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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 2, 1998
SAFELITE GLASS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
333-21949 13-3386709
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1105 SCHROCK ROAD, COLUMBUS, OHIO 43229
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(614) 842-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME AND FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS
EXTENSION OF EXCHANGE OFFER.
As of the date hereof, the Company has $100 million in principal amount of
9 7/8% Senior Subordinated Notes Due 2006 outstanding which were issued in
December 1996 (the "Initial Notes"). On October 29, 1998, the Company commenced
an offer to exchange $1,000 in principal amount of 9 7/8% Series B Senior
Subordinated Notes Due 2006 (the "Exchange Notes") for each $1,000 in principal
amount of Initial Notes outstanding (the "Exchange Offer"). The initial
expiration date for the Exchange Offer (the "Expiration Date"), as set forth in
the Prospectus, dated October 29, 1998, was 5:00 P.M., New York City time, on
November 30, 1998. On November 30, 1998, the Company extended the Expiration
Date until 5:00 P.M., New York City time, on December 14, 1998. The press
release issued by the Company to announce the extension of the Expiration Date
is attached as an exhibit to this Form 8-K.
BANK AMENDMENT PROPOSAL.
As reported in the Company's Report on Form 10-Q for the quarter ended
October 3, 1998, the Company has initiated discussions with the lenders
providing senior credit facilities under a Credit Agreement, dated December 20,
1996, as amended (the "Bank Credit Agreement"), seeking modifications of certain
covenants in the Bank Credit Agreement which would enhance the Company's
likelihood of continued compliance thereunder. After further discussions, the
Company is seeking an amendment to the Bank Credit Agreement described below,
which amendment would be subject to several conditions, including (i) approval
from the requisite lenders under the Bank Credit Agreement and (ii) completion
of an offering by the Company (the "Offering") of not less than $100 million
face amount of Senior Subordinated Notes of the Company (the "New Notes")
ranking pari passu with the Initial Notes and the Exchange Notes and the
application of a portion of the proceeds thereof to repay indebtedness
outstanding under the Bank Credit Agreement.
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Bank Credit Agreement. The Chase Manhattan
Bank ("Chase") has provided the Company with senior secured credit facilities
(referred to herein as the Senior Credit Facilities) in an aggregate principal
amount, prior to the application of the proceeds of the Offering, of $450
million. After the application of the gross proceeds of the Offering (assumed
herein to be $100 million), and after giving effect to the amendment to the
Senior Credit Facilities proposed by the Company, the terms of the Bank Credit
Agreement would be as follows:
Structure. The Senior Credit Facilities would consist of (a) a term loan
facility in an aggregate principal amount of approximately $276.2 million (the
"Term Loan Facility"), consisting of three tranches in principal amounts of
approximately $118.4 million (the "Tranche A Term Loan"), approximately $78.9
million (the "Tranche B Term Loan"), and approximately $78.9 million (the
"Tranche C Term Loan"), respectively, and (b) a revolving credit facility
providing for revolving loans to the Company and the issuance of letters of
credit for the account of the Company in an aggregate principal amount
(including the aggregate stated amount of letters of credit (other than those
issued under the Letter of Credit Facility described below) and the aggregate
reimbursement and other obligations in respect thereof) at any time not to
exceed $100 million (the "Revolving Credit Facility"). In addition to other
letters of credit that may be issued under the Revolving Credit Facility, the
amendment would permit the Company to issue up to $11.2 million of letters of
credit under a facility to be provided by Chase. As a result of the proposed
amendment to the Bank Credit Agreement and the Offering, the Company's
availability under the Revolving Credit Facility would increase by approximately
$21.2 million.
Repayment. The Tranche A Term Loan and the Revolving Credit Facility would
mature on the sixth anniversary of the initial borrowing under the Bank Credit
Agreement (such initial borrowing date referred to hereinafter as the
"Closing"). The Tranche B Term Loan would mature on the seventh anniversary of
the Closing. The Tranche C Term Loan would mature on the eighth anniversary of
the Closing. The Term Loan Facility would be subject to the following
amortization schedule:
REPAYMENT AMOUNTS
---------------------------------------
TRANCHE A TRANCHE B TRANCHE C
DATE TERM LOAN TERM LOAN TERM LOAN
---- ----------- ----------- -----------
Last business day in September and December 1999...... $ 0 $ 197,286 $ 197,286
Last business day in March, June, September and
December 2000....................................... 0 197,286 197,286
Last business day in March 2001....................... 5,871,429 197,286 197,286
Last business day in June, September and December
2001................................................ 7,500,000 197,286 197,286
Last business day in March, June, September and
December 2002....................................... 10,000,000 197,286 197,286
Last business day in March, June, and September 2003.. 12,500,000 9,519,036 197,286
December 17, 2003..................................... 12,500,000 -- --
Last business day in December 2003.................... -- 9,519,036 197,286
Last business day in March, June and September 2004... -- 9,519,036 9,420,393
December 17, 2004..................................... -- 9,519,036 --
Last business day in December 2004.................... -- -- 9,420,393
Last business day in March, June and September 2005... -- 9,420,393
December 17, 2005..................................... -- -- 9,420,393
Interest. At the Company's election, the interest rates per annum
applicable to the loans under the Bank Credit Agreement are fluctuating rates of
interest measured by reference to either (a) an adjusted London inter-bank
offered rate ("LIBOR") plus a borrowing margin or (b) an alternate base rate
("ABR") (equal to the higher of Chase's published prime rate and the Federal
Funds effective rate plus 1/2 of 1% per annum) plus a borrowing margin. Under
the Company's proposed amendment, the borrowing margins applicable to the
Tranche A Term Loan and loans under the Revolving Credit Facility would be 1.75%
per annum for ABR loans and 2.75% per annum for LIBOR loans; the borrowing
margins applicable to the Tranche B Term Loan would be 2.00% per annum for ABR
loans and 3.00% per annum for LIBOR loans; and the borrowing margins applicable
to the Tranche C Term Loan would be 2.25% per annum for ABR loans and 3.25% per
annum for LIBOR loans. All of the forgoing margins would be subject to reduction
based upon the achievement by the Company of certain financial performance
thresholds. Amounts under the Bank Credit Agreement not paid when due would bear
interest at a default rate equal to 2.00% per annum above the rate otherwise
applicable.
Covenants. The Bank Credit Agreement contains a number of covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, make investments, loans or advances, make acquisitions, create
subsidiaries, engage in mergers or consolidations, change the business conducted
by the Company, make capital expenditures, or engage in certain transactions
with affiliates and otherwise restrict certain corporate activities. In
addition, under the Bank Credit Agreement, the Company is required to comply
with specified financial ratios and minimum tests, including minimum interest
coverage ratios and maximum leverage ratios. The Bank Credit Agreement, as
amended in accordance with the Company's proposal, would require the Company to
maintain a leverage ratio (total debt to EBITDA, each as adjusted) of 9.75 to
1.00 commencing on March 31, 1999 and declining thereafter in predetermined
increments, and an interest coverage ratio (EBITDA to interest expense, each as
adjusted) of 1.15 to 1.00 commencing on March 31, 1999 and increasing thereafter
in predetermined increments.
The terms of the Bank Credit Agreement would otherwise be on terms
consistent with the Bank Credit Agreement as amended to date.
Upon consummation of the Offering, the Company would enter into a letter of
credit facility with Chase (the "Letter of Credit Facility") pursuant to which
Chase will issue letters of credit on behalf of the Company with an aggregate
face amount of up to $11.2 million. Upon consummation of the Offering, the
letters of credit currently issued pursuant to the Bank Credit Agreement,
expected to be $11.2 million in aggregate face amount, will be converted to the
Letter of Credit Facility and no longer be considered outstanding under the Bank
Credit Agreement. The Company will use $11.2 million of the proceeds of the
Offering to establish a cash collateral account under the Letter of Credit
Facility, replacing the Company's reimbursement obligation with respect thereto.
The Letter of Credit Facility will be on customary terms for a cash
collateralized letter of credit facility.
There can be no assurance that the Company will be successful in modifying
the Bank Credit Agreement on these terms.
VISTAR MERGER AND CURRENT OPERATING PERFORMANCE.
On December 19, 1997, the Company acquired Vistar, Inc. ("Vistar") the
second largest automotive glass replacement and repair company in the United
States. In conjunction with such acquisition (the "Vistar Merger"), the Company
has undertaken a process to consolidate redundant overhead in both field and
corporate operations, eliminate redundant service center locations and eliminate
redundant sales and marketing activities. Most redundant corporate overhead,
sales and marketing activities were consolidated prior to May 1, 1998 in
accordance with management's original integration plan.
As of October 3, 1998, substantially all actions required to achieve merger
related cost savings have been completed. These actions include the closing of
171 service center locations, the conversion of all remaining Vistar service
center locations to the Safelite point of sale system, the closing of the former
Vistar corporate headquarters, the conversion of Vistar call center and billing
systems to Safelite systems, and the elimination of redundant field management,
sales and marketing activities. Initial management estimates for annual net cost
savings related to the Vistar Merger were $30 million to $35 million. Of these
net cost savings, approximately $5 million are reflected in the Company's
results of operations for the six months ended October 3, 1998 and approximately
30% to 40% are expected to be reflected in the Company's results of operations
in the fiscal year ended April 3, 1999. The entire net cost savings are expected
to be realized in the Company's fiscal year ended April 1, 2000. There can be no
assurance that such cost savings will be achieved or that other factors will not
negate the realization of such savings.
At the time of the Vistar Merger, management estimated that merger-related
closing and consolidation costs would range from $37 million to $42 million. In
addition, management estimated that the Company would incur between $5 million
and $10 million in one-time expenses associated with the integration of
corporate systems, temporary services fees, training, moving and other costs
related to the Vistar Merger. As of October 3, 1998, the Company has recorded
$38.0 million in Vistar Merger related closing and consolidation costs and $6.7
million in one-time merger integration costs. Management's current estimate for
total merger-related closing and consolidation costs is $38 million to $40
million. Management expects to incur no further one-time merger integration
costs.
The consolidation and elimination of redundant service centers and related
field operations activities, however, took longer, and was more disruptive to
the Company's business, than was originally anticipated. This disruption and
delay, combined with lower overall automotive glass replacement industry unit
volumes, has had an adverse impact on the Company's sales and results of
operations.
The key items which have impacted the Company's performance are described
below:
(i) a higher proportion of sales have been serviced through the
Company's network of independent automotive glass installation providers
than had been achieved by Safelite prior to the Vistar Merger. The gross
profit margin on network sales is substantially lower than on
Safelite-owned service center sales.
(ii) the focus of the field sales force on merger integration
activities has adversely impacted unit sales. This has resulted in reduced
sales to local commercial accounts such as car dealerships, body shops and
local car rental companies compared to pre-merger combined results for
Safelite and Vistar. Sales to insurance customers where the Company does
not have a Total Customer Solution or Master Provider program relationship
have also been negatively affected.
(iii) field operations management likewise has been focused on
integrating the two companies, which had different operating cultures and
strategies. This has resulted in both lower sales to individual consumers
than the combined companies had experienced prior to the merger and lower
productivity levels than had been previously achieved by Safelite.
(iv) the overall automotive glass replacement industry has experienced
a decline in unit volumes during the current fiscal year-to-date period.
Overall installation and related services unit volumes of the Company for
the six months ended October 3, 1998 are down 7% from the combined
pre-merger unit sales volumes of Safelite and Vistar in the comparable
prior year period.
Management is devoting substantial time and attention in an effort to
address these issues and to improve the Company's sales growth and operating
efficiencies to expected levels. Specific actions undertaken or to be taken
include continued training of former Vistar field operations and call center
associates on Safelite systems and market-based operating strategies,
refocusing the Company's field sales force on sales growth, and aligning
service center and warehouse headcount with current unit volumes. In addition,
management has recently completed certain changes related to key leadership
positions in field operations, field sales and call center management at the
former Vistar call center. All such positions are now held solely by
experienced Safelite associates.
While management believes that these actions will improve sales and
operating performance, there can be no assurances regarding the timing within
which such actions may have impact or that such efforts will be ultimately
successful. In addition, given the Company's current operating performance and
the traditionally lower performance due to seasonality in the fourth and first
calendar quarters of each year, operating profits for the second half of the
Company's current fiscal year are expected to be substantially less than the
results achieved in the six months ended October 3, 1998. For the six months
ended April 4, 1998, the Company (which included Vistar from December 19, 1997)
achieved adjusted EBITDA of approximately $26 million. The Company's results of
operations for the six months ended April 3, 1999 may vary compared to the level
of adjusted EBITDA recorded in the comparable period of the prior year due to
disruptions in the Company's business caused by the difficulties in integrating
Vistar's operations and the overall decline in unit volumes currently being
experienced by the automotive glass replacement industry.
FORWARD LOOKING STATEMENTS.
This report contains forward-looking statements concerning the Company's
operations, economic performance and financial condition, including, in
particular, the likelihood of the Company's success in developing and expanding
its business and successfully realizing expected net synergies from the Vistar
Merger. These statements are based upon a number of assumptions and estimates
which are inherently subject to significant uncertainties and contingencies,
many of which are beyond the control of the Company, and reflect future
business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which
will affect the Company's results.
Statements contained in this report that are prefaced with the words "may,"
"will," "expect," "anticipate," "continue," "estimate," "project," "intend,"
"designed" and similar expressions, are intended to identify forward-looking
statements regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, results of operations
and financial position. These statements are based on the Company's current
expectations and estimates as to prospective events and circumstances about
which the Company can give no firm assurance. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made.
As it is not possible to predict every new factor that may emerge,
forward-looking statements should not be relied upon as a prediction of actual
future financial condition or results. These forward-looking statements, like
any forward-looking statements, involve risks and uncertainties that could cause
actual results to differ materially from those projected or anticipated. Such
risks and uncertainties include product demand, regulatory uncertainties, the
effect of economic conditions, the impact of competitive products and pricing,
changes in customers' ordering patterns and costs and expenses associated with
any Year 2000 issues associated with the Company, including updating software
and hardware and potential system interruptions. The foregoing list should not
be construed as exhaustive.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Press release of the Company dated November 30, 1998
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SAFELITE GLASS CORP.
Dated: December 2, 1998 By: /s/ Douglas A. Herron
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Name: Douglas A. Herron
Title: Chief Financial Officer