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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2002
Commission File Number 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0596831
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
41 Stevens Street, Greenville, South Carolina 29605
(Address and zip code of principal executive offices)
(864) 240-2600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes |X| No |_|
The number of shares outstanding of the registrant's common stock, $0.01 par
value per share, as of November 12, 2002, was 4,959,678.
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
The unaudited condensed consolidated financial information at September 28, 2002
and for the thirteen week and twenty-six week periods then ended, unaudited
condensed consolidated statements of operations and of cash flows for the
thirteen and twenty-six weeks ended September 29, 2001 and the audited condensed
consolidated balance sheet at March 30, 2002 relate to Safety Components
International, Inc. and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Condensed Consolidated Balance Sheets as of September 28, 2002
(unaudited) and March 30, 2002 3
Unaudited Condensed Consolidated Statements of Operations for the
thirteen weeks ended September 28, 2002 and September 29, 2001 4
Unaudited Condensed Consolidated Statements of Operations for the
twenty-six weeks ended September 28, 2002 and September 29, 2001 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
twenty-six weeks ended September 28, 2002 and September 29, 2001 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 18
ITEM 4. CONTROLS AND PROCEDURES 18
PART II OTHER INFORMATION 19
SIGNATURES 20
CERTIFICATIONS 21
Private Securities Litigation Reform Act of 1995
The discussion in this report may contain forward-looking statements that
involve risks and uncertainties, including, but not limited to, those relating
to the impact of competitive products and pricing, dependence of revenues upon
several major module suppliers; worldwide economic conditions; the results of
cost savings programs being implemented; domestic and international automotive
industry trends, including the marketplace for airbag related products; the
ability of the Company to effectively control costs and to satisfy customers on
timeliness and quality; approval by automobile manufacturers of airbag cushions
currently in production; pricing pressures; labor strikes; the results from
restructuring efforts; the continuing operations and management of the Company's
discontinued operations; and the ability to sell the Company's discontinued
operations.
2
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 28, March 30,
2002 2002
------------- ---------
(unaudited) (1)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 7,187 $ 2,692
Accounts receivable, net ................................................. 41,574 35,056
Inventories .............................................................. 19,448 16,774
Prepaid and other ........................................................ 2,781 2,521
--------- ---------
Total current assets .................................................. 70,990 57,043
Property, plant and equipment, net ............................................ 52,847 48,044
Reorganization value in excess of amounts allocable to identifiable assets, net -- 14,576
Identifiable intangible assets, net ........................................... 1,067 1,071
Other assets .................................................................. 2,544 1,900
Net assets held for sale ...................................................... 2,430 2,637
--------- ---------
Total assets .......................................................... $ 129,878 $ 125,271
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 19,588 $ 18,516
Accrued and other current liabilities .................................... 10,381 9,635
Current portion of long-term debt ........................................ 21,109 25,181
--------- ---------
Total current liabilities ............................................. 51,078 53,332
Long-term debt ................................................................ 26,225 12,182
Other long-term liabilities ................................................... 5,263 3,919
--------- ---------
Total liabilities ..................................................... 82,566 69,433
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock: 5,000,000 shares authorized and unissued ................ -- --
Common stock: $0.01 par value per share - 20,000,000 shares authorized;
5,000,000 shares issued and 4,959,678 shares outstanding ............. 50 50
Common stock warrants .................................................... 34 34
Additional paid-in-capital ............................................... 50,916 50,916
Treasury stock: 40,322 shares at cost .................................... (411) (411)
Retained earnings (accumulated deficit) .................................. (5,901) 5,339
Accumulated other comprehensive income (loss) ............................ 2,624 (90)
--------- ---------
Total stockholders' equity ............................................ 47,312 55,838
--------- ---------
Total liabilities and stockholders' equity ............................ $ 129,878 $ 125,271
========= =========
(1) Derived from the audited consolidated balance sheet as of March 30, 2002.
See notes to unaudited condensed consolidated financial statements.
3
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Thirteen Thirteen
Weeks Ended Weeks Ended
September 28, 2002 September 29, 2001
------------------ ------------------
Net sales ................................................................. $ 57,537 $ 46,229
Cost of sales, excluding depreciation ..................................... 49,351 37,883
Depreciation .............................................................. 2,352 1,711
-------------- -------------
Gross profit ...................................................... 5,834 6,635
Selling and marketing expenses ............................................ 503 459
General and administrative expenses ....................................... 2,805 2,657
Research and development expenses ......................................... 229 282
Amortization of intangible assets ......................................... 30 225
-------------- -------------
Income from operations ............................................ 2,267 3,012
Other income, net ......................................................... (43) (792)
Interest expense, net ..................................................... 894 1,055
-------------- -------------
Income before income tax provision ................................ 1,416 2,749
Provision for income taxes ................................................ 711 685
-------------- -------------
Net income ................................................................ $ 705 $ 2,064
============== =============
Net income per common share - basic ....................................... $ 0.14 $ 0.42
============== =============
Net income per common share - diluted ..................................... $ 0.14 $ 0.42
============== =============
Weighted average number of common shares outstanding - basic .............. 4,960 4,960
============== =============
Weighted average number of common shares outstanding - diluted ............ 4,965 4,960
============== =============
See notes to unaudited condensed consolidated financial statements.
4
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Twenty-six Twenty-six
Weeks Ended Weeks Ended
September 28, 2002 September 29, 2001
------------------ ------------------
Net sales ............................................................................. $ 118,985 $ 96,520
Cost of sales, excluding depreciation ................................................. 99,814 78,771
Depreciation .......................................................................... 4,548 3,363
------------- -------------
Gross profit .................................................................. 14,623 14,386
Selling and marketing expenses ........................................................ 1,055 928
General and administrative expenses ................................................... 6,603 5,026
Research and development expenses ..................................................... 423 556
Amortization of intangible assets ..................................................... 58 450
------------- -------------
Income from operations ........................................................ 6,484 7,426
Other income, net ..................................................................... (2,108) (632)
Interest expense, net ................................................................. 1,916 2,319
------------- -------------
Income before income tax provision ............................................ 6,676 5,739
Provision for income taxes ............................................................ 3,264 1,749
------------- -------------
Income from continuing operations ............................................. 3,412 3,990
Loss on disposition of discontinued operations, net of income tax benefit of $1,511 ... -- 2,267
Cumulative effect of change in method of accounting ................................... (14,652) --
------------- -------------
Net income (loss) ..................................................................... $ (11,240) $ 1,723
============= =============
Net income (loss) per common share, basic and diluted:
Income from continuing operations ............................................. $ 0.69 $ 0.80
Loss from discontinued operations ............................................. -- (0.45)
Cumulative effect of change in method of accounting ........................... (2.96) --
------------- -------------
Net income (loss) per common share, basic and diluted ................................. $ (2.27) $ 0.35
============= =============
Weighted average number of shares outstanding, basic and diluted ...................... 4,960 4,960
============= =============
See notes to unaudited condensed consolidated financial statements.
5
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Twenty-six Twenty-six
Weeks Ended Weeks Ended
September 28, 2002 September 29, 2001
------------------ ------------------
Cash Flows From Operating Activities:
Net income (loss) .......................................................... $ (11,240) $ 1,723
Loss on disposition of discontinued operations ............................. -- 2,267
Cumulative effect of change in method of accounting ........................ 14,652 --
------------- ------------
Income from continuing operations .......................................... 3,412 3,990
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation ............................................................. 4,548 3,363
Amortization ............................................................. 58 450
Loss on disposition of assets ............................................ 16 74
Deferred taxes ........................................................... -- 1,522
Accrual of interest on current obligation ................................ 81 --
Net changes in operating assets and liabilities .......................... (7,355) (2,535)
------------- ------------
Net cash provided by continuing operations ........................... 760 6,864
Net cash provided by (used in) discontinued operations ............... 661 (2,654)
------------- ------------
Net cash provided by operating activities ............................ 1,421 4,210
------------- ------------
Cash Flows From Investing Activities:
Additions to property, plant and equipment ................................. (5,816) (1,550)
------------- ------------
Net cash used in continuing operations ............................... (5,816) (1,550)
Net cash (used in) provided by discontinued operations ............... (34) 3,682
------------- ------------
Net cash (used in) provided by investing activities .................. (5,850) 2,132
------------- ------------
Cash Flows From Financing Activities:
Repayment of KeyBank Subordinated Secured term note ........................ (3,072) (1,027)
Repayment of Congress Subordinated term note ............................... (674) (767)
Net borrowing on Congress revolving credit facility ........................ 14,996 239
Repayments of other debt and long term obligations ......................... (2,366) (1,597)
Acquisition of treasury stock .............................................. -- (7)
------------- ------------
Net cash provided by (used in) continuing operations ................. 8,884 (3,159)
Net cash used in discontinued operations ............................. -- (549)
------------- ------------
Net cash provided by (used in) financing activities .................. 8,884 (3,708)
------------- ------------
Effect of exchange rate changes on cash ......................................... 40 (314)
------------- ------------
Increase in cash and cash equivalents ........................................... 4,495 2,320
Cash and cash equivalents, beginning of period .................................. 2,692 4,994
------------- ------------
Cash and cash equivalents, end of period ........................................ $ 7,187 $ 7,314
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 1,644 $ 1,167
Income taxes ......................................................... $ 1,603 $ 198
Non-cash investing and financing activities:
Foreign currency translation adjustment .............................. $ 2,814 $ 468
Unrealized loss on hedging transactions, net of taxes ................ $ (100) $ --
See notes to unaudited condensed consolidated financial statements.
6
Note 1 Basis of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared by Safety Components International, Inc. and its subsidiaries
("Safety Components" or the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted from this report, as is permitted by such
rules and regulations; however, Safety Components believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. It is suggested that these unaudited condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the year ended March 30, 2002. The Company has experienced, and expects to
continue to experience, variability in net sales and net income from quarter to
quarter. Therefore, the results of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim
period or the full year. In the opinion of management, the information furnished
reflects all adjustments necessary for a fair presentation of the results for
the reported interim periods, including those of a normal recurring nature.
As discussed in Note 2, the Company has reported its metal and defense
businesses as discontinued operations in the consolidated financial statements
from October 11, 2000 through September 28, 2002. At September 28, 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 $2.4 million at September 28, 2002
reflect these estimates.
The Company previously reported that it had aggregated its results into a
single segment for purposes of reporting financial condition and results of
operations under SFAS No. 131. However, because the Company sells similar
products (airbag cushions, airbag fabric and technical fabrics), uses similar
processes in selling these products, sells the products to similar classes of
customers, and considering the manner in which the business is managed and
evaluated by management, the Company has concluded that it operates as a single
operating segment.
Note 2 Discontinued Operations
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.
At September 28, 2002, the only remaining discontinued operation is
Galion, Inc. The Company had previously expressed its belief that the disposal
of this remaining business on acceptable terms would be consummated by
approximately September 2002. While the Company remains committed to, and is
continuing to aggressively pursue plans for disposition, the current estimate of
completing the disposition is no later than December 2002 due to unexpected and
uncontrollable delays recently encountered in the disposal process.
Following is a summary of financial information for the Company's
discontinued metal and defense operations (unaudited) (in thousands):
-------------------------------------------------------------------------------------
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
-------------------------------------------------------------------------------------
Net sales $1,470 $2,729 $3,606 $5,645
Discontinued operations:
Loss on disposition, net
of income taxes -- -- -- 2,267
7
Net assets of discontinued operations at September 28, 2002 and March 30,
2002 were as follows (unaudited) (in thousands):
September 28, 2002 March 30, 2002
-----------------------------------
Accounts receivable, net $ 851 $ 1,630
Inventories, net 790 843
Property, plant and equipment, net 1,984 2,376
-----------------------------------
Total assets 3,625 4,849
Current liabilities (1,195) (1,970)
Other liabilities -- (242)
-----------------------------------
Net assets held for sale $ 2,430 $ 2,637
===================================
Note 3 Inventories
Inventories reported on the Company's balance sheets were as follows
(unaudited) (in thousands):
September 28, 2002 March 30, 2002
-----------------------------------
Raw materials $ 6,222 $ 5,493
Work-in-process 6,753 5,922
Finished goods 6,473 5,359
-----------------------------------
Total $19,448 $16,774
===================================
Note 4 Long-Term Debt
The Company has available a three-year, $35.0 million, revolving credit
facility with Congress Financial Corporation (Southern) (the "Congress
Facility"), expiring October 9, 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 $4.2 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 9, 2003, unless the Congress Facility is renewed
at that time. The amount outstanding under the facility at September 28, 2002
and March 30, 2002 was $19.2 million and $4.9 million, respectively. Also
included within the borrowings permitted under the Congress Facility is a $3.0
million letter of credit facility, under which the Company had exposure of
$435,000 pursuant to letters of credit outstanding at September 28, 2002 (none
outstanding at March 30, 2002). At September 28, 2002, the Company's
availability for additional borrowings (under the maximum allowable limit) was
approximately $15.3 million.
The Company's $15.9 million subordinated secured note facility (the
"Subordinated Facility") with KeyBank National Association and Fleet Bank
(previously due on October 11, 2002) was recently extended for a period of one
year and is due October 10, 2003. Pursuant to the terms of the extension
agreement, the Company repaid $5.0 million of the outstanding principal balance
on October 11, 2002, reducing the amount outstanding on this facility to $10.9
million on that date. Such payment was funded by borrowings under the Congress
Facility.
The Congress Facility and the Subordinated Facility both require the
Company to meet a minimum adjusted net worth (as defined) covenant along with
other certain non-financial covenants. At September 28, 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.
8
Note 5 Earnings Per Share
Basic earnings per share are computed based upon the weighted average
number of common shares outstanding. Diluted earnings per share are computed
based upon the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares consist of shares under option and
warrants. A reconciliation of basic and diluted weighted average shares
outstanding is presented below:
------------------------------------------------------------------------------------
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------------------------------------------------------------------------
Weighted average number
of common shares
outstanding - basic 4,959,678 4,959,678 4,959,678 4,959,678
Net effect of dilutive stock
options - based on the
treasury stock method
using the average
market price 5,700 * * *
------------------------------------------------------------------------------------
Weighted average number
of common shares
outstanding - diluted 4,965,378 4,959,678 4,959,678 4,959,678
====================================================================================
* Effect is anti-dilutive for these periods.
Note 6 Comprehensive Income (loss)
The components of comprehensive income (loss) are as follows (unaudited)
(in thousands):
------------------------------------------------------------------------------------
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------------------------------------------------------------------------
Net income (loss) $ 705 $ 2,064 $ (11,240) $ 1,723
Foreign currency
translation adjustment (871) 904 2,814 468
Unrealized loss on hedging
transactions, net of
taxes (11) -- (100) --
------------------------------------------------------------------------------------
Comprehensive income
(loss) $ (177) $ 2,968 $ (8,526) $ 2,191
====================================================================================
Note 7 Contingencies
The Company, from time to time, is a 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.
Note 8 Derivatives and Hedging
Safety Components monitors its risk associated with the volatility of
certain foreign currencies against its functional currency, the U.S. dollar. The
Company uses certain derivative financial instruments to reduce exposure to
volatility of foreign currencies. The Company has formally documented all
relationships between hedging
9
instruments and hedged items, as well as risk management objectives and
strategies for undertaking various hedge transactions. Derivative financial
instruments are not entered into for speculative purposes.
Certain operating expenses at the Company's Mexican facilities are paid in
Mexican pesos. To reduce exposure to fluctuations in the U.S. dollar and Mexican
peso exchange rates, the Company entered into forward contracts on May 31, 2002
to buy Mexican pesos for periods and amounts consistent with the related,
underlying forecasted cash outflows. These contracts were designated as hedges
at inception and are being monitored for effectiveness on a routine basis. At
September 28, 2002, the Company had outstanding forward exchange contracts that
mature between October 2002 and March 2003 to purchase Mexican pesos with an
aggregate notional amount of approximately $4.7 million. The fair values of
these contracts at September 28, 2002, totaled approximately $172,000, which is
recorded as a derivative liability on the Company's balance sheet in other
current liabilities. The Company recorded a charge to earnings of $22,000 for
the twenty-six weeks ended September 28, 2002 and the remainder of the loss on
these forward contracts was included in "accumulated other comprehensive income"
at September 28, 2002.
On December 18, 2001, the Company entered into two forward exchange
contracts, with notional amounts totaling $2.2 million, to buy British pounds
for an amount consistent with the related underlying obligation of its U.K.
subsidiary for the May 2, 2002 and November 2, 2002 scheduled payments for the
acquisition of Woodville. The change in fair value of these contracts has been
recognized in income because the forward contracts did not qualify as cash flow
hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The impact on earnings resulting from the forward contracts was
income of approximately $45,000 and $150,000, for the thirteen and twenty-six
weeks ended September 28, 2002, respectively, included in "other income".
Note 9 New Accounting Standards
In October 2001, the FASB issued SFAS No. 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 No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions of APB 30
related to the disposal of a segment of a business. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. The Company adopted SFAS No.
144 on March 31, 2002, the beginning of fiscal year 2003. The adoption of SFAS
No. 144 had no effect on the Company's financial position and results of
operations, including the Company's reporting of discontinued operations as the
Company's discontinued operations continue to be accounted for under previous
accounting guidance since the measurement date occurred prior to the effective
date of SFAS No. 144.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities," which nullifies the accounting and
reporting provisions of Emerging Issues Task Force ("EITF") 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs in a Restructuring)." This statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier adoption encouraged. The Company is in the process of
reviewing the effect, if any, that the adoption of SFAS No. 146 will have on its
financial position and results of operations.
The adoption of SFAS No. 142, "Goodwill and Other Intangible Assets",
required the Company to perform an impairment assessment of the Company's
"reorganization value in excess of amounts allocable to identifiable assets"
arising from the valuation performed upon its emergence from Chapter 11 in
October 2000 ("excess reorganization value"), and goodwill from the Woodville
acquisition, as of March 31, 2002, the beginning of the current fiscal year.
Under the transition guidance of SFAS No. 142, the Company was required to
perform its initial impairment evaluation within six months of adopting the new
standard, and any impairment charges are to be retroactively recorded in the
first quarter of the Company's fiscal year. Other identifiable intangible assets
of the Company consist of patents that continue to be amortized over their
estimated useful lives. In accordance with SFAS No. 142, the Company compared
the book value of the Company's net assets, including the excess reorganization
value and goodwill, to the Company's fair value as of March 31, 2002. Because
the fair value was lower than the book value of the Company's net assets, excess
reorganization value and goodwill were determined to be impaired
10
and accordingly, the carrying value of such assets (approximately $14.7 million
at March 31, 2002) was charged to earnings as the cumulative effect of a change
in method of accounting effective March 31, 2002. There was no tax effect of the
change in accounting principle, as the excess reorganization value and goodwill
were not deductible for income tax purposes.
Following is a summary of excess reorganization value and other intangible
assets (unaudited) (in thousands):
September 28, 2002 March 30, 2002
----------------------------------------
Excess reorganization value $ -- $ 15,762
Goodwill -- 71
Identifiable intangible assets with definite lives:
Patents 2,403 2,123
----------------------------------------
Gross carrying amount 2,403 17,956
Accumulated amortization (1,336) (2,309)
----------------------------------------
Net carrying amount $ 1,067 $ 15,647
========================================
Amortization expense for the thirteen and twenty-six weeks ended September
28, 2002 was $30,000 and $58,000, respectively, and for the thirteen and
twenty-six weeks ended September 29, 2001 was $225,000 and $450,000,
respectively.
Amortization expense for the Company's patents is estimated at
approximately $113,000 for each of the next five fiscal years.
The following table summarizes and reconciles the reported net income
(loss) and net income (loss) per common share, basic and diluted, for the
thirteen and twenty-six weeks ended September 28, 2002 and September 29, 2001,
to adjusted net income (loss) and net income (loss) per common share, basic and
diluted, as if the amortization expense related to excess reorganization value
in the thirteen and twenty-six weeks ended September 29, 2001 had not been
recorded (unaudited) (in thousands):
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------------------------------------------------------------------------
Reported net income (loss) $ 705 $ 2,064 $ (11,240) $ 1,723
Add: amortization of excess
reorganization value -- 198 -- 395
------------------------------------------------------------------------------------
Adjusted net income (loss) $ 705 $ 2,262 $ (11,240) $ 2,118
====================================================================================
Reported net income (loss) per
common share, basic and diluted:
Income from continuing
operations $ 0.14 $ 0.42 $ 0.69 $ 0.80
Loss from discontinued
operations -- -- -- (0.45)
Cumulative effect of
change in method of
accounting -- -- (2.96) --
------------------------------------------------------------------------------------
Reported net income (loss) per
common share, basic and diluted: $ 0.14 $ 0.42 $ (2.27) $ 0.35
Add: amortization of excess
reorganization value -- 0.04 -- 0.08
------------------------------------------------------------------------------------
Adjusted net income (loss) per
common share, basic and diluted: $ 0.14 $ 0.46 $ (2.27) $ 0.43
====================================================================================
11
The following table summarizes and reconciles the reported net income and
net income per common share, basic and diluted, for the thirteen weeks ended
June 29, 2002 to restated net loss and net loss per common share, basic and
diluted, after consideration of the cumulative effect of the accounting change
for SFAS No. 142 which is required to be recorded as of the date of adoption,
March 31, 2002 (unaudited) (in thousands):
Previously Reported Restated
Thirteen weeks ended Thirteen weeks ended
June 29, 2002 June 29, 2002
-----------------------------------------------
Income from continuing operations $ 2,709 $ 2,709
Cumulative effect of change in method of accounting -- (14,652)
-----------------------------------------------
Net income (loss) $ 2,709 $ (11,943)
===============================================
Net income (loss) per common share, basic and diluted:
Income from continuing operations $ 0.55 $ 0.55
Cumulative effect of change in method of accounting -- (2.96)
-----------------------------------------------
Net income (loss) per common share, basic and diluted $ 0.55 $ (2.41)
===============================================
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies
The following discussion and analysis of financial condition and results
of operations are based on the Company's unaudited Consolidated Financial
Statements. A summary of significant accounting policies is disclosed in Note 2
to the Consolidated Financial Statements included in the Annual Report on Form
10-K for the year ended March 30, 2002. The Company's critical accounting
policies are described under the caption "Critical Accounting Policies" in
Management's Discussion and Analysis in the Annual Report on Form 10-K for the
year ended March 30, 2002.
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 unaudited Consolidated
Financial Statements. It is important that the reader of the unaudited financial
statements understand that actual results could differ from these estimates,
assumptions and judgments.
There have been no changes in the nature of the Company's critical
accounting policies or the application of those policies since March 30, 2002.
Results of Operations
The Company has reported its metal and defense businesses as discontinued
operations in the consolidated financial statements from October 10, 2000, the
measurement date, through September 28, 2002. At September 28, 2002, the Company
has disposed of all discontinued operations except Galion, Inc. Results for the
thirteen and twenty-six week periods ended September 28, 2002 include the full
effect of the acquisition of the airbag business of Woodville. The Company
acquired Woodville in the third quarter of fiscal 2002 (November 2, 2001) and
thus Woodville operations are not reflected in the thirteen and twenty-six week
periods ended September 29, 2001. The following summarizes the results of
operations for the Company for the thirteen week and twenty-six week periods
ended September 28, 2002 and September 29, 2001.
(In thousands)
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------------------------------------------------------------------------
Net sales $ 57,537 $ 46,229 $ 118,985 $ 96,520
Gross profit 5,834 6,635 14,623 14,386
Income from operations 2,267 3,012 6,484 7,426
Other income, net (43) (792) (2,108) (632)
Interest expense, net 894 1,055 1,916 2,319
Provision for income taxes 711 685 3,264 1,749
Loss on discontinued
operations, net of taxes -- -- -- 2,267
Cumulative effect of change in
method of accounting -- -- (14,652) --
Net income (loss) 705 2,064 (11,240) 1,723
13
Second Quarter (Thirteen Weeks) Ended September 28, 2002 Compared to Second
Quarter (Thirteen Weeks) Ended September 29, 2001
Net Sales. Net sales increased $11.3 million or 24.5% to $57.5 million for
the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002.
North American operations' net sales increased $2.5 million or 8.2% compared to
the second quarter of fiscal 2002, with the increase due to increased demand in
the North American automotive market. Net sales for European operations
increased $8.8 million or 55.4% compared to the second quarter of fiscal 2002.
The increase is due primarily to the Woodville acquisition, which accounted for
$3.4 million of the increase, increased volumes as a result of new programs at
other European operations representing $3.9 million and the favorable effect of
foreign currency exchange rates of 6.2%, representing an increase in net sales
of approximately $1.5 million.
Gross Profit. Gross profit decreased $801,000 or 12.1% to $5.8 million for
the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002.
The decrease in gross profit was due to losses at Woodville of approximately
$350,000 and costs associated with the July 2002 move of production lines and
exit from Woodville's U.K. facility and the associated ramp up of programs at
the Company's other European production locations, of approximately $1.4
million. As a result, gross profit as a percentage of net sales decreased to
10.0% for the second quarter of fiscal 2003 from 14.4% for the second quarter of
fiscal 2002.
Income from Operations. Income from operations decreased $745,000 or 24.7%
to $2.3 million for the second quarter of fiscal 2003 compared to the second
quarter of fiscal 2002. The decrease is directly related to the decrease in
gross profit discussed above. Total administrative and operating costs decreased
$56,000 including the reduction in amortization of $195,000 due to a change in
method of accounting effective March 31, 2002 (see further discussion under "New
Accounting Standards"). Income from operations as a percentage of net sales
decreased to 3.9% for the second quarter of fiscal 2003 from 6.5% for the second
quarter of fiscal 2002.
Other Income, net. The Company recorded other income of $43,000 for the
second quarter of fiscal 2003 as compared to other income of $792,000 for the
second quarter of fiscal 2002. Other income, net arose primarily from foreign
transaction and translation activity. The Company recorded net foreign
transaction and translation gains of $52,000 during the second quarter of fiscal
2003, compared to net foreign transaction and translation gains of $778,000
recorded in the second quarter of fiscal 2002.
Interest Expense, net. Interest expense decreased $161,000 or 15.2% to
$894,000 for the second quarter of fiscal 2003 compared to the second quarter of
fiscal 2002. The decrease is attributable both to a decrease in average interest
rates from 6.8% to 5.5% and a decrease in average levels of outstanding debt
from $52.2 million to $46.7 million in the second quarter of fiscal 2003 as
compared to the second quarter of fiscal 2002.
Provision for Income Taxes. The provision for income taxes for the second
quarter of fiscal 2003 increased $26,000 compared to the second quarter of
fiscal 2002 due to the Company's increase in taxable income for North American
operations. As a result, the Company's effective tax rate for the thirteen weeks
ended September 28, 2002 was 50.2% compared to 24.9% for the thirteen weeks
ended September 29, 2001. The effective tax rate for the thirteen weeks ended
September 28, 2002 is higher than the statutory tax rate due to tax benefits on
pre-tax losses incurred at certain of the Company's European subsidiaries for
the quarter being fully reserved under SFAS No. 109. The effective tax rate for
the thirteen weeks ended September 29, 2001 were lower than the statutory tax
rate due to the Company's ability to utilize existing net operating loss
carryforwards in Germany and the Czech Republic during that quarter.
Net Income. The Company's net income was $705,000 for the second quarter
of fiscal 2003 compared to net income of $2.1 million for the second quarter of
fiscal 2002. This change in net income resulted from the items discussed above.
14
Twenty-six Weeks Ended September 28, 2002 Compared to Twenty-six Weeks Ended
September 29, 2001
Net Sales. Net sales increased $22.5 million or 23.3% to $119.0 million
for the twenty-six weeks ended September 28, 2002 compared to the twenty-six
weeks ended September 29, 2001. North American operations' net sales increased
$4.3 million or 6.8% compared to the comparable period in the prior year, with
the increase due to greater demand in the North American automotive market. Net
sales for European operations increased $18.2 million or 54.3% compared to the
prior year period. The increase is due primarily to the Woodville acquisition,
which accounted for $8.9 million of the increase, increased volumes as a result
of new programs at other European operations representing $7.0 million and the
favorable effect of foreign currency exchange rates of 4.4%, representing an
increase in net sales of approximately $2.3 million.
Gross Profit. Gross profit increased $237,000 or 1.6% to $14.6 million for
the twenty-six weeks ended September 28, 2002 compared to the prior year period.
The increase in gross profit did not correspond with the increase in net sales
due to losses at Woodville of approximately $1.5 million and costs associated
with the move of product lines and ramp up of programs at other European
facilities, of approximately $1.7 million. Accordingly, gross profit as a
percentage of net sales decreased to 12.3% for the twenty-six weeks ended
September 28, 2002 from 14.9% for the twenty-six weeks ended September 29, 2001.
Income from Operations. Income from operations decreased $942,000 or 12.7%
to $6.5 million for the twenty-six weeks ended September 28, 2002 compared to
the twenty-six weeks ended September 29, 2001. The decrease is attributable
primarily to an increase in general and administrative expenses, reflecting
approximately $1.1 million of production re-qualification and other related
costs incurred for the relocation of the Woodville operation to other production
facilities. The relocation of the Woodville operations to other European
locations was completed in July 2002 and is expected to reduce future production
costs. Income from operations as a percentage of net sales decreased to 5.4% for
the twenty-six weeks ended September 29, 2001 from 7.7% in the comparable period
in the prior year. The decrease as a percentage of net sales was due to the
items discussed above.
Other Income, net. The Company recorded other income of $2.1 million for
the twenty-six weeks ended September 28, 2002 as compared to other income of
$632,000 for the twenty-six weeks ended September 29, 2001. Other income is
realized primarily from foreign transaction and translation activity in the
European countries of Germany, the U.K. and the Czech Republic. The Company
recorded net foreign transaction and translation gains of $2.0 million for the
twenty-six weeks ended September 28, 2002, while net foreign transaction and
translation gains of $617,000 were recorded in the comparable period in the
prior year. The fiscal 2003 foreign transaction and translation gains resulted
from significant favorable foreign currency translation rates of approximately
13% in the September 28, 2002 exchange rates as compared to those rates at March
30, 2002.
Interest Expense, net. Interest expense decreased $403,000 or 17.4% to
$1.9 million for the twenty-six weeks ended September 28, 2002 compared to the
twenty-six weeks ended September 29, 2001. The decrease is attributable both to
a decrease in average interest rates from 7.2% to 5.8% and a decrease in average
outstanding debt from $51.6 million to $45.5 million for the period as compared
to the prior year.
Provision for Income Taxes. The provision for income taxes increased $1.5
million for the twenty-six weeks ended September 28, 2002 compared to the prior
year period due to (i) an increase of $1.1 million in pre-tax income from North
American operations compared to the comparable period in the prior year, (ii)
the recording of tax provisions of approximately $650,000 for the Company's
German and Czech Republic subsidiaries in fiscal 2003 as net operating losses of
those subsidiaries have now been fully utilized, and (iii) the recording of a
$350,000 provision for income taxes for the German subsidiary. German taxing
authorities have performed an examination covering years 1997 through 1999 and
the Company has provided $350,000 for the estimated tax liability arising from
this tax examination. The Company's effective tax rate for the twenty-six weeks
ended September 28, 2002 and September 29, 2001 were 48.9% and 30.5%,
respectively. The increase in the effective tax rate for the current
year-to-date period is due primarily to the effects of the matters described
above. The effective tax rate for the twenty-six weeks ended September 28, 2002
is higher than the statutory tax rate due to tax on pre-tax losses incurred at
certain
15
of its European subsidiaries for the period being fully reserved under SFAS No.
109. The effective tax rate for the twenty-six weeks ended September 29, 2001
were lower than the statutory tax rate due to the Company's ability to utilize
existing net operating loss carryforwards in Germany and the Czech Republic
during that period.
Discontinued Operations. Loss on discontinued operations was $2.3 million
for the twenty-six weeks ended September 29, 2001, net of income taxes of $1.5
million, arising primarily from the relocation of, and other costs associated
with, the former Valentec Wells, LLC operations, during the first quarter of
fiscal 2002. Valentec Wells, LLC was sold in September 2001.
Cumulative Effect of Change in Method of Accounting. The Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets", effective March 31, 2002.
As a result of management's assessment of fair value, the Company's
"Reorganization value in excess of identifiable assets" and goodwill related to
the acquisition of Woodville were determined to be impaired and accordingly, the
total amount of approximately $14.7 million was written off as the cumulative
effect of a change in method of accounting at March 31, 2002 (see further
discussion under "New Accounting Standards").
Net Loss. The Company's net loss was $11.2 million for the twenty-six
weeks ended September 28, 2002 compared to net income of $1.7 million for the
twenty-six weeks ended September 29, 2001. This change to net loss resulted
primarily from the write off of $14.7 million of reorganization value in excess
of identifiable assets and goodwill related to the acquisition of Woodville
recorded as a cumulative effect of a change in method of accounting resulting
from the adoption of SFAS No. 142 and other matters discussed above.
Liquidity and Capital Resources
Net cash provided by operating activities of continuing operations was
$760,000 for the twenty-six weeks ended September 28, 2002, compared to cash
provided of $6.9 million in the comparable period in the prior year. The
reduction in cash provided by operating activities of continuing operations was
principally due to changes in timing of the collection of accounts receivables
as well as a build up of inventory levels that did not occur in the comparable
period of fiscal 2002. Net cash provided by operating activities of discontinued
operations was $661,000 for the twenty-six weeks ended September 28, 2002
compared to net cash used of $2.7 million in the comparable period in the prior
year. The cash used in the prior period was principally related to the former
Valentec Wells, LLC operations, which, as previously discussed, were sold in the
second quarter of fiscal 2002.
Net cash used in investing activities of continuing operations was $5.8
million for the twenty-six weeks ended September 28, 2002, compared to net cash
used in investing activities of continuing operations of $1.6 million for the
comparable period in the prior year. This increase in cash used in investing
activities of continuing operations is attributable to capacity-related capital
expenditures due to new programs awarded to the Company by customers.
Net cash provided by financing activities of continuing operations was
$8.9 million for the twenty-six weeks ended September 28, 2002, compared to net
cash used in financing activities of continuing operations of $3.2 million for
the comparable period in the prior year. Net cash provided by financing
activities of continuing operations for the twenty-six weeks ended September 28,
2002 is attributable to the Company's borrowings under its revolving credit
facility, partially offset by principal payments on other various long-term
obligations.
The Company's capital expenditure and working capital requirements are
expected to be funded through a combination of cash flows from operations,
equipment financings and borrowings under the Company's line of credit. These
sources are considered to be adequate to fund the Company's requirements for at
least the next twelve months. The Company has budgeted capital expenditures of
approximately $3.9 million for the remainder of fiscal 2003.
The Company has available a three-year, $35.0 million, revolving credit
facility with Congress Financial
16
Corporation (Southern), expiring October 9, 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 $4.2 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 9, 2003, unless the Congress Facility
is renewed at that time. The amount outstanding under the facility at September
28, 2002 and March 30, 2002 was $19.2 million and $4.9 million, respectively.
Also included within the borrowings permitted under the Congress Facility is a
$3.0 million letter of credit facility, under which the Company had exposure of
$435,000 pursuant to letters of credit outstanding at September 28, 2002 (none
outstanding at March 30, 2002). At September 28, 2002, the Company's
availability for additional borrowings (under the maximum allowable limit) was
approximately $15.3 million.
The Company's $15.9 million subordinated secured note facility with
KeyBank National Association and Fleet Bank (previously due on October 11, 2002)
was recently extended for a period of one year, and is due October 10, 2003.
Pursuant to the terms of the extension agreement, the Company repaid $5.0
million of the outstanding principal balance on October 11, 2002 reducing the
amount on this facility to $10.9 million on that date. Such repayment was funded
by borrowings under the Congress Facility.
Management intends to renegotiate or replace its senior facility and its
subordinated secured note facility when these facilities mature in October 2003.
The Congress Facility and the Subordinated Facility both require the
Company to meet a minimum adjusted net worth (as defined) covenant along with
other certain non-financial covenants. At September 28, 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.
New Accounting Standards
In October 2001, the FASB issued SFAS No. 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 No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions of APB 30
related to the disposal of a segment of a business. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. The Company adopted SFAS No.
144 on March 31, 2002, the beginning of fiscal year 2003. The adoption of SFAS
No. 144 had no effect on the Company's financial position and results of
operations, including the Company's reporting of discontinued operations as the
Company's discontinued operations continue to be accounted for under previous
accounting guidance since the measurement date occurred prior to the effective
date of SFAS No. 144.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which nullifies the accounting and
reporting provisions of Emerging Issues Task Force ("EITF") 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs in a Restructuring)." This statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier adoption encouraged. The Company is in the process of
reviewing the effect, if any, that the adoption of SFAS No. 146 will have on its
financial position and statement of operations.
The adoption of SFAS No. 142, "Goodwill and Other Intangible Assets",
required the Company to perform an impairment assessment of the Company's
"reorganization value in excess of amounts allocable to identifiable assets"
arising from the valuation performed upon its emergence from Chapter 11 in
October 2000 ("excess reorganization value"), and goodwill from the Woodville
acquisition, as of March 31, 2002, the beginning of the current fiscal year.
Under the transition guidance of SFAS No. 142, the Company was required to
perform its initial impairment evaluation within six months of adopting the new
standard, and any impairment charges are to be retroactively recorded in the
first quarter of the Company's fiscal year. Other identifiable intangible assets
of the Company consist of patents that continue to be amortized over their
estimated useful lives. In accordance with SFAS No. 142, the Company compared
the book value of the Company's net assets, including the excess
17
reorganization value and goodwill, to the Company's fair value as of March 31,
2002. Because the fair value was lower than the book value of the Company's net
assets, excess reorganization value and goodwill were determined to be impaired
and accordingly, the carrying value of such assets (approximately $14.7 million
at March 31, 2002) was charged to earnings as the cumulative effect of a change
in method of accounting effective March 31, 2002. There was no tax effect of the
change in accounting principle, as the excess reorganization value and goodwill
were not deductible for income tax purposes.
ITEM 3 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
September 28, 2002, the Company's interest rates under its revolving credit
facility approximated 4.75%. A hypothetical increase or decrease in interest
rates of 100 basis points relating to the Congress Facility would result in an
addition to or reduction in interest expense of approximately $150,000 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 Company uses
certain derivative financial instruments to reduce exposure to volatility of
foreign currencies. However, the changes in the relationship of other currencies
to the U.S. dollar could have a materially adverse affect to the consolidated
financial statements if there were a sustained decline of these currencies
versus the U.S. dollar. The Company has formally documented all relationships
between hedging instruments and hedged items, as well as risk management
objectives and strategies for undertaking various hedge transactions. Derivative
financial instruments are not entered into for speculative purposes.
Certain operating expenses at the Company's Mexican facilities are paid in
Mexican pesos. To reduce exposure to fluctuations in the U.S. dollar and Mexican
peso exchange rates, the Company entered into forward contracts on May 31, 2002
to buy Mexican pesos for periods and amounts consistent with the related,
underlying forecasted cash outflows. These contracts were designated as hedges
at inception and are being monitored for effectiveness on a routine basis. At
September 28, 2002, the Company had outstanding forward exchange contracts that
mature between October 2002 and March 2003 to purchase Mexican pesos with an
aggregate notional amount of approximately $4.7 million. The fair values of
these contracts at September 28, 2002, totaled approximately $172,000, which is
recorded as a derivative liability on the Company's balance sheet in other
current liabilities. Substantially all of the loss on these forward contracts
was included in "accumulated other comprehensive income" at September 28, 2002.
On December 18, 2001, the Company entered into two forward exchange
contracts, with notional amounts totaling $2.2 million, to buy British pounds
for an amount consistent with the related underlying obligation of its U.K.
subsidiary for the May 2, 2002 and November 2, 2002 scheduled payments for the
acquisition of Woodville. The change in fair value of these contracts has been
recognized in income because the forward contracts did not qualify as cash flow
hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The impact on earnings resulting from the forward contracts was
income of approximately $45,000 and $150,000, for the thirteen and twenty-six
weeks ended September 28, 2002, respectively, included in "other income".
ITEM 4 CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out
an evaluation of the effectiveness and design of the Company's disclosure
controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. Based
on this evaluation, the Company's principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in the Company's periodic reports filed with the SEC.
18
In addition, the Company reviewed its internal controls, and there have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last evaluation.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on September 17,
2002. Only holders of record of the Company's common stock as of
August 8, 2002 were entitled to notice of, and to vote at, the
meeting.
At the meeting, Andy Goldfarb and W. Allan Hopkins were elected
Class I directors of the Company. The number of shares of the
Company's common stock voted in favor of the election of Messrs.
Goldfarb and Hopkins were 3,155,466 and 3,155,494, respectively; and
the number of such shares withheld were 345 and 317, respectively.
At the meeting, Deloitte & Touche LLP was ratified as the Company's
independent auditors for the fiscal year ending March 29, 2003. The
vote of ratification was 3,155,759 FOR, 38 AGAINST and 14
ABSTAINING.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibits
----------- --------
10.26 Amendment No. 1 to Subordinated Secured Credit
Agreement dated as of October 11, 2002, 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
10.27 Amendment No. 2 to Loan and Security Agreement,
dated October 11, 2002, by and among Safety
Components International, Inc., the subsidiaries
named therein as Borrowers and Guarantors and
Congress Financial Corporation (Southern)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended September
28, 2002.
19
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
DATED: November 12, 2002 By: \s\ Brian P. Menezes
----------------------------
Brian P. Menezes
Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: \s\ William F. Nelli
------------------------
William F. Nelli
Controller
20
CERTIFICATION(S)
I, John C. Corey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Safety
Components International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATED: November 12, 2002 By: \s\ John C. Corey
-------------------------
John C. Corey
President and
Chief Executive Officer
21
I, Brian P. Menezes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Safety
Components International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATED: November 12, 2002 By: \s\ Brian P. Menezes
----------------------------
Brian P. Menezes
Vice President and
Chief Financial Officer
(Principal Financial Officer)
22