SAFETY COMPONENTS INTERNATIONAL INC - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number 0-23938

SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 33-0596831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

41 Stevens Street
Greenville, South Carolina 29605
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code (864) 240-2600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, par value $.01 per share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days [ X ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 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 [ X ].

The aggregate market value of the common stock held by persons other than
affiliates of the registrant, as of June 25, 2001, was approximately
$24,802,000.

The number of shares outstanding of the registrant's common stock, as of
June 25, 2001, is as follows:

- ---------------------------------------------- --------------------------------

Class Number of Shares
- ---------------------------------------------- --------------------------------

Common Stock, par value $.01 per share 4,960,381
- ---------------------------------------------- --------------------------------

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's proxy statement to be filed in connection with
its 2001 annual meeting of shareholders (the "Proxy Statement") are incorporated
by reference into Part III.

Cautionary Statement Pursuant to Safe Harbor Provisions
of the Private Securities
Litigation Reform Act of 1995

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere herein. Statements in this Annual Report on Form 10-K that reflect
projections or expectations of future financial or economic performance of the
Company, and statements of the Company's plans and objectives for future
operations, including those contained in "Business," "Legal Proceedings," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Quantitative and Qualitative Disclosure about Market Risk," or
relating to the Company's outlook for fiscal year 2002, overall volume and
pricing trends or strategies and their anticipated results, are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Words such as "expects," "anticipates," "approximates," "believes,"
"estimates," "intends," and "hopes" and variations of such words and similar
expressions are intended to identify such forward-looking statements. No
assurance can be given that actual results or events will not differ materially
from those projected, estimated, assumed or anticipated in any such
forward-looking statements. Important factors that could result in such
differences, in addition to the other factors noted with such forward-looking
statements, include: general economic conditions in the Company's market,
including inflation, recession, interest rates and other economic factors;
casualty to or other disruption of the Company's facilities and equipment; and
other factors that generally affect the automotive industry.

2

PART I

ITEM 1. BUSINESS

The Company

Safety Components International, Inc. (including, when context requires,
its consolidated subsidiaries, the "Company" or "Safety Components") is a
leading, low-cost, independent supplier of automotive airbag fabric and cushions
and technical fabrics with operations in North America and Europe. The Company
sells airbag fabric domestically and cushions worldwide to all of the major
airbag module integrators that outsource such products. The Company believes it
produces approximately 50% of all outsourced airbag fabric utilized in North
America, and that it manufactures approximately 50% of all outsourced airbag
cushions in North America and Europe. The Company believes that it is also a
leading manufacturer of value-added technical fabrics used in a variety of niche
industrial and commercial applications such as ballistics material for luggage,
filtration, aircraft escape slides, military tents and fire service apparel. The
unique ability to interchange airbag and specialty technical fabrics using the
same equipment and similar manufacturing processes allows the Company to
effectively utilize its manufacturing assets and lower per unit overhead costs.

Net sales of automotive fabric, airbag cushions and technical fabric
products (the "automotive and fabrics" business or "core operations") were
approximately $201.2 million, $194.7 million and $178.3 million in fiscal 2001,
fiscal 2000 and fiscal 1999, respectively. For purposes hereof, fiscal 2001 is
comprised of the fifty-three week period ended March 31, 2001, fiscal 2000 is
comprised of the fifty-two week period ended March 25, 2000 and fiscal 1999 is
comprised of the fifty two week period ended March 27, 1999.

As discussed in "The 2001 Financial Restructuring and Chapter 11
Reorganization" below, 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.
(collectively, "Safety Filing Group"), but excluding Valentec Wells, LLC (fka
Valentec International Corporation, LLC), Valentec Systems, Inc. and Galion,
Inc., filed a voluntary petition under Chapter 11 of the Bankruptcy Code
("Chapter 11") with the United States Bankruptcy Court for the District of
Delaware.

On October 11, 2000 (the "Emergence Date"), the Company emerged from
Chapter 11. Accordingly, the Company's financial statements subsequent to the
Emergence Date 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 is termed "Predecessor Company" and financial information
subsequent to October 10, 2000 is termed "Reorganized Company" and gives effect
to the application of "fresh start" accounting. See further discussion of the
effect of SOP 90-7 in Note 3 to the Company's Consolidated Financial Statements.

The 2001 Financial Restructuring and Chapter 11 Reorganization

The deterioration in the Company's financial condition that became evident
in fiscal 1999, arising from a confluence of negative developments, particularly
in the Company's metal and defense business ("non-core operations"), caused the
Company to experience material liquidity constraints in fiscal 2000. In
addition, following the default with respect to obligations under its credit
agreement (the "KeyBank Credit Agreement"), KeyBank National Association, as
lender and administrative agent, and Fleet Bank, as lender (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 exchange.

3

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
shares of the Company's post-bankruptcy common stock when the Company emerged
from Chapter 11.

On the April 10, 2000 Petition Date, the Safety Filing Group filed a
voluntary petition under Chapter 11 with the United States Bankruptcy Court for
the District of Delaware (the "Chapter 11 cases").

On October 11, 2000 the Safety Filing Group emerged from Chapter 11
pursuant to the Plan of Reorganization (the "Plan") confirmed by the Bankruptcy
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, including 39,619 shares of treasury
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 4,960,381 shares 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 were paid in full, pursuant to the terms of
the Plan, within 90 days of the Emergence Date.

Disposition of Assets and Plant Relocation

On August 31, 2000, the Company finalized the sale of Valentec Systems,
Inc. ("Systems"), a systems integrator with the U.S. Army which coordinated the
manufacture and assembly of components supplied by various subcontractors and
part of the Company's non-core operations. Pursuant to a Stock Purchase
Agreement dated July 21, 2000, the Company sold 100% of the shares of capital
stock of Systems to VTECH Corporation for approximately $2.9 million in cash.

During fiscal 2001, the Company determined to exit its metal and defense
businesses. These businesses consist of the metal division now located in
Missouri (Valentec Wells, LLC) and the defense products division located in Ohio
(Galion, Inc.). To enhance the value of these businesses, the Company
consolidated a considerable portion of its Valentec operations into its Galion,
Ohio facility and relocated the remainder of its operations from its former
California location to the lower-cost facility in Missouri, nearer to its
primary customers.

Core Operations

Structure of the Airbag Industry

Airbag systems consist of an airbag module and an electronic control
module, which are currently integrated by automakers into their respective
vehicles. Airbag modules consist of inflators, cushions, housing and trim covers
and are assembled by module integrators, most of whom produce most of the
components required for a complete module. However, as the industry has evolved,
module integrators have increasingly outsourced non-proprietary components, such
as cushions, to those companies specializing in the production of individual
components. The Company believes that its module integrator customers will
continue to outsource the majority of their cushion requirements as they focus
on the development of proprietary technologies such as inflators and sensors.
Only one of the module integrators currently weaves its own airbag fabric and
the remainder purchase fabric from airbag fabric producers such as the Company.

Characteristic for the industry, certain customers of airbag cushion
suppliers are also competitors. The Company supplies airbag cushions to module
integrators, most of which also produce a portion of their cushion requirements
internally. While none of the module integrators produce airbag cushions for
third parties, the Company may compete with its customers to supply their own
internal cushion requirements. However, most of the Company's suppliers do not
produce cushions for the same car/truck models for which the Company produces
cushions.

4

Another characteristic of the airbag industry is the existence of potential
barriers to entry. New entrants that wish to produce and supply airbag cushions
or airbag fabric must undergo a rigorous qualification process, which can take
as long as two years. The Company believes that in addition to deterring new
entrants, the existence of this qualification process represents switching costs
for module integrators that are required to assist the new supplier in meeting
automakers' requirements. Additionally, the Company believes module integrators
are, like their auto-maker customers, trying to limit the number of suppliers.

Products

The Company's automotive products include passenger, driver and side impact
airbag cushions and head and thorax protection curtains manufactured for
installation in over fifty car and truck models sold worldwide; airbag fabric
for sale to airbag manufacturers; and stamped and machined components used in
airbag modules, including passenger airbag retainers that attach the airbag
cushion to the module's reaction can, as well as driver-side module products and
components used in airbag inflators. Sales of airbag related products (inclusive
of sales of airbag fabric) for fiscal year 2001 accounted for approximately
88.0% of the Company's consolidated fiscal 2001 net sales. Sales of airbag
related products for fiscal years 2000 and 1999 accounted for approximately
87.3% and 86.5% of the Company's consolidated fiscal 2000 and 1999 net sales,
respectively.

In addition to the airbag fabric manufactured at its Safety Components
Fabrics Technology, Inc. ("SCFTI") subsidiary in Greenville, South Carolina, the
Company also manufactures a wide array of specialty technical fabrics for
consumer and industrial uses. These fabrics include: (i) high-end luggage
fabrics, including "ballistics" fabric used in Hartman and Tumi brands of
luggage; (ii) filtration fabrics used in aluminum, coal, steel, cement, clay and
brewing industries; (iii) woven fabrics for use by manufacturers of coated
products; (iv) specialty fabrics used in police jackets, protective apparel worn
by firefighters, fuel cells, bomb and cargo chutes, oil containment booms,
aircraft escape slides, and gas diaphragms; and (v) release liners used in tire
manufacturing. Sales are made against purchase orders, pursuant to releases on
open purchase orders, or pursuant to short-term supply contracts of up to twelve
months. Sales of technical related products accounted for approximately 12.0% of
the Company's consolidated fiscal 2001 net sales. Sales of technical related
products for fiscal years 2000 and 1999 accounted for approximately 12.7% and
13.5% of the Company's consolidated net sales, respectively. The market for the
Company's technical related products is highly segmented by product line.
Marketing and sales of the Company's technical related products is conducted by
the Company's marketing and sales staff based in Greenville, South Carolina.
Manufacturing of these products occurs at the South Carolina facility, using the
same equipment and manufacturing process that the Company uses to produce airbag
fabric, enabling the Company to take advantage of demand requirements for the
various products with minimal expenditures on production retooling costs. By
manufacturing technical products with the same machines that weave airbag
fabric, the Company is able to effectively utilize capacity at its South
Carolina plant and lower per unit overhead costs.

See Note 10 to the Consolidated Financial Statements for additional
financial information by product type.

Customers

The Company sells its airbag cushions to airbag module integrators for
inclusion in specified model cars generally pursuant to requirements contracts.
Certain of these customers also manufacture airbag cushions to be used in their
production of airbag modules. The Company markets and sells airbag cushions and
airbag fabric through its direct marketing and sales forces based in Mexico,
California, South Carolina and Germany.

The Company sells its fabric either directly to a module integrator or, in
some cases, to a fabricator (such as the Company), which sells a sewn airbag to
the module integrator. Because driver-side fabric historically has been coated
(creating lower permeability for rapid inflation and eliminating particulate
burn-through caused by hot inflators) before fabrication into airbags, the
Company also sells fabric to coating companies, which then resell the coated
fabric to either an airbag fabricator or module integrator. Sales are either
made against purchase orders, pursuant to releases on open purchase orders, or
pursuant to short-term supply contracts generally having durations of up to
twelve months.

5

The following describes the Company's contractual relationship with its
significant customers (listed in alphabetical order), of which the loss of any
such customer could have a material adverse effect on the Company:

Autoliv. The Company supplies airbag cushions and airbag fabric to Autoliv
based upon releases from formal purchase orders, which typically cover a period
of twelve months and are negotiated prior to commitment with respect to price
and quantity.

Petri. The Company's "evergreen" agreement with Petri provides that, prior
to the commencement of each calendar year, the parties will negotiate price,
quantity and other relevant terms of the airbag cushion supply contract for such
calendar year.

TRW. The Company has a global supply agreement with TRW with respect to the
supply of airbag fabric, airbag cushions and airbag metal components. The global
supply agreement includes price and cost reduction targets by the Company, as
well as sales growth targets for the Company, although TRW is not obligated to
purchase such amounts under the global supply agreement.

Suppliers

The Company's principal airbag cushion fabric customers generally approve
all suppliers of major airbag components or airbag fabric raw materials, as the
case may be. These suppliers are approved after undergoing a rigorous
qualification process on their products and manufacturing capabilities. In many
cases, only one approved source of supply exists for certain airbag components.
In the event that a sole source supplier experiences prolonged delays in product
shipments or no longer qualifies as a supplier, the Company would work together
with its customers to identify another qualified source of supply. Although
alternative sources of supply exist, a prolonged delay in the approval by the
Company's customers of any such alternative sources of supply could adversely
affect the Company's operating results. Under the Company's agreements with its
customers, any changes in the cost of major components are passed through to the
customers.

The raw materials for the Company's fabric operations largely consist of
synthetic yarns provided by DuPont, Acordis (previously AKZO), Breed, Unifi and
KoSa (previously Hoechst Celanese), among others. The primary yarns include
nylon, polyester and Nomex. DuPont is the leading supplier of airbag fabric yarn
to both the market and the Company. DuPont supplies a majority of the nylon yarn
used in the Company's airbag fabric operations pursuant to purchase orders or
releases on open purchase orders. The loss of DuPont as a supplier could have a
material adverse effect on the Company.

Capacity

The Company manufactured and shipped over 17.8 million airbag cushions to
the Company's North American and European customers during fiscal 2001 and the
Company believes it has adequate capacity to manufacture its fiscal 2002 budget
requirements.

The Company's South Carolina facility has a current capacity to manufacture
approximately 30.0 million yards of fabric per year and manufactured
approximately 26.4 million yards of fabric in fiscal year 2001. The Company
utilizes rapier weaving machines that are versatile in their ability to produce
a broad array of specialty technical fabrics for use in a large number of
applications. In addition, the Company's machinery and equipment have the
capability to weave all types of yarns and fabrics specified by airbag module
integrators as well as a broad variety of technical fabrics. The ability to
easily interchange the machines between air restraint fabric and other specialty
technical fabrics allows the Company to maximize returns on plant assets.

Competition

The Company competes with several independent suppliers of airbag cushions
in the United States and Europe for sales to airbag module integrators. The
Company also competes with its airbag module integrator customers, which produce
a substantial portion of their own airbag cushions for their own consumption,
but do not generally manufacture

6

airbag cushions for the same vehicle models that the Company manufactures. Most
airbag module integrators subcontract a portion of their requirements for airbag
cushions. The Company believes that its good working relationship with its
customers, the Company's high volume and low-cost manufacturing capabilities,
consistency and level of quality products, the agreements or relationships with
its module integrator customers, the lengthy process necessary to qualify as a
supplier to an automobile manufacturer and the costs in the automotive industry
associated with changes in established suppliers create certain barriers to
entry for potential competitors.

The Company believes the total North American airbag fabric market in 2000
totaled over $150.0 million. The Company shares this market with another major
competitor, Milliken, and at least three smaller fabric manufacturers. In
addition, Takata, an airbag module integrator, produces fabric for its own
airbag cushions. Barriers to entry into this market include substantial capital
requirements and lengthy lead-times required for certification of a new
participant's fabrics by buyers.

The automotive airbag cushion, airbag fabric and airbag module markets are
highly competitive. Some of the Company's current and potential competitors have
greater financial and other resources than the Company. The Company competes
primarily on the basis of its price, product quality, reliability, and
capability to produce a high volume of many models of passenger side and driver
side airbags. In addition, SCFTI has provided the Company with some measure of
vertical integration, enhancing its ability to compete in the automotive airbag
industry. Increased competition, as well as price reductions of airbag systems,
would adversely affect the Company's revenues and profitability.

Technical Center - Europe

During the past year, the Company's European operations reorganized its
engineering group. Engineers lead teams of Company personnel from various
departments and are responsible for product and customer relationships. Included
in each of these teams are technical specialists, quality engineers and
manufacturing engineers. This arrangement allows the same team to take
responsibility for the product from initial drafting to finish, assuring robust
quotes, smooth launches and efficient production. European operations continue
to improve as a result of this reorganization.

Additionally, the Company has formalized development initiatives by
creating a Technical Center in Hildesheim, Germany. The center has the ability
to conduct static deployment and analysis using high-speed video equipment. In
October 2000, the Company added pendulum-testing capability. There also exists a
full sample shop with manual and CNC sewing equipment, a production-style laser
cutter, volume measurement and analysis equipment, textile welding and other
non-sewn fastening equipment. The Technical Center also has a complete materials
laboratory, managed by an experienced materials engineer. Additionally, the
Technical Center utilizes the services and expertise of the laboratory and
textile experts in Greenville, South Carolina. There are also
satellite-engineering functions in Wales, United Kingdom. The Wales facility
serves both customers and internal operations with equipment design and
manufacturing. It has a design group and tool room to develop and manufacture
specialized equipment and standard tooling.

Technical Center - North America

In North America, a comprehensive textile laboratory is located in
Greenville, South Carolina. The Company has the ability to fully test and
analyze fabrics of any type (airbag or other) including US-ASTM, Europe DIN,
Asian JIS and Underwriters NFPA. The Laboratory is A2LA and QS9000 certified,
which are the most important measures for the industry. All validation testing
and analytical testing of fabric is performed in Greenville, South Carolina. In
North America, the module integrators perform the majority of advanced cushion
testing; therefore, an advanced Technical Center for cushions does not exist.
However, all necessary validation testing and process development testing is
performed in Ensenada, Mexico. North American sales are supported and developed
via Sales and Program Managers dedicated to a particular account base of
activity. Additionally, the Ensenada facility has state-of-the-art
prototype-selling capabilities. Within the production programs are highly
advanced sewing machines, with 100% dedicated quality, engineering and sewing
operators.

7

Qualification and Quality Control

The Company has successfully completed the process of qualifying as an
airbag supplier. Each of the Company's customers requires the Company to meet
specific requirements for design validation. The customer participates in the
design and process validations and must be satisfied with the reliability and
performance prior to awarding a purchase order. The Company satisfies all
standards and requirements relating to product performance, which then qualifies
the Company to be a supplier.

The Company has extensive quality control and quality assurance systems in
its U.S. automotive facilities, including inspection and testing of all
products, and is QS 9000 and ISO 9002 certified. The Company also performs
process capability studies and design of experiments to determine that the
manufacturing processes meet or exceed the quality levels required by each
customer.

The Company's European facilities also operate under similar quality
systems that meet ISO 9000, ISO 9001 and ISO 9002 standards, which are the
international standards for quality. As is the case with U.S. customers, the
automobile manufacturers may conduct their own design and process testing;
however, the Company's Technical Center located in Hildesheim, Germany has the
ability to conduct similar design and testing.

The Company's airbag fabric operations also maintain the highest level of
quality through each and every process. The fabric operations have been
certified as approved suppliers by all of the Company's automotive customers. In
addition, the fabric operations laboratories have obtained accreditation against
ISO Guide 25, ASTM, DIN, JIS and A2LA as well as UL accreditation. The Company
was the first airbag fabric manufacturer to have its entire business (not just
its manufacturing facility) certified under QS 9000.

Governmental Regulations

Airbag systems installed in automobiles sold in the United States must
comply with certain government regulations, including Federal Motor Vehicle
Safety Standard 208, promulgated by the United States Department of
Transportation. The Company's customers are required to self-certify that airbag
systems installed in vehicles sold in the United States satisfy these
requirements. The Company's operations are subject to various environmental,
employee safety and wage and transportation related statutes and regulations.
The Company believes that it is in substantial compliance with existing laws and
regulations and has obtained or applied for the necessary permits to conduct its
business operations.

Product Liability

The Company is engaged in a business that could expose it to possible
claims for injury resulting from the failure of products sold by it. In the
past, there has been increased public attention to injuries and deaths of
children and small adults due to the force of the inflation of airbags. To date,
however, the Company has not been named as a defendant in any product liability
lawsuit nor threatened with any such lawsuit. The Company maintains product
liability insurance coverage which management believes to be adequate. However,
a successful claim brought against the Company resulting in a final judgment in
excess of its insurance coverage could have a material adverse effect on the
Company.

8

Discontinued Operations

The Company, through operations it intends to sell, and which have been
classified as "discontinued operations", is a supplier of projectiles and other
metal components for small to medium caliber training and tactical ammunition.
Additionally, the Company manufactures metal airbag module components for the
automotive airbag industry and other metal components primarily for small arms
ammunition used by the United States Armed Forces. The metal components
manufactured by the Company are shipped to a loading facility, operated either
by the United States Government or a prime defense contractor, which loads the
explosives, assembles the rounds and packages the ammunition for use. The
Company primarily manufactures components that are used in training rounds,
which are similar to tactical rounds but do not contain the same explosive or
incendiary devices contained in tactical rounds. Because of the continuous use
of training ammunition, the majority of the rounds purchased by the United
States Armed Forces are training rounds. In the past the Company has regularly
received replenishment orders from the United States Armed Forces for its
inventory of training ammunition. Net sales of metal and defense related
products were approximately $20.6 million, $33.6 million, and $41.6 million in
fiscal 2001, fiscal 2000 and fiscal 1999, respectively. See Note 4 to the
Consolidated Financial Statements for more information.

Disposition of Assets and Plant Relocation

On August 31, 2000, the Company finalized the sale of Valentec Systems,
Inc., a systems integrator with the U.S. Army which coordinated the manufacture
and assembly of components supplied by various subcontractors and part of the
Company's non-core operations. Pursuant to a Stock Purchase Agreement dated July
21, 2000, the Company sold 100% of the shares of capital stock of Systems to
VTECH Corporation for approximately $2.9 million in cash.

During fiscal 2001, the Company determined to exit its metal and defense
businesses. These businesses consist of the metal division now located in
Missouri (Valentec Wells, LLC) and the defense products division located in Ohio
(Galion, Inc.). To enhance the value of these businesses, the Company
consolidated a considerable portion of its Valentec operations into its Galion,
Ohio facility and relocated the remainder of its operations from its former
California location to a lower-cost facility in Missouri, nearer to its primary
customers.

Markets and Customers

The Company's defense related sales are made to the United States Armed
Forces, certain prime defense contractors for the United States Armed Forces and
foreign governments or contractors for foreign governments. The Company is a
principal or sole source supplier for many of the projectiles and other metal
components it manufactures. There can be no assurance, however, that other
companies will not begin to manufacture such products in the future and replace
part or all of the sales by the Company of these products.

Manufacturing and Production

The Company's Valentec Wells, LLC operation manufactures metal airbag
module components for the automotive airbag industry and other metal components
primarily for small arms ammunition for use by the defense industry.

The Company's Galion, Inc. operation manufactures projectiles and other
metal components for inclusion in small to medium caliber ammunition utilizing
primarily multi-spindle screw machines at its manufacturing facility in Galion,
Ohio. The manufacturing process includes the impact extrusion of steel bars to
form the blank or rough form shape of the metal components, the machining of the
inside and outside of the metal components to form their final shape, various
heat and phosphate treatments and painting. The Company believes that its
manufacturing equipment, machinery and processes are sufficient for its current
needs and for its needs in the foreseeable future.

9

Suppliers

The Company believes that adequate supplies of the raw materials used in
the manufacture of its small to medium caliber products are available from
existing and, in most cases, alternative sources, although the Company is
frequently limited to procuring such materials and components from sources
approved by the United States Government.

Quality Control

The Company's defense operations employ Statistical Process Controls
extensively throughout its manufacturing process to ensure that required quality
levels are maintained and that products are manufactured in accordance with
specifications. The Company satisfies the United States Government quality
control standard Million-Q-9858A and ISO-9002.

Competition

The Company competes for contracts with other potential suppliers based on
price and the ability to manufacture superior quality products to required
specifications and tolerances. The Company believes that it has certain
competitive advantages including its high volume, cost-efficient manufacturing
capability, its co-development of new products with its customers, and the
United States Government's inclination to remain with long-term reliable
suppliers. Since the Company's processes do not include a significant amount of
proprietary information, however, there can be no assurance that other companies
will not, in time, be able to duplicate the Company's manufacturing processes.

United States Government Contracts

Virtually the Company's entire defense related contracts are negotiated as
firm fixed price contracts with the United States Government or certain of the
United States Government's prime contractors. These contracts are subject to
audit and may be adjusted accordingly.

A majority of the Company's manufacturing agreements with the United States
Armed Forces and its prime defense contractors are for the provision of
components for a one year term, subject, in certain cases, to the right of the
United States Government to renew the contract for an additional term. Renewals
of United States Government contracts depend upon annual Congressional
appropriations and the current requirements of the United States Armed Forces.
United States Government contracts and contracts with defense contractors are,
by their terms, subject to termination by the United States Government for its
convenience. Fixed price contracts provide for payment upon termination for
items delivered to and accepted by the United States Government, and, if the
termination is for convenience, for payment of the contractor's costs incurred
through the date of termination plus the costs of settling and paying claims by
terminated subcontractors, other settlement expenses and a reasonable profit on
the costs incurred.

Seasonality

The Company's airbag cushions and airbag fabric business is subject to the
seasonal characteristics of the automotive industry in which generally there are
seasonal plant shutdowns in the third and fourth quarters of each calendar year.

Backlog

The Company does not reflect an order for airbag cushions or airbag fabric
in backlog until it has received a purchase order and a material procurement
release that specifies the quantity ordered and specific delivery dates.
Generally, these orders are shipped within four to eight weeks of receipt of the
purchase order and material release. As a result, the Company does not believe
backlog is a reliable measure of future airbag sales.

10

Risks Resulting from Foreign Operations

Certain of the Company's consolidated net sales are generated outside the
United States. Foreign operations and exports to foreign markets are subject to
a number of special risks including, but not limited to, risks with respect to
fluctuations in currency exchange rates, economic and political destabilization,
other disruption of markets, restrictive actions by foreign governments (such as
restrictions on transfer of funds, export duties and quotas, foreign customs and
tariffs and unexpected changes in regulatory environments), changes in foreign
laws regarding trade and investment, difficulty in obtaining distribution and
support, nationalization, the laws and policies of the United States affecting
trade, foreign investment and loans and foreign tax laws. There can be no
assurance that one or a combination of these factors will not have a material
adverse effect on the Company's ability to increase or maintain its foreign
sales or on its future results of operations.

In addition, the Company has significant manufacturing operations in
foreign countries and purchases a portion of its raw materials from foreign
suppliers. The production costs, profit margins and competitive position of the
Company are affected by the strength of the currencies in countries where it
manufactures or purchases goods relative to the strength of the currencies in
countries where its products are sold.

Certain of the Company's operations generate net sales and incur expenses
in foreign currencies. The Company's financial results from international
operations may be affected by fluctuations in currency exchange rates. Certain
exchange rate risks to the Company are limited by contractual clauses in the
Company's agreement with TRW for European supply of airbags. Future fluctuations
in certain currency exchange rates could adversely affect the Company's
financial results.

See Note 10 to the Consolidated Financial Statements for financial
information by geographic area.

Employees

At March 31, 2001, the Company employed approximately 2,800 employees in
its continuing operations and approximately 175 employees in its discontinued
operations. The Company's hourly employees in Mexico are entitled to a federally
regulated minimum wage, which is adjusted, at minimum, every two years. The
Company's employees at its Mexican facility are unionized. In addition,
Automotive Safety Components International GmbH & Co. KG, the Company's wholly
owned German subsidiary, has a workers' council pursuant to German statutory
labor law. A workers' council also represents the employees at the Company's
facilities in the U.K. The Company has not experienced any work stoppages
related to its work force and considers its relations with its employees and all
unions currently representing its employees to be good.

Environmental Matters

Like similar companies, the Company's operations and properties are subject
to a wide variety of increasingly complex and stringent federal, state, local
and international laws and regulations, including those governing the use,
storage, handling, generation, treatment, emission, release, discharge and
disposal of certain materials, substances and wastes, the remediation of
contaminated soil and groundwater, and the health and safety of employees
(collectively, "Environmental Laws"). Such laws, including but not limited to,
those under CERCLA, may impose joint and several liability and may apply to
conditions at properties presently or formerly owned or operated by an entity or
its predecessor as well as to conditions of properties at which wastes or other
contamination attributable to an entity or its predecessor have been sent or
otherwise come to be located. The nature of the Company's operations exposes it
to the risk of claims with respect to such matters and there can be no assurance
that violations of such laws have not occurred or will not occur or that
material costs or liabilities will not be incurred in connection with such
claims. Based upon its experience to date, the Company believes that the future
cost of compliance with existing Environmental Laws and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows. However, future events, such as new information,
changes in existing Environmental Laws or their interpretation, and more
vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material.

11

The Company has identified two areas of underground contamination at the
Company's facility in Galion, Ohio. One area involves a localized plating
solution spill. The second area involves a chlorinated solvent spill in the
vicinity of a former above ground storage area. The Company has retained
environmental consultants to quantify the extent of this problem. Such
environmental consultants estimate that the Company's voluntary plan of
remediation could take three to five years to implement, followed by annual
maintenance. The consultants also estimate that remediation costs will be
approximately $250,000, which the Company had accrued in other long-term
liabilities at March 31, 2001 and March 25, 2000. However, depending on the
actual extent of impact to the Company or more stringent regulatory criteria,
these costs could be higher. Additionally, an underground contamination
involving machinery fluids exists at the former Valentec facility in Costa Mesa,
California and the Regional Water Quality Control Board has approved a site
remediation plan. The remediation plan currently involves the simultaneous
operation of a groundwater and vapor extraction system. Such plan is expected to
take approximately five years to implement at an estimated cost of approximately
$368,000. To date, the Company has spent approximately $325,000 implementing
such plan with approximately one year remaining. The additional anticipated cost
for that year is accrued for as of March 31, 2001. In addition, SCFTI has been
identified along with numerous other parties as a Potentially Responsible Party
at the Aquatech Environmental, Inc. Superfund Site. The Company believes that it
is a de minimis party with respect to the site and that future clean-up costs
incurred by the Company will not be material.

A Phase II study revealed limited organic groundwater contamination at the
SCFTI facility in South Carolina in 1997. At the time of the Company's purchase
of such facility, $185,000 of the purchase price thereof was placed in escrow to
pay for, if necessary, environmental remediation and monitoring at such
facility. Based on the results of the groundwater monitoring that already has
been conducted, and on the Company's discussions with the South Carolina
Department of Health and Environmental Control ("DHEC"), no further work will be
required and the escrow account was liquidated in fiscal year 2001.

Additionally, low levels of contaminants were found at SCFTI during
groundwater sampling in 1998. In February 1999, the facility received a notice
letter from DHEC regarding the groundwater contamination. While DHEC
acknowledges that there does not appear to be an active source for groundwater
impact at the facility, it required the facility to perform sampling of two
existing monitoring wells located on the property for contaminants. Low levels
of contaminants again were detected. DHEC has requested that the Company (i)
confirm that no residential wells exist in the area, (ii) perform additional
sampling, and (iii) propose a program for in-site remediation of the
groundwater, involving injection of nutrients to biodegrade the organic
compounds in the groundwater. The Company does not believe that these costs will
be material.

In the opinion of management, no material expenditures beyond those accrued
at March 31, 2001 will be required for the Company's environmental control
efforts and the final outcome of these matters will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
The Company believes that it currently is in compliance with applicable
environmental regulations in all material respects. Management's opinion is
based on the advice of independent consultants on environmental matters.

Patents

The Company holds eleven patents and seven additional patents are pending.
All patents relate to technical improvements for enhancement of product
performance with respect to the Company's airbag, fabric and technical related
products. Provided that all requisite maintenance fees are paid, the patents
held by the Company will expire between the years 2014 and 2020.

Engineering, Research & Development

The Company's fabric and airbag cushions operations have maintained an
active design and development effort focused toward new and enhanced products
and manufacturing processes. The Company specifically designs and engineers its
fabrics to meet its customers' applications and needs. While the component
manufacturer originates most design requirements, the Company is dedicated to
improving the quality of existing products, as well as developing

12

new products for all applications. Costs associated with design and development
for fabric and airbag cushions were approximately $688,000, $665,000 and
$1,090,000 during fiscal 2001, fiscal 2000 and fiscal 1999, respectively.

Related Parties

The Company, in years prior to fiscal 1999, performed certain services for
an affiliated company, Valentec International Limited ("VIL"), a U.K. company
majority owned by Mr. Robert A. Zummo, the former Chief Executive Officer and
Chairman of the Board of the Company. During fiscal 2000, the Company
established a $600,000 reserve against its receivable of $1.2 million from VIL
due to uncertainty about VIL's ability to repay such amount. In connection with
the restructuring discussed in Note 1 to the Consolidated Financial Statements,
Mr. Zummo agreed that the Company could reduce future payments to him under his
employment agreement to cover such receivable in the event that the Company is
not repaid by VIL. At March 31, 2001, VIL had not repaid the Company and the
gross amount owed to Mr. Zummo under his employment agreement is in excess of
the amount owed to the Company by VIL.

ITEM 2. PROPERTIES

The Company's corporate headquarters are located in Greenville, South
Carolina in a facility owned by the Company, adjacent to its SCFTI manufacturing
facility. The Company manufactures airbag and technical fabrics related products
in five locations, with total plant area of approximately 1.2 million square
feet (including administrative, warehouse, engineering and research and
development areas housed at company locations). Below is an overview of the
Company's properties at its airbag and technical fabrics related products
facilities and its metal and defense facilities (discontinued operations) as of
June 25, 2001.

Floor Area Owned/ Lease
Location (Sq. Ft.) Leased Expiration
-------- --------- ------ ----------

Airbag and Technical Fabrics Related Products
Ensenada, Mexico (airbag cushion) 97,000 Leased 2003 (1)(2)
Greenville, South Carolina (airbag and technical fabrics) 826,000 Owned N/A (1)(3)
Hildesheim, Germany (airbag cushions) 70,000 Owned N/A (1)
Jevicko, Czech Republic (airbag cushions) 100,000 Owned N/A (4)
Crumlin, Wales (airbag cushions) 60,000 Leased 2003 (1)
Otay Mesa, California (warehouse) 16,000 Leased 2003 (5)

Metal and Defense (Discontinued Operations)
Lake City, Missouri (metal components) 55,000 Leased 2009 (4)(6)
Galion, Ohio (defense products and metal components) 97,000 Owned N/A (4)

- ------------
(1) Manufacturing, research and development and office space

(2) Lease also provides for two one-year renewal options

(3) Corporate office

(4) Manufacturing and office space

(5) Finished goods distribution center

(6) Lease also provides for a four-year renewal option

13

ITEM 3. LEGAL PROCEEDINGS

The Chapter 11 cases remain open until all claims, disputes and pleadings
are resolved before the Bankruptcy Court. At March 31, 2001, the Company has
material disputes with respect to a $2.7 million claim based upon rejection
damages under a lease at a former facility in Costa Mesa, California. Based on
advice from outside legal counsel, management believes that an adequate
liability has been established for this matter at March 31, 2001.

The Company and several of its present or former officers and directors
were named defendants in a class action lawsuit 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 have
executed an Agreement of Settlement, dated April 16, 2001, to settle the
consolidated class action litigation for $4 million. The Company's directors'
and officers' insurance carrier will satisfy the settlement obligations and
accordingly, such resolution has no effect on the Company's financial condition,
results of operations or cash flows.

The Company, from time to time, also becomes party to legal proceedings and
administrative actions, which are of an ordinary or routine nature, incidental
to the operations of the Company. Although it is difficult to predict the
outcome of any legal proceeding, in the opinion of the Company's management,
such proceedings and actions should not, individually or in the aggregate, have
a material adverse effect on the Company's financial condition, operations or
cash flow.

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

The Company held a Special Meeting of Stockholders on April 11, 2001,
adjourned to April 27, 2001. Only holders of record of the Company's common
stock as of March 16, 2001 were entitled to notice of, and to vote at, the
meeting.

At the meeting, the Company's stockholders voted in favor of the approval
of the Safety Components International, Inc. 2001 Stock Option Plan authorizing
the issuance of up to 900,000 shares of the Company's common stock under the
plan to key employees, including officers, and/or directors and consultants. The
vote of approval for such item was 4,109,058 FOR, 238,230 AGAINST, and 153
ABSTAINING.

At the meeting, the Company's stockholders also voted in favor of certain
cash payments payable to, and decreases in the exercise price of, certain stock
options to be granted pursuant to the stock option plan for the benefit of,
members of the Company's management under employment agreements and/or severance
arrangements entered into by the Company, only in the event of a change of
control of the Company. The vote of approval for such item was 4,226,705 FOR,
120,612 AGAINST, and 124 ABSTAINING.

14

PART II

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

Pursuant to the Restructuring Agreement discussed in Item 1, 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
pre-bankruptcy common stock, excluding stock held by Robert A. Zummo, the
Company's former Chairman and Chief Executive Officer, was converted into
159,226 shares of the Company's post-bankruptcy common stock, including 39,619
shares of treasury stock (aggregate 5,000,000 shares issued and 4,960,381 shares
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 common stock is not listed on any exchange, but rather trades on the
Over-The-Counter Bulletin Board. The following table sets forth the range of
high and low bid information for reported sale prices of the common stock since
its distribution after the Emergence Date. Share information is not meaningful
prior to the Emergence Date due to the significant change in capital structure
that resulted from the Plan of Reorganization.

High Low
---- ---
Year Ended March 31, 2001
Fourth Quarter (A) $ 4.25 $ 0.12

(A) There were no trades of record of the Company's common stock noted to have
occurred on the Over-The-Counter Bulletin Board until February 5, 2001.

As of June 25, 2001 there were approximately 154 holders of record of the
Company's Common Stock.

To date, the Company has not paid any cash dividends to its stockholders
and presently intends to continue its policy of retaining its earnings to
support the growth and development of its business. Further, the Company's
existing credit agreement restricts the Company's ability to pay dividends.

15

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected consolidated historical financial
data for the Company as of the dates and for the fiscal years indicated. The
selected historical financial data for the period from October 11, 2000 to March
31, 2001, the period from March 26, 2000 to October 10, 2000, for fiscal years
ended March 25, 2000, March 27, 1999, March 28, 1998, and March 31, 1997 has
been derived from the audited Consolidated Financial Statements of the Company
for such periods. The presentation of certain previously reported amounts has
been reclassified to conform to the current presentation and to reflect
discontinued operations of the non-core businesses (metal and defense) as
discussed in Note 4 to the Consolidated Financial Statements of the Company. The
Consolidated Financial Statements for the period from October 11, 2000 to March
31, 2001 reflect the Company's emergence from Chapter 11 and were prepared
utilizing the principles of fresh start accounting contained in the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Statements by Entities in Reorganization Under the Bankruptcy Code."
As a result of the implementation of fresh start accounting, certain of the
selected financial data for the period from October 11, 2000 to March 31, 2001
is not comparable to the selected financial data of prior periods. See Note 3 to
the Consolidated Financial Statements of the Company for further discussion of
the effects of fresh start accounting on the Company's Consolidated Financial
Statements. As a result of differences in comparability, selected financial data
for the "Reorganized Company" has been separately identified from that of the
"Predecessor Company." The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the notes thereto, included elsewhere in this Report (in thousands, except
per share data and footnotes):

Reorganized
Company Predecessor Company
-------------|---------------------------------------------------------------
| Fiscal Year Ended
Period from | Period from -----------------------------------------------
10/11/00 | 3/26/00
to | to
3/31/01 | 10/10/00 3/25/00 3/27/99 3/28/98 3/31/97
(25 Weeks) | (28 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
-------------|---------------------------------------------------------------

INCOME STATEMENT DATA (1) |
Net sales (10) $ 92,052 | $ 109,139 $ 194,667 $ 178,348 $ 130,154 $ 68,858
Cost of sales, including depreciation 79,337 | 93,307 168,249 158,806 107,908 55,923
--------- | --------- --------- --------- --------- ---------
Gross profit 12,715 | 15,832 26,418 19,542 22,246 12,935
Selling, general and administrative expenses 5,235 | 5,941 13,443 10,487 8,550 5,842
Research and development expenses 335 | 353 665 1,090 357 --
Amortization of intangible assets 448 | 675 1,486 1,528 1,147 348
Restructuring and restatement (6) -- | -- 3,969 -- -- --
Relocation and reorganization costs (7) -- | -- -- 3,238 1,789 --
Terminated investment agreement costs (8) -- | -- -- 2,500 -- --
--------- | --------- --------- --------- --------- ---------
Operating income 6,697 | 8,863 6,855 699 10,403 6,745
Other expense (income) (280)| 878 1,729 766 (42) 156
Interest expense, net (5) 2,514 | 3,833 13,975 12,566 7,540 1,555
--------- | --------- --------- --------- --------- ---------
Income (loss) from continuing operations before |
reorganization items 4,463 | 4,152 (8,849) (12,633) 2,905 5,034
Reorganization items (3) -- | 41,740 -- -- -- --
--------- | --------- --------- --------- --------- ---------
Income (loss) from continuing operations before |
income taxes 4,463 | (37,588) (8,849) (12,633) 2,905 5,034
Income tax provision (benefit) 1,769 | (17,511) 6,154 (3,321) 1,927 2,995
--------- | --------- --------- --------- --------- ---------
Income (loss) from continuing operations 2,694 | (20,077) (15,003) (9,312) 978 2,039
Discontinued operations, net of taxes: |
Loss (gain) from discontinued operations -- | 1,440 20,142 4,351 (2,368) (1,807)
Loss (gain) on disposition of discontinued |
operations 1,444 | (214) -- -- -- --
|
Extraordinary gain (loss), net of taxes (4) (9) -- | 29,370 -- -- -- (383)
Cumulative effect of change in accounting, net of -- | -- -- -- -- (1,259)
taxes (9) |
--------- | --------- --------- --------- --------- ---------
Net income (loss) $ 1,250 | $ 8,067 $ (35,145) $ (13,663) $ 3,346 $ 2,204
========= | ========= ========= ========= ========= =========
PER SHARE DATA, BASIC AND DILUTED (2): |
Income from continuing operations $ 0.54 |
Loss from discontinued operations (0.29)|
--------- |
Net income per common share $ 0.25 |
========= |
Weighted average number of shares outstanding, basic |
and diluted 4,960 |
========= |

16

Reorganized |
Company | Predecessor Company
-----------|----------------------------------------------------------
3/31/01 | 3/25/00 3/27/99 3/28/98 3/31/97
-----------|----------------------------------------------------------
BALANCE SHEET DATA |

Working capital (11) $ 27,970 | $(103,105) $ 31,404 $ 26,617 $ 12,957
Total assets (10) 130,683 | 168,695 206,748 180,134 69,774
Senior subordinated notes -- | 90,000 90,000 90,000 --
Long term debt, net of current portion 43,541 | 15,145 53,109 22,954 21,296
Stockholders' equity (deficit) 51,943 | (14,440) 22,456 36,532 35,274

- ---------------
Notes to Selected Financial Data:

(1) The Company did not declare dividends during fiscal years 2001, 2000, 1999,
1998 or 1997.

(2) Share and per share data are not meaningful on or prior to October 10, 2000
due to the significant change in the capital structure that resulted from
the Plan of Reorganization.

(3) During the period from March 26, 2000 to October 10, 2000, the impact of
adjusting assets and liabilities to fair value in accordance with SOP 90-7
resulted in a net charge of approximately $34.0 million. Professional fees
and expenses of $3.7 million included in Reorganization Items for the
period represent fees and expenses 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. Also included in this amount is $1.1 million of
restructuring charges that consist primarily of a charge for future
severance payments to the Company's former Chairman and Chief Executive
Officer.

(4) During the period from March 26, 2000 to October 10, 2000, the early
extinguishment of the Notes and related accrued interest resulted in an
extraordinary gain of $29.9 million, net of income taxes of $17.5 million.
This was offset by a loss recognized in the amount of $573,000 related to
deferred financing costs associated with the early termination of the
previous credit facility during the period.

(5) Contractual interest for the period from March 26, 2000 to October 10,
2000, was $8.5 million. Interest expense on the Company's Notes was
reported to the Petition Date (April 10, 2000). Such interest expense was
not reported subsequent to that date because it was not required to be paid
during the bankruptcy proceedings and was not an allowed claim under the
Plan of Reorganization. The difference between reported interest expense
and stated contractual interest expense of the Predecessor Company was
approximately $4.7 million for the period from March 26, 2000 to October
10, 2000.

(6) During fiscal 2000, the Company incurred approximately $4.0 million of
costs associated with the investigation and restatement of the Company's
financial statements for fiscal 1999 and 1998, and the restructuring of the
Company's balance sheet.

(7) During fiscal 1999 and fiscal 1998, the Company incurred approximately $3.2
million and $1.8 million, respectively, of pre-tax charges associated with
the reorganization and relocation of certain of its foreign and domestic
operations. These costs were incurred to consolidate production within the
Company's foreign operations to lower cost facilities located within the
foreign market (1999 and 1998), close the China facility (1999) and
relocate the corporate headquarters to the Company's Greenville, South
Carolina facility (1999).

(8) During fiscal 1999, after exploring a variety of strategic alternatives,
the Company entered into investment agreement with a third party. The
Company and the third party subsequently reached a mutual agreement to
terminate such agreement. The Company incurred approximately $2.5 million
of fees and expenses during fiscal 1999 related to the investment agreement
and its termination. This charge included a reimbursement to the third
party for fees and expenses incurred by it.

(9) During fiscal 1997, the Company changed its accounting for product launch
costs from the deferral method to the expense as incurred method. The
Company recorded the cumulative effect of this change in accounting
principle in the amount of $1.3 million, net of income taxes. In addition,
in connection with a new loan agreement the Company recorded an
extraordinary loss of $383,000, net of income taxes, relating to the
write-off of deferred financing costs incurred for the previous credit
facility.

(10) The growth in net sales and total assets between fiscal years 1997 and 1999
is attributable to the acquisitions of the ASCI GmbH facility in Germany,
and the SCFTI facility in Greenville, SC, respectively.

(11) As of March 25, 2000, the working capital of the Company was in a negative
position due to the reclassification of the $90 million Notes to current
liabilities.

17

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

Overview

The Company is a leading low-cost independent supplier of automotive airbag
fabric and cushions, with operations in North America and Europe. Due to the
Company's historical and anticipated growth, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto, appearing elsewhere in this
report.

Results of Operations

On October 10, 2000, the Company consummated a Plan of Reorganization as
discussed in the Consolidated Financial Statements and the Notes thereto.
Accordingly, the Consolidated Financial Statements for the period from October
11, 2000 to March 31, 2001 reflect the Company's emergence from Chapter 11 and
were prepared utilizing the principles of fresh start reporting contained in the
American Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
As a result of the implementation of fresh start accounting, the financial
information for the period from October 11, 2000 to March 31, 2001 is not
comparable to the financial information of prior periods. The following table
summarizes operating results of the Company for fiscal 2001, 2000 and 1999 (in
thousands):

| Reorganized
Predecessor Company | Company Combined
-----------------------------------------------|----------------------------
Fifty-two Fifty-two Period from | Period from Fifty-three
Weeks Ended Weeks Ended 3/26/00 | 10/11/00 Weeks Ended
3/27/99 3/25/00 to 10/10/00 | to 3/31/01 3/31/01
-----------------------------------------------|----------------------------

Net sales $ 178,348 $ 194,667 $ 109,139 | $ 92,052 $ 201,191
Gross profit 19,542 26,418 15,832 | 12,715 28,547
Income from operations 699 6,855 8,863 | 6,697 15,560
Other expense (income), net 766 1,729 878 | (280) 598
Interest expense, net 12,566 13,975 3,833 | 2,514 6,347
Reorganization items -- -- 41,740 | -- 41,740
Income tax (benefit) provision (3,321) 6,154 (17,511) | 1,769 (15,742)
Loss on discontinued operations, net of |
taxes (4,351) (20,142) (1,226) | (1,444) (2,670)
Extraordinary gain, net of taxes -- -- 29,370 | -- 29,370
Net (loss) income $ (13,663) $ (35,145) $ 8,067 | $ 1,250 $ 9,317

Results of operations for the fifty-three week period ended March 31, 2001
contain an additional week of operations as compared to the fifty-two week
periods ended March 25, 2000 and March 27, 1999 as a result of the Company's
fiscal year ending on the Saturday closest to March 31. The Consolidated
Financial Statements for all periods presented above have been reclassified to
reflect the Company's non-core businesses as discontinued operations. See Note 4
to the Consolidated Financial Statements for further information on the
discontinued operations.

The following table sets forth certain operating results as a percentage of
net sales for the periods indicated:

Predecessor Company Combined
--------------------------------------
Fifty-two Fifty-two Fifty-three
Weeks Ended Weeks Ended Weeks Ended
3/27/99 3/25/00 3/31/01
--------------------------------------
Net sales 100.0% 100.0% 100.0%
Gross profit 11.0 13.6 14.2
Income from operations 0.4 3.5 7.7
Interest expense, net 7.0 7.2 3.2
Income tax (benefit) provision (1.9) 3.2 (7.8)
Net (loss) income (7.7) (18.1) 4.6

18

Fifty-three Weeks Ended March 31, 2001 Compared to Fifty-two Weeks Ended March
25, 2000

The Consolidated Financial Statements for the period subsequent to the
consummation of the Plan of Reorganization (period from October 11, 2000 to
March 31, 2001) were prepared under the principles of fresh start reporting for
companies emerging from a plan of reorganization and are not comparable to prior
periods. The Company believes that the most meaningful comparisons are made
using the combined financial information for the period from March 26, 2000 to
March 31, 2001 (fiscal 2001) above and therefore this discussion addresses such
combined information.

Net Sales. Net sales increased by $6.5 million or 3.4% to $201.2 million in
fiscal 2001 compared to fiscal 2000. While the additional week of operations in
the year resulted in greater than half of the increased net sales, the balance
of the increase is attributable primarily to increased sales volume from new
sales contracts with existing airbag cushions customers in the U.S. and Europe.
North American operations showed increased sales of $11.6 million or 9.9% for
airbag cushions and airbag and technical fabrics products over the prior fiscal
year. Within North American operations, airbag cushions net sales increased by
$14.2 million or 30.5% while airbag and technical fabrics net sales decreased
$2.6 million or 3.7% over the prior fiscal year. The decrease in net sales of
airbag and technical fabrics is a result of reallocation of loom capacity away
from externally sold fabrics to airbag fabric weaving for internal use by the
Company's North American airbag cushions manufacturing facility in Ensenada,
Mexico. European operations experienced decreased net sales of $5.1 million or
6.6% over the prior fiscal year, due to the adverse impact of foreign currency
translation rates approximating 10.1%. The European operations net sales
increased in local currency by $2.5 million (using current year rates), but the
adverse effect of lower foreign currency translation rates resulted in a
decrease of approximately $7.6 million.

Gross Profit. Gross profit increased by $2.1 million or 8.1% to $28.5
million in fiscal 2001 compared to the prior fiscal year. North American
operations experienced an increase in gross profit of approximately $4.1 million
resulting from increased net sales and efficiency gains, offset partially by a
charge of $710,000 resulting from the application of fresh start accounting to
record inventory at its fair value, as well as a decrease in gross profit in the
European operations of $2.0 million due to the adverse impact of foreign
exchange rates and unfavorable product mix. Gross profit improvements also
resulted from a decrease in depreciation expense as a result of the decreased
cost basis of fixed assets resulting from the adoption of fresh start accounting
at the Emergence Date. Gross profit as a percentage of net sales increased to
approximately 14.2% from 13.6% for the prior fiscal year. The increase as a
percentage of net sales was due to the items discussed above.

Income from Operations. Income from operations increased by $8.7 million or
127.0% to $15.6 million in fiscal 2001 compared to the prior fiscal year. The
increase is attributable to the $2.1 million increase in gross profit discussed
above, and decreases in the Company's selling, general and administrative
("SG&A") and amortization expenses. SG&A and amortization expenses decreased
$2.6 million primarily from efficiencies gained and cost savings arising from
the Company's cost controls and restructuring efforts. These SG&A expenses were
impacted favorably by a $740,000 reversal of a Chapter 11-related reserve
following proceedings that were settled in the Company's favor. Additionally, in
fiscal 2000, the Company incurred approximately $4.0 million of legal,
professional and re-financing related costs associated with the investigation
and restatement of its financial statements for fiscal years 1999 and 1998, and
its restructuring efforts leading up to its filing under Chapter 11 on April 10,
2000. Income from operations as a percentage of net sales increased to 7.7% for
fiscal 2001 from 3.5% for fiscal 2000. The increase as a percentage of net sales
was primarily a result of the items discussed above.

Other Expense. Other expense decreased by $1.1 million or 65.4% to $598,000
in fiscal 2001 compared to the prior fiscal year. The decrease from prior year
is attributable primarily to decreased realized exchange losses and other
expenses.

Interest Expense. Interest expense decreased $7.6 million or 54.6% to $6.3
million in fiscal 2001 compared to the prior fiscal year. The decrease is
attributable to the Company not being required to recognize interest expense of
$8.7 million after April 10, 2000 on its Notes pursuant to the Company's
Restructuring Agreement in the Chapter 11 bankruptcy proceeding, and the
offsetting effect of interest on higher revolving credit balances that were
incurred due to the funding of reorganization expenses versus the prior year.

19

Reorganization Items. Professional fees and expenses included in
Reorganization Items totaled $3.7 million for fiscal 2001, and 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. Also included in Reorganization Items in fiscal 2001 are restructuring
charges that 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 approximately $34.0 million.

Income Taxes. Income taxes for fiscal 2001 reflect a benefit principally
due to fresh start and other reorganization adjustments, offset by current year
tax liability relating to taxable income from operations and certain adjustments
for deferred tax valuation allowances previously established against deferred
tax assets.

Discontinued Operations. Loss from discontinued operations decreased $17.5
million or 86.7% to $2.7 million in fiscal 2001 compared to the prior fiscal
year. The decrease is primarily attributable to the prior year's inclusion of a
$17.7 million goodwill write-off due to impairment of goodwill related to the
Valentec Wells operations. The current year loss on discontinued operations
includes a $1.2 million realized gain on the sale of Valentec Systems, Inc.
offset by estimated plant relocation expenses, interest costs, professional fees
and estimated losses until the expected disposition of the remaining defense
businesses. During the fourth quarter of fiscal 2001, the Company recorded an
additional charge of $1,444,000 net of income taxes of $848,000, for the
estimated net loss on the disposition of the non-core businesses.

Extraordinary Gain. The early extinguishment of the Notes and related
accrued interest resulted in an extraordinary gain of $29.9 million, net of
income taxes of $17.5 million. This was offset by a loss recognized in the
amount of $573,000 for the write-off of deferred financing costs associated with
the early termination of the KeyBank Credit Agreement during the current year.

Net Income. Net income was $9.3 million in fiscal 2001 compared to a net
loss of $35.1 million in fiscal 2000. This increase in earnings resulted from
the items discussed above.

Year Ended March 25, 2000 Compared to Year Ended March 27, 1999

Net Sales. Net sales increased by $16.3 million or 9.2% to $194.7 million
in fiscal 2000 compared to fiscal 1999. The increase was primarily attributable
to increased net sales volume from new sales contracts with existing customers
in the U.S. and Europe. North American operations experienced increased net
sales of $11.6 million or 11.3% for air bag cushions and airbag and technical
fabrics products over the prior fiscal year. Within North American operations,
airbag cushions net sales increased by $12.7 million or 37.7% while airbag and
technical fabrics net sales decreased $1.1 million or 1.5% over the prior fiscal
year. The decrease in net sales of airbag and technical fabrics is a result of
reallocation of loom capacity away from externally sold fabrics to airbag fabric
weaving for internal use by the Company's North American airbag cushions
manufacturing facility in Ensenada, Mexico. European operations experienced
increased net sales of $4.7 million or 6.1% over the prior fiscal year, despite
such sales having been adversely impacted (approximately 4.7%) by foreign
currency translation rates. The European operations net sales increased in local
currency by $7.7 million (using current year rates), but the adverse effect of
lower foreign currency translation rates affected the increases by approximately
$3.0 million.

Gross Profit. Gross profit increased by $6.9 million or 35.2% to $26.4
million compared to the prior fiscal year. The increase was attributable
primarily to improved margins in the North American and European automotive
operations arising from efficiency improvements and related successes in the
Lean Manufacturing program that the Company began implementing in the beginning
of fiscal 2000, and favorable product mix. Gross profit as a percentage of net
sales increased to approximately 13.6% from 11.0% for the prior fiscal year. The
increase as a percentage of net sales was due to the items discussed above.

Income from Operations. Income from operations increased by $6.2 million to
$6.9 million compared to the prior fiscal year. The increase is attributable to
the $6.9 million increase from gross profits discussed above, offset by net
additional operating costs of approximately $720,000. Such costs included an
additional $2.5 million for general office expenses and professional and legal
fees. Also, in fiscal 2000 the Company incurred approximately $4.0 million of
legal, professional and re-financing related costs associated with the
investigation and restatement of its financial

20

statements for fiscal years 1999 and 1998, and its restructuring efforts leading
up to its filing under Chapter 11 on April 10, 2000. For fiscal year 1999 the
Company expensed approximately $2.5 million of fees and expenses during the
fourth quarter related to a failed investment agreement and termination fees.
Also during fiscal year 1999, the Company incurred approximately $3.2 million of
relocation and reorganization costs associated with the following: $2.4 million
for the move of labor intensive passenger airbag lines from the Company's German
facility to the lower labor cost Czech Republic facility; approximately $300,000
associated with the closure of its former China facility; and approximately
$500,000 related to the relocation of its corporate office to its South Carolina
facility. Income from operations as a percentage of net sales increased to 3.5%
for fiscal 2000 from 0.4% for fiscal 1999. The increase as a percentage of net
sales was primarily a result of the items discussed above.

Other Expense. Other expense increased by $1.0 million or 125.7% to $1.7
million compared to the prior fiscal year. The increase over the prior year is
attributable primarily to increased realized exchange losses and other expenses.

Interest Expense. Interest expense increased $1.4 million to $14.0 as
compared to the prior year. The increase is primarily due to higher revolving
credit balances during the year and additional indebtedness over the prior year
- - primarily the mortgage for the Hildesheim, German facility.

Income Taxes. Income taxes for fiscal 2000 reflect primarily adjustments
for deferred tax valuation allowances established against deferred tax assets.

Discontinued Operations. Loss from discontinued operations increased $15.8
million to $20.1 million as compared to the prior fiscal year. The increase is
primarily attributable to a $17.7 million goodwill write-off in fiscal 2000 due
to impairment of goodwill related to the Valentec Wells operations. A bad debt
charge of $1.5 million associated with a contract dispute with a significant
customer of Valentec Wells was recorded in fiscal 1999.

Net Loss. Net loss was $35.1 million in fiscal 2000 compared to a net loss
of $13.7 million for fiscal 1999. This change resulted from the items discussed
above.

21

Certain Supplemental Financial Data

The following pro forma consolidated statement of operations combines the
results of operations for the period from March 26, 2000 to October 10, 2000 and
the period from October 11, 2000 to March 31, 2001 and reflects the financial
results of the Company as if the Plan of Reorganization had been in effect as of
March 26, 2000. The pro forma information does not purport to be indicative of
the results that would have been obtained had such transactions been completed
as of the beginning of the period presented or that may be obtained in the
future (in thousands except for share and per share data).

Fifty-three Weeks Ended March 31, 2001
--------------------------------------------------------------------------------------
Predecessor Reorganized
Company Company
--------------------------------------------------------------------------------------
Period from | Period from
March 26, 2000 |October 11, 2000 Combined Pro forma
to October 10, 2000|to March 31, 2001 Total Adjustments Pro forma
--------------------|-----------------------------------------------------------------

Net sales $ 109,139 | $ 92,052 $ 201,191 $ 201,191
Cost of sales, excluding depreciation 89,406 | 76,201 165,607 $ (710) (a) 164,897
Depreciation 3,901 | 3,136 7,037 (1,197) (b) 5,840
--------- | --------- --------- --------- ---------
Gross profit 15,832 | 12,715 28,547 1,907 30,454
Selling and marketing expenses 1,074 | 931 2,005 -- 2,005
General and administrative expenses 4,867 | 4,304 9,171 -- 9,171
Research and development expenses 353 | 335 688 -- 688
Amortization of intangible assets 675 | 448 1,123 (241) (c) 882
--------- | --------- --------- --------- ---------
Income from operations 8,863 | 6,697 15,560 2,148 17,708
Other expense (income), net 878 | (280) 598 -- 598
Interest expense, net 3,833 | 2,514 6,347 (144) (d) 6,203
--------- | --------- --------- --------- ---------
Income from continuing operations |
before reorganization items 4,152 | 4,463 8,615 2,292 10,907
Reorganization items 41,740 | -- 41,740 (41,740) (e) --
--------- | --------- --------- --------- ---------
Income (loss) from continuing |
operations before income taxes (37,588) | 4,463 (33,125) 44,032 10,907
Income tax (benefit) provision (17,511) | 1,769 15,742 19,778 (f) 4,036
--------- | --------- --------- --------- ---------
Income (loss) from continuing |
operations (20,077) | 2,694 (17,383) 24,254 6,871
Discontinued operations, net of tax: |
Loss from discontinued operations 1,440 | -- 1,440 -- 1,440
Loss (gain) on disposition (214) | 1,444 1,230 -- 1,230
--------- | --------- --------- --------- ---------
Income (loss) before extraordinary |
gain (21,303) | 1,250 (20,053) 24,254 4,201
Extraordinary gain 29,370 | -- 29,370 (29,370) (g) --
--------- | --------- --------- --------- ---------
Net income $ 8,067 | $ 1,250 $ 9,317 $ (5,116) $ 4,201
========= | ========= ========= ========= =========

Weighted average number of common shares outstanding, basic and diluted 4,960,381

Net income per common share - basic and diluted =========
$0.85
=========

Notes - amounts in thousands
- ----------------------------

(a) Reflects the reversal of the additional cost of sales recognized during the
period due to the fair market value adjustment of the Company's inventory
in accordance with fresh start accounting.

(b) Reflects the decrease in depreciation expense that would have resulted if
the revaluation of the Company's property, plant and equipment had occurred
at March 26, 2000.

(c) The following table details the net adjustment to amortization of
intangible assets:

Elimination of goodwill amortization $ (626)
Amortization of excess reorganization value 385
------
$ (241)
======
22

(d) The following table details the net adjustment to interest expense related
to the Plan of Reorganization:

Decrease in interest expense due to exchange
of senior subordinated notes $ (326)
Elimination of amortization of deferred financing
costs on the former credit facility (10)
Amortization of deferred financing costs on
new credit facility 192
------
$ (144)
======

(e) Reflects the elimination of reorganization items including fair value
adjustment, restructuring charges, professional fees and expenses, loss on
revaluation of senior notes and interest earned.

(f) Reflects the estimated income tax effects resulting from the Plan of
Reorganization and the application of fresh start accounting. Pro forma
income tax expense is calculated using a 37% effective tax rate multiplied
by taxable income before amortization of reorganization value. Income tax
expense is calculated after giving effect to certain differences between
taxable income and book income including the amortization of excess
reorganization value.

(g) Reflects the elimination of the gain on early extinguishment of debt.

Liquidity and Capital Resources

It is expected that the Company's equipment and working capital
requirements will continue to increase as a result of the anticipated growth of
its operations. The Company expects that it will spend approximately $6.2
million for capital projects in fiscal 2002. This growth is expected to be
funded through a combination of cash flows from operations, equipment financing
and through the use of the Company's line of credit.

Senior Subordinated Notes

On October 11, 2000, the Safety Filing Group emerged from Chapter 11
pursuant to the Plan confirmed by the Bankruptcy Court. Pursuant to the Plan, as
confirmed, upon emergence all of the Company's 10-1/8% 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, including 39,619 shares of treasury stock, and warrants to acquire
an additional 681,818 shares of common stock. Immediately upon emergence, the
Company had 5,000,000 shares of common stock issued and 4,960,381 shares
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
were paid in full, pursuant to the terms of the Plan, within 90 days of the
Emergence Date.

Credit Facilities

In connection with its emergence from Chapter 11, the Company announced the
closing on October 11, 2000 of a three-year, $35.0 million, revolving credit
facility with Congress Financial Corporation (Southern), (the "Congress
Facility"), expiring October 11, 2003. With the proceeds from the Congress
Facility, the Company paid off its debtor-in-possession ("DIP") credit
facilities with Bank of America. 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"), with a fixed interest rate of 11.0%, expiring on October 11, 2002.

Under the Congress Facility, the Company may borrow up to the lesser of (a)
$35.0 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 (and its borrowing limitations) are $7.1 million in
term loans which are to 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 $3.0 million letter of credit
facility, through which the Company had $350,000 of

23

letters of credit outstanding at March 31, 2001. At March 31, 2001, the
Company's availability for additional borrowings (under the maximum allowable
limit) was approximately $17.7 million.

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). Under the terms of
the Congress Facility, the Company may make borrowings based on prime rate or
Eurodollar rate, in each case with an applicable margin applied to the rate. At
March 31, 2001, the margin on prime rate loans was 0.0% and the margin on
Eurodollar rate loans was 2.0%. The Company is required to pay a commitment fee
of 0.375% on the unused portion of the Congress Facility.

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 of principal in the
event that the Company's Consolidated EBITDA (as defined) exceeds certain
specified levels following the Emergence Date. As of March 31, 2001, the Company
estimates $750,000 in prepayments are required to be made in the next year.
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. At March 31, 2001, the Company was in compliance with all financial
and non-financial covenants. Substantially all assets of the Company are pledged
as collateral for the borrowings under the Congress Facility and the
Subordinated Facility.

Pre-Chapter 11 Emergence

On April 26, 2000, the Safety Filing Group received Bankruptcy 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 $17.0 million and retained as a
replacement of their pre-petition credit facility the remaining approximately
$20.9 million portion of their indebtedness as an 11.0% per annum post-petition
subordinated DIP facility.

Other Long-term Obligations

On June 4, 1997, the Company secured a $7.5 million mortgage note facility
with Bank Austria. The note is payable in semi-annual installments of $375,000
through March 31, 2002, at which time the remaining unpaid balance is due, and
bears interest at 1.0% over LIBOR. The assets of the Company's Czech Republic
facility secure the note.

On July 10, 1998, the Company entered into a $10.0 million financing
arrangement with KeyCorp Leasing, a division of Key Corporate Capital Inc.
("KeyCorp"). The KeyCorp financing agreement has a seven-year term, bears
interest at a rate of 1.25% over LIBOR and requires monthly payments of
approximately $150,000 and is secured by certain equipment located at SCFTI.

On April 1, 1999, the Company secured a $2.9 million mortgage note facility
with Deutsche Bank to purchase a facility in Germany. The note is secured by the
real estate in Germany acquired through the mortgage. In July 1999, the Company
refinanced the note and reduced the outstanding indebtedness to $2.1 million
(currently $1.8 million due to exchange rates) consisting of two tranches.
Tranche A totals approximately $1.1 million bearing interest at 4.05% and is
payable in semi-annual installments of approximately $70,000 beginning on
December 30, 2001 through June 30, 2009. Tranche B totals approximately $674,000
bearing interest at 3.75% and is payable in semi-annual installments of
approximately $19,000 also beginning on December 30, 2001 through June 30, 2019.

During the fifty-three weeks ended March 31, 2001, net cash provided by
operating activities (continuing operations only) was $3.0 million. Such cash
was provided primarily by improved results of operations (before the effect of
Reorganization Items) as compared to prior years. Net cash used by continuing
operations for investing activities was $3.7 million, of which $4.0 million was
used for the acquisition of additional property, plant and

24

equipment to expand the Company's production capacity worldwide. Net cash used
by continuing operations for financing activities in fiscal year 2001 was $3.6
million, which resulted from the Company's repayments of various debt
instruments, including primarily certain of the Company's pre-bankruptcy
instruments and DIP financing. The above activities, in conjunction with the
effect of foreign exchange rates resulted in a net decrease in cash for
continuing operations of $4.8 million in fiscal year 2001.

New Accounting Pronouncements

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities" which, as amended, is effective for periods beginning after
June 15, 2000. Accordingly, this standard is effective for the Company's fiscal
year 2002, commencing on April 1, 2001. 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 adoption of
SFAS 133 on April 1, 2001, had no effect on the Company's consolidated financial
statements.

Seasonality and Inflation

The automotive operations are subject to the seasonal characteristics of
the automotive industry in which generally there are seasonal plant shutdowns in
the third and fourth quarters of each calendar year. The Company does not
believe that its operations to date have been materially affected by inflation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To the extent that amounts borrowed under the Congress Facility and certain
other indebtedness are outstanding, the Company has market risk relating to such
amounts because the interest rates under such agreements are variable. As of
June 25, 2001, the Company's interest rates under the Congress Facility
approximated 6.5%. Due to the variability of the interest rates, a hypothetical
increase or decrease in the interest rates of 100 basis points relating to the
Congress Facility will result in an addition or reduction to interest expense of
approximately $226,000 on an annual basis.

The Company's operations in Germany, the United Kingdom, the Czech Republic
and Mexico expose the Company to currency exchange rates risk. 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 affected.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This item appears in Item 14(a)(1) and (2) of this Report.

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

Not applicable.

25

PART III

ITEMS 10, 11, 12 AND 13.

The information called for by Items 10, 11, 12 and 13 of this Form 10-K is
incorporated by reference to those respective portions of the Company's 2001
Proxy Statement, which contains such information.

PART IV

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

(a)(1) The financial statements, related notes thereto and reports of
independent accountants required by Item 8 are listed in the index on
page F-1 herein.

(2) Unless otherwise attached, all financial statement schedules are omitted
because they are not applicable or the required information is shown in
the Company's Consolidated Financial Statements or the notes thereto.

(3) Exhibits:

2.1 Joint Plan of Reorganization of Safety Components Debtors Under
Chapter 11 Bankruptcy Code dated June 12, 2000 (6)
2.2 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. (7)
3.1 Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of Safety Components International, Inc. (8)
3.2 Amended Bylaws of Safety Components International, Inc. (9)
4.1 Restructuring Agreement dated April 6, 2000 between Safety
Components International, Inc., Robert A. Zummo and the
consenting holders signatory thereto (4)
4.2 First Amendment to Restructuring Agreement dated as of May 10,
2000 between Safety Components and the consenting holders
signatory thereto (5)
10.1 Form of Master Equipment Lease Agreement, dated as of July 10,
1998, between KeyCorp Leasing, a division of Key Corporate
Capital Inc. and Safety Components International, Inc. (2)
10.2 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)
10.3 Subordinated Secured Credit Agreement dated as of October 11,
2000, by and among Safety Components International, Inc., the
subsidiaries named therein as Borrowers and Guarantors, KeyBank
National Association ("KeyBank") and Fleet Bank, as lenders, and
KeyBank as administrative agent (11)
*10.4 Safety Components International, Inc. 2001 Stock Option Plan
*10.5 Employment agreement, effective May 18, 2001 between Safety
Components International, Inc. and John C. Corey
*10.6 Employment agreement, effective May 18, 2001 between Safety
Components International, Inc. and Brian P. Menezes
*10.7 Employment agreement, effective May 18, 2001 between Safety
Components International, Inc. and Stephen B Duerk
*10.8 Form of Stock Option Agreement
*10.9 Form of Severance Letter
10.10 TRW/SCI Multi Year Agreement dated as of April 1, 1996 among TRW
Vehicle Safety Systems, Inc., TRW, Inc. and Safety Components
International, Inc. Confidential treatment requested as to
certain portions of this exhibit. Such portions have been
redacted (1)

26

10.11 Warrant Agreement, dated as of October 11, 2000, by and between
Safety Components International, Inc. and Continental Stock
Transfer and Trust Company, acting solely in its capacity as
agent for each of the holders of Warrants issued by the Company
*10.12 Employment agreement, effective April 19, 1999, between Safety
Components International, Inc. and Robert A. Zummo
*10.13 Employment agreement, effective March 29, 1999, between Safety
Components International, Inc. and John C. Corey
*10.14 Employment agreement, effective August 23, 1999, between Safety
Components International, Inc. and Brian P. Menezes
*10.15 Employment agreement, dated as of June 1, 1998 between Safety
Components International, Inc. and Stephen Duerk (3)
*10.16 Safety Components International, Inc. 2001 Management Incentive
Bonus Program
21.1 Subsidiaries of Safety Components

* Indicates exhibits relating to executive compensation
- ----------
Footnotes:

(1) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 (as exhibit 10.23).

(2) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 26, 1998 (as exhibit 10.50).

(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 26, 1998 (as exhibit 10.49).

(4) Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on April 13, 2000.

(5) Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on May 19, 2000.

(6) Incorporated by reference to the Company's Annual Report on Form 10-K,
for the fiscal year ended March 25, 2000 (as exhibit 2.3).

(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 2.4).

(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 3.5).

(9) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 3.6).

(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 10.68).

(11) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 10.69).

(b) Reports on Form 8-K.

No reports on Form 8-K were required to be filed by the Company during the
fourth quarter of fiscal 2001.

27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SAFETY COMPONENTS INTERNATIONAL, INC.

By: /s/ John C. Corey
-----------------
John C. Corey
Chief Executive Officer,
President and Director

Date: June 27, 2001

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

Name and Signature Title Date
- --------------------------- ----- ----

/s/ John C. Corey Chief Executive Officer, June 27, 2001
- --------------------------- President and Director
John C. Corey

/s/ Carroll R. Wetzel, Jr. Director, Chairman of the Board June 27, 2001
- ---------------------------
Carroll R. Wetzel, Jr.

/s/ Brian P. Menezes Vice President, Chief Financial June 27, 2001
- --------------------------- Officer (Principal Financial Officer)
Brian P. Menezes

/s/ William F. Nelli Corporate Controller June 27, 2001
- --------------------------- (Principal Accounting Officer)
William F. Nelli

/s/ Ben E. Waide III Director June 27, 2001
- ---------------------------
Ben E. Waide III

/s/ W. Allan Hopkins Director June 27, 2001
- ---------------------------
W. Allan Hopkins

/s/ Andy Goldfarb Director June 27, 2001
- ------------------
Andy Goldfarb

28

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Page

INDEPENDENT AUDITORS' REPORTS F-2

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of March 31, 2001 (Reorganized Company)
and March 25, 2000 (Predecessor Company) F-4

Consolidated Statements of Operations for the period from October 11, 2000
to March 31, 2001 (Reorganized Company), the period from March 26, 2000
to October 10, 2000, and the Years ended March 25, 2000 and March 27,
1999 (Predecessor Company) F-5

Consolidated Statements of Stockholders' Equity (Deficit) for the period
from October 11, 2000 to March 31, 2001 (Reorganized Company), the
period from March 26, 2000 to October 10, 2000, and the Years ended
March 25, 2000 and March 27, 1999 (Predecessor Company) F-6

Consolidated Statements of Cash Flows for the period from October 11, 2000
to March 31, 2001 (Reorganized Company), the period from March 26, 2000
to October 10, 2000, and the Years ended March 25, 2000
and March 27, 1999 (Predecessor Company) F-7

Notes to Consolidated Financial Statements F-8

SUPPLEMENTAL SCHEDULE:

II Valuation and Qualifying Accounts

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Safety Components International, Inc.
Greenville, South Carolina

We have audited the accompanying consolidated balance sheet of Safety Components
International, Inc. and subsidiaries (the "Company") as of March 31, 2001
(Reorganized Company balance sheet) and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the period from
October 11, 2000 to March 31, 2001 (Reorganized Company operations), and the
period from March 26, 2000 to October 10, 2000 (Predecessor Company operations).
Our audit also included the financial statement schedule for the period from
October 11, 2000 to March 31, 2001 (Reorganized Company), and the period from
March 26, 2000 to October 10, 2000 (Predecessor Company) listed in the Index as
Supplemental Schedule II. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit. The financial statements of the Predecessor Company
for the years ended March 25, 2000 and March 27, 1999, prior to the
reclassification for discontinued operations discussed in Note 4 to the
financial statements, were audited by other auditors whose report, dated June
30, 2000, on those Predecessor Company statements included an explanatory
paragraph that described the Company's bankruptcy proceedings and plan of
reorganization.

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

As discussed in Note 1 to the financial statements, on August 31, 2000, the
United States Bankruptcy Court signed an order confirming the Company's plan of
reorganization which became effective after the close of business on October 10,
2000. Accordingly, the accompanying financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the Reorganized
Company as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 3.

In our opinion, such Reorganized Company consolidated financial statements
present fairly, in all material respects, the financial position of the Company
at March 31, 2001, and the results of its operations and its cash flows for the
period from October 11, 2000 to March 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Further, in our
opinion, such Predecessor Company consolidated financial statements present
fairly, in all material respects, the Predecessor Company's results of
operations and cash flows for the period from March 26, 2000 to October 10,
2000, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule for
the period from October 11, 2000 to March 31, 2001 (Reorganized Company) and the
period from March 26, 2000 to October 10, 2000 (Predecessor Company), when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

We also audited the adjustments described in Note 4 to the financial statements
that were applied to reclassify the Predecessor Company financial statements for
the years ended March 25, 2000 and March 27, 1999 to give effect to the
Company's metal and defense businesses as discontinued operations. In our
opinion, such adjustments are appropriate and have been properly applied.

DELOITTE & TOUCHE LLP

Greenville, South Carolina
June 14, 2001

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Safety Components International, Inc.:

We have audited the consolidated balance sheet of Safety Components
International, Inc. (a Delaware corporation) and subsidiaries as of March 25,
2000 and the related consolidated statements of operations, stockholders'
(deficit) equity and cash flows for each of the two fiscal years in the period
ended March 25, 2000 prior to the restatement (and, therefore, are not presented
herein) for the discontinued operations as described in Note 4 to the restated
financial statements. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements (prior to the restatement for the discontinued operations)
based on our audits.

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

In our opinion, the financial statements (prior to the restatement for the
discontinued operations) referred to above present fairly, in all material
respects, the financial position of Safety Components International, Inc. and
subsidiaries as of March 25, 2000 and the results of their operations and their
cash flows for each of the two fiscal years in the period ended March 25, 2000
in conformity with accounting principles generally accepted in the United
States.

The consolidated financial statements (prior to the restatement for the
discontinued operations) have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, on April 10, 2000, the Company and certain of its U.S.
subsidiaries each filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code. On June 12, 2000, the Company filed its plan of
reorganization and disclosure statement, which detailed information including
management's turnaround business strategy. In addition, the Company has suffered
recurring losses from operations and at March 25, 2000 had a net working capital
deficit and shareholders' deficit. Continuation of the business is dependent
upon the confirmation of a plan of reorganization, the confirmation of a
disclosure statement (court hearing scheduled on July 19, 2000), the ability to
secure on-going debtor-in-possession and exit financing and the ability to
achieve successful future operations. The current debtor-in-possession status of
the Company, along with the factors indicated above, raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Our audit was made for the purpose of forming an opinion on the basic financial
statements (prior to the restatement for the discontinued operations) taken as a
whole. The schedule (prior to the restatement for the discontinued operations)
listed in the index to consolidated financial statements is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule (prior to the
restatement for the discontinued operations) has been subjected to the auditing
procedures applied in the audit of the basic financial statements (prior to the
restatement for the discontinued operations) and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements (prior to the restatement for the
discontinued operations), taken as a whole.

ARTHUR ANDERSEN LLP

New York, New York
June 30, 2000

F-3

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

Reorganized| Predecessor
Company | Company
March 31, | March 25,
2001 | 2000
--------- | ---------

ASSETS (Note 7) |
|
Current assets: |
Cash and cash equivalents .................................................................. $ 5,885 | $ 10,264
Accounts receivable, net (Note 5) .......................................................... 32,730 | 33,326
Receivable from affiliate, net (Note 6) .................................................... 564 | 564
Inventories, net (Note 5) .................................................................. 16,626 | 14,016
Prepaid and other (Note 8) ................................................................. 4,403 | 2,898
--------- | ---------
Total current assets ............................................................... 60,208 | 61,068
|
Property, plant and equipment, net (Notes 3 and 5) .............................................. 45,555 | 56,316
Reorganization value in excess of amounts allocable to identifiable assets (Note 3) ............. 15,111 | --
Intangible assets, net (Notes 2, 3 and 4) ....................................................... 1,118 | 35,391
Other assets (Note 2) ........................................................................... 1,124 | 4,557
Net assets held for sale (Note 4) ............................................................... 7,567 | 11,363
--------- | ---------
Total assets ....................................................................... $ 130,683 | $ 168,695
========= | =========
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
Current liabilities: |
Accounts payable ........................................................................... $ 11,962 | $ 19,147
Accrued and other current liabilities (Note 8) ............................................. 11,751 | 13,919
Current portion of long-term debt (Notes 3 and 7) .......................................... 8,525 | 131,107
--------- | ---------
Total current liabilities .......................................................... 32,238 | 164,173
|
Long-term debt (Notes 3 and 7) .................................................................. 43,541 | 15,145
Other long-term liabilities (Notes 8 and 9) ..................................................... 2,961 | 3,817
--------- | ---------
Total liabilities .................................................................. 78,740 | 183,135
--------- | ---------
Commitments and contingencies (Note 9) |
|
Stockholders' equity (deficit) (Notes 3 and 12): |
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 shares outstanding .................... -- | 66
Reorganized Company common stock: $.01 par value per share - 20,000,000 shares |
authorized; 5,000,000 shares issued and 4,960,381 shares outstanding .................... 50 | --
Common stock warrants ...................................................................... 34 | 51
Additional paid-in-capital ................................................................. 50,916 | 45,168
Treasury stock: 39,619 and 1,492,692 shares at cost, respectively ......................... (404) | (15,439)
Retained earnings (deficit) ................................................................ 1,250 | (36,279)
Accumulated other comprehensive income (loss) .............................................. 97 | (8,007)
--------- | ---------
Total stockholders' equity (deficit) ............................................... 51,943 | (14,440)
--------- | ---------
Total liabilities and stockholders' equity (deficit) ............................... $ 130,683 | $ 168,695
========= | =========

See notes to financial statements.
F-4

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Reorganized | Predecessor Company
Company |
Period from | Period from
October 11, 2000 | March 26, 2000 to Year ended Year ended
to March 31, 2001| October 10, 2000 March 25, 2000 March 27, 1999
-----------------| ----------------- -------------- --------------
|

Net sales (Note 2) .............................................. $ 92,052 | $ 109,139 $ 194,667 $ 178,348
Cost of sales, excluding depreciation (Note 2) .................. 76,201 | 89,406 160,804 152,443
Depreciation .................................................... 3,136 | 3,901 7,445 6,363
----------- | ------------ ------------ ------------
|
Gross profit .......................................... 12,715 | 15,832 26,418 19,542
|
Selling and marketing expenses .................................. 931 | 1,074 3,153 2,499
General and administrative expenses (Note 3) .................... 4,304 | 4,867 10,290 7,988
Research and development expenses ............................... 335 | 353 665 1,090
Amortization of intangible assets ............................... 448 | 675 1,486 1,528
Restructuring and restatement (Note 1) .......................... -- | -- 3,969 --
Terminated investment agreement costs (Note 1) .................. -- | -- -- 2,500
Relocation and reorganization costs (Note 1) .................... -- | -- -- 3,238
----------- | ------------ ------------ ------------
|
Income from operations ................................ 6,697 | 8,863 6,855 699
|
Other expense (income), net ..................................... (280)| 878 1,729 766
Interest expense, net (contractual interest |
of $8,486 during the period from |
March 26, 2000 to October 10, 2000 (Note 1)) ............... 2,514 | 3,833 13,975 12,566
----------- | ------------ ------------ ------------
Income (loss) from continuing |
operations before reorganization items ................ 4,463 | 4,152 (8,849) (12,633)
|
Reorganization items (Note 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) -- --
----------- | ------------ ------------ ------------
Income (loss) from continuing operations before income |
provision (benefit) ................................ 4,463 | (37,588) (8,849) (12,633)
|
Provision (benefit) for income taxes (Note 8) ................... 1,769 | (17,511) 6,154 (3,321)
----------- | ------------ ------------ ------------
Income (loss) from continuing operations .............. 2,694 | (20,077) (15,003) (9,312)
|
Discontinued operations (Note 4): |
|
Loss from discontinued operations, net of income |
tax benefit of $847 for the period from |
March 26, 2000 to October 10, 2000 ......................... -- | 1,440 20,142 4,351
Loss (gain) on disposition of discontinued |
operations, net of income tax benefit |
of $848, and provision of $125, respectively ................ 1,444 | (214) -- --
----------- | ------------ ------------ ------------
|
Income (loss) before extraordinary gain ............... 1,250 | (21,303) (35,145) (13,663)
|
Extraordinary gain on early extinguishment |
of debt, net of income taxes of $17,473 ..................... -- | 29,370 -- --
----------- | ------------ ------------ ------------
Net income (loss) ............................................... $ 1,250 | $ 8,067 $ (35,145) $ (13,663)
=========== | ============ ============ ============
|
Net income per common share, basic and diluted: (A) |
Income from continuing operations ..................... $ 0.54 |
Loss from discontinued operations ..................... 0.29 |
-----------
Net income per share, basic and diluted ......................... $ 0.25 |
=========== |
Weighted average number of shares outstanding, |
basic and diluted (A) ...................................... 4,960 |
=========== |

(A) Share and per share data are not meaningful prior to October 10, 2000 due to
the significant change in capital structure in connection with the Plan of
Reorganization (Note 1).

See notes to financial statements.

F-5

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except shares)

Accumulated
Common Common Common Additional Treasury Retained Other
Stock Stock Stock Paid -in Stock Earnings Comprehensive
Shares Amount Warrants Capital Amount (Deficit) Income (Loss) Total
--------- ----- -------- -------- ------- -------- ----------- --------

Predecessor Company
Balance at March 28, 1998 ................... 5,045,383 $ 65 $ 1 $44,040 $(15,439) $ 12,529 $ (4,664) $ 36,532
--------- ---- ---- ------- -------- -------- -------- --------
Issuance of common stock ................. 90,933 1 -- 1,128 -- -- -- 1,129
Net loss ................................. -- -- -- -- -- (13,663) -- (13,663)
Foreign currency translation adjustment .. -- -- -- -- -- -- (1,542) (1,542)
--------- ---- ---- ------- -------- -------- -------- --------
Balance at March 27, 1999 ................... 5,136,316 66 1 45,168 (15,439) (1,134) (6,206) 22,456
Issuance of common stock warrants ........ -- -- 50 -- -- -- -- 50
Net loss ................................. -- -- -- -- -- (35,145) -- (35,145)
Foreign currency translation adjustment .. -- -- -- -- -- -- (1,801) (1,801)
--------- ---- ---- ------- -------- -------- -------- --------
Balance at March 25, 2000 ................... 5,136,316 66 51 45,168 (15,439) (36,279) (8,007) (14,440)
Net income for the period from
March 26, 2000 to October 10, 2000 ....... -- -- -- -- -- 8,067 -- 8,067
Foreign currency translation adjustment .. -- -- -- -- -- -- (3,707) (3,707)
Fresh start adjustments .................. (5,136,316) (66) (51) -- 15,439 28,212 11,714 55,248
Issuance of common stock and warrants .... 5,000,000 50 34 5,748 -- -- -- 5,832
Treasury stock held by subsidiary ........ (39,619) -- -- -- (404) -- -- (404)
--------- ---- ---- ------- -------- -------- -------- --------
Balance at October 10, 2000 ................. 4,960,381 50 34 50,916 (404) -- -- 50,596
Reorganized Company
Net income for the period from
October 11, 2000 to March 31, 2001 ..... -- -- -- -- -- 1,250 -- 1,250
Foreign currency translation adjustment .. -- -- -- -- -- -- 97 97
--------- ---- ---- ------- -------- -------- -------- --------
Balance at March 31, 2001 ................... 4,960,381 $ 50 $ 34 $50,916 $ (404) $ 1,250 $ 97 $ 51,943
========= ==== ==== ======= ======== ======== ======== ========

See notes to financial statements.

F-6

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Reorganized | Predecessor Company
Company |
Period from | Period from
October 11, 2000 | March 26, 2000 to Year ended Year ended
to March 31, 2001 | October 10, 2000 March 25, 2000 March 27, 1999
------------------ | ----------------- -------------- -------------

Cash Flows From Operating Activities: |
Net income (loss) .............................................. $ 1,250 | $ 8,067 $ (35,145) $ (13,663)
Loss from discontinued operations .............................. -- | 1,440 20,142 4,351
Loss (gain) on disposition of discontinued operations .......... 1,444 | (214) -- --
Extraordinary gain on early extinguishment of debt ............. -- | (29,370) -- --
----------- | ----------- ----------- -----------
Income (loss) from continuing operations ....................... 2,694 | (20,077) (15,003) (9,312)
Adjustments to reconcile income (loss) from continuing |
operations to net cash provided by (used in) |
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) -- --
Depreciation ............................................... 3,136 | 3,901 7,445 6,363
Amortization ............................................... 448 | 675 1,486 1,528
Provision for bad debts .................................... 608 | 92 713 1,490
(Gain) loss on disposal and write-off of fixed assets |
and investments .......................................... (34)| (39) 870 2,339
Deferred taxes ............................................. -- | (17,511) 6,154 (4,162)
Changes in operating assets and liabilities: |
Accounts receivable and receivable from affliate ....... (1,285)| 1,239 3,036 (13,520)
Inventories ............................................ 2,104 | (4,714) 5,154 (2,386)
Prepaid and other current assets ....................... 1,218 | 1,278 (8) 638
Other assets ........................................... (927)| 2,977 2,782 778
Accounts payable ....................................... (6,382)| (1,061) (2,594) 6,377
Accrued liabilities .................................... (2,068)| (202) 2,521 2,629
----------- | ----------- ----------- -----------
|
Net cash provided by (used in) continuing operations ..... (488)| 3,444 12,556 (7,238)
Net cash used in discontinued operations ................. (178)| (1,733) (1,349) (2,482)
----------- | ----------- ----------- -----------
|
Net cash provided by (used in) operating activities ...... (666)| 1,711 11,207 (9,720)
----------- | ----------- ----------- -----------
|
Cash Flows From Investing Activities: |
Additions to property, plant and equipment ................. (2,112)| (1,812) (7,001) (11,516)
Proceeds from sale of other assets ......................... 176 | 13 -- --
Additional consideration and costs for acquisitions ........ -- | -- (2,061) (2,788)
----------- | ----------- ----------- -----------
Net cash used in continuing operations ................... (1,936)| (1,799) (9,062) (14,304)
Net cash provided by (used in) discontinued operations.... (40)| 2,863 (740) (2,338)
----------- | ----------- ----------- -----------
Net cash provided by (used in) investing activities ...... (1,976)| 1,064 (9,802) (16,642)
----------- | ----------- ----------- -----------
Cash Flows From Financing Activities: |
Net (repayment) borrowings on KeyBank revolving credit |
facility ................................................. -- | (37,900) 700 23,024
(Repayment of ) proceeds from KeyBank Subordinated |
DIP term note ............................................ (20,900)| 20,900 -- --
Proceeds from KeyBank Subordinated Secured term note ....... 20,900 | -- -- --
Net proceeds from Congress Subordinated term note .......... 7,080 | -- -- --
Net borrowing on Congress revolving credit facility ........ 10,002 | -- -- --
(Repayment of) proceeds from Bank of America DIP |
revolving credit facility ................................ (8,986)| 8,986 -- --
(Repayment of) proceeds from Bank of America DIP term note.. (2,244)| 2,244 -- --
Proceeds from Deutsche Bank Mortgage ....................... -- | -- 2,136 --
Net borrowings (repayment) of other debt and long |
term obligations ......................................... (1,865)| (1,816) (3,476) 8,257
Net proceeds from sale of common stock ..................... -- | -- -- 1,056
----------- | ----------- ----------- -----------
Net cash provided by (used in) continuing operations ..... 3,987 | (7,586) (640) 32,337
Net cash used in discontinued operations ................. (224)| (298) (868) (707)
----------- | ----------- ----------- -----------
Net cash provided by (used in) financing activities ...... 3,763 | (7,884) (1,508) 31,630
----------- | ----------- ----------- -----------
|
Effect of exchange rate changes on cash and cash equivalents ..... (101)| (290) (240) (710)
----------- | ----------- ----------- -----------
Change in cash and cash equivalents .............................. 1,020 | (5,399) (343) 4,558
Cash and cash equivalents, beginning of period ................... 4,865 | 10,264 10,607 6,049
----------- | ----------- ----------- -----------
Cash and cash equivalents, end of period ......................... $ 5,885 | $ 4,865 $ 10,264 $ 10,607
=========== | =========== =========== ===========
|
Supplemental disclosure of cash flow information: |
Cash paid during the period for: |
|
Interest ................................................... $ 1,571 | $ 1,608 $ 9,191 $ 12,144
Income taxes ............................................... -- | -- 35 391
|
Supplemental disclosure of non-cash investing |
and financing activities: |
|
Equipment acquired under capital lease obligations ............. $ -- | $ -- $ 1,085 $ --
Elimination of 10 1/8% Senior Subordinated Notes, |
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 ................ -- | 5,798 -- --
Issuance of common stock warrants of Reorganized Company ....... -- | 34 -- --
Acquisition of treasury stock of Reorganized Company ........... -- | 404 -- --

See notes to financial statements.

F-7

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Business and Basis of Presentation

Safety Components International, Inc. (including, when context requires,
its consolidated subsidiaries, the "Company" or "SCI") operates in a single
segment as a supplier of automotive airbag fabric and cushions and technical
fabrics with operations in North America and Europe.

As discussed in "Financial Restructuring and Chapter 11 Reorganization"
below, on April 10, 2000 (the "Petition Date"), the Company and certain of its
U.S. subsidiaries (including Safety Components Fabric Technologies, Inc.
("SCFTI") and Automotive Safety Components International, Inc. (collectively,
"Safety Filing Group"), but excluding Valentec Wells, LLC (fka Valentec
International Corporation, LLC, Valentec Systems, Inc. and Galion, Inc.), filed
a voluntary petition under Chapter 11 of the Bankruptcy Code ("Chapter 11") with
the United States Bankruptcy Court for the District of Delaware.

On October 11, 2000 (the "Emergence Date"), the Company emerged from
Chapter 11. Accordingly, the Company's financial statements subsequent to the
Emergence Date 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 is termed "Predecessor Company" and financial information
subsequent to October 10, 2000 is termed "Reorganized Company" and gives 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 consolidated 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 proceedings and was not an
allowed claim under the Plan of Reorganization. The difference between reported
interest expense and stated contractual interest expense of the Predecessor
Company was approximately $4.7 million for the period from March 26, 2000 to
October 10, 2000.

Financial Restructuring and Chapter 11 Reorganization

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 the Company 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
lender and administrative agent, and Fleet Bank, as lender (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 exchange.

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
shares of the Company's post-bankruptcy common stock when the Company emerged
from Chapter 11.

On the April 10, 2000 Petition Date, the Safety Filing Group filed a
voluntary petition under Chapter 11 with the United States Bankruptcy Court for
the District of Delaware (the "Chapter 11 cases").

F-8

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On October 11, 2000, the Safety Filing Group emerged from Chapter 11
pursuant to the Plan of Reorganization (the "Plan"), confirmed by the Bankruptcy
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, including 39,619 shares of treasury
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 4,960,381 shares 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 were paid in full, pursuant to the terms of
the Plan, within 90 days of the Emergence Date.

Restructuring and Restatement Costs

During the third and fourth quarter of fiscal year 2000, the Company
incurred approximately $4.0 million of legal, professional and re-financing
costs associated with the investigation and restatement of its financial
statements for fiscal years 1998 and 1999, and it restructuring efforts leading
up to its filing under Chapter 11 on April 10, 2000. During the first half of
fiscal year 2001, the Company continued to incur such costs associated with its
restructuring efforts, all of which have been classified as "Reorganization
Items" in the accompanying consolidated statement of operations for the period
from March 26, 2000 to October 10, 2000. Additional Reorganization Items
included fair value adjustments and a loss on the revaluation of senior
subordinated notes due to the implementation of the Plan and the requirements of
SOP 90-7.

Relocation and Reorganization Costs

During the third quarter of fiscal year 1999, the Company reevaluated its
strategic decision to exit the manufacturing of airbags in Germany. The original
plan called for the closure and relocation of the entire ASCI GmbH manufacturing
operation in Hildesheim, Germany to the Company's Czech Republic and United
Kingdom production facilities. During fiscal 1999, the Company incurred
approximately $2.4 million of pre-tax costs associated with the relocation of
substantially all of the labor-intensive passenger airbags, which was recorded
within relocation and reorganization expense. These costs were investments
toward consolidating labor-intensive production within the Company's foreign
operations to its low-cost facilities located within the foreign market. While
the Company accomplished the relocation of substantially all of the
labor-intensive passenger airbag manufacturing operations, the Company had
decided not to relocate the remaining automated airbag operations, primarily
driver and side impact bags. The decision to remain in Germany was based on
current and anticipated program delivery commitments at that time. The Company
purchased a new facility in Hildesheim, Germany near the existing facility and
completed its move into the new facility during fiscal year 2000. Additional
costs of approximately $800,000 were incurred during fiscal year 1999 in
association with the closure of the Company's former China facility and the
relocation of the Company's corporate office to its South Carolina facility.

Terminated Investment Agreement

During fiscal year 1999, after exploring a variety of strategic
alternatives, the Company entered into an Investment Agreement ("the Brera
Investment Agreement") with Brera Capital Partners, LLC, and Brera Capital
Partners Limited Partnership ("Brera"), which provided for, among other things,
a $28.0 million convertible preferred stock investment by Brera in the Company.
On May 4, 1999, the Company and Brera reached a mutual agreement to terminate
the Brera Investment Agreement. The Company recorded approximately $2.5 million
of fees and expenses during the fourth quarter of fiscal year 1999 related to
the agreement and its subsequent termination. This charge included a
reimbursement to Brera for fees and expenses incurred by it. The Company paid
approximately $500,000 and $2.0 million of the fees and expenses in fiscal years
1999 and 2000, respectively.

F-9

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 Summary of Significant Accounting Policies

Principles of consolidation

The accompanying consolidated financial statements include Safety
Components International, Inc. and its subsidiaries, all of which are wholly
owned. Significant intercompany transactions and accounts have been eliminated.

Reclassifications of prior period amounts for discontinued operations

As discussed in Note 4, effective 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 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.

Fiscal year

The Company's operations are based on a fifty-two or fifty-three week
fiscal year ending on the Saturday closest to March 31. Fiscal year 2001
consisted of fifty-three weeks including the period from March 26, 2000 to
October 10, 2000 (Predecessor Company) and the period from October 11, 2000 to
March 31, 2001 (Reorganized Company). Fiscal years 2000 and 1999 each consisted
of fifty-two week years, ending on March 25, 2000 and March 27, 1999,
respectively.

Use of estimates

The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the amounts and
disclosures reported in the financial statements and accompanying notes.
Significant estimates made by management include allowances for doubtful
accounts receivable, reserves for inventories, legal actions and environmental
issues, earnings (losses) until disposition of discontinued operations and the
net realizable value of the discontinued operations. Management believes that
its estimates included in the financial statements, including for these matters,
are reasonable. However, actual results could differ from those estimates.

Cash equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Concentration of credit risk

The Company is subject to a concentration of credit risk consisting of its
trade receivables. At March 31, 2001, three customers accounted for
approximately 38%, 24% and 12% of its trade receivables. At March 25, 2000,
three customers accounted for approximately 28%, 24% and 21% of its trade
receivables. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company evaluates potential
losses for uncollectible accounts and such losses have historically been
immaterial and within management's expectations.

Inventories

Inventories represent direct materials, labor and overhead costs incurred
for products not yet delivered and are stated at the lower of cost (first-in,
first-out) or market.

F-10

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DuPont supplies a significant portion of the nylon yarn used in the
Company's airbag fabric operations. The loss of DuPont as a supplier could have
a material adverse effect on the Company.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated
depreciation. 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.
Estimated useful lives by class of assets are as follows:

Machinery and equipment.......... 4 - 10 years
Furniture and fixtures........... 3 - 5 years
Buildings........................ 25 - 40 years
Leasehold improvements........... Lesser of useful life or lease term

Expenditures for repairs and maintenance are charged to expense as
incurred. Renewals or betterments of significant items are capitalized.

The Company assesses the recoverability of long-lived assets periodically.
If there is an indication of impairment of such assets, the amount of
impairment, if any, is charged to operations in the period in which impairment
is determined by management. The methodology that management uses to project
results of operations is based on projected undiscounted cash flows generated
from the assets in service.

Reorganization value in excess of amounts allocable to identifiable assets

Reorganization value in excess of amounts allocable to identifiable assets
results from the application of "fresh start" reporting as discussed in Note 3,
which requires the Predecessor Company's unidentified intangibles, net of
amortization, to be reduced to zero and a new amount to be recorded equaling the
excess of the fair value of the Company over the fair value allocated to its
identifiable assets. This excess is classified as reorganization value in excess
of amounts allocable to identifiable assets ("Excess Reorganization Value") and
is being amortized over a twenty-year period. For the period from October 11,
2000 to March 31, 2001, amortization totaled approximately $396,000.

Intangible assets

At March 31, 2001, intangible assets consist of patents stated at cost less
accumulated amortization. Such patents are amortized over the expected periods
to be benefited, which have been determined to have lives between 15 and 20
years. Accumulated amortization at March 31, 2001 was approximately $90,000.

At March 25, 2000, the Company had patents and other intangible assets
consisting of goodwill and non-compete agreements associated with the Company's
acquisitions that were being amortized on a straight line basis over 40 years.
Accumulated amortization at March 25, 2000 was approximately $4.9 million. As a
result of the implementation of fresh start accounting as described in Note 3,
the other intangible assets of approximately $32 million were written off as of
October 10, 2000.

Asset impairment

The Company continually monitors conditions that may affect the carrying
value of its excess reorganization value and other intangible assets. When
conditions indicate potential impairment of such assets, the Company evaluates
projected future cash flows associated with the assets. When projected future
cash flows, not discounted for the time value of money, are less than the
carrying value of the asset, the impaired asset is written down to its estimated
fair value.

F-11

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred financing costs

Costs incurred in connection with financing activities (see Note 7) are
deferred and amortized using the straight-line method (which approximates the
effective interest method), and are charged to interest expense in the
accompanying consolidated statements of operations. Total costs deferred and
included under other assets in the accompanying consolidated balance sheets at
March 31, 2001 and March 25, 2000 were $1.1 million and $3.7 million,
respectively. As a result of the bankruptcy filing discussed in Note 1, the
deferred financing costs at March 25, 2000 were written off as the debt was
refinanced.

Income taxes

Income taxes are recognized for financial reporting purposes during the
year in which transactions enter into the determination of income, with deferred
taxes being provided for temporary differences between the basis for financial
reporting purposes and the basis for income tax reporting purposes.

Revenue recognition

The Company has adopted the Securities and Exchange Commission's Staff
Accounting Bulletin ("SAB") 101 regarding revenue recognition. SAB 101 requires
that a Company recognize revenue only when all of the following criteria are
met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred
or services have been performed; (3) the seller's price to the buyer is fixed or
determinable; and (4) collectibility is reasonably assured. Upon adoption of SAB
101, there was no impact on the Company's financial condition, results of
operations or cash flows.

The Company generally recognizes revenue from product sales when it has
shipped the goods. At the customer's request, shipment of the completed product
is sometimes delayed. In such instances, and as permitted by SAB 101 when
certain criteria are met, revenues are recognized when the customer acknowledges
transfer of title, assumes risks of ownership and accepts the related billing.
Additionally, the Company accrues for sales returns and other allowances at the
time of shipment based upon historical experience.

The Company, for its Valentec Systems, Inc. ("Systems") business (included
in Discontinued Operations) that was sold in fiscal year 2000 (Note 4),
accounted for long-term contracts under the percentage of completion method,
whereby progress toward contract completion was measured on a cost incurred
basis (including direct labor, materials and allocable indirect manufacturing
overhead and general and administrative costs). Losses on long-term contracts
were recognized in the period when such losses were identified.

Annual revenues from major customers

The Company's net sales to three customers in the period from October 11,
2000 to March 31, 2001 and the period from March 26, 2000 to October 10, 2000
aggregated approximately 31%, 26%, 16%, and 30%, 28%, 13% of net sales,
respectively. The Company's net sales to three customers in fiscal year 2000
aggregated approximately 27%, 19% and 17% of net sales. The Company's net sales
to two customers in fiscal year 1999 aggregated approximately 27% and 17% of net
sales.

Environmental expenditures

Environmental expenditures that result from the remediation of an existing
condition caused by past operations that will not contribute to current or
future revenues are expensed. Expenditures which extend the life of the related
property or prevent future environmental contamination are capitalized.
Liabilities are recognized for remedial activities when the cleanup is probable
and the cost can be reasonably estimated.

F-12

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising costs

The Company recognizes advertising costs as incurred. Advertising costs
were approximately $40,000, $35,000, $73,000 and $134,000 during the period from
October 11, 2000 to March 31, 2001, the period from March 26, 2000 to October
10, 2000, and the years ended March 25, 2000 and March 27, 1999, respectively,
and were recorded as a component of selling and marketing expenses in the
accompanying consolidated statements of operations.

Shipping costs

The costs to ship products to customers of approximately $830,000,
$930,000, $2.4 million, and $2.7 million during the period from October 11, 2000
to March 31, 2001, the period from March 26, 2000 to October 10, 2000, and the
years ended March 25, 2000 and March 27, 1999, respectively, are included as a
component of cost of sales in the accompanying consolidated statements of
operations.

Research and development expenses

Research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged in the period from
October 11, 2000 to March 31, 2001 and the period from March 26, 2000 to October
10, 2000, and years ended March 25, 2000 and March 27, 1999, were $335,000,
$353,000, $665,000 and $1,090,000, respectively.

Comprehensive income

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company currently has one item, unrecognized gain or
loss on foreign currency translation, which is a component of other
comprehensive income (see Note 13).

Earnings per share

Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS is computed using the
weighted average number of common shares and potentially dilutive common shares
outstanding for the period. For the period from October 11, 2000 to March 31,
2001, there were no dilutive equity instruments and accordingly, basic and
diluted EPS for that period are the same. For the periods prior to October 10,
2000, share and per share data is not shown as it is not meaningful due to the
significant change in capital structure in connection with the reorganization
under bankruptcy discussed in Note 1.

Foreign currency translation

Financial statements of substantially all of the Company's foreign
operations are prepared using the local currency as the functional currency.
Translation of these foreign operations to United States dollars occurs using
the current exchange rate for balance sheet accounts and a weighted average
exchange rate for results of foreign operations. Translation gains or losses are
recognized in "accumulated other comprehensive income (loss)" as a component of
equity.

For the Company's Mexican subsidiary, whose financial statements are
prepared using the United States dollar as the functional currency, translation
of the financial statements are included in the results of operations. During
the periods presented herein, such amounts were not significant.

Foreign currency transaction gains (losses) are reflected in operations.
During the period from October 11, 2000 to March 31, 2001, the period from March
26, 2000 to October 10, 2000, and years ended March 25, 2000 and

F-13

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 27, 1999, transaction gains (losses) included in operations amounted to
$222,000, $(861,000), $(820,000) and $107,000, respectively.

Fair value of financial instruments

The consolidated financial statements include financial instruments whereby
the fair market value of such instruments may differ from amounts reflected on a
historical basis. Financial instruments of the Company consist of cash deposits,
accounts receivable, advances to affiliates, accounts payable, certain accrued
liabilities and long-term debt. The carrying amount of the Company's long term
debt at March 31, 2001 approximates fair market value based on prevailing market
rates. The Company's other financial instruments generally approximate their
fair values based on the short-term nature of these instruments.

Reclassifications

Certain reclassifications, including discontinued operations as previously
discussed, have been made to the consolidated financial statements for prior
periods to conform to the March 31, 2001 presentation.

Note 3 Fresh Start Reporting

As previously discussed, the accompanying consolidated financial statements
reflect the use of "fresh start" reporting as required by SOP 90-7. Under "fresh
start" reporting, the Company's assets and liabilities were adjusted to
estimated fair values and resulted in the creation of a new reporting entity
(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") are not comparable to consolidated
financial statements for periods 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 that 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."

The total reorganization value assigned to the Company's net assets was
determined by independent valuation, using the going-concern enterprise
approach. Such valuation resulted in an estimated reorganization value
attributable to the Company's issued common stock of approximately $51.0
million, of which approximately $15.4 million was determined to be the excess of
the reorganization value over the fair value of the net assets. The Excess
Reorganization Value is being amortized over twenty years.

The results of operations in the accompanying consolidated statements of
operations of the Predecessor Company for the period from March 26, 2000 to
October 10, 2000 reflect the operations prior to the Company's emergence from
bankruptcy, including the effects of fresh start reporting adjustments. In this
regard, the consolidated statement of operations of the Predecessor Company for
the period from March 26, 2000 to October 10, 2000 reflects an extraordinary
gain of $29.9 million, net of tax of $17.5 million related to the discharge of
the Notes. This was offset by a loss recognized in the amount of $573,000 for
the write-off of deferred financing costs associated with the early termination
of the KeyBank Credit Agreement during the period. Additionally, the
consolidated statement of operations of the Predecessor Company for the period
from March 26, 2000 to October 10, 2000 reflects $41.7 million of Reorganization
Items, consisting primarily of gains and losses related to the adjustments of
assets and liabilities to fair value, professional fees and expenses associated
with the Company's financial restructuring and Chapter 11 bankruptcy proceeding,
a charge for the revaluation of the Notes (representing the write-off of related
deferred financing costs) and restructuring charges that consisted primarily of
a charge for future severance payments to the Company's former chairman and
chief executive officer.

During the period from October 11, 2000 to March 31, 2001, the Company
recorded certain transactions through continuing operations that related to the
Reorganization Items recorded in the period from March 26, 2000 to October 10,
2000. Income from operations for the period from October 11, 2000 to March 31,
2001 was impacted

F-14

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

favorably by a $740,000 reversal of a reserve recorded originally through
Reorganization Items in the period from March 26, 2000 to October 10, 2000. Such
reserve was related to a disputed claim filed with the Court in the Company's
Chapter 11 proceedings, which was settled subsequently in the Company's favor.

The following summarizes the effects of "fresh start" accounting on the
Company's consolidated balance sheet as of October 10, 2000 (in thousands)
(unaudited):

Pre-Fresh Start Fresh Start
Balance Sheet Reorganization Fresh Start Balance Sheet
October 10, 2000 Adjustments (a) Adjustments (b) October 10, 2000
--------------- --------------- --------------- ---------------

Current assets $ 59,357 $ 710 $ 60,067
Property, plant and
equipment, net 53,056 (6,635) 46,421
Excess reorganization value -- 15,412 15,412
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 $ -- $ (22,703) $ 131,810
=============== =============== =============== ===============

Accounts payable $ 18,086 $ 18,086
Accrued and other current liabilities
13,157 $ 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) 15,035 (404)
Accumulated deficit (40,517) 74,934 $ (34,417) --
Cumulative translation
adjustment (11,714) 11,714 --
--------------- --------------- --------------- ---------------
Total $ 154,513 $ -- $ (22,703) $ 131,810
=============== =============== =============== ===============

(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 discussed, the Company concluded to exit its metal and
defense businesses. To enhance the value of these businesses, the Company
consolidated a considerable portion of its Valentec operations into its Galion,
Ohio facility and relocated the remainder to a lower-cost facility in Missouri,
nearer to its primary customers. These businesses consist of the metal division
now located in Missouri (Valentec Wells, LLC) and the defense systems and
products divisions located in New Jersey (Valentec Systems, Inc.) and Ohio
(Galion, Inc.). As a result of this decision by the Company's new board of
directors upon the October 10, 2000 emergence from bankruptcy, the Company has
reported its non-core operations as discontinued operations in the accompanying
consolidated financial statements. Amounts in the consolidated financial
statements and related notes for all prior periods have been reclassified to
reflect these non-core businesses as discontinued operations. Accordingly, the
Company reported the results of operations of the metal and defense businesses
as a loss on discontinued operations that, for the Predecessor Company's period
from

F-15

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 26, 2000 to October 10, 2000, totaled $1,440,000, net of income tax
benefit of $847,000 and totaled $20.1 million and $4.4 million for the fiscal
years ended March 25, 2000 and March 27, 1999, respectively. For the Predecessor
Company's period from March 26, 2000 to October 10, 2000, the Company recorded
$214,000, net of income taxes of $125,000, for the estimated net gain on the
disposition of the non-core businesses, including the realized gain on the sale
of Valentec Systems, Inc. ("Systems") discussed below. Subsequently, the Company
experienced production problems associated with electrical rolling blackouts at
its California location and other disruptions associated with relocating
Valentec Wells, LLC and closing the former California facility, among other
items. During the fourth quarter of fiscal 2001, the Company recorded an
additional charge of $1,444,000, net of income taxes of $848,000, for the
estimated net loss on the disposition of the non-core businesses.

On August 31, 2000, the Company finalized the sale of Systems. Pursuant to
a Stock Purchase Agreement dated July 21, 2000, the Company sold 100% of the
shares of capital stock of Systems to VTECH Corporation for approximately $2.9
million in cash. The sale of Systems resulted in an approximate $1.2 million
gain that was included in the gain on disposition of discontinued operations in
the accompanying consolidated statements of operations of the Predecessor
Company for the period from March 26, 2000 to October 10, 2000. Systems
accounted for $3.9 million, $16.4 million and $22.6 million of consolidated net
sales for the Predecessor Company's period from March 26, 2000 to October 10,
2000, and the years ended March 25, 2000 and March 27, 1999, respectively.

Following is a summary of financial information for the Company's
discontinued metal and defense operations (in thousands):

Reorganized Company | Predecessor Company
--------------------------|---------------------------------------------------------------
Period from October 11, | Period from March 26, 2000 Year Ended Year Ended
2000 to March 31, 2001 | to October 10, 2000 March 25, 2000 March 27, 1999
--------------------------|-------------------------- ------------------ -----------------

Net sales $ 9,563 | $ 11,026 $ 33,599 $ 41,633
Discontinued operations: |
Loss from operations, |
net of income taxes -- | 1,440 20,142(a) 4,351
|
Loss (gain) on |
disposition, net of 1,444 | (214) -- --
income taxes |

(a) During fiscal year 2000, the Company recognized a goodwill impairment charge
of $17.7 million, with no associated tax benefit, related to the 1997
acquisition of Valentec. Operating results of Valentec deteriorated during
fiscal year 2000 arising from the loss of business with a major customer.
Accordingly, management concluded that intangible assets in the amount of $17.7
million were no longer recoverable through future operations and such amount was
written-off. The estimated fair value was based on anticipated future cash flows
discounted at a rate commensurate with the risk involved.

Net assets of discontinued operations at March 31, 2001 and March 25, 2000
were as follows (in thousands):

Reorganized | Predecessor
Company | Company
-------------- | --------------
March 31, 2001 | March 25, 2000
-------------- | --------------
Accounts receivable $ 3,824 | $ 7,955
Inventories, net 1,471 | 810
Property, plant and equipment, net 5,791 | 9,463
-------------- | --------------
Total assets 11,086 | 18,228
Current liabilities (2,676) | (5,330)
Note payable and other liabilities (843) | (1,535)
-------------- | --------------
Net assets held for sale $ 7,567 | $ 11,363
============== | ==============

F-16

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 Composition of Certain Consolidated Balance Sheet Accounts (in thousands)

Reorganized | Predecessor
Company | Company
------------ | ------------
March 31, 2001 | March 25, 2000
------------ | ------------

Accounts receivable: |
Trade receivables, net of allowances of $951 and $206 at |
March 31, 2001 and March 25, 2000, respectively $ 32,258 | $ 32,542
Other 472 | 784
------------ | ------------
Total $ 32,730 | $ 33,326
============ | ============
|
Inventories: |
Raw materials $ 5,167 | $ 5,716
Work-in-process 5,991 | 5,752
Finished goods 5,468 | 2,548
------------ | ------------
Total $ 16,626 | $ 14,016
============ | ============
|
Property, plant and equipment: |
Land and buildings $ 14,236 | $ 12,321
Machinery and equipment 32,961 | 58,008
Furniture and fixtures 435 | 3,299
Construction in process 952 | 984
------------ | ------------
48,584 | 74,612
Less - accumulated depreciation and amortization (3,029) | (18,296)
------------ | ------------
Total $ 45,555 | $ 56,316
============ | ============

Inventories and property, plant and equipment of the Reorganized Company
were revalued on October 10, 2000 to their estimated fair value pursuant to SOP
90-7. See Note 3 for further explanation of the fresh start adjustments. Due to
the revaluation of property, plant and equipment on October 10, 2000, the
Company changed certain of its estimated useful lives beginning in the third
quarter of fiscal 2001. Such change in useful lives affected only the Machinery
and Equipment category, with useful lives now ranging from 4 to 10 years in
length.

Note 6 Related Party Transactions

The Company, in years prior to fiscal 1999, performed certain services for
an affiliated company, Valentec International Limited ("VIL"), a U.K. company
majority owned by Robert A. Zummo, the former Chief Executive Officer and
Chairman of the Board of the Company. During fiscal 2000, the Company
established a $600,000 reserve against its receivable of $1.2 million from VIL
due to uncertainty about VIL's ability to repay such amount. In connection with
the restructuring discussed in Note 1, Mr. Zummo agreed that the Company could
reduce future payments to him under his employment agreement to cover such
receivable in the event that the Company is not repaid by VIL. At March 31,
2001, VIL had not repaid the Company and the gross amount owed to Mr. Zummo
under his employment agreement is in excess of the amount owed to the Company by
VIL.

F-17

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 Long-Term Debt (in thousands)

Reorganized | Predecessor
Company | Company
-------------- | --------------
March 31, 2001 | March 25, 2000
-------------- | --------------

Senior subordinated notes due July 15, 2007, bearing interest at 10 1/8% |
(cancelled pursuant to Plan of Reorganization - see Note 3) $ -- | $ 90,000
KeyBank subordinated secured note due October 11, 2002, |
bearing interest at 11% 20,900 | --
KeyBank revolving credit facility, bearing interest at 3.0% over LIBOR, |
refinanced on May 9, 2000 -- | 37,850
Congress revolving credit facility due on October 11, 2003, bearing a |
variable interest rate (8.5% at March 31, 2001) 10,002 | --
Congress term note due on October 11, 2003, bearing a variable interest rate |
(8.4% at March 31, 2001) 7,080 | --
KeyCorp equipment note due August, 2005 6,738 | 8,074
Bank Austria mortgage note due March, 2002 4,500 | 5,625
Deutsche Bank mortgage note with separate tranches due in 2009 and 2019 1,797 | 2,136
A.I. Credit Corp. note due November, 2001 201 | 526
Note payable paid in full on February 14, 2001 -- | 398
Capital equipment notes payable, with various interest rates of |
8.02% to 16.0%, maturing at various dates through November, 2004 848 | 1,643
------------- | -------------
Total long-term debt 52,066 | 146,252
Less - current portion of long-term debt (8,525) | (131,107)
------------- | -------------
Total long-term portion of debt $ 43,541 | $ 15,145
============= |=============

Senior Subordinated Notes (cancelled pursuant to Plan of Reorganization)

On October 11, 2000, the Safety Filing Group emerged from Chapter 11
pursuant to the Plan confirmed by the Bankruptcy Court. Pursuant to the Plan,
all of the Company's 10-1/8% senior subordinated 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.

Credit Facilities

In connection with its emergence from Chapter 11, the Company announced the
closing on October 11, 2000 of a three-year, $35.0 million, revolving credit
facility with Congress Financial Corporation (Southern), (the "Congress
Facility"), expiring October 11, 2003. With the proceeds from the Congress
Facility, the Company paid off its debtor-in-possession ("DIP") credit
facilities with Bank of America. 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"), with a fixed interest rate of 11.0%, expiring on October 11, 2002.

Under the Congress Facility, the Company may borrow up to the lesser of (a)
$35.0 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 (and its borrowing limitations) are $7.1 million in
term loans which are to 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

F-18

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

under the Congress Facility is a $3.0 million letter of credit facility, through
which the Company had $350,000 of letters of credit outstanding at March 31,
2001. At March 31, 2001, the Company's availability for additional borrowings
(under the maximum allowable limit) was approximately $17.7 million.

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). Under the terms of
the Congress Facility, the Company may make borrowings based on prime rate or
Eurodollar rate, in each case with an applicable margin applied to the rate. At
March 31, 2001, the margin on prime rate loans was 0.0% and the margin on
Eurodollar rate loans was 2.0%. The Company is required to pay a commitment fee
of 0.375% on the unused portion of the Congress Facility.

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 of principal in the
event that the Company's Consolidated EBITDA (as defined) exceeds certain
specified levels following the Emergence Date. As of March 31, 2001, the Company
estimates $750,000 in prepayments are required to be made in the next year.
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. At March 31, 2001, the Company was in compliance with all financial
and non-financial covenants. Substantially all assets of the Company are pledged
as collateral for the borrowings under the Congress Facility and the
Subordinated Facility.

Pre-Chapter 11 Emergence

On April 26, 2000, the Safety Filing Group received Bankruptcy 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 $17.0 million and retained as a
replacement of their pre-petition credit facility the remaining approximately
$20.9 million portion of their indebtedness as an 11.0% per annum post-petition
subordinated DIP facility.

Other Long-term Obligations

On July 10, 1998, the Company entered into a $10.0 million financing
arrangement with KeyCorp Leasing, a division of Key Corporate Capital Inc.
("KeyCorp"). The KeyCorp financing agreement has a seven-year term, bears
interest at a rate of 1.25% over LIBOR (7.65% at March 31, 2001) and requires
monthly payments of approximately $150,000 and is secured by certain equipment
located at SCFTI.

On June 4, 1997, the Company secured a $7.5 million mortgage note facility
with Bank Austria. The note is payable in semi-annual installments of $375,000
through March 31, 2002, at which time the remaining unpaid balance is due, and
bears interest at 1.0% over LIBOR (5.93% at March 31, 2001). The assets of the
Company's Czech Republic facility secure the note.

On April 1, 1999, the Company secured a $2.9 million mortgage note facility
with Deutsche Bank to purchase a facility in Germany. The note is secured by the
real estate in Germany acquired through the mortgage. In July 1999, the Company
refinanced the note and reduced the outstanding indebtedness to $2.1 million
(currently $1.8 million due to exchange rates) consisting of two tranches.
Tranche A totals approximately $1.1 million bearing interest at 4.05% and is
payable in semi-annual installments of approximately $70,000 beginning on
December 30, 2001 through June

F-19

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

30, 2009. Tranche B totals approximately $674,000 bearing interest at 3.75% and
is payable in semi-annual installments of approximately $19,000 also beginning
on December 30, 2001 through June 30, 2019.

On November 3, 1998, the Company entered into an unsecured note facility
with A.I. Credit Corp. of $772,000 (including transaction and other fees), which
requires monthly payments of $29,000 through November 3, 2001 and bears stated
interest at 7.57%.

Future annual minimum principal payments at March 31, 2001 are due in the
following fiscal years (in thousands):

2002 $ 8,525
2003 22,024
2004 11,888
2005 1,965
2006 6,582
Thereafter 1,082
-------------
$ 52,066
=============

Note 8 Income Taxes

Net operating loss ("NOL") carryforwards from prior years were utilized to
offset the cancellation of indebtedness ("COD") income in connection with the
Company's reorganization under Chapter 11. COD income is the amount by which the
indebtedness discharged (approximately $96.8 million) exceeds any consideration
given in exchange (approximately $51 million in equity value) therefore. After
first applying NOL carryforwards to offset COD income, the excess COD income was
offset against the tax basis of assets until all tax attributes of the parent
level of the Company were absolved.

The provision (benefit) for income taxes is comprised of the following (in
thousands):

Reorganized Company | Predecessor Company
--------------------|---------------------------------------------------------------
Period from | Period from
October 11, 2000 to | March 26, 2000 to Year Ended Year Ended
March 31, 2001 | October 10, 2000 March 25, 2000 March 27, 1999
--------------------|---------------------------------------------------------------

Current taxes: |
Federal $ 1,965 | -- -- $ (930)
State 220 | -- -- 110
Foreign (416)| -- -- (138)
|
Deferred taxes: |
Federal -- | $ (15,266) $ 5,280 (2,845)
State -- | (2,245) 450 45
Foreign -- | -- 424 437
------------------ | ------------------ ------------------ ------------------
$ 1,769 | $ (17,511) $ 6,154 $ (3,321)
================== | ================== ================== ==================

F-20

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision (benefit) for income taxes differs from the amount computed
by applying the federal income tax rate to income (loss) from continuing
operations before income taxes as follows:

Reorganized Company Predecessor Company
----------------------|-----------------------------------------------------
Period from | Period from
October 11, 2000 to | March 26, 2000 to Year Ended Year Ended
March 31, 2001 | October 10, 2000 March 25, 2000 March 27, 1999
----------------------|-----------------------------------------------------

Expected taxes at federal statutory rate 34% | (34%) (34%) (34%)
State income taxes, net of federal benefits 3 | (1) - -
Foreign earnings taxed at different rates 3 | - (2) 1
Valuation allowance on deferred tax assets - | (30) 35 11
Recovery of non-taxable bankruptcy expense (5) | - - -
Non-deductible intangibles and other, net 5 | 18 22 2
----------------------|------------------ ----------------- ----------------
40% | (47)% 21% (20%)
======================|================== ================= ================

The following summarizes the deferred tax assets (liabilities) recognized
in the accompanying consolidated balance sheets (in thousands):

Reorganized | Predecessor
Company | Company
--------------- | ---------------
March 31, 2001 | March 25, 2000
--------------- | ---------------

Deferred tax assets (liabilities): |
Accrued liabilities $ 1,860 | $ 1,032
Inventory and receivables 934 | 519
Property, plant and equipment (4,447)| (6,240)
Accruals for discontinued operations 1,441 | --
Intangibles (410)| (2,851)
Net operating loss acquired from Valentec -- | 1,674
Federal net operating loss -- | 15,537
Foreign net operating loss 622 | 622
Other |
-- | (38)
--------------- | ---------------
Net deferred tax assets before valuation allowances -- | 10,255
Valuation allowance on deferred tax assets -- | (11,797)
--------------- | ---------------
Net deferred tax liabilities $ -- | $ (1,542)
=============== | ===============
|
Recognized as follows in the accompanying consolidated balance sheets: |
Current deferred tax assets $ 2,000 |
Long-term deferred tax liabilities (2,000)| (1,542)
--------------- | ---------------
Net deferred tax liabilities $ -- | $ (1,542)
=============== | ===============

Current deferred tax assets are included in "prepaid and other" current
assets and long-term deferred tax liabilities are included in "other long-term
liabilities" in the accompanying consolidated balance sheets.

No taxes have been provided relating to the possible distribution of
approximately $12.7 million of undistributed earnings considered to be
permanently reinvested in foreign operations.

Note 9 Commitments and Contingencies

Legal proceedings

The Chapter 11 cases remain open until all claims, disputes and pleadings
are resolved before the Bankruptcy Court. At March 31, 2001, the Company has
material disputes with respect to a $2.7 million claim based upon rejection
damages under a lease at a former facility in Costa Mesa, California. Based on
advice from outside legal counsel, management believes that an adequate
liability has been established for this matter at March 31, 2001.

F-21

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company and several of its present or former officers and directors
were named defendants in a class action lawsuit 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 have
executed an Agreement of Settlement, dated April 16, 2001, to settle the
consolidated class action litigation for $4.0 million. The Company's directors'
and officers' insurance carrier will satisfy the settlement obligations and
accordingly, such resolution has no effect on the Company's financial condition,
results of operations or cash flows.

From time to time, the Company is a defendant in legal actions involving
claims arising in the normal course of business. The Company believes that as a
result of its legal defenses none of these actions presently pending would have
a material adverse effect on its financial position, results of operations or
cash flows.

Operating leases

The Company has non-cancelable operating leases for equipment and office
space that expire at various dates through 2009. Certain of the lease payments
are subject to adjustment for inflation. The Company incurred rent expense of
$1.4 million, $1.5 million, $2.9 million and $2.6 million for the period from
October 11, 2000 to March 31, 2001, the period from March 26, 2000 to October
10, 2000 and for the years ended March 25, 2000 and March 27, 1999,
respectively.

Future annual minimum lease payments for all non-cancelable operating
leases as of March 31, 2001 are as follows (in thousands):

2002 $1,773
2003 1,238
2004 393
2005 304
2006 304
Thereafter 609
------------
$4,621
============

Environmental issues

The Company has identified two areas of underground contamination at the
Company's facility in Galion, Ohio. One area involves a localized plating
solution spill. The second area involves a chlorinated solvent spill in the
vicinity of a former above ground storage area. The Company has retained
environmental consultants to quantify the extent of this problem. Such
environmental consultants estimate that the Company's voluntary plan of
remediation could take three to five years to implement, followed by annual
maintenance. The consultants also estimate that remediation costs will be
approximately $250,000, which the Company had accrued in other long-term
liabilities at March 31, 2001 and March 25, 2000. However, depending on the
actual extent of impact to the Company or more stringent regulatory criteria,
these costs could be higher. Additionally, an underground contamination
involving machinery fluids exists at the former Valentec Wells facility in Costa
Mesa, California and the Regional Water Quality Control Board has approved a
site remediation plan. The remediation plan currently involves the simultaneous
operation of a groundwater and vapor extraction system. Such plan is expected to
take approximately five years to implement at an estimated cost of approximately
$368,000. To date, the Company has spent approximately $325,000 implementing
such plan with approximately one year remaining. The additional anticipated cost
for that year is accrued for as of March 31, 2001. In addition, SCFTI has been
identified along with numerous other parties as a Potentially Responsible Party
at the Aquatech Environmental, Inc. Superfund Site. The Company believes that it
is a de minimis party with respect to the site and that future clean-up costs
incurred by the Company will not be material.

A Phase II study revealed limited organic groundwater contamination at the
SCFTI facility in South Carolina in 1997. At the time of the Company's purchase
of such facility, $185,000 of the purchase price thereof was placed in

F-22

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

escrow to pay for, if necessary, environmental remediation and monitoring at
such facility. Based on the results of the groundwater monitoring that already
has been conducted, and on the Company's discussions with the South Carolina
Department of Health and Environmental Control ("DHEC"), no further work will be
required and the escrow account was liquidated in fiscal year 2001.

Additionally, low levels of contaminants were found at SCFTI during
groundwater sampling in 1998. In February 1999, the facility received a notice
letter from DHEC regarding the groundwater contamination. While DHEC
acknowledges that there does not appear to be an active source for groundwater
impact at the facility, it required the facility to perform sampling of two
existing monitoring wells located on the property for contaminants. Low levels
of contaminants again were detected. DHEC has requested that the Company (i)
confirm that no residential wells exist in the area, (ii) perform additional
sampling, and (iii) propose a program for in-site remediation of the
groundwater, involving injection of nutrients to biodegrade the organic
compounds in the groundwater. The Company does not believe that these costs will
be material.

In the opinion of management, no material expenditures beyond those accrued
at March 31, 2001 will be required for the Company's environmental control
efforts and the final outcome of these matters will not have a material adverse
effect on the Company's financial position or results of future operations. The
Company believes that it currently is in compliance with applicable
environmental regulations in all material respects. Management's opinion is
based on the advice of independent consultants on environmental matters.

Note 10 Product and Geographic Information

The Company attributes its revenues from external customers and long-lived
assets to a particular country based on the geographic location of each of the
Company's production facilities. Summarized financial information by product
type and geographic area is as follows:

Reorganized Company Predecessor Company
-------------------|-------------------------------------------------------
Revenues from external October 11, 2000 to| March 26, 2000 to Year ended Year ended
customers March 31, 2001 | October 10, 2000 March 25, 2000 March 27, 1999
-------------------|-------------------------------------------------------

United States |
Airbag Fabric $ 17,883 | $ 26,288 $ 46,205 $ 47,768
Technical Fabric 11,488 | 12,576 24,624 23,936
Mexico |
Airbag Cushions 27,180 | 33,703 46,652 33,888
Germany |
Airbag Cushions 21,679 | 22,409 54,222 58,697
Other European Countries |
Airbag Cushions 13,822 | 14,163 22,964 14,059
---------------- | ---------------- ---------------- ----------------
Total Net Sales $ 92,052 | $ 109,139 $ 194,667 $ 178,348
================ | ================ ================ ================

F-23

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-lived Assets at Fiscal Year End: Reorganized Company | Predecessor Company
------------------- | -------------------
March 31, 2001 | March 25, 2000
-------------- | --------------

United States $35,853 | $52,527
|
Mexico 4,560 | 6,811
|
Germany 9,543 | 21,807
|
Other European Countries 12,952 | 15,119
------- | -------
|
Total Long-lived Assets $62,908 | $96,264
======= | =======

Note 11 Employee Benefit Plans

The Company has a defined contribution plan qualified under Section 401(k)
of the Internal Revenue Code for eligible employees. The Safety Components
International, Inc. 401(k) Plan (the "401(k) Plan") provides for discretionary
employer contributions. The 401(k) Plan provides for a Company match equal to
50% of the employee's contribution up to 6% of the employee's salary. Employer
contributions become 100% vested after two years of vested service. The Company
contributed approximately $156,000, $175,000, $403,000 and $398,000 during the
period from October 11, 2000 to March 31, 2001, period from March 26, 2000 to
October 10, 2000, and years ended March 25, 2000 and March 27, 1999,
respectively, to the 401(k) Plan.

Note 12 Common Stock and Stock Warrants

Pursuant to the Restructuring Agreement discussed in Note 1, 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
pre-bankruptcy common stock, excluding stock held by Robert A. Zummo, the
Company's former Chairman and Chief Executive Officer, was converted into
159,226 shares of the Company's post-bankruptcy common stock, including 39,619
shares of treasury stock (aggregate 5,000,000 shares issued and 4,960,381 shares
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 at October 10, 2000, 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. Such warrants were not included in computing diluted earnings per
share for the period from October 11, 2000 to March 31, 2001 because the
exercise price of the warrants exceeds the fair market value of the common
Stock.

F-24

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 Comprehensive Income

The components of comprehensive income (loss) are as follows (in
thousands):

Reorganized Company Predecessor Company
--------------------------|---------------------------------------------------------------
Period from | Period from Year ended Year ended
October 11, 2000 | March 26, 2000
To March 31, 2001 | To October 10, 2000 March 25, 2000 March 27, 1999
--------------------------|---------------------------------------------------------------

Net income (loss) $ 1,250 | $ 8,067 $ (35,145) $ (13,663)
Foreign currency |
translation adjustment 97 | (3,707) (1,801) (1,542)
------------------------| -------------------- ------------------- -----------------
Comprehensive income |
(loss) $ 1,347 | $ 4,360 $ (36,946) $ (15,205)
=========================| ==================== =================== =================

At October 10, 2000, in accordance with fresh start accounting, 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 was zero.

Note 14 Accounting Standard Adopted After Fiscal Year End

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities" which, as amended, is effective for periods beginning after
June 15, 2000. Accordingly, this standard is effective for the Company's fiscal
year 2002, commencing on April 1, 2001. 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 adoption of
SFAS 133 on April 1, 2001, had no effect on the Company's consolidated financial
statements.

Note 15 Unaudited Quarterly Results

Unaudited quarterly financial information for fiscal years 2001 and 2000 is
set forth below (in thousands, except per share data). All previously reported
information for the Predecessor Company has been reclassified for the effects of
the former metal and defense operations that have been reclassified as
Discontinued Operations. In addition, per share data of the Predecessor Company
is not meaningful due to the significant change in the Company's capital
structure in connection with the Plan of Reorganization.

Quarter Ended
Predecessor Company Reorganized Company
------------------------------------|----------------------------------
June 24, October 10, | December 30, March 31,
2000 2000 | 2000 2001
------------------------------------|----------------------------------

Fiscal 2001 |
Net sales $ 52,048 $ 57,091 | $ 42,071 $ 49,981
Gross profit 8,140 7,692 | 5,418 7,297
Income from operations 4,679 4,184 | 2,024 4,673
Income (loss) before extraordinary gain (2,068) (19,235) | 1,225 25
Net income (loss) (2,641) 10,708 | 1,225 25
Net income per share, basic and diluted -- -- | 0.25 0.00

F-25

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Quarter Ended
Predecessor Company
-----------------------------------------------------------------
June 26, September 25, December 25, March 25,
1999 1999 1999 2000
-----------------------------------------------------------------

Fiscal 2000
Net sales $ 52,546 $ 46,040 $ 47,714 $ 48,367
Gross profit 7,368 6,215 6,141 6,694
Income (loss) from operations 4,073 1,994 1,294 (505)
Net income (loss) 641 (1,431) (19,238) (15,117)

Note 16 Subsequent Event (Unaudited)

On May 18, 2001, the Safety Components International, Inc. 2001 Stock
Option Plan ("Stock Option Plan") became effective pursuant to shareholder
approval. The Stock Option Plan provides for the issuance of options to purchase
up to an aggregate of 900,000 shares of SCI's Common Stock to key officers,
employees, directors and consultants of SCI or its affiliates. Unless designated
otherwise by the Compensation Committee of the Board of Directors, options
granted pursuant to the Stock Option Plan are intended to be nonstatutory stock
options. The Compensation Committee determines the exercise price and the term
of options granted pursuant to the Stock Option Plan at the time of grant. Each
award is determined by the Compensation Committee on an individual basis.
Options to purchase a total of approximately 522,100 shares of common stock at a
price of $8.75 per share (subject to adjustment in certain circumstances), to
become exercisable over a period of three years from the date of grant on May
18, 2001, were granted by the Compensation Committee to approximately 50
employee participants and to the outside directors under the Stock Option Plan.

F-26

SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES

Schedule II - Valuation and Qualifying Accounts (in thousands)

Additions
Charged to
Beginning Costs and Deductions/ Ending
Balance Expenses Write-Offs Balance
------------ ------------ ------------ ------------

For the year ended March 27, 1999:
Allowance for doubtful accounts $ 130 $ 1,780 $ 1,490 $ 420
European relocation and reorganization reserve 2,500 -- 1,243 1,257
Relocation and reorganization reserve -- 500 -- 500
Reserve on deferred tax assets -- 1,674 -- 1,674
------------ ------------ ------------ ------------
$ 2,630 $ 3,954 $ 2,733 $ 3,851
============ ============ ============ ============
For the year ended March 25, 2000:
Allowance for doubtful accounts $ 420 $ 156 $ 370 $ 206
European relocation and reorganization reserve 1,257 -- 1,257 --
Relocation and reorganization reserve 500 23 147 376
Reserve for receivable from affiliate -- 600 -- 600
Reserve on deferred tax assets 1,674 10,123 -- 11,797
------------ ------------ ------------ ------------
$ 3,851 $ 10,902 $ 1,774 $ 12,979
============ ============ ============ ============
For the period from March 26, 2000 to October 10, 2000:
Allowance for doubtful accounts $ 206 $ 1,081 $ -- $ 1,287
Relocation and reorganization reserve 376 -- 376 --
Reserve for receivable from affiliate 600 -- -- 600
Reserve on deferred tax assets 11,797 -- 10,898 899
------------ ------------ ------------ ------------
$ 12,979 $ 1,081 $ 11,274 $ 2,786
============ ============ ============ ============
For the period from October 11, 2000 to March 31, 2001:
Allowance for doubtful accounts $ 1,287 $ 608 $ 944 $ 951
Reserve for receivable from affiliate 600 -- -- 600
Reserve on deferred tax assets 899 -- 899 --
------------ ------------ ------------ ------------
$ 2,786 $ 608 $ 1,843 $ 1,551
============ ============ ============ ============

EXHIBIT 21.1 - Subsidiaries of The Registrant

- ----------------------------------------------------------------------------------------------------------------------
Jurisdiction Names under which
Where subsidiary does
Name of Subsidiary Organized Business
- ----------------------------------------------------------------------------------------------------------------------
Safety Components Fabric Technologies, Inc. Delaware Safety Components
Fabric Technologies,
Inc.
- ----------------------------------------------------------------------------------------------------------------------
Automotive Safety
Automotive Safety Components International, Inc. Delaware Components
International, Inc.
- ----------------------------------------------------------------------------------------------------------------------
ASCI Holdings Germany (DE), Inc. Delaware
- ----------------------------------------------------------------------------------------------------------------------
ASCI Holdings Mexico (DE), Inc. Delaware
- ----------------------------------------------------------------------------------------------------------------------
ASCI Holdings UK (DE), Inc. Delaware
- ----------------------------------------------------------------------------------------------------------------------
ASCI Holdings Czech (DE), Inc. Delaware
- ----------------------------------------------------------------------------------------------------------------------
Automotive Safety Components International GmbH & Co. KG Germany Automotive Safety
Components
International GmbH &
Co. KG
- ----------------------------------------------------------------------------------------------------------------------
Automotive Safety Components International Verwaltungs GmbH Germany Automotive Safety
Components
International
Verwaltungs GmbH
- ----------------------------------------------------------------------------------------------------------------------
Automotive Safety Components International S.A. de C.V. Mexico Automotive Safety
Components
International, S.A.
de C.V.
- ----------------------------------------------------------------------------------------------------------------------
Automotive Safety Components International Limited United Kingdom Automotive Safety
Components
International Limited
- ----------------------------------------------------------------------------------------------------------------------
Automotive Safety Components International, s.r.o. Czech Republic Automotive Safety
Components
International s.r.o.
- ----------------------------------------------------------------------------------------------------------------------
Galion, Inc. Delaware Galion, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Valentec Wells, LLC Delaware Valentec Wells, LLC
(f/k/a Valentec International Corporation, LLC) Valentec Wells
- ----------------------------------------------------------------------------------------------------------------------