10, 2000
(unaudited) and March 25, 2000 3
Unaudited consolidated Statements of Operations for the
fifteen weeks ended October 10, 2000 and the
thirteen weeks ended September 25, 1999, as restated 4
Unaudited consolidated Statements of Operations for the
twenty-eight weeks ended October 10, 2000 and
the twenty-six weeks ended September 25, 1999, as restated 5
Unaudited consolidated Statements of Cash Flows for the
twenty-eight weeks ended October 10, 2000 and the twenty-six
weeks ended September 25, 1999, as restated 6
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 26
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 27
ITEM 5. OTHER INFORMATION 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
2
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
October 10, | March 25,
2000 | 2000
--------- | ---------
| (1)
<S> <C> | <C>
ASSETS |
|
Current assets: |
Cash and cash equivalents ................................................................ $ 4,865 | $ 10,264
Accounts receivable, net ................................................................. 31,995 | 33,326
Receivable from affiliate, net ........................................................... 564 | 564
Inventories, net (Notes 3 and 5) ......................................................... 19,440 | 14,016
Prepaid and other ........................................................................ 3,203 | 2,898
--------- | ---------
Total current assets ................................................... 60,067 | 61,068
|
Property, plant and equipment, net (Notes 3 and 5) ............................................ 46,421 | 56,316
Reorganization value in excess of amounts allocable to identifiable assets (Note 3) ........... 15,816 | --
Intangible assets, net (Note 3) ............................................................... 1,073 | 35,391
Other assets .................................................................................. 1,580 | 4,557
Net assets held for sale (Note 4) ............................................................. 7,257 | 11,363
--------- | ---------
Total assets ........................................................... $ 132,214 | $ 168,695
========= | =========
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
Current liabilities: |
Accounts payable ......................................................................... $ 18,086 | $ 19,147
Accrued and other current liabilities (Note 3) ........................................... 14,257 | 13,919
Current portion of long-term debt (Notes 2, 3 and 6) ..................................... 14,310 | 131,107
--------- | ---------
Total current liabilities .............................................. 46,653 | 164,173
|
Long-term debt (Notes 2 and 6) ................................................................ 33,803 | 15,145
Other long-term liabilities ................................................................... 758 | 3,817
--------- | ---------
Total liabilities ...................................................... 81,214 | 183,135
--------- | ---------
|
Commitments and contingencies (Note 10) |
|
Stockholders' equity (deficit) (Notes 2, 3 and 7): |
Predecessor Company preferred stock: 2,000,000 shares authorized and unissued ............ -- | --
Reorganized Company preferred stock: 5,000,000 shares authorized and unissued ............ -- | --
Predecessor Company common stock: $.01 par value per share - 10,000,000 shares |
authorized; 6,629,008 shares issued and 5,136,316 outstanding ......................... -- | 66
Reorganized Company common stock: $.01 par value per share - 20,000,000 shares |
authorized; 5,000,000 shares issued and outstanding ................................... 50 | --
Common stock warrants .................................................................... 34 | 51
Additional paid-in-capital ............................................................... 50,916 | 45,168
Treasury stock: 1,492,692 shares at cost ................................................ -- | (15,439)
Accumulated deficit ...................................................................... -- | (36,279)
Cumulative translation adjustment ........................................................ -- | (8,007)
--------- | ---------
Total stockholders' equity (deficit) ................................... 51,000 | (14,440)
--------- | ---------
Total liabilities and stockholders' equity (deficit) ................... $ 132,214 | $ 168,695
========= | =========
</TABLE>
(1) Derived from the Company's audited financial statements at March 25, 2000.
See notes to unaudited consolidated financial statements.
3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Predecessor
Predecessor Company
Company Restated
Fifteen Thirteen
Weeks Ended Weeks Ended
October 10, 2000 September 25, 1999
---------------- ------------------
<S> <C> <C>
Net sales (Note 1) ............................................................................... $ 57,091 $ 46,040
Cost of sales, excluding depreciation ............................................................ 47,360 38,074
Depreciation ..................................................................................... 2,039 1,751
-------- --------
Gross profit .............................................................................. 7,692 6,215
Selling and marketing expenses ................................................................... 545 582
General and administrative expenses .............................................................. 2,385 2,838
Research and development expenses ................................................................ 232 424
Amortization of intangible assets ................................................................ 346 377
-------- --------
Income from operations .................................................................... 4,184 1,994
Other expense, net ............................................................................... 576 161
Interest expense, net (Contractual interest of $4,717 during fifteen weeks ended
October 10, 2000, net) (Note 1) ............................................................... 2,032 3,604
-------- --------
Income (loss) before reorganization items, income tax benefit, discontinued
operations and extraordinary gain ....................................................... 1,576 (1,771)
Reorganization items (Notes 1and 3):
Fair value adjustments ...................................................................... 34,013 --
Restructuring charges ....................................................................... 1,125 --
Professional fees and expenses .............................................................. 2,529 --
-------- --------
Loss before income tax benefit, discontinued operations and extraordinary gain ............ (36,091) (1,771)
Income tax benefit ............................................................................... (17,764) (888)
-------- --------
Loss from continuing operations (before discontinued operations and extraordinary gain) ... (18,327) (883)
Discontinued operations (Note 4):
Loss from discontinued operations, net of income tax benefit of $847 and $129, respectively . 1,122 548
Gain on disposition of discontinued operations, net of income taxes of $125 ................. (214) --
-------- --------
Loss from discontinued operations (before extraordinary gain) ............................. (19,235) (1,431)
Extraordinary gain on early extinguishment of debt, net of income taxes of $17,473 ............... 29,943 --
-------- --------
Net income (loss) (Note 1) ....................................................................... $ 10,708 $ (1,431)
======== ========
Net income (loss) per common share, basic and diluted:
Loss from continuing operations ........................................................... $ (3.57) $ (0.17)
Loss from discontinued operations ......................................................... (0.18) (0.11)
Extraordinary gain ........................................................................ 5.83 0.00
-------- --------
Net income (loss) per share, basic and diluted ................................................... $ 2.08 $ (0.28)
======== ========
Weighted average number of shares outstanding, basic and diluted ................................. 5,136 5,136
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Predecessor
Predecessor Company
Company Restated
Twenty-eight Twenty-six
Weeks Ended Weeks Ended
October 10, 2000 September 25, 1999
---------------- ------------------
<S> <C> <C>
Net sales (Note 1) .............................................................................. $ 109,139 $ 98,586
Cost of sales, excluding depreciation ........................................................... 89,406 81,509
Depreciation .................................................................................... 3,901 3,495
--------- ---------
Gross profit ......................................................................... 15,832 13,582
Selling and marketing expenses .................................................................. 1,074 1,192
General and administrative expenses ............................................................. 4,867 4,923
Research and development expenses ............................................................... 353 647
Amortization of intangible assets ............................................................... 675 755
--------- ---------
Income from operations ............................................................... 8,863 6,065
Other expense, net .............................................................................. 878 92
Interest expense, net (Contractual interest of $8,486 during twenty-eight weeks ended
October 10, 2000, net) (Note 1) ............................................................ 3,833 7,045
--------- ---------
Income (loss) before reorganization items, income tax benefit,
discontinued operations and extraordinary gain ..................................... 4,152 (1,072)
Reorganization items (Notes 1 and 3):
Fair value adjustments ..................................................................... 34,013 --
Restructuring charges ...................................................................... 1,125 --
Professional fees and expenses ............................................................. 3,729 --
Loss on revaluation of senior subordinated notes ........................................... 2,902 --
Interest earned on accumulated cash ........................................................ (29) --
--------- ---------
Loss before income tax benefit, discontinued operations
and extraordinary gain ............................................................. (37,588) (1,072)
Income tax benefit .............................................................................. (17,511) (749)
--------- ---------
Loss from continuing operations (before discontinued operations and extraordinary
gain) .............................................................................. (20,077) (323)
Discontinued operations (Note 4):
Loss from discontinued operations, net of income tax benefit of $847 and provision
of $120, respectively ................................................................... 1,440 467
Gain on disposition of discontinued operations, net of income taxes of $125 ................ (214) --
--------- ---------
Loss from discontinued operations (before extraordinary gain) ........................ (21,303) (790)
Extraordinary gain on early extinguishment of debt, net of income taxes of $17,473 .............. 29,370 --
--------- ---------
Net income (loss) (Note 1) ...................................................................... $ 8,067 $ (790)
========= =========
Net income (loss) per common share, basic and diluted:
Loss from continuing operations ...................................................... $ (3.91) $ (0.06)
Loss from discontinued operations .................................................... (0.24) (0.09)
Extraordinary gain ................................................................... 5.72 0.00
--------- ---------
Net income (loss) per share, basic and diluted .................................................. $ 1.57 $ (0.15)
========= =========
Weighted average number of shares outstanding, basic and diluted ................................ 5,136 5,136
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
Predecessor Company
Company Restated
Twenty-eight Twenty-six
Weeks Ended Weeks Ended
October 10, 2000 September 25, 1999
---------------- ------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ....................................................................... $ 8,067 $ (790)
Loss from discontinued operations ....................................................... (1,440) (467)
Gain on disposition of discontinued operations .......................................... 214 --
-------- --------
Income (loss) from continuing operations ................................................ 6,841 (1,257)
Adjustments to reconcile net income (loss) from continuing operations to net
cash provided by operating activities:
Reorganization items:
Fair value adjustments ....................................................... 34,013 --
Loss on revaluation of senior subordinated notes ............................. 2,902 --
Interest received on accumulated cash due to Chapter 11 proceeding ........... (29) --
Extraordinary gain on early extinguishment of debt ............................... (29,370) --
Depreciation ..................................................................... 3,901 3,495
Amortization ..................................................................... 675 755
(Gain) loss on sale of other assets .............................................. (39) 25
Deferred income tax benefit ...................................................... (17,511) (749)
Changes in operating assets and liabilities ...................................... 2,061 5,617
-------- --------
Net cash provided by continuing operations ................................ 3,444 7,886
Net cash (used in) provided by discontinued operations .................... (1,733) 677
-------- --------
Net cash provided by operating activities ................................. 1,711 8,563
-------- --------
Cash Flows From Investing Activities:
Additions to property, plant and equipment .............................................. (1,812) (6,343)
Proceeds on sale of other assets ........................................................ 13 --
Additional consideration and costs for Phoenix Airbag ................................... -- (2,061)
-------- --------
Net cash (used in) continuing operations .................................. (1,799) (8,404)
Net cash provided by (used in) discontinued operations .................... 2,863 (693)
-------- --------
Net cash provided by (used in) investing activities ....................... 1,064 (9,097)
-------- --------
Cash Flows From Financing Activities:
Net (repayment of) borrowings on KeyBank revolving credit facility ...................... (37,900) 700
Net borrowing on Bank of America DIP revolving credit facility .......................... 8,986 --
Proceeds from KeyBank Subordinated DIP term note ........................................ 20,900 --
Proceeds from Bank of America DIP term note ............................................. 2,244 --
Proceeds from Deutsche Bank mortgage .................................................... -- 2,907
Repayments of debt, term notes and long-term obligations ................................ (1,816) (2,412)
-------- --------
Net cash (used in) provided by continuing operations ...................... (7,586) 1,195
Net cash (used in) discontinued operations ................................ (298) (606)
-------- --------
Net cash (used in) provided by financing activities ....................... (7,884) 589
-------- --------
Effect of exchange rate changes on cash ...................................................... (290) (398)
-------- --------
Change in cash and cash equivalents .......................................................... (5,399) (343)
Cash and cash equivalents, beginning of period ............................................... 10,264 10,607
-------- --------
Cash and cash equivalents, end of period ..................................................... $ 4,865 $ 10,264
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period for:
Interest .................................................................. $ 1,608 $ 6,789
Income taxes .............................................................. -- 3
Non-cash financing activities:
Elimination of 10 1/8% Senior Notes due 2007, including accrued interest... (96,784) --
Write-off of common stock of Predecessor Company .......................... (66) --
Write-off of common stock warrants of Predecessor Company ................. (51) --
Elimination of treasury stock of Predecessor Company ...................... (15,439) --
Issuance of common stock of Reorganized Company ........................... 50 --
Issuance of common stock warrants of Reorganized Company .................. 34 --
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The consolidated financial statements included herein have been prepared by
Safety Components International, Inc. and subsidiaries ("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 accounting
principles generally accepted in the United States of America 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 25, 2000. 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 necessary for a fair presentation of the results for
the reported interim periods. These adjustments include those of a normal
recurring nature, reclassifications of prior period amounts for the effects of
discontinuing non-automotive operations and adjustments resulting from the
adoption of "fresh start" accounting as discussed below.
As discussed in Note 2, on April 10, 2000 (the "Petition Date"), the
Company and certain of its U.S subsidiaries (including Safety Components Fabric
Technologies, Inc. and Automotive Safety Components International, Inc., but
excluding Valentec Wells LLC (fka Valentec International Corporation, LLC),
Valentec Systems Inc. and Galion, Inc., (collectively, "Safety Filing Group")),
filed a voluntary petition under Chapter 11 of the Bankruptcy Code ("Chapter
11") with the United States Bankruptcy Court for the District of Delaware (Case
Nos. 00-1644(JJF) through 00-1650(JJF)).
On October 11, 2000, the Company emerged from Chapter 11. Accordingly, the
Company's financial statements as of October 10, 2000 have been prepared in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), issued by the American
Institute of Certified Public Accountants. Under SOP 90-7, the Company's
financial information for the periods on or prior to October 10, 2000 are termed
"Predecessor Company" and financial information subsequent to October 10, 2000,
including the interim balance sheet presented herein, are termed "Reorganized
Company" and give effect to the application of "fresh start" accounting. See
further discussion of the effect of SOP 90-7 on the Company's consolidated
financial statements at Note 3 herein.
The accompanying statements of operations reflect certain restructuring
fees and expenses including professional fees and expenses directly related to
the debt restructuring and reorganization. Interest expense on the Company's
senior subordinated notes has been reported to the Petition Date. Such interest
expense was not reported subsequent to that date because it was not required to
be paid during the bankruptcy case and was not an allowed claim under the Plan
of Reorganization. The difference between reported interest expense and stated
contractual interest expense is approximately $4.7 million for the twenty-eight
weeks ended October 10, 2000.
Reclassification of Prior Period Amounts for Discontinued Operations
As discussed in Note 4, effective as of October 10, 2000, the Company
concluded to sell its non-core (metal and defense) operations. Accordingly, all
prior period amounts have been reclassified so that
7
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
the net assets of the non-core metal and defense businesses are presented as
"net assets held for sale" in the accompanying consolidated balance sheets and
the operating results of the non-core businesses have been presented as
"discontinued operations" in the accompanying consolidated statements of
operations.
Restatement of Previously Issued Financial Statements
Subsequent to the issuance of the consolidated financial statements of SCI
for the fiscal years ended March 27, 1999 and March 28, 1998, the Company
determined that the reported results for those years were misstated. The
Company's audit committee with the assistance of independent counsel and an
independent public accounting firm conducted a thorough investigation and
determined that a restatement of the Company's financial statements would be
required for each of the fiscal years 1999 and 1998 and the twenty-six weeks
ended September 25, 1999, as well as applicable quarterly periods contained
within such years and twenty-six week period. The nature of the restatement is
discussed more fully in the Company's Form 10-K for the year ended March 25,
2000.
The restatement adjustments impacting net income (there was no effect on
net sales) for the thirteen weeks and twenty-six weeks ended September 25, 1999
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------------------
Net Income Thirteen weeks ended Twenty-six weeks ended
September 25, 1999 September 25, 1999
--------------------- ---------------------
<S> <C> <C>
Originally Filed $(1,424) $ (804)
Previously Reported Adjustments -- 29
--------------------- ---------------------
Subtotal (1,424) (775)
Additional Adjustments (7) (15)
--------------------- ---------------------
As Restated $(1,431) $ (790)
===================== =====================
</TABLE>
Note 2 Financial Restructuring and Chapter 11 Case
The deterioration in the Company's financial condition that became evident
in fiscal 1999, arising from a confluence of negative developments, particularly
in the non-core businesses, caused it to experience material liquidity
constraints in fiscal 2000. In addition, following the Company's restatement of
its earnings and a default with respect to obligations under its credit
agreement (the "KeyBank Credit Agreement"), KeyBank National Association, as
administrative agent, and Fleet Bank (collectively, the "Senior Lenders")
notified the trustee for the Company's 10 1/8% senior subordinated notes (the
"Notes") that they were exercising their rights to block a scheduled interest
payment due on the Notes on January 18, 2000.
On February 18, 2000, the common stock of the Company was delisted from the
NASDAQ stock market.
The Company and an informal committee comprised of holders of over
two-thirds in aggregate dollar amount of the Notes began negotiations and in
early April 2000 reached an agreement (as amended, the "Restructuring
Agreement") that would be effected through a voluntary filing under Chapter 11.
Pursuant to the Restructuring Agreement, the claims of the holders of the
Company's Notes ("Noteholders") were to be converted into the right to receive
4,840,774 shares of the Company's post bankruptcy common
8
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
stock when the Company emerged from Chapter 11 (4,816,574 shares to the
Noteholders and 24,200 shares to the financial advisors of the Noteholders). The
shareholders, excluding Robert Zummo, the Company's then Chairman and Chief
Executive Officer, were to receive 159,226 shares of the Company's post
bankruptcy common stock and warrants to acquire an additional 681,818 of such
common stock. In addition to the Restructuring Agreement, the Company also
reached an agreement with the Senior Lenders subject to a paydown, to replace
the KeyBank Credit Agreement with a post-petition subordinated
debtor-in-possession ("DIP") financing facility.
On the Petition Date, the Safety Filing Group filed a voluntary petition
under Chapter 11 with the United States Bankruptcy Court for the District of
Delaware (Case Nos. 00-1644(JJF) through 00-1650(JJF)). The Chapter 11 cases of
the Safety Filing Group were assigned to the United States District Court for
the District of Delaware (the "Court") before District Judge Farnan.
On April 26, 2000, the Safety Filing Group received Court approval of a
$30.6 million senior DIP financing facility that it had executed with Bank of
America, N.A. The senior DIP financing was expected to provide adequate funding
for all post-petition trade and employee obligations, the partial paydown of the
pre-petition secured debt, as well as the Company's operating needs during the
restructuring process. In conjunction with the closing of the senior DIP
financing facility on May 9, 2000, the Senior Lenders received a principal
paydown of approximately $17 million and retained the remaining approximately
$20.9 million portion of their indebtedness as an 11% per annum post-petition
subordinated DIP facility as a replacement of their pre-petition credit
facility.
On May 19, 2000, the Safety Filing Group filed its Statement of Financial
Affairs and Schedules of Assets and Liabilities and, on May 24, 2000, the Court
entered an order setting July 7, 2000 as the general filing deadline for
creditors to file their proof of claims.
On June 12, 2000, the Safety Filing Group filed with the United States
Bankruptcy Court its Joint Plan of Reorganization (the "First Plan") pursuant to
Rule 3016 (b), and the related disclosure statement pursuant to Section 1125 of
the Bankruptcy Code. The First Plan (as amended, the "Plan") and the related
disclosure statement (as amended, the "Disclosure Statement") were amended on
July 18, 2000 and July 19, 2000. On July 19, 2000, the Court approved the
Disclosure Statement and set August 30, 2000 as the date to consider
confirmation of the Plan. The Court also set August 25, 2000 as the deadline for
creditors and equity holders to vote to accept or reject the Plan. The Plan
provided for the implementation of a debt to equity conversion of the claims of
the Noteholders as set forth in the Restructuring Agreement. Under the Plan, new
shares of common and preferred stock would be authorized and new common stock
would be issued. All Noteholder claims in the aggregate amount of approximately
$96.8 million (including accrued interest to the Petition Date) would be
completely satisfied through the ratably proportionate distribution of
approximately 4,840,000 shares of the new common stock (subject to dilution
through the exercise of warrants or other stock as may be issued under the
Plan). The holders of all other unsecured claims would receive a time-phased,
payout of 100% of the principal amount of their allowed pre-Petition Date
unsecured claims.
On August 31, 2000, the Court entered an order approving the Plan. On
August 31, 2000, the Court also entered an order approving the sale by the
Company of its wholly owned subsidiary Valentec Systems, Inc. ("Systems") to
VTECH Corporation for approximately $2.9 million in cash. Such sale was
consummated effective as of the close of business on August 31, 2000 (see Note
1).
On October 11, 2000 (the "Emergence Date"), the Safety Filing Group emerged
from Chapter 11
9
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
pursuant to the Plan confirmed by the Court. Pursuant to the Plan, as confirmed,
upon emergence all of the Company's 10-1/8% senior notes due 2007 (an aggregate
of approximately $96.8 million, including accrued interest to the Petition Date)
were converted into 4,840,774 shares of the Company's post-bankruptcy common
stock, and the pre-bankruptcy common stock, excluding stock held by Robert Zummo
(former Chairman and Chief Executive Officer of the Company), was converted into
159,226 shares of the Company's post-bankruptcy common stock and warrants to
acquire an additional 681,818 shares of such common stock. Immediately upon
emergence, the Company had 5,000,000 shares of common stock issued and
outstanding and, other than the warrants, no shares of common stock were
reserved for issuance in respect of claims and interests filed and allowed under
the Plan. In addition, Safety Components' trade suppliers and other creditors
will be paid in full, pursuant to the terms of the Plan, within 90 days of the
Emergence Date.
The Company's Board of Directors, in accordance with the terms of the Plan,
currently consists of the following new, non-employee directors: Carroll R.
Wetzel, Jr. (Chairman), Andy Goldfarb, W. Allan Hopkins and Ben E. Waide III.
John C. Corey continues as an employee member of the Board of Directors and has
been promoted to Chief Executive Officer and President of the Company.
Note 3 Fresh Start Reporting
With a fifty-three week fiscal year in 2001, the second quarter was to have
ended September 30, 2000. However, for convenience purposes and to finalize all
accounting for the reorganization in the second quarter (so that all future
periods reflect the Reorganized Company under the principles of "fresh start"
accounting), the Company extended the second quarter of fiscal year 2001 to
October 10, 2000 which resulted in an additional seven business days of
financial information reported. Management believes that the additional seven
days of operating results did not have a material effect on the Company's net
sales, operating profit or net income for the quarter ended October 10, 2000,
and further believes that this presentation will be more meaningful.
As previously discussed, the accompanying consolidated financial statements
reflect the use of "fresh start" reporting at October 10, 2000 as required by
SOP 90-7. Under "fresh start" reporting at October 10, 2000, the Company's
assets and liabilities were adjusted to fair values and resulted in the creation
of a new reporting entity (the "Company" or the "Reorganized Company") with no
accumulated deficit as of October 10, 2000. Accordingly, the consolidated
financial statements for periods prior to October 10, 2000 (the "Predecessor
Company") will not be comparable to consolidated financial statements for
periods presented subsequent to October 10, 2000. In conjunction with the
revaluation of the assets and liabilities, a reorganization value for the entity
was determined based upon the approximate fair value of the entity before
considering debt requirements. Under "fresh start" reporting, the reorganization
value of the entity is allocated to the entity's assets and liabilities. The
portion of the reorganization value which cannot be attributed to specific
tangible or identified intangible assets of the Reorganized Company is reported
as "reorganization value in excess of amount allocable to identifiable assets"
("Excess Reorganization Value").
The total reorganization value assigned to the Company's net assets was
determined by independent valuation, using the going-concern enterprise
approach. The comparable-company multiple and discounted cash-flow methodologies
were used to arrive at the going-concern value of the Company. These valuation
techniques reflect both the market's current views of the Company's value as
well as a longer-term focus on the intrinsic value of the Company's cash flow
projections. The valuation multiples
10
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
and discount rates used in the valuation were based on the public market
valuation of selected public companies deemed generally comparable to the
operating business of the Company. The valuation also took into account the
following factors, not listed in order of importance:
a) The Company's valuation, as reorganized, on a going-concern basis.
b) The Company's emergence from Chapter 11, pursuant to the Plan as filed
with the Court.
c) The Company's ability to obtain all future required financing and that
no asset would be sold for liquidity purposes.
d) The estimated tax attributes of the Company.
e) The general financial and market conditions as of the date of
consummation of the Plan.
The above valuation resulted in an estimated reorganization value
attributable to the common stock of approximately $51.0 million. The Excess
Reorganization Value of approximately $15.8 million was determined as the excess
of the reorganization value over the fair value of the net assets acquired. The
Company believes that the determination of its fair values, based on independent
appraisals and other means, is substantially complete, however, estimates of
certain liabilities are based on preliminary information and are subject to
revision as information is finalized. Management does not believe, however, that
the finalization of the fair values will have a significant effect on Excess
Reorganization Value or the future results of operations of the Reorganized
Company. Such Excess Reorganization Value will be amortized over twenty years.
The results of operations in the accompanying consolidated statements of
operations for the fifteen week period and the twenty-eight week period ended
October 10, 2000 reflect the operations prior to the Company's emergence from
bankruptcy and the effects of fresh start reporting adjustments. In this regard,
the consolidated statements of operations for the fifteen weeks ended and
twenty-eight weeks ended October 10, 2000 reflect an extraordinary gain of $29.9
million, net of tax of $17.5 related to the discharge of the Notes.
Additionally, the consolidated statements of operations reflect $37.7 million of
reorganization items for the fifteen week period ended October 10, 2000 and
$41.7 million for the twenty-eight week period ended October 10, 2000,
consisting primarily of gains and losses related to the adjustments of assets
and liabilities to fair value.
11
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the effects of "fresh start" accounting on the
Company's consolidated balance sheet as of October 10, 2000 (in thousands)
(unaudited):
<TABLE>
<CAPTION>
Pre-Fresh Start Fresh Start
Balance Sheet Reorganization Fresh Start Balance Sheet
October 10, 2000 Adjustments (a) Adjustments (b) October 10, 2000
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Current assets $ 59,357 $ 710 $ 60,067
Property, plant and
equipment, net 53,056 (6,635) 46,421
Excess reorganization value -- 15,816 15,816
Intangible assets, net 33,263 (32,190) 1,073
Other assets 1,580 1,580
Net assets held for sale 7,257 7,257
------------------------------------------------------------------------
Total $ 154,513 $ -- $ (22,299) $ 132,214
========================================================================
Accounts payable $ 18,086 $ 18,086
Accrued and other current
liabilities 13,357 $ 1,100 14,257
Current portion of
long-term debt 14,310 14,310
Long-term debt 33,803 33,803
Other long-term liabilities 758 758
Liabilities subject to
compromise-Notes 96,784 (96,784) --
Common stock 66 (16) 50
Common stock warrants 51 (17) 34
Additional paid-in capital 45,168 5,748 50,916
Treasury stock (15,439) 15,439 --
Accumulated deficit (40,517) 74,530 $ (34,013) --
Cumulative translation
adjustment (11,714) 11,714 --
------------------------------------------------------------------------
Total $ 154,713 $ -- $ (22,299) $ 132,214
========================================================================
</TABLE>
(a) To record the transactions associated with the Plan as described in Note 1
and eliminate the accumulated deficit.
(b) To record the adjustments to assets and liabilities to reflect their
estimated fair value, including the establishment of Excess Reorganization
Value.
Note 4 Discontinued Operations
As previously reported, the Company has been evaluating its strategic
alternatives with respect to its non-core (metal and defense) businesses with a
view to enhancing the Company's focus on the core (automotive) business. The
Company has concluded that the value of its metal and defense businesses can be
enhanced if suitable, strategic buyers in similar industries are found.
Therefore, the Company's Board of Directors concluded to sell its non-core
business within the next twelve months. Accordingly, the Company has intensified
its efforts to find strategic buyers for its non-core businesses and will
continue to fully support its non-core business and customers in order to
preserve and potentially enhance value. As a result
12
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
of this decision, the Company has reported its non-core operations as
discontinued operations in the accompanying consolidated financial statements.
The non-core operations consist of the metal division located in California
(Valentec Wells, LLC) and the defense systems and products divisions located in
New Jersey (Valentec Systems, Inc.) and Ohio (Galion, Inc.), respectively.
Accordingly, the Company reported the results of operations of the metal and
defense businesses in the loss on discontinued operations which for the fifteen
weeks ended October 10, 2000 totaled $1,122,000, net of income tax benefit of
$847,000 and which for the twenty-eight weeks ended October 10, 2000 totaled
$1,440,000, net of income tax benefit of $847,000. Amounts in the consolidated
financial statements and related notes for all prior periods shown have been
reclassed to reflect these non-core businesses as discontinued operations. For
the fifteen weeks and twenty-eight weeks ended October 10, 2000, the Company has
recorded $214,000, net of income taxes of $125,000, for the net estimated gain
on the disposition of the non-core businesses, including the realized gain on
the sale of Valentec Systems, Inc. discussed below.
On August 31, 2000, the Company finalized the sale of Valentec Systems,
Inc, ("Systems"), a systems integrator with the U.S. Army coordinating the
manufacture and assembly components supplied by various subcontractors and part
of the Company's non-core operations. Pursuant to a Stock Purchase Agreement
dated July 21, 2000 between the Company, Systems and VTECH Corporation, the
Company sold 100% of the shares of capital stock of Systems to VTECH Corporation
for approximately $2.9 million in cash. At March 25, 2000, the carrying value of
the net assets of Systems was $2.8 million and was included in the net assets of
discontinued operations in the accompanying consolidated balance sheet. Systems
accounted for $1.5 million or 2.5% of consolidated net sales for the fifteen
weeks ended October 10, 2000 and $3.9 million or 3.2% of consolidated net sales
for the twenty-eight weeks ended October 10, 2000. Systems had accounted for net
sales of $9.7 million or 8.3% of consolidated net sales for the twenty-six weeks
ended September 25, 1999 and net sales of $16.4 million or 7.2% of consolidated
net sales for fiscal 2000. The sale of Systems resulted in a $1.2 million gain
which was included in the disposition of discontinued operations in the
accompanying unaudited consolidated statements of operations for the fifteen
weeks and twenty-eight weeks ended October 10, 2000.
Following is a summary financial information for the Company's discontinued
metal and defense operations (unaudited) (in thousands):
<TABLE>
<CAPTION>
Restated
Fifteen Restated Twenty-eight weeks Twenty-six weeks
weeks ended Thirteen weeks ended ended ended
October 10, 2000 September 25, 1999 October 10, 2000 September 25, 1999
---------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 5,039 $ 7,351 $ 11,026 $ 18,650
Discontinued operations:
Loss from operations,
net of income taxes (1,122) (548) (1,440) (467)
Gain on disposition,
net of income taxes 214 -- 214 --
</TABLE>
The gain on disposition, net of income taxes of $125,000, includes
estimated operating profits from the measurement date to the anticipated
disposal dates offset by the realized gain on sale of Systems of $1.2 million as
discussed above. This is offset, however, by estimated plant restructuring
expenses, interest costs and professional fees and expenses related to the
disposition of these divisions.
13
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Net assets of discontinued operations at October 10, 2000 and March 25,
1999 were as follows (unaudited) (in thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
October 10, 2000 March 25, 2000
---------------- ----------------
<S> <C> <C>
Accounts receivable $ 2,580 $ 7,955
Inventories, net 1,581 810
Property, plant and equipment, net 7,330 9,463
---------------- ----------------
Total assets 11,491 18,228
Current liabilities (2,966) (5,330)
Note payable and other liabilities (1,268) (1,535)
---------------- ----------------
Net assets held for sale $ 7,257 $ 11,363
================ ================
</TABLE>
Note 5 Composition of Certain Consolidated Balance Sheet Components (in
thousands)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
October 10, 2000 March 25, 2000
---------------- ----------------
<S> <C> <C>
Inventories:
Raw materials $ 7,261 $ 5,716
Work-in-process 5,511 5,752
Finished goods 6,668 2,548
---------------- ----------------
Total $ 19,440 $ 14,016
================ ================
<CAPTION>
Reorganized Predecessor
Company Company
October 10, 2000 March 25, 2000
---------------- ----------------
<S> <C> <C>
Property, plant and equipment:
Land and buildings $ 14,021 $ 12,321
Machinery and equipment 30,274 58,008
Furniture and fixtures 238 3,299
Construction in process 1,888 984
---------------- ----------------
46,421 74,612
Less: accumulated depreciation -- (18,296)
---------------- ----------------
Total $ 46,421 $ 56,316
================ ================
</TABLE>
Inventories and property, plant and equipment of the Reorganized Company at
October 10, 2000 have been revalued to their fair value pursuant to SOP 90-7.
See Note 3 for further explanation of the fresh start adjustments.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the term of the underlying lease.
Due to the revaluation of property, plant and equipment on October 10, 2000, the
Company will change the estimated useful lives beginning in the third quarter of
fiscal 2001.
14
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Long-Term Debt (in thousands)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
October 10, 2000 March 25, 2000
---------------- --------------
<S> <C> <C>
Senior Subordinated Notes due July 15, 2007, bearing
interest at 10 1/8% (see Note 3) $ -- $ 90,000
KeyBank Subordinated DIP term note due April 7, 2003,
bearing interest at 11% (replaced on October 11, 2000 with
Subordinated Secured Note due October 11, 2002 - see Note 12,
"Subsequent Events") 20,900 --
KeyBank revolving credit facility, bearing interest at 3.0%
over LIBOR, refinanced on May 9, 2000 -- 37,850
Bank of America DIP revolving credit facility, bearing interest
at 1.25% over Prime (repaid on October 12, 2000 with
proceeds of new borrowings - see Note 12, "Subsequent
Events") 8,986 --
Bank of America DIP term note, bearing interest at 1.25%
over Prime (repaid on October 12, 2000 with proceeds of new
borrowings - see Note 12, "Subsequent Events") 2,244 --
KeyCorp equipment note due July 10, 2005, bearing
interest at 7.09% 7,354 8,074
Bank Austria mortgage note, due March 31, 2007, bearing
interest at 1.0% over LIBOR 4,875 5,625
Deutsche Bank mortgage note, $801 due June 30, 2009 and
$983 due June 30, 2019, bearing interest at 4.05% and
3.75%, respectively 1,784 2,136
Note payable, principal due in annual installments of $182
through January 12, 2002, bearing interest at 7.22% in
semiannual installments 364 398
A.1. Credit Corp note, due in monthly installments of $29 until
November 3, 2001, bearing interest at 7.57% 378 526
Capital equipment notes payable, due in monthly installments
with various interest rates of 8.02% to 16.0%, maturing at
various dates through June 2002 1,228 1,643
---------------- --------------
Total long-term debt 48,113 146,252
Less - Current portion of long-term debt (14,310) (131,107)
---------------- --------------
Total long-term portion of debt $ 33,803 $ 15,145
================ ==============
</TABLE>
15
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On April 26, 2000, the Safety Filing Group received Court approval of a
$30.6 million senior DIP financing facility that it had entered into with Bank
of America, N.A. The senior DIP financing was expected to provide adequate
funding for all post-petition trade and employee obligations, the partial
paydown of the pre-petition secured debt and the Company's ongoing operating
needs during the restructuring process. In conjunction with the closing of the
senior DIP financing facility on May 9, 2000, the Senior Lenders received a
principal paydown of approximately $17 million and retained the remaining
approximately $20.9 million portion of their indebtedness as an 11% per annum
post-petition subordinated DIP facility as a replacement of their pre-petition
credit facility. The post-petition senior and subordinated DIP facilities
required the Company to meet certain crossover financial covenants. These
covenants included a minimum quarterly EBITDA (as defined) and Fixed Charge
Coverage Ratio (as defined) and a minimum monthly EBITDA (as defined).
Additionally, the DIP facilities contained certain restrictive covenants that
imposed limitations upon, among other things, the Company's ability to borrow
monies; become or remain liable with respect to any guaranty; acquire
investments; make capital expenditures; declare or make dividends or other
distributions; merge, consolidate or dispose of assets; incur liens; enter into
capitalized lease and operating lease agreements and engage in sale and
lease-back transactions. For the quarter ended October 10, 2000 (and all related
months thereof), the Company was in compliance with all financial and
non-financial covenants.
See the Company's Form 10-K for the year ended March 25, 2000 for further
discussion on the various debt instruments noted above.
In addition, see Note 12, "Subsequent Events", for discussion regarding
exit financing arrangements to provide for a revolving credit facility (and
repay the Bank of America DIP financing) and replace the KeyBank Subordinated
DIP term note with the new Subordinated Secured Note with KeyBank.
Note 7 Stockholders' Equity (Deficit)
Options on approximately 1,284,000 shares of common stock and 124,000
warrants were not included in computing diluted earnings per share for the
fifteen weeks and twenty-eight weeks ended October 10, 2000 and thirteen weeks
and twenty-six weeks ended September 25, 1999, respectively, because their
effects were antidilutive.
Pursuant to the Restructuring Agreement discussed in Note 2, the claims of
the Noteholders were converted into the right to receive 4,840,774 shares of the
Company's common stock on the Emergence Date (4,816,574 shares to the
Noteholders and 24,200 shares to the financial advisors of the Noteholders). The
current shareholders, excluding Robert Zummo, the Company's former Chairman and
Chief Executive Officer, received 159,226 shares of the Company's
post-bankruptcy common stock (aggregate 5,000,000 shares issued and outstanding)
and warrants to acquire an additional 681,818 shares of such common stock on the
Emergence Date. All other options and warrants were cancelled on the Emergence
Date.
The warrants that were granted pursuant to the Restructuring Agreement to
purchase 681,818 shares of the Company's common stock have an exercise price of
$19.99 per share and expire on or before April 10, 2003. The warrants were
assigned an estimated fair value, based on the Black-Scholes model, of $34,000.
Since the strike price of the warrants is in excess of their fair value at date
of grant, no compensation expense was recognized on the warrants.
16
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Comprehensive Income (in thousands)
SFAS No. 130, "Reporting Comprehensive Income", requires disclosure of
comprehensive income (loss), defined as the total of net income (loss) and all
other non-owner changes in equity, which under accounting principles generally
accepted in the United States of America, are recorded directly to the
stockholders' equity section of the consolidated balance sheet and, therefore
bypass net income (loss). In the Company's case, the non-owner changes in equity
relate solely to the foreign currency translation adjustment. Comprehensive
income (loss) for the Predecessor Company is as follows:
<TABLE>
<CAPTION>
Restated
Fifteen Restated Twenty-eight weeks Twenty-six weeks
weeks ended Thirteen weeks ended ended ended
October 10, 2000 September 25, 1999 October 10, 2000 September 25, 1999
---------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 10,708 $ (1,431) $ 8,067 $ (790)
Foreign currency
translation adjustment (9,613) 584 (8,007) (423)
-------- -------- -------- --------
Comprehensive income
(loss) $ 1,095 $ (847) $ 60 $ (1,213)
======== ======== ======== ========
</TABLE>
At October 10, 2000, all intercompany loans were translated at their
current translation rates and, accordingly, the cumulative translation
adjustment within the stockholders' equity section of the consolidated balance
sheet is zero.
Note 9 Income Taxes
At October 10, 2000, the Company estimates it had regular net operating
loss ("NOL") carryforwards for tax purposes of approximately $13 million. Such
NOL carryforwards were substantially reduced, by approximately $39 million, due
to the cancellation of indebtedness ("COD") in connection with the Company's
reorganization under Chapter 11. COD is the amount by which the indebtedness
discharged (approximately $96.8 million) exceeds any consideration given in
exchange (approximately $49 million in equity value) therefor. The remaining COD
income was offset against the tax basis of depreciable assets.
In addition, the remaining NOL carryforwards and certain other tax
attributes are subject to the limitations imposed by Section 382 of the Internal
Revenue Code. Such limitations apply on certain changes in ownership, including
changes such as those occurring under the Plan. The effect of these limitations
is to limit the utilization of the net operating loss carryforwards and certain
built-in losses to an amount equal to the value of the Company multiplied by the
Federal long-term tax exempt rate (yielding an annual limitation of
approximately $2.7 million). Even before giving effect to the limitations
occurring under the Plan, due to the Company's operating history, it is
uncertain that the Company will be able to utilize all deferred tax assets.
Therefore, a valuation allowance in the amount of $1.0 million has been provided
equal to the deferred tax assets remaining after deducting all deferred tax
liabilities.
Note 10 Contingencies
After the Company's announcement in November 1999 of the restatement of its
financial statements, the Company and several of its present or former officers
and directors were named defendants
17
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
in a class action litigation commenced by shareholders of the Company in the
United States District Court for the District of New Jersey. Eight separate
lawsuits were filed, alleging violations of the federal securities laws, and
were consolidated into one action. The parties executed a Memorandum of
Understanding to settle the consolidated class action litigation for $4 million.
The principal terms of the settlement were approved by the Court on September
11, 2000. The Company expects that its directors and officers insurance carrier
will, subject to Court approval, satisfy the settlement obligations. Management
does not presently believe that a resolution consistent with the Memorandum of
Understanding would have a material effect on the financial statements.
Note 11 Effect of New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities", effective for periods beginning after June 15, 2000. This
new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
Note 12 Subsequent Events
In connection with its emergence from Chapter 11, the Company announced the
closing on October 11, 2000 of a three-year $35 million revolving credit
facility with Congress Financial Corporation (Southern), (the "Congress
Facility"), expiring October 11, 2003. The Congress Facility has allowed the
Company to pay off its debtor-in-possession credit facilities with Bank of
America and is expected to provide adequate funding for the Company's ongoing
global operating needs. In addition to the Congress Facility, the Company also
closed on October 11, 2000 a two-year subordinated secured note facility with
the Senior Lenders for $20.9 million (the "Subordinated Facility"), expiring on
October 11, 2002. If the Congress Facility had been in place on October 10,
2000, the Company's availability for additional borrowings would have been $12.2
million at that time.
Under the Congress Facility, the Company may borrow the maximum of (a) $35
million or (b) 85% of eligible accounts receivable, plus 60% of eligible
finished goods, plus 50% of raw materials. Included within borrowings permitted
under the Congress Facility are $7.6 million in term loans which will be repaid
in equal monthly installments of approximately $127,000, with the unpaid
principal amount due on October 11, 2003, unless the Congress Facility is
renewed at that time. Also included within borrowings permitted under the
Congress Facility is a $3 million letter of credit facility.
The interest rate on the Congress Facility is variable, depending on the
amount of the Company's Excess Availability (as defined) at any particular time
and the Company's Fixed Charge Coverage Ratio (as defined). Excess Availability
is calculated as the lesser of the borrowing base of the Company or the amount
equal to the $35 million less the amount of all outstanding and unpaid
obligations of the Company plus the aggregate amount of all trade payables and
other obligations of the Company which are more than sixty days past due. On the
Emergence Date, the margin on prime rate loans was 0% and the margin on
Eurodollar rate loans was 2%. The interest rate on the Subordinated Facility is
fixed at 11%.
18
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Congress Facility and the Subordinated Facility both require the
Company to meet a minimum adjusted net worth (as defined) covenant. In addition,
the Subordinated Facility provides for mandatory prepayments in the event that
the Company's Consolidated EBITDA (as defined) exceeds certain specified levels
following the Emergence Date. Additionally, both the Congress Facility and the
Subordinated Facility contain certain restrictive covenants that impose
limitations upon, among other things, the Company's ability to borrow monies
under the Congress Facility; incur indebtedness (including capitalized lease
arrangements); become or remain liable with respect to any guaranty; make loans;
acquire investments; declare or make dividends (no dividends are permitted to be
repaid to holders of the Company's common stock) or other distributions; merge,
consolidate, liquidate or dispose of assets or indebtedness; incur liens; issue
capital stock; or change its business. Substantially all assets of the Company
are pledged as collateral for the borrowings under the Congress Facility and the
Subordinated Facility.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of operations for the second quarter and for the twenty-eight weeks
ended October 10, 2000 includes an additional five and seven business days of
operations as a result of the fifty-three week year in fiscal 2001 and the use
of a convenience date (for the end of the second quarter to coincide with the
Company's emergence from Chapter 11), respectively, as compared to the second
quarter and the twenty-six weeks ended September 25, 1999. The consolidated
financial statements for all periods have been reclassified to present the
Company's non-core businesses as discontinued operations due to Management's
intent to sell these non-core businesses.
Second Quarter Ended October 10, 2000 Compared to Second Quarter Ended September
25, 1999, as restated
Net Sales. Net sales increased by $11.1 million or 24.0% to $57.1 million
for the second quarter of fiscal 2001 compared to the second quarter of fiscal
2000. The increase was primarily attributable to the North American automotive
operations increased sales of $10.8 million compared to the second quarter of
fiscal 2000 due to stronger demand in airbag fabric and cushions and the
additional days of operations in the second quarter of fiscal 2001. European
automotive operations net sales increased by a net $200,000 due to the
additional days of operations offset by the adverse effect of decreased foreign
currency translation rates of approximately 8.5%.
Gross Profit. Gross profit increased by $1.5 million or 23.8% for the
second quarter of fiscal 2001 compared to the second quarter of fiscal 2000.
Approximately $1.2 million of the increase was primarily attributable to
increased sales principally in the North American automotive markets. Gross
profit as a percentage of net sales remained constant at approximately 13.5% for
the second quarter of fiscal 2001 as compared to the second quarter of fiscal
2000. Additionally, the effect of the fair value adjustment of $710,000 to the
Company's inventory in the second quarter of fiscal year 2001 will have an
adverse impact on the Company's following fiscal quarter gross profit results.
The impact of the fair value adjustments on the second quarter of fiscal year
2001 was recognized in Reorganization Items to state inventory at its
manufactured fair market value in accordance with fresh start accounting.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $490,000 or 14.3% to $2.9 million for the
second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. The
decrease is primarily attributable to efficiencies gained and cost savings from
the Company's restructuring efforts. Selling, general and administrative
expenses as a percentage of net sales decreased to 5.1% for the second quarter
of fiscal 2001 from 7.4% for the second quarter of fiscal 2000. The decrease as
a percentage of net sales was primarily a result of the increase in net sales as
discussed above and the cost savings from the Company's restructuring efforts.
Research and Development Expenses. Research and development expenses
decreased by $192,000 or 45.3% to $232,000 for the second quarter of fiscal 2001
compared to the second quarter of fiscal 2000. The research and development
costs were primarily incurred at SCFTI (Greenville, South Carolina plant) in its
technical fabrics business and other European airbag facilities.
Operating Income. Operating income increased by $2.2 million or 109.8% to
$4.2 million for the second quarter of fiscal 2001 compared to the second
quarter of fiscal 2000. Approximately $1.5 million of the increase is
attributable to increased sales and efficiency improvements as discussed above.
Operating income as a percentage of net sales increased to 7.3% for the second
quarter of fiscal 2001 from 4.3% for the second quarter of fiscal 2000. The
increase as a percentage of net sales was primarily a result of the
20
<PAGE>
items discussed above.
Other Expense. The Company recorded a foreign translation loss of $395,000
during the second quarter of fiscal 2001 as compared to an insignificant amount
in the second quarter of fiscal 2000.
Interest Expense. Interest expense decreased $1.6 million or 43.6% to $2.0
million for the second quarter of fiscal 2001 compared to the second quarter of
fiscal 2000. The decrease was attributable to the Company not recognizing
interest expense of $2.7 million after April 10, 2000 on its Notes pursuant to
the Company's Restructuring Agreement in the Chapter 11 bankruptcy proceeding.
If the $2.7 million of interest expense had been recognized in fiscal 2001,
interest expense would have increased approximately $1.1 million from the
comparable quarter of fiscal 2000. Such increase was primarily the result of
increased interest rates during the second quarter of fiscal 2001 as compared to
the second quarter of fiscal 2000.
Reorganization Items. Professional fees and expenses totaled $2.5 million
for the second quarter of fiscal year 2001. Such expenses represent fees and
expenses of the Company's various legal and financial advisors, the financial
and legal advisors for the Senior Lenders and Noteholders, and other
professionals associated with the Company's financial restructuring and Chapter
11 bankruptcy proceeding. The restructuring charges consist primarily of a
charge for future severance payments to the Company's former Chairman and Chief
Executive Officer. The impact of adjusting assets and liabilities to fair value
in accordance with SOP 90-7 resulted in a net charge of $34.0 million. See Note
3 to the Consolidated Financial Statements for further information regarding the
effects SOP 90-7.
Income Tax Benefit. The income tax benefit for the second quarter of fiscal
2001 is principally due to the income tax effect of the fresh start and other
reorganization adjustments. See Note 9 to Notes to Consolidated Financial
Statements for further information regarding income taxes and the Company's net
operating loss carryforwards.
Discontinued Operations. Loss from discontinued operations increased
$574,000 or 104.7% to $1.1 million for the second quarter of fiscal 2001 as
compared to the second quarter of fiscal 2000. The increase in loss is
attributable to $1.3 million of restructuring costs related to the Valentec
Wells operation. The gain on disposition of discontinued operations was $214,000
net of income taxes of $125,000 for the second quarter of fiscal 2000. The gain
on disposition includes the $1.2 million realized gain on the sale of Systems
offset by estimated plant restructuring expenses, interest costs and
professional fees related to the disposition of the non-core business.
Extraordinary Gain. The extinguishment of the Senior Subordinated Notes and
related accrued interest resulted in an extraordinary gain of $29.9 million, net
of income taxes of $17.5 million.
Net Income (Loss). The Company experienced net income of $10.7 million for
the second quarter of fiscal 2001 compared to a net loss of $1.4 million for the
second quarter of fiscal 2000. This change in earnings was a result of the items
discussed above.
Twenty-eight Weeks Ended October 10, 2000 Compared to Twenty-six Weeks Ended
September 25, 1999, as restated
Net Sales. Net sales increased by $10.6 million or 10.7% to $109.1 million
for the twenty-eight weeks ended October 10, 2000 compared to the twenty-six
weeks ended September 25, 1999. The increase was primarily attributable to North
American automotive operations increased sales of $23.6 million compared to
fiscal 2000 due to stronger demand in airbag fabric and cushions and the
additional days of
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operations. This increase in net sales is offset by the $9.6 million decrease in
net sales of technical fabrics as compared to the twenty-six weeks ended
September 25, 1999. This decrease was attributable to the reallocation of
technical fabric production capacity to support the demand for airbag fabric to
the Company's North American automotive operations. European automotive
operations net sales decreased $3.4 million primarily due to the adverse effect
of decreased foreign currency translation rates of approximately 9.1% and lower
sales volume due to the uncertainty surrounding the Company's financial
condition during the latter part of fiscal 2000.
Gross Profit. Gross profit increased by $2.2 million or 16.6% for the
twenty-eight weeks ended October 10, 2000 compared to the twenty-six weeks ended
September 25, 1999. Approximately $1.9 million of the increase was primarily
attributable to increased sales and margin gains in North American automotive
operations arising from efficiency improvements, product mix, and related
success in implementing the Company's Lean Manufacturing program. Gross profit
as a percentage of net sales increased to approximately 14.5% for the
twenty-eight weeks ended October 10, 2000 from 13.8% for the twenty-six weeks
ended September 25, 1999. Additionally, the effect of the fair value adjustment
of $710,000 to the Company's inventory in the second quarter of fiscal year 2001
will have an adverse impact on the Company's following fiscal quarter gross
profit results. The impact of the fair value adjustments on the second quarter
of fiscal year 2001 was recognized in Reorganization Items to state inventory at
its manufactured fair market value in accordance with fresh start accounting.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $174,000 or 2.8% to $5.9 million for the
twenty-eight weeks ended October 10, 2000 compared to the twenty-six weeks ended
September 25, 1999. The decrease is primarily attributable to efficiencies
gained and cost savings from the Company's restructuring efforts. Selling,
general and administrative expenses as a percentage of net sales decreased to
5.4% for the twenty-eight weeks ended October 10, 2000 from 6.2% for the
twenty-six weeks ended September 25, 1999. The decrease as a percentage of net
sales was primarily a result of the increase in sales as discussed above and the
cost savings from the Company's restructuring efforts.
Research and Development Expenses. Research and development expenses
decreased by $294,000 or 45.4% to $353,000 for the twenty-eight weeks ended
October 10, 2000 compared to the twenty-six weeks ended September 25, 1999. The
research and development costs were primarily incurred at SCFTI (Greenville,
South Carolina plant) in its technical fabrics business and in other European
airbag facilities.
Operating Income. Operating income increased by $2.8 million or 46.1% to
$8.9 million for the twenty-eight weeks ended October 10, 2000 compared to the
twenty-six weeks ended September 25, 1999. Approximately $2.1 million of the
increase is due to increased sales and efficiency improvements as discussed
above. Operating income as a percentage of net sales increased to 8.1% for
fiscal 2001 from 6.2% for fiscal 2000. The increase as a percentage of net sales
was primarily a result of the items discussed above.
Other Expense. The Company recorded a foreign translation loss of $737,000
during the twenty-eight weeks ended October 10, 2000 as compared to an
insignificant amount in the twenty-six weeks ended September 25, 1999.
Interest Expense. Interest expense decreased $3.2 million or 45.6% to $3.8
million for the twenty-eight weeks ended October 10, 2000 compared to the
twenty-six weeks ended September 25, 1999. The decrease was primarily
attributable to the Company not recognizing interest expense of $4.7 million
after April 10, 2000 on its Notes pursuant to the Company's Restructuring
Agreement in the Chapter 11 bankruptcy proceeding. If the $4.7 million of
interest expense had been recognized in fiscal 2001, interest expense would have
increased approximately $1.5 million from the comparable period of fiscal 2000.
Such increase was primarily the result of increased interest rates during the
twenty-eight weeks ended October 10, 2000 as compared to the twenty-six weeks
ended September 25, 2000.
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Reorganization Items. Professional fees and expenses totaled $3.7 million
for the twenty-eight weeks ended October 10, 2000. Such expenses represent fees
and expenses of the Company's various legal and financial advisors, the
financial and legal advisors for the Senior Lenders and Noteholders, and other
professionals associated with the Company's financial restructuring and Chapter
11 bankruptcy proceeding. The revaluation of the Notes totaled $2.9 million,
representing the write-off of related deferred financing costs. The
restructuring charges consist primarily of a charge for future severance
payments to the Company's former Chairman and Chief Executive Officer. The
impact of adjusting assets and liabilities to fair value in accordance with SOP
90-7 resulted in a net charge of $34.0 million. See Note 3 to the Consolidated
Financial Statements for further information regarding the effects of SOP 90-7.
Income Tax Benefit. The income tax benefit for the twenty-eight weeks ended
October 10, 2000 is principally due to the income tax effect of the fresh start
and other reorganization adjustments. See Note 9 to Notes to Consolidated
Financial Statements for further information regarding income taxes and the
Company's net operating loss carryforwards.
Discontinued Operations. Loss from discontinued operations increased
$973,000 or 208.4% to $1.4 million for the second quarter of fiscal 2001 as
compared to the second quarter of fiscal 2000. The increase is attributable to
$1.3 million of restructuring costs related to the Valentec Wells operations.
The gain on disposition of discontinued operations was $214,000 net of income
taxes of $125,000 for fiscal 2001. The gain on disposition includes the $1.2
million realized gain on the sale of Systems offset by estimated plant
restructuring expenses, interest costs and professional fees related to the
disposition of the non-core business.
Extraordinary Gain. The early extinguishment of the Senior Subordinated
Notes and related accrued interest resulted in an extraordinary gain of $29.9
million, net of income taxes of $17.5 million. This is offset by the $573,000
write-off of the deferred financing costs associated with the early termination
of the KeyBank Revolving Credit Facility.
Net Income (Loss). The Company experienced net income of $8.1 million for
the twenty-eight weeks ended October 10, 2000 compared to a net loss of $790,000
for the twenty-six weeks ended September 25, 1999. This change in earnings was a
result of the items discussed above.
Liquidity and Capital Resources
The Company's equipment and working capital requirements will continue to
increase as a result of the anticipated growth of operations. This growth is
expected to be funded through a combination of cash flows from operations,
equipment financing and through the use of lines of credit with the Company's
lenders, as discussed in the following paragraphs.
Through twenty-eight weeks of fiscal 2001, net cash provided by operating
activities of continuing operations was $3.4 million. This decrease in net cash
provided by continuing operations from $7.9 million in the prior year is
primarily the result of changes in operating assets and liabilities and non-cash
charges and credits resulting from the Company's bankruptcy and forgiveness of
debt. Cash used in investing activities of continuing operations was $1.8
million through twenty-eight weeks of fiscal 2001 as compared to $8.4 million
used in investing activities of continuing operations in the prior year. This
change was due to a reduction of $4.5 million in the additions of property,
plant and equipment as well as a decrease in the consideration and costs
associated with the purchase of the German subsidiary. Net cash used in
financing activities for continuing operations through twenty-eight weeks of
fiscal 2001 was $7.6 million. This decrease from net cash provided by continuing
operations of $1.2 million in the prior year is due primarily
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the net repayments of the Key Bank Credit Agreement and the DIP financing, along
with repayments for term notes, capital leases and mortgages. All of the
activities noted above resulted in a net decrease in cash of $5.4 million in the
first twenty-eight weeks of fiscal year 2001.
The Company and an informal committee comprised of holders of over
two-thirds in aggregate dollar amount of the Notes began negotiations and in
early April 2000 entered into the Restructuring Agreement that would be effected
through a voluntary filing under Chapter 11. Pursuant to the Restructuring
Agreement, the claims of the Noteholders were to be converted in the right to
receive 4,840,774 shares of the Company's post bankruptcy common stock on the
Emergence Date (4,816,574 shares to the Noteholders and 24,200 shares to the
financial advisors of the Noteholders). The current shareholders, excluding
Robert Zummo, the Company's former Chairman and Chief Executive Officer, were to
receive 159,226 shares of the Company's post bankruptcy common stock and
warrants to acquire an additional 681,818 shares of such common stock.
On April 26, 2000, in conjunction with the filing of the Chapter 11
petition, the Safety Filing Group received Court approval of a $30.6 million
senior DIP financing facility that it had executed with Bank of America, N.A.
The senior DIP financing was expected to provide adequate funding for all
post-petition trade and employee obligations, the partial paydown of the
pre-petition secured debt, as well as the Company's ongoing operating needs
during the restructuring process. Upon closing of the senior DIP financing
facility on May 9, 2000, the Senior Lenders received a principal paydown of
approximately $17 million and retained the remaining approximately $20.9 million
portion of their indebtedness as an 11% per annum post-petition subordinated DIP
facility as a replacement of their KeyBank Credit Agreement.
On August 31, 2000, the Court entered an order approving the Plan. On
October 11, 2000 (the "Emergence Date'), the Safety Filing Group emerged from
Chapter 11 pursuant to the Plan confirmed by the Court. Pursuant to the Plan, as
confirmed, upon emergence all of the Company's 10-1/8% senior notes due 2007 (an
aggregate of approximately $96.8 million, including accrued interest to the
Petition Date) were converted into 4,840,774 shares of the Company's
post-bankruptcy common stock, and the pre-bankruptcy common stock, excluding
stock held by Robert Zummo (former Chairman and Chief Executive Officer of the
Company), was converted into 159,226 shares of the Company's post-bankruptcy
common stock and warrants to acquire an additional 681,818 shares of such common
stock. Immediately upon emergence, the Company had 5,000,000 shares of common
stock issued and outstanding and, other than the warrants, no shares of common
stock were reserved for issuance in respect of claims and interests filed and
allowed under the Plan. In addition, Safety Components' trade suppliers and
other creditors will be paid in full, pursuant to the terms of the Plan, within
90 days of the Emergence Date.
In connection with its emergence from Chapter 11, the Company announced the
closing on October 11, 2000 of a three-year $35 million revolving credit
facility with Congress Financial Corporation (Southern) (the "Congress
Facility"), expiring October 11, 2003. The Congress Facility has allowed the
Company to pay off its debtor-in-possession credit facilities with Bank of
America and is expected to provide adequate funding for the Company's ongoing
global operating needs. In addition to the Congress Facility, the Company also
closed on October 11, 2000 a two-year subordinated secured note facility with
the Senior Lenders for $20.9 million (the "Subordinated Facility"), expiring on
October 11, 2002. If the Congress Facility had been in place on October 10,
2000, the Company's availability for additional borrowings would have been $12.2
million at that time.
Under the Congress Facility the Company may borrow a maximum of (a) $35
million or (b) 85% of eligible accounts receivable, plus 60% of eligible
finished goods, plus 50% of raw materials. Included within borrowings permitted
under the Congress Facility are $7.6 million in term loans which will be repaid
in equal monthly installments of approximately $127,000, with the unpaid
principal amount due on October
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11, 2003, unless the Congress Facility is removed at that time. Also included
within borrowings permitted under the Congress Facility is a $3 million letter
of credit facility.
The interest rate on the Congress Facility is variable, depending on the
amount of the Company's Excess Availability (as defined) at any particular time
and the Company's Fixed Charge Coverage Ratio (as defined). Excess Availability
is calculated as the lesser of the borrowing base of the Company or the amount
equal to the $35 million less the amount of all outstanding and unpaid
obligations of the Company plus the aggregate amount of all trade payables and
other obligations of the Company which are more than sixty days past due. On the
Emergence Date, the margin on prime rate loans was 0% and the margin on
Eurodollar rate loans was 2%. The interest rate on the Subordinated Facility is
fixed at 11%.
The Congress Facility and the Subordinated Facility both require the
Company to meet a minimum adjusted tangible net worth (as defined) covenant. In
addition, the Subordinated Facility provides for mandatory prepayments in the
event that the Company's Consolidated EBITDA (as defined) exceeds certain
specified levels following the Emergence Date. Additionally, both the Congress
Facility and the Subordinated Facility contain certain restrictive covenants
that impose limitations upon, among other things, the Company's ability to
borrow monies under the Congress Facility; incur indebtedness (including
capitalized lease arrangements); become or remain liable with respect to any
guaranty; make loans; acquire investments; declare or make dividends (no
dividends are permitted to be repaid to holders of the Company's common stock)
or other distributions; merge, consolidate, liquidate or dispose of assets or
indebtedness; incur liens; issue capital stock; or change its business.
Substantially all assets of the Company are pledged as collateral for the
borrowings under the Congress Facility and the Subordinated Facility.
The Company has budgeted capital expenditures of approximately $3.2 million
for the remainder of fiscal 2001.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities", effective for periods beginning after June 15, 2000. This
new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
Private Securities Litigation Reform Act of 1995
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, dependence of revenues upon several major
module suppliers; worldwide economic conditions; the results of cost savings
programs being implemented; domestic and international automotive industry
trends; the marketplace for airbag related products; the ability of the Company
to effectively control costs and to satisfy customers on timeliness and quality;
approval of automobile manufacturers of airbag cushions currently in production;
pricing pressures; labor strikes; the continued performance by its discontinued
operations at or above the estimated levels; and the ability to sell the
Company's discontinued operations within the next twelve months.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
To the extent that amounts borrowed under the Congress Facility are
outstanding, the Company has market risk relating to such amounts because the
interest rates under the Congress Facility are variable. The Congress Facility
was entered into on October 11, 2000, after the end of the Company's second
fiscal quarter.
The Company's operations in Mexico, Germany, the UK and the Czech Republic
expose the Company to currency exchange rate risks. Currently, the Company does
not enter into any hedging arrangements to reduce this exposure. The Company is
not aware of any facts or circumstances that would significantly impact such
exposures in the near-term. If, however, there was a sustained decline of these
currencies versus the U.S. dollar, then the consolidated financial statements
could be materially adversely affected.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
After the Company's announcement of the restatements in November 1999, the
Company and several of its present or former officers and directors were named
defendants in a class action litigation commenced by shareholders of the Company
in the United States District Court for the District of New Jersey. Eight
separate lawsuits were filed, alleging violations of the federal securities
laws, and all have been consolidated into one action. The parties executed a
Memorandum of Understanding to settle the consolidated class action litigation
for $4 million. The principal terms of the settlement were approved by the Court
of the on September 11, 2000. The Company expects that its directors and
officers insurance carrier will, subject to Court approval, satisfy the
settlement obligations. Management does not presently believe that a resolution
consistent with the Memorandum of Understanding would have a material effect on
the financial statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On the Emergence Date, the Safety Filing Group emerged from Chapter 11
pursuant to the Plan confirmed by the Court. Pursuant to the Plan, as confirmed,
upon emergence all of the Company's 10-1/8% senior notes due 2007 (an aggregate
of approximately $96.8 million, including accrued interest to the Petition Date)
were converted into 4,840,774 shares of the Company's post-bankruptcy common
stock, and the pre-bankruptcy common stock, excluding stock held by Robert Zummo
(former Chairman and Chief Executive Officer of the Company), was converted into
159,226 shares of the Company's post-bankruptcy common stock and 681,818
warrants to acquire an additional 681,818 shares of such common stock.
Immediately upon emergence, the Company had 5,000,000 shares of common stock
issued and outstanding and, other than the warrants, no shares of common stock
were reserved for issuance in respect of claims and interests filed and allowed
under the Plan.
Under the Congress Facility, no dividends are permitted to be paid to
holders of the Company's capital stock.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Following the Company's restatement of its fiscal 1999 and 2000 earnings
and a default with respect to obligations under the KeyBank Credit Agreement,
the Senior Lenders notified the trustee for the Notes that they were exercising
their rights to block a scheduled interest payment due on January 18, 2000.
The Company and an informal committee comprised of holders of over
two-thirds in aggregate dollar amount of the Notes began negotiations and in
early April 2000 entered into the Restructuring Agreement that would be effected
through a voluntary filing under Chapter 11 of the United States Bankruptcy
Code. Pursuant to the Restructuring Agreement, the claims of the holders of the
Company's senior subordinated notes were converted into 4,840,774 shares of the
Company's post-bankruptcy common stock and the pre-bankruptcy common stock
excluding stock held by Robert Zummo, (former Chairman and Chief Executive
Officer of the Company), was converted into 159,226 shares of the Company's post
bankruptcy common stock and warrants to acquire and additional 681,818 shares of
such common stock. In addition to the Restructuring Agreement, the Company also
reached an agreement with the Senior Lenders subject to a paydown, to replace
their credit agreement with a post-petition subordinated debtor-in-possession
financing facility.
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
----------------- --------------------------------------------------
2.4 First Amended Joint Plan of Reorganization of
Safety Components International, Inc., Safety
Components Fabric Technologies, Inc., Automotive
Safety Components International, Inc., ASCI
Holdings Germany (DE) Inc., ASCI Holdings UK (DE)
Inc., ASCI Holdings Mexico (DE) Inc., and ASCI
Holdings Czech (DE) Inc. (incorporated by
reference to the Company's Current Report on Form
8-K filed on September 9, 2000).
3.5 Certificate of Amendment of the Amended and
Restated Certificate of Incorporation of Safety
Components International, Inc.
3.6 Amended Bylaws of Safety Components International,
Inc.
10.68 Loan and Security Agreement dated as of October
11, 2000, by and among Safety Components
International, Inc., the subsidiaries named
therein as Borrowers and Guarantors and Congress
Financial Corporation (Southern).
10.69 Subordinated Secured Credit Agreement dated as of
October 11, 2000, by and among Safety Components
International,
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Inc., the subsidiaries named therein as Borrowers
and Guarantors, KeyBank National Association
("KeyBank") and Fleet Bank, as lenders, and
KeyBank as administrative agent.
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.
The Company filed the following Current Reports since the filing date of
the Company's last Quarterly Report on Form 10-Q:
Current Report on Form 8-K, filed September 13, 2000, with an event date of
August 30, 2000, relating to the Court's approval of the Plan and the sale of
Valentec Systems, Inc., as amended by a Current Report on Form 8-K/A.
Current Report on Form 8-K, filed October 24, 2000, with an event date of
October 5, 2000, relating to the retention of Deloitte & Touche LLP as the
Company's independent accountants, as amended by a Current Report on Form 8-K/A.
Current Report on Form 8-K, filed on November 14, 2000, with an event date
of October 11, 2000, relating to the Company's emergence from Chapter 11.
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: November 29, 2000 By: /s/ Brian P. Menezes
-------------------------------
Brian P. Menezes
Vice President and
Chief Financial Officer
(Principal Financial Officer)
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