1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended April 4, 1998 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 333-4723
---------------------------------------------------------
CLARK-SCHWEBEL HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3883016
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2200 South Murray Avenue, Anderson, SC 29622
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(864) 224-3506
- --------------------------------------------------------------------------------
(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 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 the past 90 days.
Yes X No
--- ---
As of April 4, 1998, there were 9,000 shares outstanding of common stock of
Clark-Schwebel Holdings, Inc.
2
CLARK-SCHWEBEL HOLDINGS, INC.
FORM 10-Q QUARTERLY REPORT FOR
FISCAL QUARTER ENDED APRIL 4, 1998
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION:
ITEM 1. Financial Statements: 3
Consolidated Balance Sheets as of January 3, 1998 and April 4, 1998. 4
Consolidated Statements of Income for the Three Months ended
April 4, 1998 and March 29, 1997. 5
Consolidated Statements of Stockholders' Equity as of January 3, 1998 6
and April 4, 1998.
Consolidated Statements of Cash Flows for the Three Months ended
April 4, 1998 and March 29, 1997. 7
Notes to Condensed and Consolidated Financial Statements. 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 20
PART II - OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K. 21
SIGNATURES 22
EXHIBITS
Exhibit 27 - Financial Data Schedule
(electronic filing only)
2
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(See Pages 4 - 11 - This page is intentionally left blank)
3
4
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 3, 1998 and APRIL 4, 1998
(Dollars in Thousands Except Per Share Data)
JANUARY 3, APRIL 4,
1998 1998
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 147 $ 18,203
Accounts receivable, net ................................. 28,527 25,281
Inventories, net ......................................... 34,897 36,812
Other .................................................... 235 585
--------- ---------
Total current assets ................................ 63,806 80,881
--------- ---------
PROPERTY, PLANT AND EQUIPMENT ..................................... 72,133 72,771
Accumulated depreciation ..................................... (12,540) (14,495)
--------- ---------
Property, plant and equipment, net ....................... 59,593 58,276
--------- ---------
EQUITY INVESTMENTS ................................................ 65,411 63,579
GOODWILL .......................................................... 43,205 42,923
OTHER ASSETS ...................................................... 5,702 5,500
--------- ---------
TOTAL ASSETS ...................................................... $ 237,717 $ 251,159
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 19,806 $ 28,983
Accrued liabilities ...................................... 16,706 16,401
Deferred tax liabilities -- current ...................... 2,370 2,370
--------- ---------
Total current liabilities ........................... 38,882 47,754
--------- ---------
LONG-TERM DEBT .................................................... 155,994 155,994
DEFERRED TAX LIABILITIES .......................................... 20,575 22,529
LONG-TERM BENEFIT PLANS AND OTHER ................................. 4,139 4,139
COMMITMENTS AND CONTINGENCIES .....................................
--------- ---------
TOTAL LIABILITIES ................................................. 219,590 230,416
--------- ---------
EQUITY:
Common stock (par value per share - $.01) - 100,000 shares
authorized, 9,000 shares issued and outstanding ........ 9,000 9,000
Retained earnings ........................................ 13,664 18,455
Cumulative translation adjustment ........................ (4,537) (6,712)
--------- ---------
Total equity ........................................ 18,127 20,743
--------- ---------
TOTAL LIABILITIES AND EQUITY ...................................... $ 237,717 $ 251,159
========= =========
See notes to consolidated financial statements.
4
5
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - Dollars in Thousands)
December 29, January 4,
1996 - 1998 -
March 29, April 4,
1997 1998
--------- ---------
Net sales ................................. $ 62,238 $ 60,418
Cost of goods sold ........................ 48,634 45,215
-------- --------
Gross profit .............................. 13,604 15,203
Selling, general and administrative
expenses .............................. 3,902 4,423
-------- --------
Operating income ...................... 9,702 10,780
Other income (expense):
Interest expense ...................... (3,280) (4,508)
Other, net ............................ 0 (2)
-------- --------
Income before income taxes ................ 6,422 6,270
Provision for income tax .................. (2,651) (2,550)
Income from equity investees, net ......... 638 1,071
-------- --------
Net income ................................ 4,409 4,791
Accrued dividends on preferred stock ...... (1,191) 0
-------- --------
Net income applicable to common shares $ 3,218 $ 4,791
======== ========
See notes to consolidated financial statements.
5
6
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, except share amounts)
Preferred Stock Common Stock Cumulative
------------------- ------------------ Retained Translation Comprehensive
Shares Amount Shares Amount Earnings Adjustment Total Income
------ ------ ------ ------ -------- ---------- ----- ------
Balance at December 28, 1996 1,000 $ 35,000 9,000 $ 9,178 $ 7,005 ($1,350) $ 49,833 $ 8,792
Repayment of management loans 822 822
Net income 18,515 18,515 18,515
Accrued preferred stock dividend (2,856) (2,856)
Redemption of preferred stock (1,000) (35,000) (1,000) (9,000) (45,000)
Cumulative translation adjustment (3,187) (3,187) (3,187)
------ -------- ----- -------- --------- ------- -------- ---------
Balance at January 3, 1998 0 $ 0 9,000 $ 9,000 $ 13,664 ($4,537) $ 18,127 $ 24,120
====== ======== ===== ======== ========= ======= ======== =========
Net income (Unaudited) 4,791 4,791 4,791
Cumulative translation
adjustment (Unaudited) (2,175) (2,175) (2,175)
------ -------- ----- -------- --------- ------- -------- ---------
Balance at April 4, 1998 (Unaudited) 0 $ 0 9,000 $ 9,000 $ 18,455 ($6,712) $ 20,743 $ 26,736
====== ======== ===== ======== ========= ======= ======== =========
See notes to consolidated financial statements.
6
7
CLARK-SCHWEBEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - Dollars in Thousands)
December 29, January 4,
1996 - 1998 -
March 29, April 4,
1997 1998
--------- ---------
OPERATING ACTIVITIES:
Net income ....................................... $ 4,409 $ 4,791
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of goodwill
and unearned revenue .......................... 2,520 2,494
Amortization of deferred financing cost ....... 209 203
Deferred tax provision ........................ 2,651 2,550
Income from equity investments, net ........... (638) (1,071)
Loss on sale of equipment ..................... 0 7
Changes in assets and liabilities, net of the
effects of the purchase of the company:
Accounts receivable ...................... (4,604) 3,246
Inventories .............................. (1,228) (1,915)
Prepaid expenses and other ............... 52 (218)
Accounts payable ......................... 4,815 9,177
Accrued liabilities ...................... 786 (304)
Other ......................................... (2) 0
------- --------
Net cash provided by operating activities 8,970 18,960
------- --------
INVESTING ACTIVITIES:
Purchases of equipment ........................... (1,698) (929)
Proceeds from sale of equipment .................. 9 25
------- --------
Net cash used in investing activities ... (1,689) (904)
------- --------
FINANCING ACTIVITIES:
Principal payments under long-term debt and
capital lease obligations ..................... (2,272) 0
------- --------
Net cash provided by (used in)
financing activities .................... (2,272) 0
------- --------
NET CHANGE IN CASH .................................... 5,009 18,056
CASH, BEGINNING OF PERIOD ............................. 4,064 147
------- --------
CASH, END OF PERIOD ................................... $ 9,073 $ 18,203
======= ========
CASH PAID FOR INTEREST ................................ $ 235 $ 2,453
======= ========
CASH PAID FOR TAXES ................................... $ 298 $ 179
======= ========
Noncash Transaction: The company accrued dividends on preferred stock of $1,191
for the period of December 29, 1996 - March 29, 1997.
See notes to consolidated financial statements.
7
8
CLARK-SCHWEBEL HOLDINGS, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS in THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the assets,
liabilities and results of operations as of April 4, 1998 and for the period
from January 4, 1998 to April 4, 1998 of Clark-Schwebel Holdings, Inc. The
Company's primary asset is all of the capital stock of Clark-Schwebel, Inc., its
operating company. The statements also include the assets and liabilities of the
Company as of January 3, 1998, and the Company's results of operations for the
period from December 29, 1996 to March 29, 1997.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X of the Securities and Exchange Commission (SEC).
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All significant intercompany balances and transactions have been eliminated. The
balance sheet at January 3, 1998 has been derived from the audited financial
statements at that date. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for interim periods are
not necessarily indicative of results for the entire year. For further
information, refer to the Company's consolidated financial statements and
footnotes for the year ended January 3, 1998 included in the Company's Form 10-K
for the year then ended.
SUMMARIZED FINANCIAL INFORMATION---The following table provides summarized
financial information for Clark-Schwebel, Inc., the operating company, on a
stand alone basis. Clark-Schwebel, Inc. is a wholly owned subsidiary of
Clark-Schwebel Holdings, Inc. and its separate financial statements are not
included or filed separately because management has determined that they would
not be material to investors. The balance sheet information is as of April 4,
1998 and the income statement information is for the three months ended April 4,
1998.
1998
--------
Current assets ................................ $ 80,881
Noncurrent assets ............................. 170,278
--------
Total assets .................................. $251,159
========
Current liabilities ........................... $ 46,552
Noncurrent liabilities ........................ 137,610
Equity ........................................ 66,997
--------
Total liabilities and equity .................. $251,159
========
Net sales ..................................... $ 60,418
Gross profit .................................. 15,203
Income from continuing operations ............. 5,669
Net income .................................... $ 5,669
========
Dividends paid to Clark-Schwebel Holdings, Inc. $ 2,411
========
8
9
All assets of Clark-Schwebel, Inc. represent restricted net assets with
the exception of the foreign equity investments and distributions received from
the foreign equity investments. Except in limited circumstances, Clark-Schwebel,
Inc. is prohibited from transferring restricted net assets to Clark-Schwebel
Holdings, Inc. in the form of cash dividends, loans, or advances without the
consent of the lenders under the Credit Agreement. The amount of unrestricted
net assets at April 4, 1998 was $60,465, which represents the book value of the
foreign equity investments ($59,462) and distributions received in the form of
cash from the foreign equity investments ($1,003).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of the significant accounting policies used in
the preparation of the financial statements of the Company.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its operating company and wholly-owned subsidiary,
Clark-Schwebel, Inc. All material intercompany amounts and transactions have
been eliminated.
FISCAL YEAR - The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to December 31.
Accordingly, the interim periods will also be reported on the Saturday closest
to the calendar quarter end. The fiscal year ended January 2, 1999 is referred
to herein as 1998. The fiscal year ended January 3, 1998 is referred to herein
as 1997. The 1998 fiscal year consists of 52 weeks, while the 1997 fiscal year
consisted of 53 weeks.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates include the allowance for doubtful
accounts receivable and the liabilities for certain long-term benefit plans.
Actual results could differ from such estimates.
REVENUE RECOGNITION - Revenue from product sales is recognized at the time
ownership of the goods transfers to the customer and the earnings process is
complete. This generally occurs when the goods are shipped.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand
and in the bank as well as short term investments held for the purpose of
general liquidity. Such investments normally mature within three months from the
date of acquisition.
ACCOUNTS RECEIVABLE - The Company establishes an allowance for doubtful
accounts based upon factors including the credit risk of specific customers,
historical trends and other information. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral.
INVENTORIES - Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for substantially all
inventories.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment is recorded
at cost and depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets. Estimated useful lives are as follows:
Land improvements ........................ 10 to 20 years
Buildings and improvements................ 20 to 40 years
Machinery and equipment................... 3 to 11 years
9
10
EQUITY INVESTMENTS - The company owns equity interests in CS-Interglas AG
(headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan)
and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are
accounted for using the equity method of accounting.
FOREIGN CURRENCY - The foreign equity investments are translated at
year-end exchange rates. Equity income and losses are translated at the average
rate during the year. Cumulative translation adjustments are reflected as a
separate component of stockholders' equity.
POSTRETIREMENT BENEFITS - Postretirement benefits are accounted for
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. SFAS No.
106 requires that the projected future cost of providing postretirement
benefits, such as health care and life insurance, be recognized as an expense as
employees render service rather than when claims are incurred.
INCOME TAXES - Income taxes are accounted for pursuant to SFAS 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income tax assets and
liabilities represent the future income tax effect of temporary differences
between the book and tax bases of assets and liabilities assuming they will be
realized and settled at the amounts reported in the financial statements. The
provision for income taxes included in the accompanying financial statements is
computed in a manner consistent with SFAS No. 109.
GOODWILL - Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in the Acquisition of the Company from
Springs Industries in April 1996. Goodwill recorded from the Acquisition was
$45,128, and is being amortized on a straight-line basis over a period of 40
years.
3. LONG-TERM DEBT
Long-term debt consisted of the following:
January 3, April 4,
1998 1998
-------- --------
Senior Notes, payable in 2006, interest at 10.5% ......... $110,000 $110,000
Senior Debentures, payable in 2007, interest at 12.5% .... 45,994 45,994
Revolving Credit Agreement, due 2002, interest at variable
Rates ................................................ 0 0
-------- --------
Total .................................................... 155,994 155,994
Less current maturities .................................. 0 0
-------- --------
Long-term debt ........................................... $155,994 $155,994
======== ========
The Senior Notes accrue interest at a fixed rate of 10.5% per annum, with
interest payable semiannually in arrears on April 15 and October 15. The Senior
Notes are not redeemable at the option of the Company prior to April 15, 2001,
except in the event of a public equity offering of the Company, at which time a
portion of the Senior Notes would be redeemable.
The Senior Debentures accrue interest at a fixed rate of 12.5% per annum
with interest payable semiannually in arrears on January 15 and July 15 to the
extent permitted by the Credit Agreement and the indenture governing the Senior
Notes. If the Company is unable to pay interest in cash due to the prohibitions
contained in the Credit Agreement or such indenture, interest on the Senior
Debentures would be payable in additional Senior Debentures. The Senior
Debentures will not be redeemable at the Company's option prior to July 15,
2002, except in the event of a public equity offering of the Company, or a
change of control or subsidiary change of control after January 15, 1998.
10
11
The Company has a $65.0 million Revolving Credit Facility under the Credit
Agreement. The Company pays a quarterly commitment fee equal to 0.25% on the
unused portion of the Revolving Credit Facility, which was $65.0 million at
April 4, 1998.
The Revolving Credit Facility, the Senior Notes, and the Senior
Debentures contain certain restrictive covenants which provide limitations on
the Company with respect to restricted payments, indebtedness, liens,
investments, dividends, distributions, transactions with affiliates, debt
repayments, capital expenditures, mergers, and consolidations. The bank facility
covenants also require maintenance of certain financial ratios. At April 4,
1998, the Company was in compliance with such covenants. With the exception of
the Senior Debentures, which are obligations of Clark-Schwebel Holdings, Inc.,
all other long-term debt is owed at the Clark-Schwebel, Inc., operating company
level, and guaranteed by Clark-Schwebel Holdings, Inc.
No principal payments are required on any long-term debt in the next five
years.
4. INVENTORIES
Inventories consisted of the following:
January 3, April 4,
1998 1998
-------- --------
Finished goods ......................................... $ 12,301 $ 13,364
Raw material and supplies .............................. 8,854 9,918
In process ............................................. 15,317 15,489
-------- --------
Total at standard cost (which approximates average cost) 36,472 38,771
Less LIFO reserve ...................................... (1,575) (1,959)
-------- --------
Inventories, net ....................................... $ 34,897 $ 36,812
======== ========
5. CONVERSION OF CS-INTERGLAS AG ("INTERGLAS") NOTE RECEIVABLE AND OPTION TO
PURCHASE A CONTROLLING INTEREST IN INTERGLAS
On March 31, 1998, the Company notified CS-Interglas of its intent to
convert its 20 million Deutsche mark convertible notes (the "Convertible Notes")
into CS-Interglas common stock. The conversion will increase the Company's
ownership of the outstanding common stock of Interglas from 24.9% to 41.9% on
June 30, 1998, the date on which the conversion becomes effective. The
conversion is subject to the review and approval of the German Merger Control
Authorities. Interglas manufactures fiber glass, aramid and carbon fabrics in
Europe, with plants in Germany, Belgium, England and France. CS-Interglas sales
for the fiscal year ended June 30, 1997 were $154 million.
On March 31, 1998, the Company also entered into an agreement with the
Deschler-Group, the Company's joint venture partner in Interglas who, following
the Company's Convertible Notes conversion described above, will also own 41.9%
of the outstanding common stock of Interglas. Under this agreement, the Company
will purchase 1.7% of Interglas' common stock from the Deschler-Group for 4.75
million Deutsche marks. This purchase will increase the Company's ownership in
Interglas from 41.9% to 43.6%. Additionally, the Company obtained two options
from the Deschler-Group to purchase additional Deschler-Group shares of
Interglas. The first option allows the Company to purchase an additional 6.4% of
Interglas' common stock from the Deschler-Group on or before January 10, 1999,
which, if exercised, will give the Company control of Interglas. The second
option allows the Company to purchase the remaining share holdings of the
Deschler-Group at any time through December 31, 1999. The Company's purchase of
additional shares in CS-Interglas is subject to the review and approval of the
German Merger Control Authorities.
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and the notes thereto. It compares the results
of operations of Clark-Schwebel Holdings, Inc. for the three months ended April
4, 1998 to the three months ended March 29, 1997.
GENERAL
First quarter 1998 results reflected improvement in operating income,
despite a small decrease in net sales, when compared to the same period in 1997.
Shipments of fiber glass fabric began the year strong, but demand softened
during the latter part of the quarter due primarily to what management believes
is an industry-wide inventory correction in the electronics industry. Sales of
high performance fabrics were also off from last year. Operating income
increased as a result of a favorable sales mix and improved pricing. Management
is unable to predict when the electronics industry will emerge from the
slowdown, but believes that current conditions are temporary in nature.
12
13
RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
NET SALES
Net sales for the first quarter of 1998 decreased $1.8 million, or 2.9%,
to $60.4 million from $62.2 million. Overall fiber glass sales were down by $0.7
million, or 1.4%, while high performance sales declined by $1.1 million, or
10.5%. Sales of electronic fiber glass decreased by a modest 0.7%, while sales
of composite material fiber glass decreased by 3.6% when compared to 1997. Lower
demand for coating & laminating and scrims products was partially offset by
higher sales to the aerospace industry, which primarily accounted for the net
decrease in sales of composite material fiber glass. The decrease in high
performance sales resulted from a decline in sales to the military ballistics
market.
GROSS PROFIT
Gross profit for the first quarter of 1998 increased $1.6 million, or
11.8%, to $15.2 million from $13.6 million. Gross profit as a percentage of net
sales improved to 25.2% in 1998 from 21.9% in 1997. The improvement in gross
profit resulted primarily from a shift in sales mix weighted more towards higher
margin fiber glass fabrics, and improved pricing.
13
14
SG&A
Selling, general, and administrative expenses increased $0.5 million, or
13.4% to $4.4 million from $3.9 million. As a percentage of net sales, SG&A
expenses increased to 7.3% in 1998 from 6.3% in 1997. The increase in SG&A
expenses resulted primarily from increased compensation and fringe benefits.
OPERATING INCOME
Operating income increased $1.1 million to $10.8 million in the first
quarter of 1998 from $9.7 million in the same period a year ago. As a percentage
of net sales, operating income was 17.8%, up from 15.6% in 1997. The increase
gross profit was primarily responsible for the increase in operating income.
INTEREST EXPENSE
Interest expense incurred by the Company in the first quarter of 1998 was
$4.5 million compared to $3.3 million in the first quarter of 1997. Interest
expense increased in the first quarter of 1998 because of interest related to
the Senior Debentures which were issued on August 14, 1997.
INCOME FROM EQUITY INVESTEES, NET
Income from equity investees, net, increased by $0.4 million to $1.0
million from $0.6 million in the first quarter of 1997. An increase in the
operating results reported by Asahi-Schwebel, coupled with the Company's
increased ownership in Asahi-Schwebel
14
15
(43.3% in 1998 compared to 39% in 1997), primarily caused the increase in equity
income. Results reported by CS-Interglas were slightly higher than last year's
results, while results for CS Tech Fab were slightly lower.
The equity investment balance as of April 4, 1998 decreased by $1.8 million from
the January 4, 1998 balance sheet. The decline resulted primarily from a
strengthening U.S. dollar relative to the German mark (the functional currency
for CS-Interglas) and the Japanese yen (the functional currency for
Asahi-Schwebel) The decline in currency translation more than exceeded equity
income recorded in the first quarter of 1998. The effect of foreign currency
translation had no impact on the Company's results of operations or cash flows
in the first quarter of 1998.
NET INCOME
Net income in the first quarter of 1998 increased by $0.4 million, or
8.7%, to $4.8 million from $4.4 million in the first quarter of 1997. The
increase in net income resulted from increased operating income ($1.1 million),
increased income from equity investees, net ($0.4 million), and decreased income
tax expense ($0.1 million), which were partially offset by the increase in
interest expense ($1.2 million).
15
16
LIQUIDITY AND CAPITAL RESOURCES
DESCRIPTION OF INDEBTEDNESS
The Company had the following long-term debt at April 4, 1998: a $65.0
million Revolving Credit Facility under the Credit Agreement, none of which was
drawn at quarter end, $110.0 million in Senior Notes, and $46.0 million in
Senior Debentures. The Revolving Credit Facility is available for working
capital and general corporate purposes and matures in April 2002. Substantially
all of the assets of Clark-Schwebel, Inc. (the "Operating Company") are subject
to liens in favor of the Credit Agreement lenders. The interest rate per annum
is variable and based upon (i) a Base Rate (defined in the Credit Agreement) or
(ii) LIBOR plus a margin which varies based upon the Company's financial
performance. The margin over LIBOR at April 4, 1998 was 0.75%.
The Senior Notes bear interest at a rate of 10.5% per annum, payable
semi-annually on April 15 and October 15 of each year. Other than upon a change
of control or as a result of certain assets sales, the Operating Company will
not be required to make any principal payments in respect of the Senior Notes
until maturity in April 2006. Holdings unconditionally and irrevocably
guarantees the Senior Notes, which are the obligation of the Operating Company.
Depending on market conditions and the Company's financial position, the
Operating Company may from time to time make open market purchases of the Senior
Notes.
The Senior Debentures bear interest at a rate of 12.5% per annum, payable
semi-annually on January 15 and July 15 to the extent permitted by the Credit
Agreement and
16
17
the indenture governing the Senior Notes. If the Company is unable to pay
interest in cash due to the prohibitions contained in the Credit Agreement or
such indenture, interest on the Senior Debentures would be payable in additional
Senior Debentures. The Senior Debentures will not be redeemable at the Company's
option prior to July 15, 2002, except in the event of a public equity offering,
or a change of control or subsidiary change of control after January 15, 1998.
The Senior Debentures are subordinated to borrowings under the Credit Agreement
and to the Senior Notes.
The Company's ability to borrow in excess of the commitments set forth in
the Credit Agreement is limited by the terms of the Credit Agreement and the
indentures governing the Senior Notes and Senior Debentures. Additionally, such
terms provide limitations on the Company with respect to restricted payments,
indebtedness, liens, investments, dividends, distributions, transactions with
affiliates, debt repayments, capital expenditures, mergers and consolidations.
The Credit Facility also requires the maintenance of certain financial ratios.
At April 4, 1998, the Company was in compliance with such covenants. With the
exception of the Senior Debentures, which are obligations of Clark-Schwebel
Holdings, Inc., all other debt is incurred at the Operating Company level.
All assets of Clark-Schwebel, Inc. represent restricted net assets under
the Credit Agreement with the exception of the foreign equity investments and
distributions received from the foreign equity investments. Except in limited
circumstances, Clark-Schwebel, Inc. is prohibited from transferring restricted
net assets to Clark-Schwebel Holdings, Inc. in the form of cash dividends,
loans, or advances without the consent of
17
18
the lenders under the Credit Agreement. The amount (in thousands) of
unrestricted net assets at April 4, 1998 was $60,465, which represents the book
value of the foreign equity investments ($59,462) and distributions received in
the form of cash from the foreign equity investments ($1,003).
CONVERSION OF CS-INTERGLAS AG ("INTERGLAS") NOTE RECEIVABLE AND OPTION TO
PURCHASE A CONTROLLING INTEREST IN INTERGLAS
On March 31, 1998, the Company notified CS-Interglas of its intent to
convert its 20 million Deutsche mark convertible notes (the "Convertible Notes")
into CS-Interglas common stock. The conversion will increase the Company's
ownership of the outstanding common stock of Interglas from 24.9% to 41.9% on
June 30, 1998, the date on which the conversion becomes effective. The
conversion is subject to the review and approval of the German Merger Control
Authorities. Interglas manufactures fiber glass, aramid and carbon fabrics in
Europe, with plants in Germany, Belgium, England and France. CS-Interglas sales
for the fiscal year ended June 30, 1997 were $154 million.
On March 31, 1998, the Company also entered into an agreement with the
Deschler-Group, the Company's joint venture partner in Interglas who, following
the Company's Convertible Notes conversion described above, will also own 41.9%
of the outstanding common stock of Interglas. Under this agreement, the Company
will purchase 1.7% of Interglas' common stock from the Deschler-Group for 4.75
million Deutsche marks. This purchase will increase the Company's ownership in
Interglas from 41.9% to 43.6%. Additionally, the Company obtained two options
from the Deschler-Group to purchase additional Deschler-Group shares of
Interglas. The first option allows the Company to
18
19
purchase an additional 6.4% of Interglas' common stock from the Deschler-Group
on or before January 10, 1999, which, if exercised, will give the Company
control of Interglas. The second option allows the Company to purchase the
remaining share holdings of the Deschler-Group at any time through December 31,
1999. The Company's purchase of additional shares in CS-Interglas is subject to
the review and approval of the German Merger Control Authorities.
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
Cash provided by operating activities in the first quarter of 1998 was
$19.0 million, compared with $9.0 million provided in the same period a year
ago. Cash provided by operating activities increased due to effective working
capital management The Company spent $0.9 million on capital additions during
the quarter, compared to $1.7 million in 1997. The Company typically makes
capital expenditures to enhance capacity and improve manufacturing facilities
and processing equipment. The Company anticipates that capital spending in 1998
will be slightly below the levels experienced in 1997. As of April 4, 1998, the
Company had cash and cash equivalents of approximately $18.2 million. In
addition, the Company had $65.0 million of undrawn availability under the
Revolving Credit Facility. The Company ended the quarter with net debt of $144.3
million, consisting of $110.0 million in Senior Notes, $46.0 in Senior
Debentures, $6.5 million in accrued interest, less $18.2 million in cash and
cash equivalents.
To meet its liquidity needs, the Company has relied and expects to
continue to rely on internally generated funds and, to the extent necessary, on
undrawn commitments
19
20
available under the Revolving Credit Facility. The Company believes that cash
generated from operations and borrowing resources will be sufficient to fund the
Company's cash needs for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
21
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 - Financial Data Schedule
(electronic filing only)
(b) Reports on Form 8-K.
No report was filed during the quarter ended April 4, 1998 on
Form 8-K.
21
22
SIGNATURES
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 thereunto duly authorized.
CLARK-SCHWEBEL HOLDINGS, INC.
--------------------------------------
(Registrant)
Date May 15, 1998 /s/ William D. Bennison
------------------------- --------------------------------------
Name: William D. Bennison
Title: President
Date May 15, 1998 /s/ Donald R. Burnette
------------------------- --------------------------------------
Name: Donald R. Burnette
Title: Vice President and Chief
Financial Officer
22
23
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
(electronic filing only)