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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 30, 2002
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 29605
Greenville, South Carolina (Zip Code)
(Address of principal
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 |X|.
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, 2002, was approximately
$27,526,000.
The number of shares outstanding of the registrant's common stock, as of
June 25, 2002, is as follows:
- --------------------------------------------------------------------------------
Class Number of Shares
- --------------------------------------------------------------------------------
Common Stock, par value $.01 per share 4,959,678
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement to be filed in connection
with its 2002 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 2003, 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.
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PART I
ITEM 1. BUSINESS
The Company
Safety Components International, Inc. (including, when the context
requires, its consolidated subsidiaries, the "Company" or "Safety Components")
was incorporated in Delaware in 1994. It 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 the major airbag module integrators that
outsource such products. 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
ability to interchange airbag and specialty technical fabrics using the same
equipment and similar manufacturing processes allows the Company to more
effectively utilize its manufacturing assets and lower per unit overhead costs.
Net sales of automotive airbag cushions, automotive fabrics and technical
fabrics products (the "automotive airbag and fabrics products" business) were
approximately $203.3 million, $201.2 million, and $194.7 million in fiscal 2002,
fiscal 2001 and fiscal 2000, respectively. For comparative purposes hereof,
fiscal 2002 is comprised of the fifty-two week period ended March 30, 2002,
fiscal 2001 is comprised of the fifty-three week period ended March 31, 2001,
and fiscal 2000 is comprised of the fifty-two week period ended March 25, 2000.
The 2001 Restructuring
On April 10, 2000 (the "Petition Date"), the Company and certain of its
U.S. subsidiaries (collectively, the "Safety Filing Group"), filed a voluntary
petition under Chapter 11 of the Bankruptcy Code ("Chapter 11") with the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
On October 11, 2000 (the "Emergence Date"), the Safety Filing Group emerged from
Chapter 11 pursuant to a Plan of Reorganization (the "Plan") confirmed by the
Bankruptcy Court. Pursuant to the Plan, upon emergence, all of the Company's
10-1/8% Senior Notes due 2007 (the "Notes") (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 A. 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, therefore, 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. All other Safety Filing
Group trade suppliers and creditors were paid in full, pursuant to the terms of
the Plan, within 90 days of the Emergence Date.
Acquisition
On November 2, 2001, the Company's U.K. subsidiary, Automotive Safety
Components International Limited ("ASCIL"), acquired the airbag business
(operated under the name of Woodville Airbag Engineering and hereafter referred
to as "Woodville") of TISPP UK Limited, a subsidiary of Smiths Group PLC, to
expand its European operations. Pursuant to a purchase agreement dated November
2, 2001 between ASCIL and TISPP UK Limited, ASCIL purchased, for approximately
$4.8 million, including $400,000 in direct acquisition and exit costs associated
with the purchase (and with approximately $2.3 million to be paid in
installments due in six and twelve months after closing), substantially all of
the production assets and inventory of the airbag business of TISPP UK Limited.
The Company is currently transferring the production lines of Woodville to other
Company operations in lower labor cost facilities and countries.
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Disposition of Assets
On August 31, 2000, the Company finalized the sale of Valentec Systems,
Inc. ("VSI"), 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 VSI to VTECH Corporation for approximately $2.9 million in cash.
Also during fiscal 2001, the Company determined to exit its remaining
metal and defense products businesses, consisting of Valentec Wells, LLC (metal
products) and Galion, Inc. (defense products). To enhance the value of these
businesses, the Company consolidated a considerable portion of its Valentec
Wells operations into its Galion, Ohio facility and relocated the remainder of
Valentec Wells' operations from its former California location to a lower cost
facility in Missouri, nearer to its primary customers.
On September 27, 2001, the Company finalized the sale of the metallic belt
links business of Valentec Wells, LLC. Pursuant to an asset purchase agreement
dated September 16, 2001 between Valentec Wells, LLC and Alliant Lake City Small
Caliber Ammunition Company LLC, the Company sold the metallic belt links
production assets and inventory of Valentec Wells, LLC for approximately $4.8
million in cash.
Galion, Inc. has not been sold as of March 30, 2002; however, management
is negotiating a sale which it expects to have completed by September 2002. The
net assets of discontinued operations of approximately $2.6 million at March 30,
2002 principally represent the net assets of Galion, Inc.
Automotive Airbag and Fabrics Products
Structure of the Automotive 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, and 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 a significant portion of their cushion requirements as
they focus on the development of proprietary technologies. A majority of the
module integrators purchase fabric from airbag fabric producers such as the
Company.
Characteristic for the industry, 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 who
supply their own internal cushion requirements. However, most of the Company's
customers do not produce cushions for the same car/truck models for which the
Company produces cushions.
Another characteristic of the airbag industry is the qualification process
for new suppliers. New suppliers 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 the existence of this
qualification process can result in significant 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 automaker customers, trying to reduce overall industry costs by limiting
the number of suppliers.
Products
The Company's automotive products include passenger, driver and side
impact airbag cushions and side protection curtains manufactured for
installation in over 200 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
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retainers. Sales of airbag related products (inclusive of sales of airbag
fabric) accounted for approximately 89.4% of the Company's consolidated fiscal
2002 net sales. Sales of airbag related products accounted for approximately
88.0% and 87.3% of the Company's consolidated fiscal 2001 and 2000 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 at that location 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 fuel cells, bomb and cargo chutes, oil
containment booms, aircraft escape slides and gas diaphragms; (v) release liners
used in tire manufacturing; and (vi) protective apparel worn by firefighters.
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 10.6% of the Company's
consolidated fiscal 2002 net sales. Sales of technical related products
accounted for approximately 12.0% and 12.7% of the Company's consolidated fiscal
year 2001 and 2000 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 by leveraging its expenditures on production retooling costs. By
manufacturing technical products with the same machines that weave airbag
fabric, the Company is able to more effectively utilize capacity at its South
Carolina plant and lower per unit overhead costs.
See Note 9 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 contract requirements.
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 South
Carolina, California, Mexico and Germany.
The Company sells its fabric either directly to a module integrator or, in
some cases, to a fabricator (such as the Company's own operations), which sells
a sewn airbag to the module integrator. In some cases, particularly when the
cushion requires lower permeability to facilitate more rapid inflation, and to
eliminate particulate burn-through caused by hot inflators, the fabric must be
coated 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. Coated cushions are becoming more common, particularly for
head protection, due to the longer bag-inflation period. 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.
The following describes the Company's contractual relationship with its
significant customers (listed in alphabetical order). The loss of any of these
customers 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.
Takata-Petri. The Company's agreement with Takata-Petri provides that,
prior to the commencement of each calendar year, the parties negotiate price,
quantity and other relevant terms of the airbag cushion supply contract for such
calendar year.
5
TRW. The Company supplies airbag cushions and airbag fabric to TRW 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. The price and quantity of airbag fabric has been agreed to through the
2003 calendar year end.
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.
The raw materials for the Company's fabric operations largely consist of
synthetic yarns provided by DuPont, Acordis, Honeywell, Unifi and KoSa, among
others. The primary yarns include nylon, polyester and Nomex. DuPont and Acordis
are the leading suppliers 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.
In addition, the Company's European operations entered into an agreement
with a German industrial sewing company and its Romanian subsidiary under which
the Romanian subsidiary serves as a manufacturing subcontractor for airbag
cushions. Under the terms of this agreement, the Company provides and retains
control of the manufacturing equipment, processes and production materials and
the subcontractor provides sewing services for a fixed price per unit
manufactured. Although the production volumes with the subcontractor for fiscal
2002 were negligible, volumes are anticipated to grow substantially in the next
fiscal year.
Significant problems with any key supplier or subcontractor (see also
"Risks Resulting from Foreign Operations" below for a description of possible
issues) may adversely affect the Company's operating results.
Capacity
The Company manufactured and shipped approximately 20.0 million airbag
cushions to the Company's North American and European customers during fiscal
2002. The Company believes it has adequate capacity to manufacture its fiscal
2003 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 22.5 million yards of fabric in fiscal 2002. The Company utilizes
rapier-weaving machines that are versatile in their ability to produce a broad
array of air restraint and specialty technical fabrics for use in a large number
of applications. The ability to interchange the machines between air restraint
fabric and other specialty technical fabrics allows the Company to leverage its
utilization of 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 plants owned by its airbag module integrator
customers, which produce a substantial portion of airbag cushions for their own
consumption, but do not generally manufacture 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, along with the
Company's high volume and low-cost manufacturing capabilities, consistency and
level of quality products, the often lengthy process necessary to qualify as a
supplier to an automobile manufacturer and the industry-wide cost associated
with making any changes to the established supply chain provide a competitive
advantage for the Company in relation to other potential competitors.
The Company shares the North American airbag fabric market primarily with
Milliken, Takata-Petri, Breed and Autoliv. Takata-Petri, Breed and to a smaller
extent, Autoliv, all airbag module integrators, produce fabric for their own
airbag cushions. Requirements for entry into this market may include substantial
capital requirements and often-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
6
volume of many models of passenger, driver and side impact airbag cushions. 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 fiscal 2001, 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 more
aggressive quotes, smoother launches and more efficient production. Management
believes that 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 and dynamic deployment testing and analysis using high-speed
video equipment. In January 2001, the Company added pendulum-testing capability.
There also exists a full sample shop with manual and CNC sewing equipment, a
production-style laser cutter, volumetric 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 has access to the services and
expertise of laboratory and textile personnel 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 numerous types of fabrics (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 certifications 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, the Company has not seen a need for an
advanced Technical Center for cushions. 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 excellent prototype-manufacturing capabilities. The production
programs have high quality sewing machines, with quality focused sewing
operators.
Qualification and Quality Control
The Company is a fully qualified airbag supplier. Each of the Company's
customers requires the Company to meet specific requirements for design
validation. The Company and its customers jointly participate in design and
process validations and customers must be satisfied with the reliability and
performance prior to awarding a purchase order. All standards and requirements
relating to product performance must be satisfied before the Company is
qualified to be a supplier.
The Company has extensive quality control and quality assurance systems in
its U.S. and European 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.
In addition, the Company's Technical Center located in Hildesheim, Germany
has the ability to conduct design and process testing.
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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 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 automotive 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.
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 medium caliber training and tactical ammunition used by the
United States Armed Forces. Additionally, the Company manufactures small
quantities of metal airbag module components for the automotive airbag industry.
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 $10.5 million, $20.6 million, and $33.6 million in
fiscal 2002, fiscal 2001 and fiscal 2000, respectively, for the Galion, Valentec
Wells and VSI operations. See Note 3 to the Consolidated Financial Statements
for more information.
Disposition of Assets
On August 31, 2000, the Company finalized the sale of VSI, 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 VSI to VTECH Corporation
for approximately $2.9 million in cash.
During fiscal 2001, the Company determined to exit its remaining metal and
defense products businesses, consisting of Valentec Wells, LLC (metal products)
and Galion, Inc. (defense products). To enhance the value of these businesses,
the Company consolidated a considerable portion of its Valentec Wells operations
into its Galion, Ohio facility and relocated the remainder of Valentec Wells'
operations from its former California location to a lower cost facility in
Missouri, nearer to its primary customers.
8
On September 27, 2001, the Company finalized the sale of the metallic belt
links business of Valentec Wells, LLC. Pursuant to an asset purchase agreement
dated September 16, 2001 between Valentec Wells, LLC and Alliant Lake City Small
Caliber Ammunition Company LLC, the Company sold the metallic belt links
production assets and inventory of Valentec Wells, LLC for approximately $4.8
million in cash.
Galion, Inc. has not been sold as of March 30, 2002; however, management
is negotiating a sale which it expects to have completed by September 2002. The
net assets of discontinued operations of approximately $2.6 million at March 30,
2002 principally represent the net assets of Galion, Inc.
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 Galion 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. In addition, the Galion
operation manufactures metal airbag module components for the automotive airbag
industry.
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 apparent preference 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.
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United States Government Contracts
Virtually all of the Company's 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 its prime
defense contractors are for the supply 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 two 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.
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
and 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. Future
fluctuations in certain currency exchange rates could adversely affect the
Company's financial results. The Company monitors its risk associated with the
volatility of certain foreign currencies against its functional currency, the
U.S. dollar. The impact of changes in the relationship of other currencies to
the U.S. dollar have historically not been significant, and such changes in the
future are not expected to have a material impact on the Company's results of
operations or cash flows.
10
See Note 9 to the Consolidated Financial Statements for financial
information by geographic area.
Employees
At March 30, 2002, the Company employed approximately 2,754 employees in
its continuing operations and approximately 94 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 and a union 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 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.
Low levels of contaminants were found at the SCFTI facility in Greenville,
South Carolina during groundwater sampling in 1998. In February 1999, the
facility received a notice letter from the South Carolina Department of Health
and Environmental Control ("DHEC") regarding the groundwater contamination.
While DHEC acknowledged 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 monitoring, 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 is performing these monitoring and
in-site remediation actions and does not believe that these costs, which are
included in the amounts accrued in the Company's financial statements, will be
material. 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.
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 Company does not believe that these costs, which are included
in the amounts accrued in the Company's financial statements, will be material.
Additionally, an underground contamination involving machinery fluids
existed at the former Valentec Wells facility in Costa Mesa, California, and the
local Regional Water Quality Control Board (the "Board") approved a site
remediation plan for cleanup. The remediation plan involved the simultaneous
operation of a groundwater and vapor extraction system over the past five years.
This plan is completed and a final Closure Monitoring Report has been filed with
the Board. It is expected that the Board will approve the final Closure
Monitoring Report and issue a "no further
11
action" letter, bringing the underground contamination issue to closure. Any
additional future costs to complete closure are not expected to be significant.
In the opinion of management, no material expenditures beyond those
accrued, approximately $750,000 at March 30, 2002, 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.
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 designs and engineers its fabrics to
meet its customers' specific 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 new products
for all applications. Costs associated with design and development for fabric
and airbag cushions were approximately $899,000, $688,000 and $665,000 during
fiscal 2002, fiscal 2001 and fiscal 2000, 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 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
elsewhere herein, 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 was not repaid by VIL. During fiscal 2002, VIL did not repay the
Company and, accordingly, the Company offset the net receivable in its entirety
with the amount owed to Mr. Zummo under his employment agreement.
12
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 owns or leases five facilities in which it manufactures
airbag and technical fabrics related products, 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 (excluding its temporary occupancy of the
Woodville facility for which the lease expires on July 31, 2002) and its metal
and defense facilities (discontinued operations) as of June 25, 2002.
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 2008 (1)
Otay Mesa, California (warehouse) 16,000 Leased 2003 (5)
Metal and Defense (Discontinued Operations)
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; lease provides for a two year renewal
option
ITEM 3. LEGAL PROCEEDINGS
As described in the "2001 Restructuring", the Company emerged from
bankruptcy on October 11, 2000. However, the Chapter 11 case remains open until
all claims, disputes and pleadings are resolved before the Bankruptcy Court. At
March 30, 2002 the Company has no material disputes before the Court. The
Company is in the process of closing the Chapter 11 proceedings.
The Company, from time to time, 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
No matters were submitted to a vote of the security holders during the
quarter ended March 30, 2002.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Pursuant to the Plan discussed in Item 1, the claims of the holders of the
Notes 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 (for an aggregate of 5,000,000 shares issued and 4,960,381 shares
outstanding post-bankruptcy) 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 Company's 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 prices for reported sales 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.
High Low
---- ---
Year Ended March 31, 2001
Fourth Quarter (A) $ 4.25 $ 0.12
Year Ended March 30, 2002
First Quarter $16.00 $ 3.65
Second Quarter 10.05 5.00
Third Quarter 10.00 4.50
Fourth Quarter 8.75 5.50
(A) There were no trades of record of the Company's common stock noted to have
occurred on the Over-The-Counter Bulletin Board from the Emergence Date
until February 5, 2001.
As of June 25, 2002, there were approximately 149 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.
14
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 periods indicated. The
selected historical financial data for the year ended March 30, 2002, the period
from October 11, 2000 to March 31, 2001, the period from March 26, 2000 to
October 10, 2000, the fiscal years ended March 25, 2000, March 27, 1999 and
March 28, 1998, 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 3 to the Consolidated Financial
Statements of the Company. The Consolidated Financial Statements for the year
ended March 30, 2002 and 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 Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). As a
result of the implementation of fresh start accounting, certain of the selected
financial data for the year ended March 30, 2002 and for the period from October
11, 2000 to March 31, 2001 is not comparable to the selected financial data of
prior periods. See Note 1 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 following
information 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 Period from | Period from Fiscal Year Ended
Ended 10/11/00 to | 3/26/00 to ------------------------------------
3/30/02 3/31/01 | 10/10/00 3/25/00 3/27/99 3/28/98
(52 Weeks) (25 Weeks) | (28 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------------------------|---------------------------------------------------
INCOME STATEMENT DATA (1): |
Net sales (2) $ 203,323 $ 92,052 | $ 109,139 $ 194,667 $ 178,348 $ 130,154
Cost of sales, including depreciation 176,817 79,337 | 93,307 168,249 158,806 107,908
---------------------------|---------------------------------------------------
Gross profit 26,506 12,715 | 15,832 26,418 19,542 22,246
Selling, general and administrative expenses 11,595 5,235 | 5,941 13,443 10,487 8,550
Research and development expenses 899 335 | 353 665 1,090 357
Amortization of intangible assets 900 448 | 675 1,486 1,528 1,147
Restructuring and restatement (3) -- -- | -- 3,969 -- --
Relocation and reorganization costs (4) -- -- | -- -- 3,238 1,789
Terminated investment agreement costs (5) -- -- | -- -- 2,500 --
---------------------------|---------------------------------------------------
Operating income 13,112 6,697 | 8,863 6,855 699 10,403
Other expense (income) (1,001) (280) | 878 1,729 766 (42)
Interest expense, net (6) 4,110 2,514 | 3,833 13,975 12,566 7,540
---------------------------|---------------------------------------------------
Income (loss) from continuing operations before |
reorganization items 10,003 4,463 | 4,152 (8,849) (12,633) 2,905
Reorganization items (7) -- -- | 41,740 -- -- --
---------------------------|---------------------------------------------------
Income (loss) from continuing operations before |
income taxes 10,003 4,463 | (37,588) (8,849) (12,633) 2,905
Income tax provision (benefit) 3,397 1,769 | (17,511) 6,154 (3,321) 1,927
---------------------------|---------------------------------------------------
Income (loss) from continuing operations 6,606 2,694 | (20,077) (15,003) (9,312) 978
Discontinued operations, net of taxes: |
Loss (gain) from discontinued operations -- -- | 1,440 20,142 4,351 (2,368)
Loss (gain) on disposition of discontinued |
operations 2,517 1,444 | (214) -- -- --
Extraordinary gain, net of taxes (8) -- -- | 29,370 -- -- --
---------------------------|---------------------------------------------------
Net income (loss) $ 4,089 $ 1,250 | $ 8,067 $ (35,145) $ (13,663) $ 3,346
===========================|===================================================
PER SHARE DATA, BASIC AND DILUTED (9): |
Income from continuing operations $ 1.33 $ 0.54 |
Loss from discontinued operations (0.51) (0.29) |
------------------------- |
Net income per common share $ 0.82 $ 0.25 |
========================= |
|
Weighted average number of shares outstanding, basic |
and diluted 4,960 4,960 |
========================= |
15
Reorganized Company | Predecessor Company
------------------------|--------------------------------------
|
3/30/02 3/31/01 | 3/25/00 3/27/99 3/28/98
------------------------|--------------------------------------
BALANCE SHEET DATA: |
Working capital (10), (11) $ 3,711 $ 27,079 | $(103,105) $ 31,404 $ 26,617
Total assets (2) 125,271 130,683 | 168,695 206,748 180,134
Senior subordinated notes -- -- | 90,000 90,000 90,000
Long term debt, net of current portion (11) 12,182 43,541 | 15,145 53,109 22,954
Stockholders' equity (deficit) 55,838 51,943 | (14,440) 22,456 36,532
- ----------
Notes to Selected Financial Data:
(1) The Company did not declare dividends during any of the periods or fiscal
years presented.
(2) The growth in net sales and total assets between fiscal years 1998 and
1999 is attributable to the acquisition of the SCFTI facility in
Greenville, South Carolina on July 24, 1997.
(3) 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.
(4) 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 Company's China
facility (1999) and relocate the corporate headquarters to the Company's
Greenville, South Carolina facility (1999).
(5) During fiscal 1999, after exploring a variety of strategic alternatives,
the Company entered into an 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.
(6) 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. 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.
(7) 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.
(8) 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
Company's prior credit facility during the period.
(9) 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.
(10) 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.
(11) The decrease in working capital and long-term debt, net of current
portion, at March 30, 2002 is principally due to the classification of the
Company's Subordinated Secured Note due October 11, 2002, with an
outstanding balance of $18.9 million at March 30, 2002, as a current
liability at March 30, 2002. The Company intends to refinance the
Subordinated Secured Note prior to its maturity on October 11, 2002.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a leading low-cost independent supplier of automotive
airbag fabric and cushions, with operations in North America and Europe. The
following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, appearing elsewhere in this
report. Except for the historical information contained herein, the discussions
in this document contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties. The Company's actual results could differ materially from those
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed under "Cautionary
Statement Pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995" regarding forward-looking information at the
beginning of this Form 10-K and from time to time, in the Company's other
filings with the Securities and Exchange Commission.
Critical Accounting Policies
The following discussion and analysis of financial condition and results
of operations are based on the Company's Consolidated Financial Statements. A
summary of significant accounting policies is disclosed in Note 2 to the
Consolidated Financial Statements. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates, assumptions and judgments.
Estimates and assumptions are based on historical data and other
assumptions that management believes are reasonable in the circumstances. These
estimates and assumptions affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
financial statements. In addition, they affect the reported amounts of revenues
and expenses during the reported period.
Judgments are based on management's assessment as to the effect certain
estimates, assumptions or future trends or events may have on the financial
condition and results of operations reported in the Consolidated Financial
Statements. It is important that the reader of the financial statements
understand that actual results could differ from these estimates, assumptions
and judgments.
In addition, judgment is involved in determining which accounting policies
and estimates would be considered as "critical". Because the Company does
business with generally large, well-established customers, the Company has not
historically been, nor is it expected in the future to be, exposed to
significant bad debt or inventory losses. Accordingly, the estimates of the
allowance for bad debts and of inventory reserves are not considered to be
critical accounting policies or estimates. In addition, the Company emerged from
bankruptcy in October 2000, revalued its tangible assets at that time, has
positive cash flow and is expanding its business operations. Accordingly,
estimates of tangible asset impairment are not considered to be a critical
accounting policy or estimate. We believe the following critical accounting
policy contains the most significant judgments and estimates used in the
preparation of the Consolidated Financial Statements.
Discontinued Operations. As discussed in Notes 1 and 3, we have reported
the metal and defense businesses as discontinued operations in our Consolidated
Financial Statements as of October 10, 2000, or the measurement date, and
through March 30, 2002. The Company sold a portion of the discontinued
operations in September 2001, and at March 30, 2002, only Galion remains as a
discontinued operation. Continuing to report Galion as a discontinued operation
at March 30, 2002 required the Company to make estimates regarding (1) the
results of operations to the expected disposal date and (2) the expected
proceeds to be received upon sale. Based on the Company's determination that
losses were expected both from operations and upon disposal, the Company accrued
substantial charges for future losses in the period from March 26, 2000 to
October 10, 2000, the period from October 11, 2000 to March 31, 2001 and the
year ended March 30, 2002. Accordingly, the businesses' net losses during the
period from October 11, 2000 to March 31, 2001 and for the year ended March 30,
2002, which were incurred subsequent to the measurement date, have been applied
against the accrued losses and have not been recognized as losses as incurred in
our Consolidated Statements of Operations. For the year ended March 30, 2002,
the period from October 11, 2000 to March 31, 2001, the period from March 26,
2000 to October 10, 2000 and the year ended March 25, 2000, operating (losses)
gains of Galion were ($197,000), $140,000, $(200,000) and $(52,000),
respectively, and are deferred and included as a component of net assets held
for sale in the consolidated balance sheet and accordingly have not been
recognized as losses in the consolidated statements of operations. A reversal of
discontinued operations reporting resulting from, among other things, a failure
to consummate a sale of Galion, would require us to reverse the charges to
discontinued operations recorded in 2001 and 2002 and recognize the losses in
our Consolidated Statements of Operations as incurred. The
17
balance of "Net assets held for sale" of $2.6 million at March 30, 2002
principally represents management's best estimate, based on information
available to management at this time, of (1) the future operations of Galion and
(2) the expected proceeds to be received upon sale.
Results of Operations
On October 10, 2000, the Company consummated the Plan as discussed in the
Consolidated Financial Statements and the Notes thereto. Accordingly, the
Consolidated Financial Statements for the fifty-two weeks ended March 30, 2002
and 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 fifty-two weeks ended
March 30, 2002 and the period from October 11, 2000 to March 31, 2001 are not
comparable to prior periods.
Acquisition
On November 2, 2001, the Company's U.K. subsidiary, Automotive Safety
Components International Limited, acquired the airbag business (operated under
the name of Woodville Airbag Engineering) of TISPP UK Limited, a subsidiary of
Smiths Group PLC, to expand its European operations. Such acquisition
contributed $7.8 million in sales and had a negative impact of $1.1 million on
gross profit and $1.5 million on operating income for the period from November
3, 2001 to March 30, 2002.
The following table summarizes operating results of the Company for fiscal
2002, 2001 and 2000 (in thousands):
Combined
Reorganized and
Reorganized Predecessor Reorganized
Company Company Company Predecessor Company
-------------------------------------------|----------------------------
Fifty-two Fifty-three Period from | Period from Fifty-two
Weeks Ended Weeks Ended 10/11/00 | 3/26/00 Weeks Ended
3/30/02 3/31/01 to 3/31/01 | to 10/10/00 3/25/00
-------------------------------------------|----------------------------
Net sales $ 203,323 $ 201,191 $ 92,052 | $ 109,139 $ 194,667
Gross profit 26,506 28,547 12,715 | 15,832 26,418
Income from operations 13,112 15,560 6,697 | 8,863 6,855
Other (income) expense, net (1,001) 598 (280) | 878 1,729
Interest expense, net 4,110 6,347 2,514 | 3,833 13,975
Reorganization items -- 41,740 -- | 41,740 --
Income tax provision (benefit) 3,397 (15,742) 1,769 | (17,511) 6,154
Loss on discontinued operations, net of |
taxes (2,517) (2,670) (1,444) | (1,226) (20,142)
Extraordinary gain, net of taxes -- 29,370 -- | 29,370 --
Net income (loss) $ 4,089 $ 9,317 $ 1,250 | $ 8,067 $ (35,145)
Results of operations for the fifty-two week period ended March 30, 2002
and March 25, 2000 contain one less week of operations as compared to the
fifty-three week period ended March 31, 2001 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 3 to the
Consolidated Financial Statements for further information on the discontinued
operations.
18
The following table sets forth certain operating results as a percentage
of net sales for the periods indicated:
Combined
Reorganized and
Reorganized Predecessor Predecessor
Company Company Company
---------------------------------------------
Fifty-two Fifty-three Fifty-two
Weeks Ended Weeks Ended Weeks Ended
3/30/02 3/31/01 3/25/00
---------------------------------------------
Net sales 100.0% 100.0% 100.0%
Gross profit 13.0 14.2 13.6
Income from operations 6.4 7.7 3.5
Interest expense, net 2.0 3.2 7.2
Income tax provision (benefit) 1.7 (7.8) 3.2
Net income (loss) 2.0 4.6 (18.1)
The Consolidated Financial Statements for the period subsequent to the
consummation of the Plan (fifty-two weeks ended March 30, 2002 and 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 of the Reorganized
and Predecessor Company for the period from March 26, 2000 to March 31, 2001
(fiscal 2001) above and therefore this discussion addresses such combined
information.
Fifty-two Weeks Ended March 30, 2002 Compared to Fifty-three Weeks Ended March
31, 2001
Net Sales. Net sales increased by $2.1 million or 1.1% to $203.3 million
in fiscal 2002 compared to fiscal 2001. The increase is attributable to the
acquisition of Woodville, offset by one less week of operations compared to the
prior year and a decrease in sales of technical fabric products. North American
operations showed decreased sales of $3.9 million or 3.0% for airbag cushions
and airbag and technical fabrics products over the prior fiscal year. One less
week of operations resulted in a reduction of $2.4 million in net sales. The
remaining $1.5 million decrease is attributed to the weaker demand for technical
fabrics products. European operations experienced increased net sales of $6.0
million or 8.3% over the prior fiscal year. The increase in European operations
includes $7.8 million in net sales from the acquisition of Woodville, offset by
one less week of operations, representing $1.4 million in decreased net sales.
The remaining decrease of approximately $400,000 is due to the postponement of
new programs replacing expired product lines. Such programs were in production
at the beginning of fiscal 2003.
Gross Profit. Gross profit decreased by $2.0 million or 7.2% to $26.5
million in fiscal 2002 compared to fiscal 2001. The decrease in gross profit is
attributed to $1.1 million in losses associated with the initial ramp up of new
programs at Woodville, price adjustments on existing product lines of our
customers of $1.3 million and an approximate $300,000 decline due to one less
week of operations. Fiscal 2001 included a charge of $710,000 resulting from the
application of fresh start accounting to record inventory at its fair value.
Gross profit as a percentage of net sales decreased to approximately 13.0% from
14.2% for the prior fiscal year. The decrease as a percentage of net sales was
due to the items discussed above.
Income from Operations. Income from operations decreased by $2.4 million
or 15.7% to $13.1 million in fiscal 2002 compared to fiscal 2001. The decrease
is attributable to the $2.0 million decrease in gross profit discussed above in
addition to approximately $400,000 of re-qualification and other costs incurred
in preparation of the relocation of the Woodville operation to other Company
facilities. The relocation of the Woodville operations is expected to reduce
future production costs. Income from operations as a percentage of net sales
decreased to 6.4% for fiscal 2002 from 7.7% for fiscal 2001. The decrease as a
percentage of net sales was primarily a result of the items discussed above.
Other (Income) Expense, net. The Company recorded other income of $1.0
million for fiscal year 2002 as compared to other expense of $598,000 for fiscal
year 2001. The Company recorded net foreign transaction gains of $756,000 during
the year, while net foreign transaction losses of $639,000 were recorded in the
prior year.
19
Interest Expense, net. Interest expense decreased $2.2 million or 35.2% to
$4.1 million in fiscal 2002 compared to fiscal 2001. The decrease is
attributable to the Company's lower average outstanding balances on its
revolving credit facility and other long-term debt during the year, as well as
lower interest rates.
Reorganization Items. In fiscal 2001, professional fees and expenses were
included in Reorganization Items totaling $3.7 million. Such expenses represent
fees and expenses of the Company's various legal and financial advisors, the
financial and legal advisors for the Company's 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.
Provision for Income Taxes. The provision for income taxes primarily
represents taxes on results of continuing operations in the United States. The
Company's effective tax rate for fiscal 2002 was 34%. This overall effective tax
rate is favorably impacted by the utilization of certain net operating loss
carryforward credits at certain of the Company's foreign operating subsidiaries
during fiscal 2002. Income taxes for fiscal 2001 reflect a benefit principally
due to fresh start and other reorganization adjustments and adjustments for
deferred tax valuation allowances previously established against deferred tax
assets.
Discontinued Operations. The fiscal 2002 loss of $4.2 million (before
income tax benefit of $1.7 million) is principally the result of additional
reserves for discontinued operations due to a $6.6 million operating loss on
Valentec Wells, LLC (including approximately $1.7 million for its relocation)
prior to its sale in September 2001, a $2.9 million gain on the sale of Valentec
Wells, LLC, and an approximate $200,000 operating loss on Galion, Inc. during
the year. See Note 3 to the Consolidated Financial Statements for further
information concerning discontinued operations.
Extraordinary Gain. In fiscal 2001, 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 a prior credit facility.
Net Income. Net income was $4.1 million in fiscal 2002 compared to a net
income of $9.3 million in fiscal 2001. This decrease in earnings resulted from
the items discussed above.
Fifty-three Weeks Ended March 31, 2001 Compared to Fifty-two Weeks Ended March
25, 2000
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
20
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, net. 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, net. 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.
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 Company's 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.
Provision for 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 VSI 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.
21
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 estimates that it will spend approximately $9.7
million for capital projects in fiscal 2003. 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.
Credit Facilities
The Company has available a three-year, $35.0 million, revolving credit
facility with Congress Financial Corporation (Southern) (the "Congress
Facility"), expiring October 11, 2003. 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 eligible raw
materials. Included within borrowings permitted under the Congress Facility (and
its borrowing limitations) are $4.9 million in term loans which are to be repaid
in equal monthly installments of approximately $112,000, with the unpaid
principal amount due on October 11, 2003, unless the Congress Facility is
renewed at that time. Also included within the borrowings permitted under the
Congress Facility is a $3.0 million letter of credit facility, through which the
Company had $0 and $350,000 of letters of credit outstanding at March 30, 2002
and March 31, 2001, respectively. At March 30, 2002, the Company's availability
for additional borrowings (under the maximum allowable limit) was approximately
$30.1 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 the prime rate
or LIBOR rate, in each case with an applicable margin applied to the rate. At
March 30, 2002, the margin on prime rate loans was 0.0% and the margin on LIBOR
rate loans was 2.0%. The Company is required to pay a monthly commitment fee of
0.375% on the unused portion of the Congress Facility.
The Company's $18.9 million subordinated secured note facility (the
"Subordinated Facility") with KeyBank National Association and Fleet Bank
expires on October 11, 2002; accordingly, such amount was classified in the
current portion of long term debt as of March 30, 2002. The Company has
commenced the process of negotiating a replacement for this facility and,
although no assurances can be given in this regard, believes that it will be
able to successfully negotiate a replacement for the facility prior to October
2002.
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 30, 2002, the Company
estimates $1.7 million in prepayments are required within 90 days following the
end of fiscal 2002. 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
paid 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 30, 2002 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.
Other Long-term Obligations
On March 28, 2002, the Company as guarantor, its Czech subsidiary and HVB
Bank Czech Republic, successor to Bank Austria, entered into an amendment to its
$7.5 million mortgage note facility dated June 4, 1997. This amendment extends
the mortgage facility for five years, bears interest at a rate of 1.7% over
EURIBOR (EURIBOR was 2.92% at March 30, 2002), requires monthly payments of
approximately $62,500 and is secured by the real estate assets of the Company's
subsidiary in the Czech Republic.
On November 2, 2001, pursuant to the Woodville purchase agreement between
ASCIL and TISPP UK Limited, ASCIL agreed to payments totaling approximately $2.3
million, with $846,000 paid on May 2, 2002 and $1.4
22
million to be paid on November 2, 2002, relating to the acquisition of
substantially all of the production assets and inventory of the airbag business
of TISPP UK Limited. The payments are non-interest bearing and were discounted
to present value using an imputed interest rate of 5.00%.
On April 1, 1999, the Company's German subsidiary 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 $1.7 million) and subsequently supported
by a cash collateral deposit of approximately $891,000. The note consists of two
tranches. Tranche A totals approximately $1.0 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.
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 (3.86% at March 30, 2002), requires
monthly payments of approximately $150,000 and is secured by certain equipment
located at SCFTI.
Contractual Obligations
The following table aggregates the Company's contractual obligations
(including those described above) related to long-term debt, non-cancelable
leases and other obligations at March 30, 2002.
As of March 30, 2002
--------------------------------------------------------------------
Total 2003 2004 2005 2006 2007 Thereafter
--------------------------------------------------------------------
Contractual obligations
Credit facility $ 4,919 $ 1,348 $1,348 $1,348 $ 875 $ -- $ --
Other long-term debt 32,001 23,600 2,516 2,628 1,517 933 807
Capital lease obligations 443 233 120 90 -- -- --
Operating lease commitments 2,910 1,192 446 340 318 310 304
--------------------------------------------------------------------
Total $40,273 $26,373 $4,430 $4,406 $2,710 $1,243 $1,111
====================================================================
The Company's SCFTI subsidiary had an operating lease for certain weaving
equipment that expired at the end of May 2002. On May 16, 2002, the Company
exercised its option under the lease to purchase the equipment for approximately
$1.0 million.
Cash Flows
During fiscal 2002, net cash provided by operating activities from
continuing operations was $23.3 million, arising from income from continuing
operations of $6.6 million, non-cash items of $9.8 million (principally
depreciation and amortization and changes in deferred taxes) and changes in
operating assets and liabilities of $6.9 million (principally an increase in
accounts payable due to better terms from creditors post-restructuring and the
Woodville acquisition). Net cash used by continuing operations for investing
activities was $7.3 million, of which $1.8 million was used for the acquisition
of Woodville. The remaining $5.5 million was used for the acquisition of
additional property, plant and equipment to expand the Company's production
capacity worldwide. Net cash used by continuing operations for financing
activities in fiscal 2002 was $17.1 million, principally reflecting payments on
the Congress Facility of $12.2 million. In addition, total payments on the
Subordinated Facility were $2.0 million, along with payments on various other
debt and long term obligations totaling $3.0 million. The above activities, in
conjunction with the unfavorable effects of foreign exchange rates of $509,000
and the cash used by discontinued operations of $675,000, resulted in a net
decrease in cash and cash equivalents of $2.3 million in fiscal year 2002.
23
New Accounting Pronouncements
Accounting Standard Adopted - In June 2001, the FASB issued SFAS 141,
"Business Combinations". SFAS 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting. It
also specifies the types of acquired intangible assets that are required to be
recognized and reported separate from goodwill. This standard was applied to the
accounting and disclosure for the acquisition of Woodville.
Accounting Standards Adopted After Year End - In July 2001, the FASB
issued SFAS 142, "Goodwill and Other Intangible Assets". This new standard
requires that upon adoption, amortization of goodwill (in the Company's case,
primarily its "Reorganization value in excess of amounts allocable to
identifiable assets") and indefinite lived intangible assets will cease and
instead, the carrying value of such assets will be evaluated for impairment on
an annual basis. Identifiable intangible assets will continue to be amortized
over their useful lives and reviewed for impairment. The Company will adopt SFAS
142 on March 31, 2002, the beginning of fiscal year 2003. Based on the Company's
preliminary determination of the effect of adopting SFAS 142, management
believes that the unamortized balance of its excess reorganization value, $14.6
million at March 30, 2002 will be written off as a change in method of
accounting from adoption of a new accounting standard on March 31, 2002, the
first day of fiscal 2003.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial reporting for the
impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS 121 and
the accounting and reporting provisions of APB 30 related to the disposal of a
segment of a business. The Company will adopt SFAS 144 with the beginning of
fiscal year 2003. The Company is evaluating the impact of the adoption of SFAS
144 and has not yet determined the effect that the adoption of the standard will
have on the Company's financial position and results of operations.
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 Company's revolving credit
facility are outstanding, the Company has market risk relating to such amounts
because the interest rates under the Congress Facility are variable. As of June
25, 2002, the Company's interest rates under its revolving credit facility
approximated 4.5%. 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 would result in an addition to or reduction in interest
expense of approximately $100,000 on an annual basis.
The Company's operations in Mexico, Germany, the United Kingdom and the
Czech Republic expose the Company to currency exchange rate risks. Safety
Components monitors its risk associated with the volatility of certain foreign
currencies against its functional currency, the U.S. dollar. The impact of
changes in the relationship of other currencies to the U.S. dollar have
historically not been significant, and such changes in the future are not
expected to have a material impact on the Company's results of operations or
cash flows. If, however, there were a sustained decline of these currencies
versus the U.S. dollar, the Consolidated Financial Statements could be
materially adversely affected.
On December 18, 2001, the Company entered into two forward exchange
contracts with aggregate notional amounts totaling 1.5 million British pounds,
to buy British pounds for periods and amounts consistent with the related
underlying obligation of its U.K. subsidiary for the May 2, 2002 and the
November 2, 2002 scheduled payments on the note for the acquisition of
Woodville. The changes in fair value of these contracts are being recognized in
results of operations because the forward contracts did not qualify as a cash
flow hedge under SFAS 133. There was no significant impact on earnings resulting
from the forward contracts for the fifty-two weeks ended March 30, 2002 because
the fair value of the forward foreign exchange contracts was not significant at
March 30, 2002.
The Company does not enter into financial instruments for trading or
speculative purposes.
24
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 2002
Annual Meeting Proxy Statement to be filed hereafter 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 (5)
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. (6)
3.1 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of Safety Components
International, Inc. (7)
3.2 Amended Bylaws of Safety Components International, Inc. (8)
4.1 Restructuring Agreement dated April 6, 2000 between Safety
Components International, Inc., Robert A. Zummo and the
consenting holders signatory thereto (3)
4.2 First Amendment to Restructuring Agreement dated as of May 10,
2000 between Safety Components and the consenting holders
signatory thereto (4)
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. (1)
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) (9)
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 (10)
*10.4 Safety Components International, Inc. 2001 Stock Option Plan
(11)
*10.5 Employment agreement, effective May 18, 2001 between Safety
Components International, Inc. and John C. Corey (11)
*10.6 Employment agreement, effective May 18, 2001 between Safety
Components International, Inc. and Brian P. Menezes (11)
*10.7 Employment agreement, effective May 18, 2001 between Safety
Components International, Inc. and Stephen B Duerk (11)
*10.8 Form of Stock Option Agreement (11)
*10.9 Form of Severance Letter (11)
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 (11)
26
*10.12 Employment agreement, effective April 19, 1999, between Safety
Components International, Inc. and Robert A. Zummo (11)
*10.13 Employment agreement, effective March 29, 1999, between Safety
Components International, Inc. and John C. Corey (11)
*10.14 Employment agreement, effective August 23, 1999, between
Safety Components International, Inc. and Brian P. Menezes
(11)
*10.15 Employment agreement, dated as of June 1, 1998 between Safety
Components International, Inc. and Stephen Duerk (2)
*10.17 Safety Components International, Inc. Executive Deferral
Program (12)
*10.18 Amendment No. 1 to the Safety Components International, Inc.
Executive Deferral Program (12)
*10.19 Amendment dated June 27, 2001 to Employment Agreement, dated
May 18, 2001 between Safety Components International, Inc. and
John C. Corey (12)
*10.20 Amendment dated June 27, 2001 to Employment Agreement, dated
May 18, 2001 between Safety Components International, Inc. and
Brian P. Menezes (12)
10.21 Amendment No. 1 and Consent to Loan and Security Agreement,
dated November 2, 2001, by and among Safety Components
International, Inc., the subsidiaries named therein as
Borrowers and Guarantors and Congress Financial Corporation
(Southern) (13)
*10.22 Safety Components International, Inc. 2002 Management
Incentive Bonus Program
10.23 Amendment No.1, dated March 28, 2002, to the Credit Facility
Agreement dated May 29, 1997 between Automotive Safety
Components International s.r.o. and HVB Bank Czech Republic
a.s.
10.24 Letter of Guarantee, dated March 28, 2002, between Safety
Components International, Inc. and HVB Bank Czech Republic
a.s.
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 September 26, 1998 (as exhibit 10.50).
(2) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 26, 1998 (as exhibit 10.49).
(3) Incorporated by reference to the Company's Current Report on Form
8-K, filed with the Commission on April 13, 2000.
(4) Incorporated by reference to the Company's Current Report on Form
8-K, filed with the Commission on May 19, 2000.
(5) 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).
(6) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 2.4).
(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 3.5).
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 3.6).
(9) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 10.68).
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended October 10, 2000 (as exhibit 10.69).
(11) Incorporated by reference to the Company's Annual Report on Form
10-K, for the fiscal year ended March 31, 2001.
(12) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 29, 2001.
(13) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended December 29, 2001.
27
(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 2002.
28
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
and President
Date: June 25, 2002
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 25, 2002
- -------------------------- President and Director
John C. Corey
/s/ Carroll R. Wetzel, Jr. Director, Chairman of the Board June 25, 2002
- --------------------------
Carroll R. Wetzel, Jr.
/s/ Brian P. Menezes Vice President, Chief Financial June 25, 2002
- -------------------------- Officer (Principal Financial Officer)
Brian P. Menezes
/s/ William F. Nelli Corporate Controller June 25, 2002
- --------------------------
William F. Nelli
/s/ Ben E. Waide III Director June 25, 2002
- --------------------------
Ben E. Waide III
/s/ W. Allan Hopkins Director June 25, 2002
- --------------------------
W. Allan Hopkins
/s/ Andy Goldfarb Director June 25, 2002
- --------------------------
Andy Goldfarb
29
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 30, 2002 and March 31, 2001 F-4
Consolidated Statements of Operations for the Year ended March 30, 2002,
the period from October 11, 2000 to March 31, 2001 (Reorganized
Company), the period from March 26, 2000 to October 10, 2000 and
the Year ended March 25, 2000 (Predecessor Company) F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Year
ended March 30, 2002, the period from October 11, 2000 to March 31, 2001
(Reorganized Company), the period from March 26, 2000 to October 10,
2000 and the Year ended March 25, 2000 (Predecessor
Company) F-6
Consolidated Statements of Cash Flows for the Year ended March 30, 2002,
the period from October 11, 2000 to March 31, 2001 (Reorganized
Company), the period from March 26, 2000 to October 10, 2000 and the
Year ended March 25, 2000 (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 sheets of Safety
Components International, Inc. and subsidiaries (the "Company") as of March 30,
2002 and March 31, 2001 (Reorganized Company balance sheets), and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year ended March 30, 2002 (Reorganized Company operations), 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 audits also included the financial statement schedule for the
year ended March 30, 2002 (Reorganized Company), 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 audits. The financial statements of the Predecessor Company for the year
ended March 25, 2000, prior to the reclassification for discontinued operations
discussed in Note 3 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 audits 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 audits provide 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 subsequent to October
10, 2000 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 1.
In our opinion, such Reorganized Company consolidated financial statements
present fairly, in all material respects, the financial position of the Company
at March 30, 2002 and March 31, 2001, and the results of its operations and its
cash flows for the year ended March 30, 2002, and 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 referred to above 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 year ended March 30, 2002 (Reorganized Company), 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 3 to the financial statements
that were applied to reclassify the Predecessor Company financial statements for
the year ended March 25, 2000 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 4, 2002
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-3A
SPECIAL NOTE REGARDING OUR FORMER AUDITORS
The Company's consolidated financial statements for the year ended March 25,
2000, included in this filing on Form 10-K, were audited by Arthur Andersen LLP.
(On April 10, 2000, the Company filed a voluntary petition under Chapter 11 of
the U.S. Bankruptcy Code. The Company emerged from bankruptcy protection on
October 11, 2000.) On June 15, 2002, Arthur Andersen was convicted on charges of
federal obstruction of justice arising from the government's investigation of
Enron Corporation. The SEC recently has provided regulatory relief designed to
allow companies that file reports with the SEC to dispense with the requirement
to obtain an audit opinion of Arthur Andersen in certain circumstances. The
Company has not been able to obtain, after reasonable efforts, the written
consent to the reissuance of Arthur Andersen's audit opinion for the
consolidated financial statements for the year ended March 25, 2000, as required
by SEC rules. Accordingly, investors in the Company will not have legal recourse
against Arthur Andersen and therefore an investor's right of recovery may be
limited as a result of the lack of consent to the reissuance of Arthur
Andersen's audit opinion.
F-3B
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 30, March 31,
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 2,692 $ 4,994
Accounts receivable, net .......................................................... 35,056 32,730
Receivable from affiliate, net .................................................... -- 564
Inventories, net .................................................................. 16,774 16,626
Prepaid and other ................................................................. 2,521 4,403
--------- ---------
Total current assets ......................................................... 57,043 59,317
Property, plant and equipment, net ..................................................... 48,044 45,555
Reorganization value in excess of amounts allocable to identifiable assets, net ........ 14,576 15,111
Intangible assets, net ................................................................. 1,071 1,118
Other assets ........................................................................... 1,900 2,015
Net assets held for sale ............................................................... 2,637 7,567
--------- ---------
Total assets ................................................................. $ 125,271 $ 130,683
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................. $ 18,516 $ 11,962
Accrued and other current liabilities ............................................. 9,635 11,751
Current portion of long-term debt ................................................. 25,181 8,525
--------- ---------
Total current liabilities .................................................... 53,332 32,238
Long-term debt ......................................................................... 12,182 43,541
Other long-term liabilities ............................................................ 3,919 2,961
--------- ---------
Total liabilities ............................................................ 69,433 78,740
--------- ---------
Commitments and Contingencies
Stockholders' equity:
Preferred stock: 5,000,000 shares authorized and unissued ......................... -- --
Common stock: $.01 par value per share - 20,000,000 shares authorized; 5,000,000
shares issued and 4,959,678 and 4,960,381 shares outstanding, respectively ...... 50 50
Common stock warrants ............................................................. 34 34
Additional paid-in-capital ........................................................ 50,916 50,916
Treasury stock: 40,322 and 39,619 shares at cost, respectively .................... (411) (404)
Retained earnings ................................................................. 5,339 1,250
Accumulated other comprehensive (loss) income ..................................... (90) 97
--------- ---------
Total stockholders' equity ................................................... 55,838 51,943
--------- ---------
Total liabilities and stockholders' equity ................................... $ 125,271 $ 130,683
========= =========
See notes to consolidated financial statements.
F-4
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Reorganized Company Predecessor Company
------------------------------- | ------------------------------
Year ended Period from | Period from Year ended
March 30, October 11, 2000 | March 26, 2000 March 25,
2002 to March 31, 2001 | to October 10, 2000 2000
------------- ----------------- | ------------------- ----------
Net sales ......................................................... $ 203,323 $ 92,052 | $ 109,139 $ 194,667
Cost of sales, excluding depreciation ............................. 169,527 76,201 | 89,406 160,804
Depreciation ...................................................... 7,290 3,136 | 3,901 7,445
--------- -------- | --------- ---------
Gross profit ............................................ 26,506 12,715 | 15,832 26,418
|
Selling and marketing expenses .................................... 1,784 931 | 1,074 3,153
General and administrative expenses ............................... 9,811 4,304 | 4,867 10,290
Research and development expenses ................................. 899 335 | 353 665
Amortization of intangible assets ................................. 900 448 | 675 1,486
Restructuring and restatement ..................................... -- -- | -- 3,969
--------- -------- | --------- ---------
Income from operations .................................. 13,112 6,697 | 8,863 6,855
Other (income) expense, net ....................................... (1,001) (280) | 878 1,729
Interest expense, net (contractual interest of |
$8,486 during the period from March 26, 2000 |
to October 10, 2000) ...... .................................. 4,110 2,514 | 3,833 13,975
--------- -------- | --------- ---------
Income (loss) from continuing operations before |
reorganization items ...... ....................... 10,003 4,463 | 4,152 (8,849)
|
Reorganization items: |
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 tax provision (benefit) ................. 10,003 4,463 | (37,588) (8,849)
|
Provision (benefit) for income taxes .............................. 3,397 1,769 | (17,511) 6,154
--------- -------- | --------- ---------
Income (loss) from continuing operations ................ 6,606 2,694 | (20,077) (15,003)
|
Discontinued operations: |
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
Loss (gain) on disposition of discontinued operations, |
net of income tax benefit of $1,661 and $848, |
and provision of $125, respectively .... ..................... 2,517 1,444 | (214) --
--------- -------- | --------- ---------
Income (loss) before extraordinary gain ................. 4,089 1,250 | (21,303) (35,145)
|
Extraordinary gain on early extinguishment of debt, |
net of income taxes of $17,473 .. ............................ -- -- | 29,370 --
--------- -------- | --------- ---------
Net income (loss) ................................................. $ 4,089 $ 1,250 | $ 8,067 $ (35,145)
========= ======== | ========= =========
|
Net income per common share, basic and diluted: (A) |
Income from continuing operations ....................... $ 1.33 $ 0.54 |
Loss from discontinued operations ....................... (0.51) (0.29) |
--------- -------- |
Net income per share, basic and diluted ........................... $ 0.82 $ 0.25 |
========= ======== |
|
Weighted average number of shares outstanding, |
basic and diluted (A) ... .................................... 4,960 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.
See notes to consolidated financial statements.
F-5
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share)
Common Common Common Additional Treasury Retained
Stock Stock Stock Paid-in Stock Earnings
Shares Amount Warrants Capital Amount (Deficit)
---------- ------ -------- ---------- -------- --------
Predecessor Company
Balance at March 27, 1999 ......................... 5,136,316 $ 66 $ 1 $45,168 $(15,439) $ (1,134)
Comprehensive loss for the year ended
March 25, 2000:
Net loss ................................. -- -- -- -- -- (35,145)
Foreign currency translation adjustment .. -- -- -- -- -- --
Net comprehensive loss ........................ -- -- -- -- -- --
Issuance of common stock warrants ............. -- -- 50 -- -- --
---------- ---- ---- ------- -------- --------
Balance at March 25, 2000 ......................... 5,136,316 66 51 45,168 (15,439) (36,279)
Comprehensive income for the period from
March 26, 2000 to October 10, 2000:
Net income ............................... -- -- -- -- -- 8,067
Foreign currency translation adjustment .. -- -- -- -- -- --
Net comprehensive income ...................... -- -- -- -- -- --
Fresh start adjustments ....................... (5,136,316) (66) (51) -- 15,439 28,212
Issuance of common stock and warrants ......... 5,000,000 50 34 5,748 -- --
Treasury stock held by subsidiary ............. (39,619) -- -- -- (404) --
---------- ---- ---- ------- -------- --------
Balance at October 10, 2000 ....................... 4,960,381 50 34 50,916 (404) --
Reorganized Company
Comprehensive income for the period from
October 11, 2000 to March 31, 2001:
Net income ............................... -- -- -- -- -- 1,250
Foreign currency translation adjustment .. -- -- -- -- -- --
Net comprehensive income ...................... -- -- -- -- -- --
---------- ---- ---- ------- -------- --------
Balance at March 31, 2001 ......................... 4,960,381 50 34 50,916 (404) 1,250
Comprehensive income for the year ended
March 30, 2002:
Net income ............................... -- -- -- -- -- 4,089
Foreign currency translation adjustment .. -- -- -- -- -- --
Net comprehensive income ...................... -- -- -- -- -- --
Treasury stock held by the Company ............ (703) -- -- -- (7) --
---------- ---- ---- ------- -------- --------
Balance at March 30, 2002 ......................... 4,959,678 $ 50 $ 34 $50,916 $ (411) $ 5,339
========== ==== ==== ======= ======== ========
Accumulated
Other
Comprehensive
(Loss) income Total
------------- --------
Predecessor Company
Balance at March 27, 1999 ......................... $ (6,206) $ 22,456
Comprehensive loss for the year ended
March 25, 2000:
Net loss ................................. -- (35,145)
Foreign currency translation adjustment .. (1,801) (1,801)
--------
Net comprehensive loss ........................ -- (36,946)
Issuance of common stock warrants ............. -- 50
-------- --------
Balance at March 25, 2000 ......................... (8,007) (14,440)
Comprehensive income for the period from
March 26, 2000 to October 10, 2000:
Net income ............................... -- 8,067
Foreign currency translation adjustment .. (3,707) (3,707)
--------
Net comprehensive income ...................... -- 4,360
Fresh start adjustments ....................... 11,714 55,248
Issuance of common stock and warrants ......... -- 5,832
Treasury stock held by subsidiary ............. -- (404)
-------- --------
Balance at October 10, 2000 ....................... -- 50,596
Reorganized Company
Comprehensive income for the period from
October 11, 2000 to March 31, 2001:
Net income ............................... -- 1,250
Foreign currency translation adjustment .. 97 97
--------
Net comprehensive income ...................... -- 1,347
-------- --------
Balance at March 31, 2001 ......................... 97 51,943
Comprehensive income for the year ended
March 30, 2002:
Net income ............................... -- 4,089
Foreign currency translation adjustment .. (187) (187)
--------
Net comprehensive income ...................... -- 3,902
Treasury stock held by the Company ............ -- (7)
-------- --------
Balance at March 30, 2002 ......................... $ (90) $ 55,838
======== ========
See notes to consolidated financial statements.
F-6
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Reorganized Company |
---------------------------------- |
Period from |
Year ended October 11, 2000 |
March 30, 2002 to March 31, 2001 |
-------------- ----------------- |
Cash Flows From Operating Activities: |
Net income (loss) ................................................................ $ 4,089 $ 1,250 |
Loss from discontinued operations ................................................ -- -- |
Loss (gain) on disposition of discontinued operations ............................ 2,517 1,444 |
Extraordinary gain on early extinguishment of debt ............................... -- -- |
-------- -------- |
Income (loss) from continuing operations ......................................... 6,606 2,694 |
Adjustments to reconcile income (loss) from continuing |
operations to net cash provided by (used in) operating activities: |
Reorganization items: |
Fair value adjustments .................................................... -- -- |
Loss on revaluation of senior subordinated notes .......................... -- -- |
Interest received on accumulated cash due to Chapter 11 proceeding ........ -- -- |
Depreciation ................................................................ 7,290 3,136 |
Amortization ................................................................ 900 448 |
Provision for bad debts ..................................................... 144 608 |
(Gain) loss on disposal and write-off of fixed assets and investments ....... 174 (34) |
Deferred taxes .............................................................. 1,399 -- |
Accretion of interest on current obligations ................................ (60) -- |
Changes in operating assets and liabilities: |
Accounts receivable and receivable from affliate ........................ (1,718) (1,285) |
Inventories ............................................................. 501 2,104 |
Prepaid and other current assets ........................................ 1,539 1,218 |
Other assets ............................................................ 110 (927) |
Accounts payable ........................................................ 6,554 (6,382) |
Accrued liabilities ..................................................... (127) (2,068) |
-------- -------- |
Net cash provided by (used in) continuing operations ...................... 23,312 (488) |
Net cash used in discontinued operations .................................. (3,752) (178) |
-------- -------- |
Net cash provided by (used in) operating activities ....................... 19,560 (666) |
-------- -------- |
|
Cash Flows From Investing Activities: |
Additions to property, plant and equipment .................................. (5,488) (2,112) |
Proceeds from sale of other assets .......................................... -- 176 |
Additional consideration and costs for acquisitions ......................... (1,845) -- |
-------- -------- |
Net cash used in continuing operations .................................... (7,333) (1,936) |
Net cash provided by (used in) discontinued operations .................... 3,626 (40) |
-------- -------- |
Net cash (used in) provided by investing activities ....................... (3,707) (1,976) |
-------- -------- |
|
Cash Flows From Financing Activities: |
Net (repayment) borrowings on KeyBank revolving credit facility ............. -- -- |
Proceeds from (repayment of) KeyBank Subordinated DIP term note ............. -- (20,900) |
Proceeds from (repayment of) KeyBank Subordinated Secured term note ......... (1,967) 20,900 |
Proceeds from (repayment of) Congress Subordinated term note ................ (2,161) 7,080 |
Net (repayment) borrowings on Congress revolving credit facility ............ (10,002) 10,002 |
Proceeds from (repayment of) Bank of America DIP revolving credit facility .. -- (8,986) |
Proceeds from (repayment of) Bank of America DIP term note .................. -- (2,244) |
(Repayment of) proceeds from Deutsche Bank Mortgage ......................... (200) -- |
Repayment of other debt and long term obligations ........................... (2,760) (1,865) |
Acquisition of treasury stock ............................................... (7) -- |
-------- -------- |
Net cash (used in) provided by continuing operations ...................... (17,097) 3,987 |
Net cash used in discontinued operations .................................. (549) (224) |
-------- -------- |
Net cash (used in) provided by financing activities ....................... (17,646) 3,763 |
-------- -------- |
Effect of exchange rate changes on cash and cash equivalents ....................... (509) (101) |
-------- -------- |
Change in cash and cash equivalents ................................................ (2,302) 1,020 |
Cash and cash equivalents, beginning of period ..................................... 4,994 3,974 |
-------- -------- |
Cash and cash equivalents, end of period ........................................... $ 2,692 $ 4,994 |
======== ======== |
|
Supplemental disclosure of cash flow information: Cash paid during the period |
for: |
Interest .................................................................... $ 3,228 $ 3,714 |
Income taxes ................................................................ 236 -- |
|
Supplemental disclosure of non-cash investing and financing activities: |
Deferred purchase price of acquisition ........................................... $ 2,915 $ -- |
Offset of receivable from affiliate against deferred compensation liability |
to former officer .............................................................. 564 -- |
Equipment acquired under capital lease obligations ............................... -- -- |
Elimination of 10 1/8% Senior Subordinated Notes, including accrued interest ..... -- -- |
Write off of common stock of Predecessor Company ................................. -- -- |
Write off of common stock warrants of Predecessor Company ........................ -- -- |
Elimination of treasury stock of Predecessor Company ............................. -- -- |
Issuance of common stock of Reorganized Company .................................. -- -- |
Issuance of common stock warrants of Reorganized Company ......................... -- -- |
Acquisition of treasury stock of Reorganized Company ............................. -- -- |
|
Predecessor Company
------------------------------------
Period from
March 26, 2000 Year ended
to October 10, 2000 March 25, 2000
------------------- --------------
Cash Flows From Operating Activities:
Net income (loss) ................................................................ $ 8,067 $(35,145)
Loss from discontinued operations ................................................ 1,440 20,142
Loss (gain) on disposition of discontinued operations ............................ (214) --
Extraordinary gain on early extinguishment of debt ............................... (29,370) --
-------- --------
Income (loss) from continuing operations ......................................... (20,077) (15,003)
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 ................................................................ 3,901 7,445
Amortization ................................................................ 675 1,486
Provision for bad debts ..................................................... 1,081 713
(Gain) loss on disposal and write-off of fixed assets and investments ....... (39) 870
Deferred taxes .............................................................. (17,511) 6,154
Accretion of interest on current obligations ................................ -- --
Changes in operating assets and liabilities:
Accounts receivable and receivable from affliate ........................ 250 3,036
Inventories ............................................................. (4,714) 5,154
Prepaid and other current assets ........................................ 1,278 (8)
Other assets ............................................................ 2,086 2,782
Accounts payable ........................................................ (1,061) (2,594)
Accrued liabilities ..................................................... (202) 2,521
-------- --------
Net cash provided by (used in) continuing operations ...................... 2,553 12,556
Net cash used in discontinued operations .................................. (1,733) (1,349)
-------- --------
Net cash provided by (used in) operating activities ....................... 820 11,207
-------- --------
Cash Flows From Investing Activities:
Additions to property, plant and equipment .................................. 250 (7,001)
Proceeds from sale of other assets .......................................... 13 --
Additional consideration and costs for acquisitions ......................... -- (2,061)
-------- --------
Net cash used in continuing operations .................................... (1,799) (9,062)
Net cash provided by (used in) discontinued operations .................... 2,863 (740)
-------- --------
Net cash (used in) provided by investing activities ....................... 1,064 (9,802)
-------- --------
Cash Flows From Financing Activities:
Net (repayment) borrowings on KeyBank revolving credit facility ............. (37,900) 700
Proceeds from (repayment of) KeyBank Subordinated DIP term note ............. 20,900 --
Proceeds from (repayment of) KeyBank Subordinated Secured term note ......... -- --
Proceeds from (repayment of) Congress Subordinated term note ................ -- --
Net (repayment) borrowings on Congress revolving credit facility ............ -- --
Proceeds from (repayment of) Bank of America DIP revolving credit facility .. 8,986 --
Proceeds from (repayment of) Bank of America DIP term note .................. 2,244 --
(Repayment of) proceeds from Deutsche Bank Mortgage ......................... -- 2,136
Repayment of other debt and long term obligations ........................... (1,816) (3,476)
Acquisition of treasury stock ............................................... -- --
-------- --------
Net cash (used in) provided by continuing operations ...................... (7,586) (640)
Net cash used in discontinued operations .................................. (298) (868)
-------- --------
Net cash (used in) provided by financing activities ....................... (7,884) (1,508)
-------- --------
Effect of exchange rate changes on cash and cash equivalents ....................... (290) (240)
-------- --------
Change in cash and cash equivalents ................................................ (6,290) (343)
Cash and cash equivalents, beginning of period ..................................... 10,264 10,607
-------- --------
Cash and cash equivalents, end of period ........................................... $ 3,974 $ 10,264
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest .................................................................... $ 1,197 $ 9,191
Income taxes ................................................................ -- 35
Supplemental disclosure of non-cash investing and financing activities:
Deferred purchase price of acquisition ........................................... $ -- $ --
Offset of receivable from affiliate against deferred compensation liability
to former officer .............................................................. -- --
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 consolidated 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.
The 2001 Restructuring
On April 10, 2000 (the "Petition Date"), the Company and certain of its
U.S. subsidiaries (collectively, the "Safety Filing Group"), filed a voluntary
petition under Chapter 11 of the Bankruptcy Code ("Chapter 11") with the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
On October 11, 2000 (the "Emergence Date"), 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, upon emergence, all of the Company's
10-1/8% Senior Notes due 2007 (the "Notes") (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 A. 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, the Safety
Filing Group's trade suppliers and other creditors were paid in full, pursuant
to the terms of the Plan, within 90 days of the Emergence Date.
The Plan was accounted for pursuant to 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.
The accompanying consolidated financial statements for periods subsequent to
October 10, 2000 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" or the "Company") with no retained
earnings or accumulated deficit as of October 11, 2000. Accordingly, the
consolidated financial statements for periods prior to October 11, 2000 (the
"Predecessor Company") are not comparable to consolidated financial statements
for periods subsequent to October 10, 2000. A black line has been drawn on the
accompanying consolidated financial statements and notes thereto to distinguish
between financial information of the Reorganized Company and the Predecessor
Company. 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
F-8
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 accompanying consolidated statements of operations for the period
March 26, 2000 to October 10, 2000 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 was reported to the Petition Date. Such interest expense was
not reported subsequent to that date because it was not required to be paid
during the bankruptcy case and was not an allowed claim under the Plan. 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.
Fiscal Year 2000 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 restructuring efforts leading up
to its filing under Chapter 11 on April 10, 2000.
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 3, effective October 10, 2000, the Company concluded
to sell its non-core (metal and defense) operations. Accordingly, all amounts
prior to October 11, 2000 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 2002
consisted of the fifty-two weeks ended March 30, 2002 (Reorganized Company).
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 year 2000 consisted of
the fifty-two weeks ended March 25, 2000 (Predecessor Company).
F-9
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the net
realizable value of the discontinued operations and assessment of asset
impairment. 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.
Restricted cash
Cash and cash equivalents totaling $891,000 at March 30, 2002 and March
31, 2001 were restricted for use and accordingly, such amount has been included
in "other assets" in the accompanying consolidated balance sheets.
Derivative financial instruments
Derivative financial instruments are utilized by the Company to reduce
exposures to volatility of foreign currencies impacting the operation of its
business. The Company does not enter into financial instruments for trading or
speculative purposes.
Effective April 1, 2001 the Company adopted Statement of Financial
Accounting Standards No. ("SFAS") 133, "Accounting for Derivative Instruments
and Hedging Activities" which, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It requires the recognition
of all derivative instruments as either assets or liabilities in the statement
of financial position and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not a
derivative instrument is designated as a hedge and, if so, the type of hedge.
For derivatives designated as cash flow hedges, to the extent effective, changes
in fair value are recognized in accumulated other comprehensive income until the
hedged item is recognized in earnings. Ineffectiveness is recognized immediately
in earnings. For derivatives designated as fair value hedges, changes in fair
value are recognized in earnings.
The adoption of SFAS 133 on April 1, 2001 did not result in a transition
adjustment, as the Company was not engaged in any derivative or hedging
activities at that date. At March 30, 2002, the Company did not have any
derivative instruments that met the requirements of SFAS 133 to be accounted for
as a qualifying hedge. However, see Note 12 for further information regarding
derivative instruments entered into during fiscal 2002 and the valuation of such
at March 30, 2002.
Concentration of credit risk
The Company is subject to a concentration of credit risk consisting of its
trade receivables. At March 30, 2002, three customers accounted for
approximately 33%, 24% and 12% of its trade receivables. At March 31, 2001,
these same three customers accounted for approximately 38%, 24% and 12% 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.
F-10
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 assess
impairment is based on projected undiscounted cash flows generated from the
assets in service.
See "New Accounting Standards" below regarding the Company's adoption of
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which will be adopted March 31, 2002, the first day of fiscal 2003.
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 1,
which requires the Predecessor Company's recorded 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 year ended March 30, 2002
and for the period from October 11, 2000 to March 31, 2001, amortization totaled
approximately $791,000 and $396,000, respectively.
Intangible assets
At March 30, 2002, intangible assets consist of certain Company patents
revalued at the "fresh start" date which are stated at cost less accumulated
amortization and an insignificant amount of goodwill resulting from the
Company's fiscal 2002 acquisition (see Note 4). Such patents are amortized over
estimated lives between 15 and 20 years. Accumulated amortization at March 30,
2002 and March 31, 2001 was approximately $161,000 and $52,000, respectively.
Amortization of patents is expected to approximate $110,000 per year for each of
the five succeeding years. In accordance with SFAS 141, "Business Combinations",
the goodwill was not amortized in fiscal 2002.
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
F-11
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value. See "New Accounting Standards" below regarding the Company's adoption of
SFAS 142, "Goodwill and Other Intangible Assets", which will be adopted March
31, 2002, the first day of fiscal 2003. Based on the Company's preliminary
determination of the effect of adopting SFAS 142, management believes that the
unamortized balance of its excess reorganization value, $14,576,000 at March 30,
2002 will be written off as a change in method of accounting from adoption of a
new accounting standard on March 31, 2002, the first day of fiscal 2003.
Deferred financing costs
Costs incurred in connection with financing activities are deferred and
amortized over the lives of the respective debt instruments 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 in "other assets" in the
accompanying consolidated balance sheets at March 30, 2002 and March 31, 2001
were $647,000 and $1.1 million, respectively.
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. A valuation
allowance is provided for deferred tax assets when, in the opinion of
management, it is more likely than not that the deferred tax assets will not be
realized.
Revenue recognition
The Company recognizes revenue from product sales when it has shipped the
goods and the risk of loss has passed. 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. ("VSI") business (included in
discontinued operations) that was sold in fiscal 2001 (Note 3), accounted for
long-term contracts under the percentage of completion method.
Annual revenues from major customers
The Company's net sales to three customers in fiscal 2002 aggregated
approximately 31%, 28% and 17% of net sales. The Company's net sales to these
same 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 these same three customers in fiscal year 2000 aggregated approximately 27%,
19% 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.
Advertising costs
The Company recognizes advertising costs as incurred. Advertising costs
were approximately $60,000, $40,000, $35,000 and $73,000 during the year ended
March 30, 2002, the period from October 11, 2000 to March 31, 2001, the period
from March 26, 2000 to October 10, 2000 and the year ended March 25, 2000,
respectively, and were recorded as a component of selling and marketing expenses
in the accompanying consolidated statements of operations.
F-12
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shipping costs
The costs to ship products to customers of approximately $1.6 million,
$830,000, $930,000 and $2.4 million, during the year ended March 30, 2002, the
period from October 11, 2000 to March 31, 2001, the period from March 26, 2000
to October 10, 2000 and the year ended March 25, 2000, 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 for the year ended March
30, 2002, the period from October 11, 2000 to March 31, 2001, the period from
March 26, 2000 to October 10, 2000, and the year ended March 25, 2000, were
$899,000, $335,000, $353,000 and $665,000, respectively.
Comprehensive income
SFAS 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,
unrealized gain or loss on foreign currency translation, which is a component of
other comprehensive income. Unrealized gains or losses on foreign currency
translation are not shown net of income taxes because the earnings of foreign
subsidiaries are considered by Company management to be permanently reinvested.
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 year ended March 30, 2002 and the period
from October 10, 2000 to March 31, 2001, there were no dilutive equity
instruments and accordingly, basic and diluted EPS for those periods 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 year ended March 30, 2002, the period from October 11, 2000 to March
31, 2001, the period from March 26, 2000 to October 10, 2000 and the year ended
March 25, 2000, transaction gains (losses) included in operations amounted to
$756,000, $222,000, $(861,000) and $(820,000), 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, long-term debt
F-13
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and two forward exchange currency contracts (see Note 12). The carrying amount
of the Company's long-term debt at March 30, 2002 and March 31, 2001
approximated 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.
Discontinued Operations
As discussed in Note 3, the Company has reported its metal and defense
businesses as discontinued operations in the consolidated financial statements
from October 11, 2000, the measurement date, through March 30, 2002. At March
30, 2002, the Company has disposed of all discontinued operations except Galion,
Inc. Reporting Galion, Inc. as a discontinued operation requires the Company to
estimate, based on currently available information, the results of operations to
the expected disposal date and the expected proceeds to be received upon sale.
The net assets held for sale of approximately $2.6 million at March 30, 2002
reflect these estimates. For the year ended March 30, 2002, the period from
October 11, 2000 to March 31, 2001, the period from March 26, 2000 to October
10, 2000 and the year ended March 25, 2000, operating (losses) gains of Galion,
Inc. were ($197,000), $140,000, $(200,000) and $(52,000), respectively, and are
deferred and included as a component of net assets held for sale in the
consolidated balance sheet and accordingly have not been recognized as losses in
the consolidated statements of operations. A reversal of discontinued operations
treatment resulting from a failure to consummate a sale of Galion, Inc. would
require the Company to recognize the previously deferred losses in the
consolidated statements of operations.
Segment Information
The Company has adopted the provisions of SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company sells similar
products (airbag cushions, airbag fabric and technical fabrics), uses similar
processes in selling the products and sells the products to similar classes of
customers. As a result of this and the way the business is managed, the Company
has aggregated the results into a single segment for purposes of reporting
financial condition and results of operations.
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for prior periods to conform to the March 30, 2002 presentation.
New accounting standards
Accounting Standard Adopted - In June 2001, the FASB issued SFAS 141,
"Business Combinations". SFAS 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting. It
also specifies the types of acquired intangible assets that are required to be
recognized and reported separate from goodwill. This standard was applied to the
accounting and disclosure for the acquisition of Woodville (see Note 4).
Accounting Standards Adopted After Year End - In July 2001, the FASB
issued SFAS 142, "Goodwill and Other Intangible Assets". This new standard
requires that upon adoption, amortization of goodwill (in the Company's case,
its "Reorganization value in excess of amounts allocable to identifiable
assets") and indefinite lived intangible assets will cease and instead, the
carrying value of such assets will be evaluated for impairment on an annual
basis. Identifiable intangible assets will continue to be amortized over their
useful lives and reviewed for impairment. The Company will adopt SFAS 142 on
March 31, 2002, the beginning of fiscal year 2003. Based on the Company's
preliminary determination of the effect of adopting SFAS 142, management
believes that the unamortized balance of its excess reorganization value,
$14,576,000 at March 30, 2002 will be written off as a change in method of
accounting from adoption of a new accounting standard on March 31, 2002, the
first day of fiscal 2003.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial reporting for the
impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS 121 and
the accounting and reporting provisions of APB 30 related to the disposal of a
segment of a business. The Company will adopt SFAS 144 with the beginning of
fiscal year 2003. The Company is evaluating the impact of
F-14
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the adoption of SFAS 144 and has not yet determined the effect that the adoption
of the standard will have on the Company's financial position and results of
operations.
Note 3 Discontinued Operations
On August 31, 2000, the Company finalized the sale of VSI. Pursuant to a
stock purchase agreement dated July 21, 2000, the Company sold 100% of the
shares of capital stock of VSI to VTECH Corporation for approximately $2.9
million in cash. The sale of VSI 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. VSI accounted for $3.9
million and $16.4 million of consolidated net sales for the Predecessor
Company's period from March 26, 2000 to October 10, 2000 and the year ended
March 25, 2000, respectively.
As previously discussed, on October 10, 2000, the Company concluded to
exit and sell its metal and defense businesses consisting of Valentec Wells,
LLC, the metallic belt links business located in Missouri (relocated from Costa
Mesa, CA) and Galion, Inc., the defense systems and products divisions located
in Ohio.
On September 27, 2001, the Company finalized the sale of the metallic belt
links business of Valentec Wells, LLC. Pursuant to an asset purchase agreement
dated September 16, 2001 between Valentec Wells, LLC and Alliant Lake City Small
Caliber Ammunition Company LLC, the Company sold the metallic belt links
production assets and inventory of Valentec Wells, LLC for approximately $4.8
million in cash. The resulting gain on this sale was substantially offset by
additional provisions for losses and asset write-downs at Galion, Inc. in fiscal
2002.
At March 30, 2002, the only remaining discontinued operation is Galion,
Inc. Management believes that the disposal of this remaining business on
acceptable terms will be consummated by approximately September 2002.
Following is a summary of financial information for the Company's
discontinued metal and defense operations (in thousands):
Reorganized Company Predecessor Company
-----------------------------------------|---------------------------------------------
Year Ended Period from October 11, | Period from March 26, Year Ended
March 30, 2002 2000 to March 31, 2001 | 2000 to October 10, 2000 March 25, 2000
-----------------------------------------|---------------------------------------------
Net sales $10,516 $9,563 | $ 11,026 $33,599
Discontinued operations: |
|
Loss from operations, net |
of income taxes -- -- | 1,440(c) 20,142(d)
|
Loss (gain) on disposition, |
net of income taxes 2,517(a) 1,444(b) | (214)(c) --
(a) During fiscal year 2002, the Company recorded an additional charge
of $4.2 million ($2.5 million after income tax benefit of $1.7
million), principally resulting from a $6.6 million operating loss
on Valentec Wells, LLC and a $200,000 operating loss at Galion,
Inc., offset by a $2.9 million gain on the sale of Valentec Wells,
LLC, in September 2001.
(b) During fiscal year 2001, the Company recorded a charge of $1.4
million, net of income tax benefit of $848,000, for the estimated
net loss on the disposition of the discontinued operations.
(c) The Company reported the results of operations of the metal and
defense businesses as a loss on discontinued operations that totaled
$1.4 million, net of income tax benefit of $847,000. Additionally,
the Company recorded $214,000, net of income taxes of $125,000, for
the estimated gain on the disposition of the discontinued
operations, including the realized gain on the sale of VSI.
(d) 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
F-15
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 30, 2002 and March 31, 2001
were as follows (in thousands):
March 30, 2002 March 31, 2001
-------------------------------
Accounts receivable, net $ 1,630 $ 3,824
Inventories, net 843 1,471
Property, plant and equipment, net 2,376 5,791
-------------------------------
Total assets 4,849 11,086
Current liabilities (1,970) (2,676)
Note payable and other liabilities (242) (843)
-------------------------------
Net assets held for sale $ 2,637 $ 7,567
===============================
Note 4 Acquisition
On November 2, 2001, the Company's U.K. subsidiary, Automotive Safety
Components International Limited ("ASCIL"), acquired the airbag business
(operated under the name of Woodville Airbag Engineering and hereafter referred
to as "Woodville") of TISPP UK Limited, a subsidiary of Smiths Group PLC, to
expand its European operations. Pursuant to a purchase agreement dated November
2, 2001 between ASCIL and TISPP UK Limited, ASCIL purchased, for approximately
$4.8 million, including $400,000 in direct acquisition and exit costs associated
with the purchase with approximately $2.3 million (net of redundancy payments of
approximately $500,000 to be paid by the Company associated with the relocation
of the Woodville operation to other Company facilities) to be paid in
installments of $846,000 and $1.4 million due in six and twelve months,
respectively, after closing, substantially all of the production assets and
inventory of the airbag business of TISPP UK Limited. The Company has accounted
for the acquisition under the purchase method of accounting according to SFAS
141, "Business Combinations", with its operations included in the Company's
consolidated financial information commencing November 3, 2001. Management of
the Company allocated the purchase consideration for Woodville's assets based on
estimated fair market values, with an insignificant amount of excess of cost
over fair value allocated to goodwill.
The following is a condensed balance sheet (unaudited) at the November 2,
2001 acquisition date (in thousands):
November 2, 2001
----------------
Inventory $ 649
Property, plant and equipment 4,039
Goodwill 72
------
Total assets $4,760
======
Accrued liabilities 726
Note payable to former owner 2,289
Due to parent 1,745
------
Total liabilities $4,760
======
F-16
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma net sales, net income and net income per common
share, assuming the acquisition of Woodville was consummated on March 26, 2000
are as follows (in thousands):
Unaudited ProForma Information
--------------------------------
Year Ended Year Ended
March 30, 2002 March 31, 2001
--------------------------------
Net sales $214,066 $ 220,597
Income (loss) before extraordinary item 3,495 (21,181)
Net income 3,495 8,189
Net income per common share, basic and diluted 0.70 - (a)
(a) Per share data for the year ended March 31, 2001 is not meaningful due
to the significant change in capital structure that occurred in connection with
the Plan.
Note 5 Composition of Certain Consolidated Balance Sheet Accounts (in thousands)
March 30, 2002 March 31, 2001
--------------------------------
Accounts receivable:
Trade receivables, net of allowances of $228 and $951 at
March 30, 2002 and March 31, 2001, respectively $ 33,808 $ 32,258
Other 1,248 472
--------------------------------
Total 35,056 $ 32,730
================================
Inventories:
Raw materials $ 5,493 $ 5,167
Work-in-process 5,922 5,991
Finished goods 5,359 5,468
--------------------------------
Total $ 16,774 $ 16,626
================================
Property, plant and equipment:
Land and buildings $ 14,801 $ 14,236
Machinery and equipment 40,690 32,961
Furniture and fixtures 584 435
Construction in process 1,698 952
--------------------------------
57,773 48,584
Less - accumulated depreciation and amortization (9,729) (3,029)
--------------------------------
Total $ 48,044 $ 45,555
================================
F-17
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Long-Term Debt (in thousands)
March 30, 2002 March 31, 2001
--------------------------------
KeyBank subordinated secured note due October 11, 2002,
bearing interest at 11% $ 18,933 $ 20,900
Congress revolving credit facility due on October 11, 2003, bearing a
variable interest rate (4.75% at March 30, 2002) -- 10,002
Congress term note due on October 11, 2003, bearing a variable interest
rate (4.75% at March 30, 2002) 4,919 7,080
KeyCorp equipment note due August, 2005 5,352 6,738
HVB Bank Czech Republic mortgage note due March, 2007 3,754 4,500
Deutsche Bank mortgage note with separate tranches due
in 2009 and 2019 1,694 1,797
A.I. Credit Corp. note paid in full in November, 2001 -- 201
Note payable to TISPP UK Limited, due in installments of $846 and
$1,423 payable in May 2002 and November 2002, respectively 2,269 --
Capital equipment notes payable, with various interest rates ranging
from 7.55% to 10.0%, maturing at various dates through March, 2006 442 848
--------------------------------
Total long-term debt 37,363 52,066
Less - current portion of long-term debt (25,181) (8,525)
--------------------------------
Total long-term portion of debt $ 12,182 $ 43,541
================================
Credit Facilities
The Company has available a three-year, $35.0 million, revolving credit
facility with Congress Financial Corporation (Southern) (the "Congress
Facility"), expiring October 11, 2003. 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 eligible raw
materials. Included within borrowings permitted under the Congress Facility (and
its borrowing limitations) are $4.9 million in term loans which are to be repaid
in equal monthly installments of approximately $112,000, with the unpaid
principal amount due on October 11, 2003, unless the Congress Facility is
renewed at that time. Also included within the borrowings permitted under the
Congress Facility is a $3.0 million letter of credit facility, through which the
Company had $0 and $350,000 of letters of credit outstanding at March 30, 2002
and March 31, 2001, respectively. At March 30, 2002, the Company's availability
for additional borrowings (under the maximum allowable limit) was approximately
$30.1 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
LIBOR rate, in each case with an applicable margin applied to the rate. At March
30, 2002, the margin on prime rate loans was 0.0% and the margin on LIBOR rate
loans was 2.0%. The Company is required to pay a monthly commitment fee of
0.375% on the unused portion of the Congress Facility.
The Company's $18.9 million subordinated secured note facility (the
"Subordinated Facility") with KeyBank National Association and Fleet Bank
expires on October 11, 2002; accordingly, such amount is classified in the
current portion of long term debt as of March 30, 2002. The Company is
negotiating a replacement for this facility and believes that it will be able to
obtain a replacement for the facility prior to its maturity in October 2002.
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 30, 2002, the Company
estimates $1.7 million in prepayments are required within 90
F-18
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
days following the end of fiscal 2002. 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 30, 2002, 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.
Other Long-term Obligations
On March 28, 2002, the Company, as guarantor for its Czech Republic
subsidiary, and HVB Bank Czech Republic, successor to Bank Austria, entered into
an amendment to its $7.5 million mortgage note facility dated June 4, 1997. This
amendment extends the mortgage facility for five years, bears interest at a rate
of 1.7% over EURIBOR (EURIBOR was 2.92% at March 30, 2002), requires monthly
payments of approximately $62,500 and is secured by the real estate assets of
the Company's subsidiary in the Czech Republic.
Pursuant to the Woodville purchase agreement dated November 2, 2001
between ASCIL and TISPP UK Limited (see Note 4), ASCIL agreed to payments
totaling approximately $2.3 million to be paid on May 2 and November 2, 2002
relating to the acquisition of substantially all of the production assets and
inventory of the airbag business of TISPP UK Limited. The payments are
non-interest bearing and were discounted to their present value using an imputed
interest rate of 5.0%.
On April 1, 1999, the Company's German subsidiary 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 $1.7 million) and subsequently supported
by a cash collateral deposit of approximately $891,000 (see Note 2 for
discussion of restricted cash). The note consists of two tranches. Tranche A
totals approximately $1.0 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.
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 (3.86% at March 30, 2002), requires
monthly payments of approximately $150,000 and is secured by certain equipment
located at SCFTI.
Future annual minimum principal payments at March 30, 2002 are due in the
following fiscal years (in thousands):
2003 $25,181
2004 3,984
2005 4,066
2006 2,392
2007 933
Thereafter 807
-------
$37,363
=======
F-19
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 Income Taxes
The provision (benefit) for income taxes is comprised of the following (in
thousands):
Reorganized Company Predecessor Company
--------------------------------------|---------------------------------------
Period from | Period from
Year Ended October 11, 2000 to | March 26, 2000 to Year Ended
March 30, 2002 March 31, 2001 | October 10, 2000 March 25, 2000
--------------------------------------|---------------------------------------
Current taxes: |
Federal $1,519 $ 1,965 | -- --
State 168 220 | -- --
Foreign 311 (416) | -- --
|
Deferred taxes: |
Federal 1,211 -- | $(15,266) $5,280
State 188 -- | (2,245) 450
Foreign -- -- | -- 424
--------------------------------------|---------------------------------------
$3,397 $ 1,769 | $(17,511) $6,154
======================================|=======================================
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
Year Ended October 11, 2000 to | March 26, 2000 to Year Ended
March 30, 2002 March 31, 2001 | October 10, 2000 March 25, 2000
----------------------------------------|------------------------------------
Expected taxes at federal statutory rate 34% 34% | (34%) (34%)
State income taxes, net of federal benefits 1 3 | (1) --
Foreign earnings taxed at different rates -- 3 | -- (2)
Valuation allowance on deferred tax assets -- -- | (30) 35
Recovery of non-taxable bankruptcy expense -- (5) | -- --
Non-deductible intangibles and other, net (1) 5 | 18 22
----------------------------------------|------------------------------------
34% 40% | (47)% 21%
========================================|====================================
Net operating loss ("NOL") carryforwards from years prior to fiscal 2001
were utilized to offset the cancellation of indebtedness ("COD") income in
connection with the Company's reorganization under Chapter 11 during fiscal
2001. COD income for fiscal 2001 was the amount by which the indebtedness
discharged (approximately $96.8 million) exceeded 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.
F-20
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the deferred tax assets (liabilities) recognized
in the accompanying consolidated balance sheets (in thousands):
March 30, 2002 March 31, 2001
-------------------------------
Deferred tax assets (liabilities):
Accrued liabilities $ 1,314 $ 1,860
Inventory and receivables 790 934
Property, plant and equipment (5,002) (4,447)
Accruals for discontinued operations 1,271 1,441
Intangibles (390) (410)
Foreign net operating loss carryforwards 1,285 2,477
Other 618 622
-------------------------------
Net deferred tax assets before valuation allowances $ (114) $ 2,477
Valuation allowance on foreign net operating loss (1,285) (2,477)
-------------------------------
Net deferred tax liabilities $(1,399) $ --
===============================
Recognized as follows in the accompanying consolidated balance sheets:
Current deferred tax assets $ 1,729 $ 2,000
Long-term deferred tax liabilities (3,128) (2,000)
-------------------------------
Net deferred tax liabilities $(1,399) $ --
===============================
Current deferred tax assets are included in "prepaid and other" assets and
long-term deferred tax liabilities are included in "other long-term" liabilities
in the accompanying consolidated balance sheets.
Foreign net operating losses can be carried forward indefinitely to offset
future trading profits.
No taxes have been provided relating to the possible distribution of
approximately $15.2 million of undistributed earnings considered to be
permanently reinvested in foreign operations.
Note 8 Commitments and Contingencies
Legal proceedings
The Company emerged from bankruptcy on October 11, 2000; however, the
Chapter 11 case remains open until all claims, disputes and pleadings are
resolved before the Bankruptcy Court. At March 30, 2002 the Company has no
material disputes before the Court. The Company is in the process of closing the
Chapter 11 proceedings.
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's SCFTI subsidiary had an operating lease for certain weaving
equipment that expired at the end of May 2002. On May 16, 2002, the Company
exercised its option under the lease to purchase the equipment for approximately
$1.0 million.
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
$1.8 million, $1.4 million, $1.5 million and $2.9 million for the year ended
March 30, 2002, the period from October 11, 2000 to March 31, 2001, the period
from March 26, 2000 to October 10, 2000 and for the year ended March 25, 2000,
respectively.
F-21
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future annual minimum lease payments for all non-cancelable operating
leases as of March 30, 2002 are as follows (in thousands):
2003 $1,192
2004 446
2005 340
2006 318
2007 310
Thereafter 304
------
$2,910
======
Environmental issues
Low levels of contaminants were found at the SCFTI facility in Greenville,
South Carolina during groundwater sampling in 1998. In February 1999, the
facility received a notice letter from the South Carolina Department of Health
and Environmental Control ("DHEC") regarding the groundwater contamination.
While DHEC acknowledged 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 monitoring, 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 is performing these monitoring and
in-site remediation actions and does not believe that these costs will be
material. 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.
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 Company does not believe that these costs will be material.
Additionally, an underground contamination involving machinery fluids
existed at the former Valentec Wells facility in Costa Mesa, California and the
local Regional Water Quality Control Board (the "Board") approved a site
remediation plan for cleanup. The remediation plan involved the simultaneous
operation of a groundwater and vapor extraction system over the past five years.
This plan is completed and a final Closure Monitoring Report has been filed with
the Board. It is expected that the Board will approve the final Closure
Monitoring Report and issue a "no further action" letter, bringing the
underground contamination issue to closure. Any additional future costs to
complete closure are not expected to be significant.
In the opinion of management, no material expenditures beyond those
accrued, approximately $750,000 at March 30, 2002, 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.
F-22
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 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 Year ended October 11, 2000 to | March 26, 2000 to Year ended
Customers March 30, 2002 March 31, 2001 | October 10, 2000 March 25, 2000
-------------------------------------|------------------------------------
United States |
Airbag Fabric $ 44,016 $17,883 | $ 26,288 $ 46,205
Technical Fabric 21,537 11,488 | 12,576 24,624
|
Mexico |
Airbag Cushions 59,697 27,180 | 33,703 46,652
|
Germany |
Airbag Cushions 46,544 21,679 | 22,409 54,222
|
UK |
Airbag Cushions 31,529 13,822 | 14,163 22,964
-------------------------------------|------------------------------------
|
Total Net Sales $203,323 $92,052 | $109,139 $194,667
=====================================|====================================
Long-lived Assets at Fiscal Year End: March 30, 2002 March 31, 2001
--------------------------------
United States $27,711 $35,853
Mexico 9,930 4,560
Germany 9,350 9,543
Czech Republic 12,546 10,788
UK 5,164 2,164
--------------------------------
Total Long-lived Assets $64,701 $62,908
================================
Note 10 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 $261,000, $156,000, $175,000 and $403,000 during the
year ended March 30, 2002, the period from October 11, 2000 to March 31, 2001,
the period from March 26, 2000 to October 10, 2000 and year ended March 25,
2000, respectively, to the 401(k) Plan.
The Company established the Safety Components International, Inc.
Executive Deferral Program (the "Deferral Program") in fiscal year 2002 for the
benefit of certain key executive employees. The Deferral Program provides for
participants to defer any portion of their compensation until some future point
in time. Only the employee contributes to the Deferral Program, and
contributions are immediately 100% vested. Due to the nature of the Deferral
F-23
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Program, a trust was established to maintain the amounts deferred by the
executives. The assets of the trust are included in "other assets" and the
related amounts due to the executives are included in "other long-term
liabilities" in the accompanying consolidated balance sheet. Such amounts were
$299,000 at March 30, 2002.
Note 11 Equity Securities
Preferred Stock
The Company has 5,000,000 shares of preferred stock authorized and no
shares issued at March 30, 2002 and March 31, 2001. The Company's board of
directors is authorized to provide for the issuance of the preferred stock in
the future, with voting powers, dividend rate, redemption terms, repayment,
conversion terms, restrictions, rights and with such other preferences and
qualifications as shall be stated in the resolutions adopted by the board of
directors at time of issuance.
Common Stock and Warrants
The Company currently has 5,000,000 shares of common stock issued,
4,959,678 and 4,960,381 shares of common stock outstanding, and 40,322 and
39,619 shares of treasury stock at March 30, 2002 and March 31, 2001,
respectively. Warrants were granted pursuant to the Restructuring Agreement to
purchase 681,818 shares of the Company's common stock. These warrants have an
exercise price of $19.99 per share and expire on April 10, 2003. Such warrants
were not included in computing diluted earnings per share for the year ended
March 30, 2002 or the period from October 11, 2000 to March 31, 2001 because the
effect would have been anti-dilutive.
Stock Options
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 510,100 shares of common stock at a
price of $8.75 per share (subject to adjustment in certain circumstances), to
vest ratably over a period of three years from the date of grant on May 18,
2001, were granted by the Compensation Committee to 22 employee participants and
to the outside directors under the Stock Option Plan. The options expire on
October 31, 2010. The Company accounts for this plan using Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees", under which no
compensation cost has been recognized in any period. Such options were not
included in computing diluted earnings per share for the year ended March 30,
2002 because the effect would have been anti-dilutive.
Had compensation cost for this plan been determined consistent with the
disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation",
the Company's net income and earnings per share would have been reduced to the
following pro forma amounts (in thousands, except per share data):
Year Ended
March 30, 2002
--------------
Net income: As Reported $ 4,089
=========
Pro Forma $ 3,595
=========
Net income per share, basic and diluted: As Reported $ 0.82
=========
Pro Forma $ 0.72
=========
F-24
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the 510,100 options granted during the year and outstanding at March
30, 2002, all have an exercise price of $8.75 and a weighted average remaining
contractual life of 8.59 years; 184,959 of these options are currently
exercisable with an exercise price of $8.75. The fair value of the options
granted during the year ended March 30, 2002 was $4.26 per share; such value is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used: risk free interest rate of 5.45 percent; zero
percent dividends; expected life of 6.0 years; and expected volatility of 188.0
percent.
Note 12 Derivative Financial Instruments
Safety Components monitors its risk associated with the volatility of
certain foreign currencies against its functional currency, the U.S. dollar. The
impact of changes in the relationship of other currencies to the U.S. dollar
have historically not been significant, and such changes in the future are not
expected to have a material impact on the Company's results of operations or
cash flows. On December 18, 2001, the Company entered into two forward foreign
currency exchange contracts with aggregate notional amounts totaling 1.5 million
British pounds, to buy British pounds for periods and amounts consistent with
the related underlying obligation of its U.K. subsidiary for the May 2, 2002 and
the November 2, 2002 scheduled payments on the note for the acquisition of
Woodville (see Notes 4 and 6). The changes in fair value of these contracts are
being recognized in results of operations because the forward foreign currency
exchange contracts did not qualify as a cash flow hedge under SFAS 133. There
was no significant impact on earnings resulting from the forward foreign
currency exchange contracts for fiscal year 2002 because the fair value of the
forward foreign currency exchange contracts was not significant at March 30,
2002.
Note 13 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. During the year
ended March 30, 2002, VIL did not repay the Company and, accordingly, the
Company offset the net receivable in its entirety with the amount owed to Mr.
Zummo under his employment agreement.
F-25
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 Unaudited Quarterly Results
Unaudited quarterly financial information for fiscal years 2002 and 2001
is set forth below (in thousands, except per share data). 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.
Quarter Ended
------------------------------------------------------
June 30, September 29, December 29, March 30,
2001 2001 2001 2002
------------------------------------------------------
Fiscal 2002
Net sales $ 50,291 $ 46,229 $50,051 $56,752
Gross profit 7,639 6,635 5,021 7,211
Income from operations 4,414 3,012 1,918 3,768
Net income (loss) (341) 2,064 54 2,312
Net income (loss) per share, basic and diluted (0.07) 0.42 0.01 0.46
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 --
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
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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
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$ 3,851 $ 10,902 $ (1,774) $12,979
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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 1,578 -- 2,477
----------------------------------------------------------------------
$ 2,786 $ 2,186 $ (944) $ 4,028
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For the year ended March 30, 2002:
Allowance for doubtful accounts $ 951 $ 144 $ (867) $ 228
Reserve for receivable from affiliate 600 -- (600) --
Reserve on deferred tax assets 2,477 -- (1,192) 1,285
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$ 4,028 $ 144 $ (2,659) $ 1,513
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