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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 28, 1996 to December 28, 1996
Commission file number 1-10218
COLLINS & AIKMAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3489233
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
701 MCCULLOUGH DRIVE
CHARLOTTE, NORTH CAROLINA 28262
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 547-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $112,838,317 as of March 25, 1997.
As of March 25, 1997, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 66,377,523 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for 1997 Annual Meeting of Stockholders to be filed
within 120 days of December 28, 1996 - Items 10, 11, 12 and 13.*
* Only the portions of this document expressly described in the items
listed are incorporated by reference herein.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT INDEX
Item 1. Business, page 1.
Item 2. Properties, page 5.
Item 3. Legal Proceedings, page 5.
Item 4. Submission of Matters to a Vote of Security Holders, page 7.
Executive Officers of the Registrant, page 7.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters, page 9.
Item 6. Selected Financial Data, page 10.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 12.
Item 8. Financial Statements and Supplementary Data, page 26.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure, page 26.
Item 10. Directors and Executive Officers of the Registrant, page 27.
Item 11. Executive Compensation, page 27.
Item 12. Security Ownership of Certain Beneficial Owners and
Management, page 27.
Item 13. Certain Relationships and Related Transactions, page 27.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K, page 28.
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PART I
ITEM 1. BUSINESS
DEVELOPMENT
Collins & Aikman Corporation (the "Company") is a major supplier of
automotive interior systems - textile and plastic trim, acoustics and
convertible tops - to the global automotive industry. The Company (formerly
Collins & Aikman Holdings Corporation) is a Delaware corporation which was
formed on September 21, 1988. Prior to July 13, 1994, the Company was a
wholly-owned subsidiary of Collins & Aikman Holdings II Corporation ("Holdings
II"). In connection with an initial public offering of Common Stock and a
recapitalization (the "Recapitalization"), Holdings II was merged into the
Company. Concurrently, Collins & Aikman Group, Inc., a wholly-owned subsidiary
of the Company ("Group"), was merged into its wholly-owned subsidiary, Collins &
Aikman Corporation, which changed its name to Collins & Aikman Products Co.
("C&A Products"). On July 7, 1994, the Company changed its name from Collins &
Aikman Holdings Corporation to Collins & Aikman Corporation. Prior to the
Recapitalization, the Company was jointly owned by Blackstone Capital Partners
L.P. ("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP
Partners") and their respective affiliates. As of December 28, 1996, Blackstone
Partners and WP Partners and their respective affiliates collectively own
approximately 80% of the Common Stock of the Company. The Company conducts all
of its operating activities through its wholly-owned C&A Products subsidiary.
During 1996, the Company took major steps to implement its automotive
growth strategy which will focus the Company's resources on expanding its core
automotive business in North America and globally as well as adding
complementary product offerings. To that end, the Company made several strategic
automotive acquisitions and discontinued its Interior Furnishings and
Wallcoverings segments, all as discussed below.
On January 3, 1996, the Company acquired Manchester Plastics for a
purchase price of approximately $184 million, which includes approximately $40.4
million of debt extinguished in connection with the acquisition. Manchester
Plastics is a designer and manufacturer of high quality plastic-based automotive
door panels, headrests, floor console systems and instrument panel components
used in the interior of automobiles, light trucks, sport utility vehicles and
minivans. The Manchester Plastics product line adds a broad range of molded
plastic products to the Company's extensive textile-based automotive trim
products.
On April 9, 1996, the Company announced a plan to spin off the
Company's Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings") to the
stockholders of the Company in the form of a stock dividend. The proposed
spin-off requires, among other things, the declaration of the dividend by the
Company's Board of Directors. The Company had originally anticipated the
proposed spin-off to occur during 1996. However, as a result of management
changes at Wallcoverings and other factors, the Company currently expects the
proposed spin-off to occur during the second half of 1997.
On May 1, 1996, the Company acquired the business of BTR Fatati Limited
("Fatati"), a manufacturer and supplier of molded floor carpets and luggage
compartment trim for the European automotive market. The acquisition increases
the Company's carpet molding capacity and gives it a European base from which to
supply its new carpet molding plant in Austria. Fatati's customers include
General Motors, Saab and Toyota.
On December 4, 1996, the Company announced it is considering the sale
of the Mastercraft Group to further pursue its automotive growth strategy. Based
on determinations of value from potential purchasers, the Company has decided to
pursue the sale of the Mastercraft Group and anticipates the sale to be
completed by the summer of 1997. The Mastercraft Group is the leading
manufacturer of flat woven upholstery fabric.
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On December 10, 1996, the Company announced that it entered into an
agreement to sell its Floorcoverings subsidiary ("Floorcoverings") for
approximately $197 million, subject to adjustment. Management believes that this
sale, which occurred in February 1997, better positions the Company to focus on
its automotive growth strategy.
On December 11, 1996, the Company acquired JPS Automotive L. P. ("JPS
Automotive") for $220 million, subject to post-closing adjustment, consisting of
approximately $195 million of indebtedness of JPS Automotive and approximately
$25 million of cash. The Company also acquired the minority interest in a JPS
Automotive subsidiary for $10 million. This acquisition further strengthened the
Company's position in automotive molded floor carpet and bodycloth as well as
expanding the Company's interior product offerings to include headliner fabric.
On December 11, 1996, the Company acquired Perstorp AB's automotive
supply operations (primarily acoustical products) in North America, the United
Kingdom and Spain for $108 million, subject to adjustment. The acquisition
positions the Company to source floor carpet and acoustical products as a
package both domestically and internationally. In addition, the Company and
Perstorp AB ("Perstorp") entered into a joint venture agreement relating to
Perstorp's automotive supply operations (primarily acoustical and plastic
components) in Sweden, Belgium and France. Each of the Company and Perstorp has
a 49.9% interest in the joint venture.
The Company has accounted for the financial results and net assets of
Floorcoverings and the Mastercraft Group (which were formerly reported in the
Interior Furnishings segment), and Wallcoverings as discontinued operations.
Accordingly, previously reported financial results for all periods have been
restated to reflect those three businesses as discontinued operations.
In addition to the acquisitions and divestitures (or planned
divestitures) discussed above, on June 10, 1996, the Company's wholly-owned
subsidiary, C&A Products, issued $400 million principal amount of 11-1/2% Senior
Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by
the Company. The Subordinated Notes were sold at a price equal to 100% of their
principal amount. The Company used approximately $356.8 million of the total net
proceeds of $387.0 million to repay $348.2 million principal amount of the
outstanding bank borrowings plus accrued interest on such borrowings and related
fees and expenses, and used the remainder for general corporate purposes.
During November 1996, the Company decided to change its fiscal year end
to the last Saturday of December. Fiscal 1996 ended on December 28, 1996 and was
an 11-month period. All previous fiscal years ended on the last Saturday of
January of the following year.
With respect to competitive information, references to the Company as
"a leader", "a leading" or "one of the leading" manufacturers in a product
category mean that the Company is one of the principal manufacturers in that
product category and references to the Company as "the leader", "the largest" or
"the leading" manufacturer in a product category mean that the Company has the
largest product share based on dollar sales volume in that product category.
GENERAL
The Company is a leading designer and manufacturer of automotive
products with 1996 net sales of $1,055.9 million. The Company supplies eight
principal automotive products--automotive seat fabric ("bodycloth"), molded
floor carpets, acoustical products, accessory floor mats, luggage compartment
trim, convertible top systems, headliner fabric and plastic-based interior
systems. The Company's 1996 acquisitions, which are discussed above,
significantly increased the Company's content per build through growth in
existing product lines as well as by adding complementary product offerings.
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The Company's sales are dependent on certain significant customers. In
1996, 1995 and 1994 direct and indirect sales to each of General Motors
Corporation, Ford Motor Company and Chrysler Corporation accounted for 10% or
more of the Company's net sales.
Automotive industry demand historically has been influenced by both
cyclical factors and long-term growth trends in the driving age population and
real per capita income.
Annual new car and light truck sales historically have been cyclical.
In the most recent cycle, North American light vehicle sales declined from an
average of 15.4 million units per year in 1986-1988 to a low of 12.3 million
units in 1991. For the last three years, North American light vehicle sales have
averaged 15.1 million units.
PRODUCTS
The Company manufactures eight principal automotive products:
automotive bodycloth, molded floor carpets, acoustical products, accessory floor
mats, luggage compartment trim, convertible top systems, headliner fabric and
plastic-based interior systems. The Company also produces certain other
automotive and nonautomotive products.
AUTOMOTIVE BODYCLOTH. The Company manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. The Company also laminates
foam to bodycloth. In 1996, 1995 and 1994, the Company had net sales of
bodycloth of $243.9 million, $327.5 million and $340.3 million, respectively.
MOLDED FLOOR CARPETS. Molded floor carpets include polyethylene,
barrier-backed and molded urethane underlay carpet. In 1996, 1995 and 1994, net
sales of molded floor carpets were $234.1 million, $231.8 million, $213.2
million, respectively.
ACOUSTICAL PRODUCTS. In December 1996, the Company acquired from
Perstorp its North American, United Kingdom and Spanish automotive supply
operations. These operations supply acoustical products to both domestic and
international automotive manufacturers. These products can be combined with
molded floor carpets to provide complete interior floor systems to the
automotive industry.
ACCESSORY FLOOR MATS. The Company produces carpeted automotive
accessory floor mats for both North American produced vehicles and imported
vehicles.
LUGGAGE COMPARTMENT TRIM. Luggage compartment trim includes one-piece
molded trunk systems and assemblies, wheelhouse covers and center pan mats,
seatbacks, tireboard covers and other trunk trim products.
CONVERTIBLE TOP SYSTEMS. The Company designs and manufactures
convertible top systems through its Dura Convertible Systems subsidiary
("Dura"). In October 1993, Dura began shipping its "Top-in-a-Box" system, in
which it designs and manufactures all aspects of a convertible top, including
the framework, trim set, backlight and power actuating system.
HEADLINER FABRIC. With the December 1996 acquisition of JPS
Automotive, the Company expanded its interior product offerings to include
headliner fabric.
PLASTIC-BASED INTERIOR SYSTEMS. In January 1996, the Company acquired
Manchester Plastics, a manufacturer of automotive door panels, headrests, floor
console systems and instrument panel components. The acquisition of Manchester
Plastics added a broad range of molded plastic components to the Company's
textile-based automotive interior trim products.
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OTHER. The Company also produces certain other automotive products,
including carpet die cuts for automotive interior trim applications,
convertible power actuating units, airbag fabric and carpet roll goods
for export and domestic consumption. In addition, the Company manufactures
small volumes of certain other products, such as velvet furniture fabrics,
residential floor mats, casket liners, sliver knits and woven
fabrics, for various commercial and industrial markets.
COMPETITION
The automotive supply business is highly competitive. The Company has
competitors in respect to each of its automotive products, some of which may
have substantially greater financial and other resources than the Company. The
Company's competitors in molded plastic components include subsidiaries of
certain U.S. automotive and light vehicle manufacturers.
The Company principally competes for new business at the design stage
of new models and upon the redesign of existing models. The Company is
vulnerable to a decrease in demand for the models that generate the most sales
for the Company, a failure to obtain purchase orders for new or redesigned
models and pricing pressure from the major automotive companies.
FACILITIES
The Company has 65 manufacturing, warehouse and other facilities
located in the U.S., Canada, Mexico, the United Kingdom, Spain and Austria
aggregating approximately 10.0 million square feet. The majority of these
facilities are located in North Carolina, South Carolina, Ohio and Michigan and
in Ontario, and Quebec, Canada. Approximately 90% of the total square footage of
these facilities is owned and the remainder is leased. Many facilities are
strategically located to provide just-in-time ("JIT") inventory delivery to the
Company's customers. Capacity at any plant depends, among other things, on the
product being produced, the processes and equipment used and tooling. This
varies periodically, depending on demand and shifts in production between
plants. The Company currently estimates that its plants generally operate at
between 50% and 100% of capacity. During the second half of 1994 the Company
experienced capacity constraints with respect to certain automotive seat fabrics
due to the unanticipated popularity of certain vehicles for which the Company
supplies seat fabric. To meet customer expectations, the Company utilized
outside commission weaving and redeployed certain manufacturing capacity from
its velvet furniture fabrics. The Company terminated commission weaving during
the second quarter of 1995. Except for the foregoing constraints, which the
Company believes were short term, the Company's capacity utilization is
generally in line with its past experience in similar economic situations, and
the Company believes that its facilities are sufficient to meet existing needs.
RAW MATERIALS
Raw materials and other supplies used in the Company's continuing
operations are normally available from a variety of competing suppliers. With
respect to most materials, the loss of a single or even a few suppliers would
not have a material adverse effect on the Company. For a discussion of
increasing raw material price trends, see "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and
Capital Resources".
ENVIRONMENTAL MATTERS
See "ITEM 3. LEGAL PROCEEDINGS - Environmental Proceedings" and "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Environmental Matters".
EMPLOYEES
As of December 28, 1996, the Company's continuing operations employed
approximately 12,800 persons on a full-time or full-time equivalent basis.
Approximately 3,400 of such employees are represented
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by labor unions. Management believes that the Company's relations with its
employees and with the unions that represent certain of them are generally good.
ITEM 2. PROPERTIES
For information concerning the principal physical properties of the
Company and its various operating divisions, see "ITEM 1. BUSINESS".
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Company and its subsidiaries are not a
party to any material pending legal proceedings, other than ordinary routine
litigation incidental to their businesses.
ENVIRONMENTAL PROCEEDINGS
DOUGLAS, MICHIGAN. On January 4, 1991, a complaint was filed in the
Circuit Court for Allegan County, Michigan, captioned HAWORTH, INC. V. WICKES
MANUFACTURING COMPANY (the "Haworth action"), in which Haworth, Inc. ("Haworth")
alleged that predecessors of Wickes Manufacturing Company ("Wickes
Manufacturing"), an indirect wholly owned subsidiary of the Company, released
environmental contaminants on property, now owned by Haworth, located in the
Village of Douglas, Michigan. On October 22, 1993, Haworth filed a complaint in
the United States District Court for the Western District of Michigan, captioned
HAWORTH, INC. V. WICKES MANUFACTURING COMPANY AND PARAMOUNT COMMUNICATIONS, INC.
(the "Second HAWORTH action"). In the Second HAWORTH action, Haworth alleged
federal claims with respect to Wickes Manufacturing that were factually similar
to the state law claims alleged in the HAWORTH action, and Haworth sought a
declaratory judgment that Wickes Manufacturing and Paramount Communications,
Inc. were liable for the alleged contamination at the site, an order requiring
Wickes Manufacturing and Paramount Communications, Inc. to implement response
actions at the site, and damages, interest and costs, all in unspecified
amounts. On January 29, 1997, the parties entered into a settlement agreement
settling both the HAWORTH action and the Second HAWORTH action without payment
by any party. On February 5, 1997, the Second HAWORTH action and on February 10,
1997, the HAWORTH action were dismissed with prejudice.
OTHER ENVIRONMENTAL MATTERS. The Company is legally or contractually
responsible or alleged to be responsible for the investigation and remediation
of contamination, or has received notices that it is a potentially responsible
party (a "PRP"), at various other sites. These sites include, among others, the
following: a site formerly operated by Stamina Mills, Inc., a former subsidiary
of a former indirect subsidiary of the Company, in North Smithfield, Rhode
Island; a site adjacent to a facility formerly operated by Wickes
Manufacturing's former Bohn Heat Transfer division located at Beardstown,
Illinois; a site formerly owned and operated by Wickes Manufacturing's alleged
former Daybrook Ottawa division located at Bowling Green, Ohio; a site owned and
formerly operated by a Company subsidiary located at Elmira, California; the
Reliable Equipment Superfund Site located at Grand Rapids, Michigan; the
Butterworth Landfill Superfund Site located at Grand Rapids, Michigan; a site
owned and formerly operated by Wickes Manufacturing's former Mechanical
Components division located at Mancelona, Michigan; the former Albert Van Luit
plant site owned by a Company subsidiary located at North Hollywood, California;
the Stringfellow Superfund Site located at Riverside County, California; and
certain sites associated with the former Wickes Engineering business. In
addition to the environmental sites and proceedings listed above, the Company is
and has been a party or PRP at other sites and involved in other proceedings
from time to time. The majority of environmental site costs have been incurred
in connection with the North Smithfield, Rhode Island; Elmira, California; and
North Hollywood, California sites.
In estimating the total future cost of investigation and remediation,
the Company has considered, among other things, the Company's prior experience
in remediating contaminated sites, remediation efforts by other parties, data
released by the United States Environmental Protection Agency, the professional
judgment of the Company's environmental experts, outside environmental
specialists and other experts, and
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the likelihood that other parties which have been named as PRPs will have the
financial resources to fulfill their obligations at sites where they and the
Company may be jointly and severally liable. Under the theory of joint and
several liability, the Company could be liable for the full costs of
investigation and remediation even if additional parties are found to be
responsible under the applicable laws. It is difficult to estimate the total
cost of investigation and remediation due to various factors including
incomplete information regarding particular sites and other PRPs, uncertainty
regarding the extent of environmental problems and the Company's share, if any,
of liability for such problems, the selection of alternative compliance
approaches, the complexity of environmental laws and regulations and changes in
cleanup standards and techniques. When it has been possible to provide
reasonable estimates of the Company's liability with respect to environmental
sites, provisions have been made in accordance with generally accepted
accounting principles. The Company records its best estimate when it believes it
is probable that an environmental liability has been incurred and the amount of
loss can be reasonably estimated. The Company also considers estimates of
certain reasonably possible environmental liabilities in determining the
aggregate amount of environmental reserves. As of December 28, 1996, the Company
has established reserves of approximately $46.1 million for the estimated future
costs related to all its known environmental sites. In the opinion of
management, based on the facts presently known to it, the environmental costs
and contingencies will not have a material adverse effect on the Company's
consolidated financial condition or future results of operations. However, there
can be no assurance that the Company has identified or properly assessed all
potential environmental liability arising from the activities or properties of
the Company, its present and former subsidiaries and their corporate
predecessors.
The Company is seeking insurance coverage for a portion of the defense
costs and liability it has incurred and may incur in connection with the
environmental proceedings described above. Coverage issues have not been
resolved. While the Company has received some payments from certain insurance
carriers, there can be no assurance that additional payments will be received.
LITIGATION PROCEEDINGS
PREFERRED STOCK REDEMPTION LITIGATION. On August 2, 1991, a Fifth
Consolidated Amended Complaint was filed in IN RE IVAN F. BOESKY SECURITIES
LITIGATION in the United States District Court for the Southern District of New
York against a variety of defendants including Group alleging, among other
things, a conspiracy to manipulate the price of Group's common stock in 1986 for
the purpose of triggering a redemption of certain outstanding preferred stock of
Group. On November 20, 1996, plaintiffs and C&A Products agreed to a settlement
whereby plaintiffs released all claims relating to the litigation against Group
and the individual Group-related defendants in exchange for payment by C&A
Products of $4.25 million. On May 12, 1995, C&A Products paid $4.25 million into
an escrow account with the Court pursuant to the terms of the settlement in
principal. On December 18, 1996, the Court preliminarily approved the final
settlement. On March 18, 1997, the Court ratified the settlement. The settlement
was within previously established accruals.
In the opinion of the Company's management based on the facts presently
known to it, the ultimate outcome of any of these legal proceedings will not
have a material adverse effect on the Company's consolidated financial condition
or future results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
(Pursuant to Instruction G(3) of the General Instructions to Form 10-K, the
following information is included herein as an unnumbered item in lieu of being
included in the Company's definitive Proxy Statement).
The following is a list of the names and ages (as of March 25, 1997) of all the
executive officers of the Company and a description of all positions and offices
with the Company held by each such person and each such person's principal
occupations and employment during the past five years. All executive officers
hold office at the pleasure of the Company's Board of Directors.
NAME AGE POSITION
----------------------------------- --- ---------------------------
David A. Stockman 50 Co-Chairman of the Board
Randall J. Weisenburger 38 Co-Chairman of the Board
Thomas E. Hannah 58 Chief Executive Officer
Dennis E. Hiller 42 President of Automotive
Carpet and Acoustics Group
John D. Moose 60 President of Automotive
Fabrics Division
Harry F. Schoen III 61 President of Mastercraft
Division
Elizabeth R. Philipp 40 Executive Vice President,
General Counsel and
Secretary
J. Michael Stepp 52 Executive Vice President
and Chief Financial Officer
DAVID A. STOCKMAN has been a director of the Company since October 1988
and Co-Chairman of the Board of the Company since July 1993. Mr. Stockman has
been a member of Blackstone Group Holdings L.L.C. ("BGH"), which is under common
control with Blackstone Partners, a principal stockholder of the Company, since
March 1996 pursuant to a reorganization of Blackstone Group Holdings L.P.
("Blackstone Group") and has been a Senior Managing Director of The Blackstone
Group L. P. (or has served in this capacity) since 1988. Mr. Stockman was a
General Partner of Blackstone Group from 1988 to February 1996. Prior to joining
Blackstone Group, Mr. Stockman was a Managing Director of Salomon Brothers Inc.
Mr. Stockman served as the Director of the Office of Management and Budget in
the Reagan Administration from 1981 to 1985. Prior to that, Mr. Stockman
represented Southern Michigan in the U. S. House of Representatives. Mr.
Stockman is also a director of LaSalle Re Holdings Ltd. and Bar Technologies
Inc.
RANDALL J. WEISENBURGER has been a director of the Company since August
1989 and Co-Chairman of the Board since June 1995. Mr. Weisenburger was Vice
Chairman of the Company from April 1994 to June 1995, Deputy Chairman of the
Company from July 1992 to April 1994 and Vice President from August 1989 to July
1992. Mr. Weisenburger has been Managing Director of Wasserstein Perella & Co.,
Inc. ("WP & Co."), an affiliate of WP Partners, a principal stockholder of the
Company, since December 1993. Mr. Weisenburger was a Director of WP & Co. from
December 1992 to December 1993 and Vice President of WP & Co. from December 1989
to December 1992. Mr. Weisenburger is also Chairman of Yardley of London, Ltd.
and Co-Chairman of Alliance Entertainment Corp.
THOMAS E. HANNAH has been a director of the Company and Chief Executive
Officer of the Company since July 1994. Mr. Hannah was President and Chief
Executive Officer of Collins & Aikman Textile and Wallcoverings Group, a
division of a wholly owned subsidiary of the Company, from November 1991 until
July 1994 and was named an executive officer of the Company for purposes hereof
in April 1993. Mr. Hannah was President and Chief Executive Officer of the
Collins & Aikman Textile Group from February 1989 to November 1991 and President
of Milliken & Company's Finished Apparel Division prior to that.
DENNIS E. HILLER has been President of the Automotive Carpet and
Acoustics Group since December 1996 and was President of the Automotive Carpet
division from November 1994 to December 1996. Mr. Hiller was President of The
Akro Corporation, an indirect subsidiary of the Company, from 1992 until
November 1994
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and Manager, Fabricated Products for the Company prior to that. Mr. Hiller was
named an executive officer of the Company for purposes hereof in April 1996.
JOHN D. MOOSE has been President of the Automotive Fabrics division
since October 1994 and was President of the North American Auto Group from June
1989 until October 1994. Mr. Moose was named an executive officer of the Company
for purposes hereof in April 1994. Mr. Moose joined a wholly owned subsidiary of
the Company in 1960.
HARRY F. SCHOEN III has been President of the Mastercraft division
since January 1993 and was named an executive officer of the Company for
purposes hereof in April 1994. Mr. Schoen was Executive Vice President and Chief
Operating Officer of the Mastercraft division from April 1992 to December 1992.
Mr. Schoen was General Manager of Milliken & Company's Greige Fine Goods Group
prior to that.
ELIZABETH R. PHILIPP has been Executive Vice President, General Counsel
and Secretary of the Company since April 1994. Ms. Philipp was Vice President,
General Counsel and Secretary of the Company from April 1993 to April 1994 and
Vice President and General Counsel from September 1990 to April 1993.
J. MICHAEL STEPP has been Executive Vice President and Chief Financial
Officer since April 1995. Mr. Stepp was Executive Vice President and Chief
Financial Officer of Purolator Products Company from December 1992 to January
1995. Prior to that, Mr. Stepp was President of American Corporate Finance
Group, Inc.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the New York Stock
Exchange under the symbol "CKC" since July 7, 1994. At March 25, 1997, there
were 161 holders of record. The following table lists the high and low sales
prices for the Common Stock for the full quarterly periods during the two most
recent fiscal years.
FISCAL 1996 FISCAL 1995
------------------- ------------------
HIGH LOW HIGH LOW
-------- -------- ------------------
First Quarter 8-1/4 6-1/8 8-3/8 7-1/2
Second Quarter 7-1/8 5-1/2 9 6-3/8
Third Quarter 7 5-7/8 9-1/4 7-1/2
Fourth Quarter 6-5/8 5-3/4 8-3/8 6-1/8
No dividend or other distribution with respect to the Common Stock has
been paid by the Company since its incorporation in 1988. Any payment of future
dividends and the amounts thereof will be dependent upon the Company's earnings,
financial requirements and other factors deemed relevant by the Company's Board
of Directors. The Company currently does not intend to pay any cash dividends in
the foreseeable future; rather, the Company intends to retain earnings to
provide for the operation and expansion of its business and to reduce debt. On
April 9, 1996, the Company announced a plan to spin off its Wallcoverings
subsidiary to the stockholders of the Company in the form of a stock dividend.
The proposed spin-off is subject to, among other things, the declaration of the
dividend by the Company's Board of Directors. The Company currently expects the
proposed spin-off to occur during the second half of 1997. See "ITEM 1. BUSINESS
- - Development" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Recent Developments". Certain restrictive
covenants contained in the agreements governing the Company's credit facilities
and subordinated notes limit the Company's ability to make dividend and other
payments. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources" and Note
11 to the Consolidated Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1996 (1) 1996 1995 1994 1993 (2)
----------------- ---------------- ---------------- --------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 1,055,931 $ 902,017 $ 906,997 $ 689,286 $ 656,625
Gross margin.............................. 188,674 161,925 172,487 120,250 110,358
Selling, general and administrative
expenses............................... 82,727 65,996 68,304 71,397 86,624
Management equity plan expense............ - - - 26,736 -
Goodwill amortization and write-off....... 3,898 270 - 79,216 2,212
Operating income (loss)................... 102,049 95,659 104,183 (57,099) 21,522
Interest expense, net (3)................. 39,850 22,150 44,440 70,449 80,759
Loss on sale of receivables(4)............ 4,533 6,246 6,124 - -
Income (loss) from continuing
operations before income taxes......... 57,553 67,263 51,361 (132,081) (63,751)
Income tax expense (benefit).............. 24,442 (139,959) 10,031 9,580 (5,096)
Income (loss) from continuing
operations............................. 33,111 207,222 41,330 (141,661) (58,655)
Income (loss) from discontinued operations,
including disposals, net of income
taxes.................................. 14,323 (781) 34,416 (136,003) (205,003)
Income (loss) before extraordinary
items.................................. 47,434 206,441 75,746 (277,664) (263,658)
Net income (loss)......................... 40,824 206,441 (30,782) (277,664) (263,658)
Income (loss) from continuing
operations per primary and fully
diluted common share................... .47 2.91 (1.04) (6.07) (2.84)
BALANCE SHEET DATA:
Total Assets $ 1,536,480 $ 991,361 $ 578,900 $ 819,819 $ 1,037,956
Long-term debt, including current
portion................................ 1,176,219 759,966 557,039 914,938 974,884
Redeemable preferred stock................ - - - 122,368 98,602
Common stockholders' deficit.............. (194,578) (227,852) (412,622) (702,220) (421,460)
OTHER DATA (FROM CONTINUING
OPERATIONS):
Capital expenditures...................... $ 35,000 $ 53,156 $ 56,193 $ 29,266 $ 20,493
Depreciation and leasehold
amortization........................... 24,568 24,146 24,648 23,259 25,946
EBITDA (5)................................ 134,581 124,086 128,831 72,559 50,164
(1) 1996 was a 48-week year.
(2) 1992 was a 53-week year.
10
(3) Excludes amounts related to discontinued operations as follows:
DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1996 1996 1995 1994 1993
----------------- ---------------- ---------------- --------------- ---------------
The Mastercraft Group, Floorcoverings,
and Wallcoverings........................ $ 26,734 $ 26,454 $ 31,243 $ 40,842 $ 30,108
Operations discontinued prior to fiscal
1995................................... - - - 18,871 23,010
----------------- ---------------- ---------------- --------------- ---------------
$ 26,734 $ 26,454 $ 31,243 $ 59,713 $ 53,118
================= ================ ================ =============== ===============
(4) Excludes amounts allocated to discontinued operations totaling $2.2
million, $2.4 million and $1.5 million in 1996, 1995 and 1994,
respectively.
(5) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income tax, depreciation, amortization and
the non-cash portion of non-recurring charges. EBITDA does not
represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted
accounting principles.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INITIAL PUBLIC OFFERING AND RECAPITALIZATION
On July 13, 1994, the Company completed an initial public offering (the
"Offering") of shares of Common Stock. In connection with the Offering, the
Company effected the Recapitalization which reduced the Company's indebtedness,
lowered interest expense and provided liquidity for operations and other general
corporate purposes. After the Offering and Recapitalization, approximately 70.5
million shares of Common Stock were outstanding. Since that time, the Company
has repurchased, net of shares reissued, approximately 2.8 million shares of
Common Stock and, as of December 28, 1996, approximately 67.7 million shares
were outstanding.
RECENT DEVELOPMENTS
ACQUISITIONS
On May 1, 1996 the Company acquired the business of Fatati, a
manufacturer and supplier of molded floor carpets and luggage compartment trim
for the European automotive market. The acquisition increases the Company's
carpet molding capacity and gives it a European base from which to supply its
new carpet molding plant in Austria. Fatati's customers include General Motors,
Saab and Toyota.
On December 11, 1996, the Company completed the acquisition of JPS
Automotive, a subsidiary of Foamex International, Inc. The purchase price of
$220 million, subject to post closing adjustment, consists of approximately $195
million of indebtedness of JPS Automotive and approximately $25 million in cash.
The Company also acquired the minority interest in a JPS Automotive subsidiary
for $10 million. The cash portion of the purchase price of the JPS Automotive
acquisition, the minority interest purchase and the approximately $15 million of
indebtedness of JPS Automotive that was repaid at the time of closing were
funded through the Company's existing revolving credit facility. See "Liquidity
and Capital Resources".
JPS Automotive, which reported fiscal 1995 revenues of $312.1 million,
provides automotive carpet systems to both domestic and non-U.S. automotive
manufacturers in North America. The Company believes the JPS Automotive
acquisition expands its leading positions in North America in automotive
bodycloth and carpet. The Company believes the acquisition of JPS Automotive's
headliner fabrics business will also provide important synergies with existing
product lines.
The Company has accounted for the acquisition of JPS Automotive as a
purchase, and it is therefore included in fiscal 1996 for a period of
approximately two and one half weeks. The purchase price and related expenses
exceeded the fair value of the net assets acquired by approximately $132
million. The resulting goodwill is being amortized on a straight line basis over
40 years. See Notes 3 and 5 to the Consolidated Financial Statements for further
discussion and pro forma information.
On December 11, 1996, the Company also acquired Perstorp's automotive
supply operations (primarily acoustical products) in North America, the United
Kingdom and Spain ("Perstorp Components") for a purchase price of $108 million,
subject to adjustment. The purchase price was financed with funds from the
Company's existing revolving credit facility. See "Liquidity and Capital
Resources". In addition, on December 17, 1996, the Company and Perstorp entered
into a joint venture relating to Perstorp's automotive supply operations
(primarily acoustical and plastic components) in Sweden, Belgium and France.
Pursuant to the joint venture, the Company and Perstorp each contributed $7.4
million in cash and have a 49.9% interest in the joint venture, which is managed
by the Company. The joint venture purchased from Perstorp its automotive supply
operations in Sweden, Belgium and France for approximately $67
million, comprised of approximately $15 million equity investment and
approximately $52 million of indebtedness. The indebtedness was initially held
by Perstorp but has been refinanced with new bank debt. The Company has no
liability for the new bank financing. The Company has an option to purchase
Perstorp's equity interest in
12
the joint venture at a predetermined multiple of future cashflow for a period of
three years, after which Perstorp will have a two-year purchase right if the
Company has not exercised its purchase right.
Perstorp Components' ten facilities in North America, the United
Kingdom and Spain had estimated combined sales of $170 million for its fiscal
year ended August 31, 1996. The joint venture's facilities had estimated annual
sales of $140 million for the same period. Perstorp Components' and the joint
venture's main customers include Chrysler, Ford, General Motors, Mercedes,
Nissan, Rover, and Volvo.
The acoustical products manufactured by Perstorp Components' facilities
complement the Company's existing molded floor carpet products. The Company
believes that automotive manufacturers are increasingly sourcing floor carpet
and acoustical products as a package as well as requiring suppliers to provide
parts and render engineering support on a global basis. The Company believes its
leading position in North America and growing presence in Europe coupled with
the acoustical product lines acquired through the Perstorp Components
acquisition will enable the Company to capitalize on this sourcing trend, both
domestically and internationally.
The Company has accounted for the acquisition of Perstorp Components as
a purchase, and it is therefore included in fiscal 1996 for a period of
approximately two and one half weeks. The purchase price and related expenses
exceeded the fair value of the net assets acquired by approximately $10 million.
The resulting goodwill is being amortized on a straight line basis over 40
years. See Notes 3 and 5 to the Consolidated Financial Statements for further
discussion and pro forma information.
DISCONTINUED OPERATIONS
On April 9, 1996, the Company announced a plan to spin off
Wallcoverings to the Company's stockholders in the form of a stock dividend. The
proposed spin-off requires, among other things, the declaration of the
dividend by the Company's Board of Directors. The Company had
originally anticipated the proposed spin-off to occur during 1996.
However, as a result of management changes at Wallcoverings and
other factors, the Company currently expects the proposed spin-off
to occur during the second half of 1997.
On December 4, 1996, the Company announced that it is considering the
sale of the Mastercraft Group, a leading manufacturer of upholstery fabric.
Based on determinations of value from potential purchasers, the Company has
decided to pursue the sale of the Mastercraft Group and anticipates the sale to
be completed by the summer of 1997.
On December 10, 1996, the Company announced that it entered into an
agreement to sell Floorcoverings for $197 million, subject to adjustment. This
sale occurred during February 1997 and the net proceeds of $195.6 million
(subject to post-closing purchase price adjustment) were used to pay down debt
incurred to finance the Company's automotive strategy.
The Company has accounted for the financial results and net assets of
Wallcoverings, Floorcoverings and the Mastercraft Group as discontinued
operations. Accordingly, previously reported financial results for all periods
have been restated to reflect these businesses as discontinued operations. See
Note 15 to the Consolidated Financial Statements for information regarding
discontinued operations.
$400 MILLION SUBORDINATED NOTE OFFERING
On June 10, 1996, the Company's wholly-owned subsidiary, C&A Products,
issued $400 million principal amount of the Subordinated Notes, which are
guaranteed by the Company. The Subordinated Notes were sold at a price equal to
100% of their principal amount. The Company used approximately $356.8 million of
the total net proceeds of $387.0 million to repay $348.2 million principal
amount of the outstanding bank borrowings plus accrued interest on such
borrowings and related fees and expenses, and used the remainder for general
corporate purposes.
13
GENERAL
The Company is a major supplier of automotive interior systems -
textile and plastic trim, acoustics and convertible tops - to the global
automotive industry. The Company's net sales in fiscal 1996 were $1,055.9
million compared to $902.0 million in fiscal 1995. During 1996, the Company
changed it fiscal year end to the last Saturday in December. Fiscal 1996 was a
48-week period which ended on December 28, 1996. All prior years refer to the
fiscal year of the Company which ended on the last Saturday of January of the
following year. Fiscal 1995 and 1994 were 52-week periods. Capitalized terms
that are used in this discussion and not defined herein have the meanings
assigned to such terms in the Notes to Consolidated Financial Statements.
During 1996, the Company took major steps in implementing its
automotive growth strategy, which is to expand the Company's core automotive
businesses in North America and globally as well as to add complementary product
offerings.
The automotive supply industry in which the Company competes is
cyclical and is influenced by the level of North American vehicle production.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED
------------------------------------------------------
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- --------------- ----------------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
(IN MILLIONS)
Net sales.....................................$ 1,055.9 $ 902.0 $ 907.0
Cost of goods sold............................ 867.2 740.1 734.5
Gross margin.................................. 188.7 161.9 172.5
Selling, general and administrative expenses.. 82.7 65.9 68.3
Goodwill amortization and write-off........... 4.0 .3 -
Operating income..............................$ 102.0 $ 95.7 $ 104.2
Gross margin percentages...................... 17.9% 18.0% 19.0%
Operating margin percentages.................. 9.7% 10.6% 11.5%
EBITDA (1)....................................$ 134.6 $ 124.1 $ 128.8
(1) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income tax, depreciation, amortization and
the non-cash portion of non-recurring charges. EBITDA does not
represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted
accounting principles.
1996 COMPARED TO 1995
As a result of the Company's decision to change its year-end, fiscal 1996 was a
48-week period as compared to fiscal 1995 which was a 52-week period. Therefore,
sales in all product lines and the associated costs and expenses were impacted
by reporting a shorter period. A discussion of the results of operations for the
Company follows:
NET SALES: The Company's net sales increased 17.1% to $1,055.9 million in 1996,
up $153.9 million over 1995. The majority of this increase resulted from the
January 1996 acquisition of Manchester Plastics, which had sales for 1996 of
$176.3 million compared with $10.8 million in fiscal 1995. Increased sales in
three of the Company's products (molded carpet, convertible top systems and
accessory mats) were offset by a decrease in sales of automotive bodycloth. In
addition, sales also increased as a result of the JPS Automotive and Perstorp
Components acquisitions, which generated combined sales of $14.0 million from
December 11, 1996 through year end.
14
Sales to General Motors during 1996 were negatively impacted by the United Auto
Workers' strike in March 1996 and the Canadian Auto Workers' strike in October
1996. The decrease in net sales to General Motors in 1996 attributable to these
strikes is estimated at $33.5 million.
Automotive bodycloth sales decreased 25.5% to $243.9 million in 1996, down $83.6
million from 1995. The decline in sales was due to a decrease in unit shipments
on a comparable basis, which was partially mitigated by a 3.8% increase in
average selling price due primarily to a shift in product mix. Automotive
bodycloth sales were negatively impacted by an estimated $12.6 million as a
result of the General Motors strikes. The overall decrease in automotive
bodycloth for the year was principally related to decreased sales to the Ford
Thunderbird, Mustang, Escort, and F-Series Truck and the Chevrolet Cavalier.
These decreases were partially offset by increased sales to the Mercury Sable
and the Chrysler Grand Cherokee and Breeze.
Molded carpet sales increased 1.0% to $234.1 million, up $2.3 million over 1995.
The increase in sales was due to a 1.5% increase in average selling price as
well as increased sales in Europe as a result of the Company's expansion into
that market. The increase in average selling price is partially attributable to
a shift in automotive original equipment manufacturer ("OEM") production to
higher content vehicles, such as the Chrysler Voyager. For the year, the overall
increase in molded carpet sales was principally related to increased sales to
the Chrysler Voyager and T300 Truck and the Chevrolet C/K Truck line. These
increases were partially offset by decreased sales to the Ford Explorer, the
Chevrolet Camaro and Lumina and the Pontiac Grand Prix.
Convertible top systems sales increased 72.2% to $100.2 million, up $42.0
million from 1995. The increase in net sales resulted from the increased
shipments of the Chrysler Sebring partially offset by reduced OEM production of
the Ford Mustang convertible and the scheduled discontinuance of the Chrysler
LeBaron convertible.
Accessory mat sales increased 4.3% to $83.7 million, up $3.4 million over 1995.
The increase in sales was primarily due to increased unit volume. For the year
the overall increase in accessory mat sales was principally related to increased
sales to the Subaru Legacy, the Chrysler Caravan/Voyager, the Toyota Camry and
the Honda Civic and Accord. These increases were partially offset by decreased
sales to the Chrysler Cirrus and Chevrolet Camaro.
Luggage compartment trim sales decreased 1.9% to $51.4 million, from $52.4
million in 1995. This decrease in sales was primarily due to the shorter fiscal
year partially offset by a 9.3% increase in average selling price. The increase
in average selling price reflects the OEMs' continued move to one-piece luggage
compartments. During the year, luggage compartment trim sales increased to the
Honda Civic, Pontiac Grand Prix and Toyota Camry. These increases were offset by
decreased sales to the Honda Accord and Ford Explorer.
Manchester Plastics, which was acquired in January 1996, contributed $176.3
million in sales of plastic interior trim components during fiscal 1996 compared
to $10.8 million in fiscal 1995. Manchester's sales in 1996 were negatively
impacted by the General Motors strikes in the amount of $9.4 million and delays
in the launch of certain new programs.
These factors resulted in an increase in the Company's average revenue per North
American-produced vehicle to approximately $68 for 1996 from approximately $54
for 1995.
GROSS MARGIN: For 1996, gross margin was 17.9% of sales, down from 18.0% in
1995. The decrease in gross margin was attributable primarily to the lower sales
to General Motors and lower margins in plastic components partially offset by
the increase in the higher margin convertible top systems sales. In addition,
Manchester Plastics reduced its gross profit by $3 million for a one-time
special charge in December 1996 related to a disagreement with a customer over
goods supplied. During 1995, the Company recorded a $2.4 million charge related
to a plant closing and the write-off of certain assets in its molded carpet
operations.
15
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $82.7 million in 1996 were $16.8 million higher than
in 1995. The increase resulted primarily from the acquisitions of Manchester
Plastics in January 1996 and Amco Convertible Fabrics in October 1995 and
increased general and administrative costs due to expansion in Mexico and
Europe. Selling, general and administrative expenses as a percentage of sales
increased to 7.8% in 1996 from 7.3% in 1995.
INTEREST EXPENSE: Interest expense, allocated to continuing operations, net of
interest income of $4.0 million in 1996 and $1.6 million in 1995, increased to
$39.9 million in 1996 from $22.2 million in 1995. In 1996, interest expense,
including amounts allocated to discontinued operations and excluding interest
income, increased to $70.6 million from $50.2 million in 1995. The overall
increase in interest expense was due to the higher amount of overall outstanding
indebtedness primarily related to the $197 million credit facility that was
entered into in connection with the acquisition of Manchester Plastics in
January 1996 (the "Term Loan B Facility") as well as the higher interest rates
associated with the Subordinated Notes issued in June 1996.
LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July
1994, the Company has sold on a continuous basis, through its Carcorp
subsidiary, interests in a pool of accounts receivable. In connection with the
receivables sales, a loss of $4.5 million, net of amounts allocated to
discontinued operations, was incurred in 1996 compared to a loss of $6.2
million, net of amounts allocated to discontinued operations, in 1995. Total
loss on sale of receivables, including amounts allocated to discontinued
operations, decreased to $6.7 million in 1996 from $8.7 million in 1995. This
decrease resulted from the shorter fiscal year in 1996 as well as an overall
decrease in the outstanding interest sold under the variable portion of the
accounts receivable facility during 1996. The decrease in the outstanding
interest sold resulted primarily from the use of proceeds from the Subordinated
Notes offering to satisfy a portion of the Company's liquidity needs.
OTHER EXPENSE: In 1996, the Company recognized $.1 million in net foreign
currency transaction losses related to obligations to be settled in currencies
other than the functional currency of its foreign operations.
INCOME TAXES: In 1996, the Company recognized a $24.4 million tax provision
compared with a $140.0 million benefit in 1995. The increase in the Company's
tax expense and reported rate results from the Company's recognition of certain
deferred tax assets in 1995. In 1995, the benefit principally resulted from a
reduction of valuation allowances against the Company's Federal net operating
loss carryforwards and other deferred tax assets, offset by $9.9 million in
current foreign, state, franchise and Federal alternative minimum taxes.
DISCONTINUED OPERATIONS: The Company's income from discontinued operations was
$14.3 million in 1996 compared to a loss of $.8 million in 1995. The increase
relates primarily to Wallcoverings' results subsequent to April 29, 1996 being
charged to the Company's existing discontinued operations reserves.
Additionally, in 1995, Wallcoverings reported a $23.3 million loss which
resulted from certain charges for the write-down of inventory, the consolidation
of operations and the closing of facilities. Excluding the impact of
Wallcoverings, income from discontinued operations declined due to the increase
in reported tax rates which was partially offset by improved operating results
for both the Mastercraft Group and Floorcoverings.
EXTRAORDINARY LOSS: During 1996, the Company recognized a non-cash charge of
$6.6 million, net of income taxes of $4.7 million, related to the refinancing of
its bank credit facilities. The refinancing was done in conjunction with C&A
Products' issuance of the Subordinated Notes.
NET INCOME: The combined effect of the foregoing resulted in net income of
$40.8 million in 1996 compared to net income of $206.4 million in 1995.
16
1995 COMPARED TO 1994
A discussion of the results of operations for the Company follows:
NET SALES: Net sales decreased 0.6% to $902.0 million in 1995, from $907.0
million in 1994. Increased sales in three of the Company's products (molded
carpet, luggage compartment trim and accessory mats), as well as the addition of
Manchester Plastics on January 3, 1996, were substantially offset by a decrease
in sales of convertible top systems and automotive bodycloth. Sales also
declined 29.1% in velvet furniture fabrics as a result of the Company's decision
to temporarily redeploy manufacturing capacity to automotive bodycloth. The
North American automobile and light truck build declined 1.3% in 1995 from 1994.
Automotive bodycloth sales decreased 3.8% to $327.5 million in 1995, down $12.8
million from 1994. The decline in sales was primarily due to an 8.2% decrease in
unit shipments, which was partially mitigated by a 4.9% increase in average
selling price due primarily to a shift in product mix. The unit shipment decline
resulted from reduced automotive build in certain high content platforms which
the Company supplies. The overall decrease in automotive bodycloth for the year
was principally related to decreased sales to the Chrysler minivan platforms,
the Ford Thunderbird, Windstar, Ranger and F-Series Truck and the Chevrolet
Caprice and S-10 Truck. These decreases were partially offset by increased sales
to the Chevrolet C/K Truck, Cavalier and Blazer, the Toyota Avalon and pickup
truck, the Ford Contour and Escort, the Mercury Sable and the Chrysler Concorde.
Molded floor carpet sales increased 8.7% to $231.8 million, up $18.6 million
over 1994. The increase in sales was due to a 3.0% increase in unit shipments
and a 5.6% increase in average selling price. The increase in average selling
price is partially attributable to a shift in OEM production to higher content
vehicles, such as the Chevrolet C/K truck line and the Ford Explorer. For the
year, the overall increase in molded carpet sales was principally related to
increased sales to the Chrysler Cirrus/Stratus, T300 Truck and Caravan minivan,
the Ford Explorer and the Chevrolet C/K Truck. These increases were partially
offset by decreased sales to the Chrysler Voyager minivan, the Ford Mustang and
Probe, the Cadillac DeVille and the Toyota Camry.
Convertible top systems sales decreased 27.5% to $58.2 million, down $22.0
million from 1994. The net decrease in sales resulted from a 46.2% decline in
OEM production of the Ford Mustang convertible and the scheduled discontinuance
of the Chrysler LeBaron convertible, which were partially offset by the
introduction of the new Chrysler Sebring convertible in the latter part of
October 1995 and the new Alfa Romeo Spider convertible, which began volume
production in February 1995.
Accessory mat sales increased 7.4% to $80.3 million, up $5.5 million over 1994.
The increase in sales was primarily due to increased unit volume. For the year
the overall increase in accessory mat sales was principally related to increased
sales to the Ford Explorer, the Chrysler Cirrus/Stratus, the Toyota Avalon and
the Honda Civic. These increases were partially offset by decreased sales to the
Ford Mustang, Probe and Thunderbird, the Mazda 626 and the Mercury Cougar.
Luggage compartment trim sales increased 15.8% to $52.4 million, up $7.2 million
over 1994. The increase in sales was primarily due to a 7.1% increase in unit
shipments and an 8.1% increase in average selling price. The increase in unit
shipments and average selling price reflects the OEMs' continued move to
finished luggage compartments. For the year, the overall increase in luggage
compartment trim sales was principally related to increased sales to the Ford
Explorer, the Chrysler Cirrus/Stratus and the Honda Civic. These increases were
partially offset by decreased sales to the Nissan Sentra, the Chrysler Neon and
the Pontiac Bonneville.
These factors resulted in the Company's average revenue per North
American-produced vehicle of approximately $54 for 1995 compared to
approximately $53 for 1994.
GROSS MARGIN: For 1995, gross margin was 18.0% of sales, down from 19.0% in
1994. The decrease in gross margin was attributable primarily to the decline in
convertible top systems sales, which carry higher contribution margins than the
segment's average. In addition, gross margin was impacted by certain
17
manufacturing inefficiencies, commission weaving costs incurred due to capacity
constraints in the production of automotive bodycloth during the first half of
1995 and charges totaling $2.4 million related to a plant closing and the
write-off of certain assets discussed previously.
During the fourth quarter of 1995, the Company incurred charges of $2.4 million
related to the anticipated closure of a molded carpet plant in Clinton,
Oklahoma, the write-down of spinning equipment previously utilized in the
production of molded carpet for Chrysler in Canada and the decision to
discontinue the Company's automotive aftermarket accessory mat product line. The
closure of the Clinton facility, which impacted 93 employees, and the write-down
of the Canadian molded carpet equipment, resulted from changes in the supply
requirements of certain of the Company's OEM customers.
The Company terminated commission weaving during the second quarter of 1995.
Manufacturing inefficiencies which impacted the first and second quarters
resulted from the in-house startup of fabric lines which had previously been
woven outside on a commission basis. Manufacturing inefficiencies also resulted
to a lesser extent from the reengineering of fabric lines to meet customers'
specifications. For the year, the impact of raw material price increases was
offset by the Company's cost improvement programs and to a lesser extent by
price increases to customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $65.9 million in 1995 were $2.4 million lower than in
1994. The decrease resulted primarily from a reduction in certain advisory fees
partially offset by increased product development, the acquisition of Manchester
Plastics and increased general and administrative costs due to expansion in
Mexico and Austria. Selling, general and administrative expenses as a percentage
of sales decreased to 7.3% in 1995 from 7.5% in 1994.
INTEREST EXPENSE: Interest expense, allocated to continuing operations, net of
interest income of $1.6 million in 1995 and $6.4 million in 1994, decreased to
$22.2 million in 1995 from $44.4 million in 1994. In 1995, interest expense,
including amounts allocated to discontinued operations and excluding interest
income, decreased to $50.2 million from $82.1 million in 1994. The overall
decrease in interest expense was due to the Recapitalization, which reduced the
amount of overall outstanding indebtedness and replaced higher fixed rate
indebtedness with variable rate borrowings.
LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July
1994, the Company has sold on a continuous basis, through its Carcorp
subsidiary, interests in a pool of accounts receivable. In connection with the
receivables sales, a loss of $6.2 million, net of amounts allocated to
discontinued operations, was incurred in 1995 compared to a loss of $6.1
million, net of amounts allocated to discontinued operations, in 1994. Total
loss on sale of receivables, including amounts allocated to discontinued
operations, increased to $8.7 million in 1995 from $7.6 million in 1994. In
1994, the total loss of $7.6 million included $1.3 million related to one time
fees and expenses related to the Bridge Receivables Facility (as defined below).
INCOME TAXES: In 1995, the Company recognized a $140.0 million tax benefit
compared with a $10.0 million provision in 1994. In 1995, the benefit
principally resulted from a reduction of valuation allowances against the
Company's Federal net operating loss carryforwards and other deferred tax
assets, offset by $9.9 million in current foreign, state, franchise and Federal
alternative minimum taxes. In 1994, income taxes consisted of foreign, state and
franchise taxes and, to a small extent, Federal alternative minimum tax.
DISCONTINUED OPERATIONS: The Company's loss from discontinued operations was $.8
million in 1995 compared with income of $34.4 million in 1994. A $23.3 million
loss at Wallcoverings in 1995 resulted from charges for a write-down of
inventory, the consolidation of all distribution activities to a new state of
the art distribution center in Knoxville, Tennessee, the closure of
Wallcoverings' Hammond, Indiana facility and the reengineering of Wallcoverings'
production processes. The discontinued operations' loss was also impacted by
reduced earnings from the Mastercraft Group due to market softness, which was
partially offset by increased income from Floorcoverings.
18
EXTRAORDINARY LOSS: During 1994, the Company, as part of the Recapitalization,
recognized a loss on the extinguishment of debt of $106.5 million, consisting of
$9.6 million of premiums paid to redeem indebtedness and $96.9 million of
unamortized discounts, deferred financing charges and defeasance costs.
NET INCOME: The combined effect of the foregoing resulted in a net income
of $206.4 million in 1995 compared to a net loss of $30.8 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$14.3 million and $1.0 million at December 28, 1996 and January 27, 1996,
respectively. The Company had a total of $69.4 million of borrowing availability
under its credit arrangements as of December 28, 1996. The total was comprised
of $20.1 million under the Revolving Facility, $35.0 million under the Delayed
Draw Term Loan, $3.3 million under the Receivables Facility and approximately
$11.0 million under bank demand lines of credit in Canada and Austria. In
addition, $112 million was available at that date under the Delayed Draw Term
Loan for specified purposes as discussed below. During February 1997, the
Company sold its Floorcoverings subsidiary for net proceeds of $195.6 million
(subject to post-closing adjustment), which were used to pay down the
outstanding portion of the Revolving Facility and a portion of the Receivables
Facility.
As part of the Recapitalization, the Company entered into credit
facilities consisting of (i) a Term Loan Facility, (ii) a Revolving Facility
(together with the Term Loan Facility, the "Credit Agreement Facilities") and
(iii) a bridge receivables facility, (the "Bridge Receivables Facility"), which
was terminated and replaced with the Receivables Facility described below. On
December 22, 1995, the Company and C&A Products entered into the Term Loan B
Facility to finance the January 1996 purchase of Manchester Plastics.
On June 3, 1996, the Company and C&A Products entered into an amendment
and restatement (the "Amendment") of the Credit Agreement Facilities and the
Term Loan B Facility (collectively, the "Bank Credit Facilities"). The Amendment
was effected in connection with the sale of the Subordinated Notes described
below and the use of proceeds from such sale to repay various outstanding loans
under the Credit Agreement Facilities. As a result of the Amendment and the
repayment of a portion of the Credit Agreement Facilities with a portion of the
proceeds from the Subordinated Notes, the Bank Credit Facilities consist of (i)
the Term Loan Facility, in an aggregate principal amount of $195 million
(including a $45 million facility in Canada), payable in installments until
final maturity on July 13, 2002, (ii) the Term Loan B Facility, in the principal
amount of $195.8 million, payable in installments until final maturity on
December 31, 2002, and (iii) the Revolving Facility, having an aggregate
principal amount of up to $250 million and terminating on July 13, 2001. The
Bank Credit Facilities, which are guaranteed by the Company and its U.S.
subsidiaries (subject to certain exceptions), contain restrictive covenants
including maintenance of EBITDA (i.e. earnings before interest, taxes,
depreciation, amortization and other non-cash charges) and interest coverage
ratios, leverage and liquidity tests and various other restrictive covenants
which are customary for such facilities. In addition, C&A Products is generally
prohibited from paying dividends or making other distributions to the Company
except to the extent necessary to allow the Company to (w) pay taxes and
ordinary expenses, (x) make permitted repurchases of shares or options, (y) make
permitted investments in finance, foreign or acquired subsidiaries and (z)
effect the proposed spin-off of Wallcoverings or the distribution of certain net
proceeds of a sale of Wallcoverings if the proposed spin-off is not affected. In
addition, the Company is permitted to pay dividends and repurchase shares of the
Company in any fiscal year in an aggregate amount equal to the greater of (i)
$12 million and (ii) if certain financial ratios are satisfied, 25% of the
Company's consolidated net income for the previous fiscal year, and is permitted
to pay additional dividends to effect the proposed spin-off of Wallcoverings or
in amounts representing certain net proceeds from any sale of Wallcoverings in
the event the proposed spin-off is not effected. The Company's obligations under
the Bank Credit Facilities are secured by a pledge of the stock of C&A Products
and its significant subsidiaries.
19
On June 10, 1996 C&A Products issued $400 million principal amount of
Subordinated Notes, which mature in 2006. The Subordinated Notes are guaranteed
by the Company. The indenture governing the Subordinated Notes generally
prohibits the Company, C&A Products and any Restricted Subsidiary (as defined)
from making certain payments and investments (generally, dividends and
distributions on their capital stock; repurchases or redemptions of their
capital stock; repayment prior to maturity of debt subordinated to the
Subordinated Notes; and investments (other than permitted investments))
("Restricted Payments") if (i) there is a default under the Subordinated Notes
or (ii) after giving pro forma effect to the Restricted Payment, C&A Products
could not incur at least $1.00 of additional indebtedness under the indenture's
general test for the incurrence of indebtedness, which is a specified ratio
(currently 2.0 to 1.0) of cash flow to interest expense or (iii) the aggregate
of all such Restricted Payments from the issue date exceeds a specified
threshold (based, generally, on 50% of cumulative consolidated net income since
the quarter in which the issue date occurred plus 100% of the net proceeds of
capital contributions to C&A Products from stock issuances by the Company).
These prohibitions are subject to a number of significant exceptions, including
dividends to stockholders of the Company or stock repurchases not exceeding $10
million in any fiscal year or $20 million in the aggregate until the maturity of
the Subordinated Notes and dividends to the Company to permit it to pay its
operating and administrative expenses. The Subordinated Notes indenture also
contains other restrictive covenants (including, among others, limitations on
the incurrence of indebtedness, asset dispositions and transactions with
affiliates) which are customary for such securities. These covenants are also
subject to a number of significant exceptions.
In connection with the closing of the acquisition of JPS Automotive
(the "JPS Automotive Acquisition"), in early December 1996 the Company amended
the Bank Credit Facilities primarily to allow for the existence of the JPS
Automotive 11-1/8% Senior Notes due 2001 (the "JPS Automotive Senior Notes") and
to allow the Company to retain the proceeds from the sale of Floorcoverings. As
part of the JPS Automotive Acquisition, the Company paid off approximately $15
million of outstanding bank indebtedness of JPS Automotive. The cash portion of
the purchase price of the JPS Automotive Acquisition, the purchase price for the
acquisition of a minority interest in a JPS Automotive subsidiary and the bank
indebtedness at JPS Automotive that was repaid at the time of closing were
funded through the Company's Revolving Facility. After giving effect to the
above, JPS Automotive had as of December 28, 1996 approximately $118 million of
indebtedness outstanding, which includes approximately $117 million (including a
$5 million premium recorded to reflect market value at the time of the
acquisition) of indebtedness related to the JPS Automotive Senior Notes. In
addition, as a result of the JPS Automotive Acquisition, holders of the JPS
Automotive Senior Notes had the right to put their notes to JPS Automotive at a
price of 101% of their principal amount plus accrued interest. Approximately
$3.9 million principal amount of JPS Automotive Senior Notes were so put to JPS
Automotive and then repurchased by JPS Automotive on March 10, 1997. The Company
will operate JPS Automotive as a restricted subsidiary under the Bank Credit
Facilities and the indenture governing the Subordinated Notes.
The indenture governing the JPS Automotive Senior Notes generally
prohibits JPS Automotive from making certain restricted payments and investments
(generally, dividends and distributions on its equity interests; purchases or
redemptions of its equity interests; purchases of any indebtedness subordinated
to the JPS Automotive Senior Notes; and investments other than as permitted)
("JPS Automotive Restricted Payments") unless (i) there is no default under the
JPS Automotive Senior Notes indenture; (ii) after giving pro forma effect to the
JPS Automotive Restricted Payment, JPS Automotive would be permitted to incur at
least $1.00 of additional indebtedness under the indenture's general test for
the incurrence of indebtedness which is a specified ratio (currently 2.5 to 1.0)
of cashflow to interest expense, and (iii) the aggregate of all JPS Automotive
Restricted Payments from the issue date is less than a specified threshold
(based, generally, on 50% of JPS Automotive's cumulative consolidated
net income since the issue date plus 100% of the aggregate net
cash proceeds of the issuance by JPS Automotive of certain equity and
convertible debt securities and cash contributions to JPS Automotive)
(the "JPS Automotive Restricted Payments Tests"). These conditions
were satisfied immediately following the closing of
the JPS Automotive Acquisition and as of December 28, 1996. The JPS Automotive
Restricted Payments Tests are subject to a number of significant exceptions. The
indenture governing the JPS Automotive Senior Notes also contains other
restrictive covenants (including, among others, limitations on the incurrence of
indebtedness and issuance of preferred stock, asset
20
dispositions and transactions with affiliates including the Company and C&A
Products) which are customary for such securities. These covenants are also
subject to a number of significant exceptions.
Additionally, in early December 1996, in connection with the JPS
Automotive Acquisition, the Company entered into a $200 million delayed draw
term loan (the "Delayed Draw Term Loan"). The Delayed Draw Term Loan is a 5.25
year term loan which was entered into to finance or refinance the purchase of
any JPS Automotive Senior Notes put by the holders to JPS Automotive as a result
of the change in control resulting from the JPS Automotive Acquisition or
otherwise acquired. The Delayed Draw Term Loan is available until December 11,
1997. Up to $20 million of the Delayed Draw Term Loan can be utilized for
general corporate purposes, including premium and accrued interest on the JPS
Automotive Senior Notes. Prior to the JPS Automotive Acquisition, the Company
had purchased in the open market $68 million principal amount of JPS Automotive
Senior Notes, which were subsequently retired by JPS Automotive. As of December
28, 1996, $53 million had been drawn under the Delayed Draw Term Loan and $147
million was available, consisting of $15 million available to refinance
previously acquired JPS Automotive Senior Notes, $20 million available for
general corporate purposes and $112 million available for future purchases of
JPS Automotive Senior Notes. The Board of Directors of the general partner of
JPS Automotive has authorized JPS Automotive to expend for the repurchase of JPS
Automotive Senior Notes up to the amount of funds that may be drawn for such
purpose under the Delayed Draw Term Loan. The Delayed Draw Term Loan's security
and restrictive covenants are identical to those in the Bank Credit Facilities.
On March 31, 1995, C&A Products entered, through the Trust formed by
Carcorp, into the Receivables Facility, comprised of (i) term certificates,
which were issued on March 31, 1995, in an aggregate face amount of $110 million
and have a term of five years and (ii) variable funding certificates, which
represent revolving commitments of up to an aggregate of $75 million and have a
term of five years. Carcorp purchases on a revolving basis and transfers to the
Trust virtually all trade receivables generated by C&A Products and certain of
its subsidiaries (the "Sellers"). The certificates represent the right to
receive payments generated by the receivables held by the Trust.
Availability under the variable funding certificates at any time
depends primarily on the amount of receivables generated by the Sellers from
sales to the auto industry, the rate of collection on those receivables and
other characteristics of those receivables which affect their eligibility (such
as the bankruptcy or downgrading below investment grade of the obligor,
delinquency and excessive concentration). Based on these criteria, at December
28, 1996 approximately $28.3 million was available under the variable funding
certificates, $25.0 million of which was utilized.
In connection with the proposed spin-off of Wallcoverings,
Wallcoverings was terminated as a seller of receivables under the Receivables
Facility on September 21, 1996. Receivables sold by Wallcoverings prior to the
termination will remain in the Trust until their collection. As of December 28,
1996, the Trust had not been required to redeem the term certificates resulting
from the Trust's collection of Wallcoverings receivables. The Company also
terminated Floorcoverings as of February 6, 1997 as a seller of receivables
under the Receivables Facility in connection with the Company's sale of
Floorcoverings. On March 25, 1997, the Trust redeemed $30 million face value of
term certificates primarily as a result of the Trust collecting Wallcoverings
and Floorcoverings receivables which were not replaced by eligible receivables.
The proceeds received by Carcorp from collections on receivables, after
the payment of expenses and amounts due on the certificates, are used to
purchase new receivables from the Sellers. Collections on receivables are
required to remain in the Trust if at any time the Trust does not contain
sufficient eligible receivables to support the outstanding certificates. The
Receivables Facility contains certain other restrictions on Carcorp (including
maintenance of $25 million net worth) and on the Sellers (including limitations
on liens on receivables, modifications of the terms of receivables, and changes
in credit and collection practices) customary for facilities of this type. The
commitments under the Receivables Facility are subject to termination prior to
their term upon the occurrence of certain events, including payment defaults,
breach of covenants, bankruptcy, insufficient eligible receivables to support
the outstanding certificates, default by
21
C&A Products in servicing the receivables and, in the case of the variable
funding certificates, failure of the receivables to satisfy certain performance
criteria.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At December 28, 1996, the Company had $20.0
million of potential availability under this master lease for future machinery
and equipment requirements of the Company subject to the lessor's approval. The
Company has made lease payments relating to continuing operations of
approximately $4.0 million in fiscal 1996 for machinery and equipment sold and
leased back under this master lease. The Company expects lease payments for
continuing operations under this master lease to be $5.6 million during 1997.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Bank Credit Facilities,
the sale of receivables under the Receivables Facility and the sale of
Floorcoverings and the Mastercraft Group. Net cash provided by the operating
activities of the Company's continuing operations was $55.8 million for 1996.
The Company's principal uses of funds for the next several years will
be to fund interest and principal payments on its indebtedness, net working
capital increases, capital expenditures, and acquisitions. At December 28, 1996,
the Company had total outstanding indebtedness of $1,176.2 million (excluding
approximately $25.9 million of outstanding letters of credit and $3.4 million of
indebtedness of the discontinued operations) at an average interest rate of 9.1%
per annum. Of the total outstanding indebtedness, $1,040.6 million relates to
the Bank Credit Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to
$12 million in 1997 to repurchase shares of the Company's Common Stock. The
Company believes it has sufficient liquidity under its existing credit
arrangements to effect the repurchase program. The Company spent an aggregate of
$9.6 million to repurchase shares during 1996.
Indebtedness under the Term Loan Facility, the Revolving Facility and
the Delayed Draw Term Loan bears interest at a per annum rate equal to the
Company's choice of (i) Chase Manhattan Bank's Alternate Base Rate (which is the
highest of Chase's announced prime rate, the Federal Funds Rate plus .5% and
Chase's base certificate of deposit rate plus 1%) plus a margin (the "ABR
Margin") ranging from 0% to .75% or (ii) the offered rates for Eurodollar
deposits ("LIBOR") of one, two, three, six, nine or twelve months, as selected
by the Company, plus a margin ranging from 1% to 1.75%. Margins, which are
subject to adjustment based on changes in the Company's ratios of senior funded
debt to EBITDA and cash interest expense to EBITDA, were 1.75% in the case of
the "LIBOR Margin" and .75% in the case of the ABR Margin on December 28, 1996.
Such margins will increase by .25% over the margins then in effect on July 13,
1999. Indebtedness under the Term Loan B Facility bears interest at a per annum
rate equal to the Company's choice of (i) Chase Bank's Alternate Base Rate (as
described above) plus a margin of 1.25% or (ii) LIBOR of one, two, three or six
months, as selected by the Company, plus a margin of 2.25%. The weighted average
rate of interest on the Bank Credit Facilities and the Delayed Draw Term Loan at
December 28, 1996 was 7.54%. The weighted average interest rate on the sold
interests under the Receivables Facility at December 28, 1996 was 6.28%. Under
the Receivables Facility, the term certificates bear interest at an average rate
equal to one month LIBOR plus .34% per annum and the variable funding
certificates bear interest, at Carcorp's option, at LIBOR plus .40% per annum or
a prime rate. The Subordinated Notes bear interest at a rate of 11.5% per annum.
The JPS Automotive Senior Notes bear interest at a rate of 11.125% per annum.
Cash interest paid during fiscal 1996 and 1995 was $60.0 million and $45.8
million, respectively.
Due to the variable interest rates under the Bank Credit Facilities,
the Delayed Draw Term Loan and the Receivables Facility, the Company is
sensitive to increases in interest rates. Accordingly, during April 1996, the
Company limited its exposure through April 2, 1998 on $80 million of notional
principal amount utilizing zero cost collars with 4.75% floors and a weighted
average cap of 7.86%. Based upon amounts outstanding at December 28, 1996, a .5%
increase in LIBOR (5.5% at December 28, 1996) would impact interest costs by
22
approximately $3.2 million annually on the Bank Credit Facilities and $.7
million annually on the Receivables Facility.
The current maturities of long-term debt primarily consist of the
current portion of the Bank Credit Facilities, vendor financing, industrial
revenue bonds and other miscellaneous debt.
The maturities of long-term debt of the Company's continuing operations
during 1997, 1998, 1999, 2000 and 2001 are $38.2 million, $53.2 million, $62.1
million $67.5 million and $187.9 million, respectively. The JPS Automotive
Senior Notes, to the extent not previously put to JPS Automotive or otherwise
acquired by the Company or JPS Automotive, will mature in 2001. In addition, the
Bank Credit Facilities and the Delayed Draw Term Loan provide for mandatory
prepayments of the Term Loan and Term Loan B Facilities and the Delayed Draw
Term Loan with certain excess cash flow of the Company, net cash proceeds of
certain asset sales or other dispositions by the Company other than proceeds
generated from the sale of Floorcoverings, net cash proceeds of certain
sale/leaseback transactions and net cash proceeds of certain issuances of debt
obligations. The indenture governing the Subordinated Notes provides that in the
event of certain asset dispositions, C&A Products must apply net proceeds (to
the extent not reinvested in the business) first to repay Senior Indebtedness
(as defined, which includes the Bank Credit Facilities and the Delayed Draw Term
Loan) and then, to the extent of remaining net proceeds, to make an offer to
purchase outstanding Subordinated Notes at 100% of their principal amount plus
accrued interest. C&A Products must also make an offer to purchase outstanding
Subordinated Notes at 101% of their principal amount plus accrued interest if a
Change in Control (as defined) of the Company occurs. In addition, the Delayed
Draw Term Loan, if fully drawn, will require a payment of $27 million on
December 11, 1997 (the anniversary date of the initial draw) and equal quarterly
payments in annual amounts equal to $38 million in 1998, $41 million in 1999,
$42 million in 2000, $41 million in 2001 and $11 million at termination. In
addition, the indenture governing the JPS Automotive Senior Notes requires JPS
Automotive to apply the net proceeds from the sale of assets of JPS Automotive
to offer to purchase JPS Automotive Senior Notes, to the extent not applied
within 270 days of such asset sale to an investment in capital expenditures or
other long term tangible assets of JPS Automotive, to permanently reduce senior
indebtedness of JPS Automotive or to purchase JPS Automotive Senior Notes in the
open market.
The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of December 28, 1996, the Company's continuing
operations had approximately $18.6 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations in fiscal 1997 will aggregate approximately $90 million, a
portion of which may be financed through leasing. The Company's capital
expenditures in future years will depend upon demand for the Company's products
and changes in technology. As of December 28, 1996, Wallcoverings and the
Mastercraft Group had approximately $1.6 million and $1.0 million, respectively,
in outstanding capital expenditure commitments.
The Company is sensitive to price movements in its raw material supply
base. During 1996, prices for most of the Company's primary raw materials
remained constant with price levels at January 27, 1996. While the Company may
not be able to pass on future raw material price increases to its customers, it
believes that a significant portion of the increased cost can be offset by
continued results of its value engineering/value analysis and cost improvement
programs and by continued reductions in the cost of nonconformance.
Since the Company announced in April 1996 its plan to spin off
Wallcoverings the Company has repaid $21 million of intercompany amounts owed
to Wallcoverings and expended approximately $19 million to fund operations,
working capital and capital expenditures and to replace receivables previously
sold to Carcorp. In 1997, the Company currently expects to expend (subject to
the discretion of the Company's Board of Directors) approximately $40 million
prior to the anticipated spin-off of Wallcoverings principally to fund
Wallcoverings' future operations, working capital and capital expenditure
requirements. Amounts actually required for these purposes could differ
materially from expected amounts due to, among other things, changes in
Wallcoverings' operating results and the availability of outside financing
for Wallcoverings.
23
The Company has significant obligations relating to postretirement,
casualty, environmental, lease and other liabilities of discontinued operations.
In connection with the sale and acquisition of certain businesses, the Company
has indemnified the purchasers and sellers for certain environmental
liabilities, lease obligations and other matters. In addition, the Company is
contingently liable with respect to certain lease and other obligations assumed
by certain purchasers and may be required to honor such obligations if such
purchasers are unable or unwilling to do so. Management currently anticipates
that the net cash requirements of its discontinued operations, excluding
Wallcoverings, Floorcoverings, and the Mastercraft Group, will be approximately
$23 million in fiscal 1997. However, because the requirements of the Company's
discontinued operations are largely a function of contingencies, it is possible
that the actual net cash requirements of the Company's discontinued operations
could differ materially from management's estimates. Management believes that
the Company's cash needs relating to discontinued operations, including
Wallcoverings and the Mastercraft Group, can be provided by operating activities
from continuing operations and by borrowings under the Bank Credit Facilities.
TAX MATTERS
At December 28, 1996, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $284.2 million for Federal income tax
purposes, which excludes $10.4 million related to the Company's discontinued
Wallcoverings business. Substantially all of these NOLs expire over the period
from 2000 to 2008. The Company also has unused Federal tax credits of
approximately $12.7 million, $4.2 million of which expire during the period 1997
to 2007.
Approximately $85.9 million of the Company's NOLs and $4.2 million of
the Company's unused Federal tax credits may be used only against the income and
apportioned tax liability of the specific corporate entity that generated such
losses or credits or its successors. The Company believes that a substantial
portion of these tax benefits will be realized in the future. Future sales of
common stock by the Company or its principal shareholders, or changes in the
composition of its principal shareholders, could constitute a "change in
control" that would result in annual limitations on the Company's use of its
NOLs and unused tax credits. Management cannot predict whether such a "change in
control" will occur. If such a "change in control" were to occur, the resulting
annual limitations on the use of NOLs and tax credits would depend on the value
of the equity of the Company and the amount of "built-in gain" or "built-in
loss" in the Company's assets at the time of the "change in control", which
cannot be known at this time.
In fiscal 1993 and prior years, the Company incurred significant
financial reporting and tax losses principally as a result of a capital
structure that contained a substantial amount of high interest rate debt. In
addition, losses were incurred as the Company exited businesses which it did not
consider to be consistent with its long-term strategy. Although substantial net
deferred tax assets were generated during these periods, a valuation allowance
was established because in management's assessment the historical operating
trends made it uncertain whether the net deferred tax assets would be realized.
During July 1994, the Company completed the Offering and
Recapitalization, which reduced the Company's indebtedness, lowered interest
expense and provided liquidity for operations and other general corporate
purposes. As a result of the Recapitalization, the Company's annual financing
costs were reduced from $115 million in fiscal 1993 to $57 million in fiscal
1995. In fiscal 1994, the Company reported taxable income and had net income
before an extraordinary loss on the Recapitalization for financial reporting
purposes; however, management determined, largely because of the Company's prior
losses, that it remained uncertain whether the net deferred tax assets would be
realized.
In fiscal 1995, the Company's continuing business segments generated
substantial operating income, consistent with historical trends, that, when
combined with the post-Recapitalization capital structure, resulted in income
for both tax and financial reporting purposes. The proposed spin-off of
Wallcoverings that was announced in April 1996 further clarified management's
assessment of the Company's likely future performance. Management considered
these factors as well as the future outlook for its continuing
24
businesses in concluding that it is more likely than not that net deferred tax
assets of $148.9 million and $161.9 million at December 28, 1996 and January 27,
1996, respectively, will be realized. While continued operating performance at
current levels is sufficient to realize these assets, the Company's ability to
generate future taxable income is dependent on numerous factors, including
general economic conditions, the state of the automotive industry and other
factors beyond management's control. Therefore, there can be no assurance that
the Company will meet its expectation of future taxable income.
The valuation allowance at December 28, 1996 provides for certain
deferred tax assets that in management's assessment may not be realized due to
tax limitations on the use of such amounts or that relate to tax attributes that
are subject to uncertainty due to the long-term nature of their realization.
In fiscal 1995, the California Franchise Tax Board issued a notice of
tax assessment for approximately $11.8 million related to the treatment of the
sale of certain foreign subsidiaries during 1987. The Company disputes the
assessment and has filed a protest with the Franchise Tax Board. If the
Franchise Tax Board were to maintain its position and such position were to be
upheld in litigation, the Company would also become liable for the payment of
interest which is currently estimated to be $16.5 million. In the opinion of
management, the final determination of any additional tax and interest liability
related to this matter will not have a material adverse effect on the Company's
consolidated financial condition or future results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local environmental laws
and regulations that (i) affect ongoing operations and may increase capital
costs and operating expenses and (ii) impose liability for the costs of
investigation and remediation and otherwise related to on-site and off-site soil
and groundwater contamination. The Company's management believes that it has
obtained, and is in material compliance with, all material environmental permits
and approvals necessary to conduct its various businesses. Environmental
compliance costs for continuing businesses currently are accounted for as normal
operating expenses or capital expenditures of such business units. In the
opinion of management, based on the facts presently known to it, such
environmental compliance costs will not have a material adverse effect on the
Company's consolidated financial condition or future results of operations.
The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating contaminated sites, remediation efforts by other parties, data
released by the United States Environmental Protection Agency, the professional
judgment of the Company's environmental experts, outside environmental
specialists and other experts, and the likelihood that other parties which have
been named as PRPs will have the financial resources to fulfill their
obligations at sites where they and the Company may be jointly and severally
liable. Under the theory of joint and several liability, the Company could be
liable for the full costs of investigation and remediation even if additional
parties are found to be responsible under the applicable laws. It is difficult
to estimate the total cost of investigation and remediation due to various
factors including incomplete information regarding particular sites and other
PRPs, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. As of December 28, 1996, including sites
relating to the acquisition of Manchester Plastics, JPS Automotive and Perstorp
Components and excluding sites at which the Company's participation is
anticipated to be de minimis or otherwise insignificant or where the Company is
being indemnified by a third party for the liability, there are 22 sites where
the Company is participating in the
25
investigation or remediation of the site, either directly or through financial
contribution, and 9 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of December 28, 1996,
the Company's estimate of its liability for these 31 sites, which exclude sites
related to Wallcoverings, is approximately $33.8 million. As of December 28,
1996, the Company has established reserves of approximately $46.1 million for
the estimated future costs related to all its known environmental sites,
excluding sites related to Wallcoverings. In the opinion of management, based on
the facts presently known to it, the environmental costs and contingencies will
not have a material adverse effect on the Company's consolidated financial
condition or future results of operations. However, there can be no assurance
that the Company has identified or properly assessed all potential environmental
liability arising from the activities or properties of the Company, its present
and former subsidiaries and their corporate predecessors.
SAFE HARBOR STATEMENT
This Form 10-K contains statements which, to the extent they are not
historical fact, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements
involve risks and uncertainties. The forward-looking statements in this Form
10-K are intended to be subject to the safe harbor protection provided by the
Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this on Form 10-K include industry-based factors such as possible declines in
the North American automobile and light truck build, labor strikes at the
Company's major customers and changes in consumer taste as well as factors more
specific to the Company such as its dependence on significant automotive
customers, the level of competition in the automotive supply industry, the
substantial leverage of the Company and its subsidiaries, limitations imposed by
the Company's debt facilities and organizational, managerial and financial
changes made in connection with the integration of the operations acquired by
the Company. The Company's divisions may also be affected by changes in the
popularity of particular car models or the loss of programs on particular car
models. For a discussion of certain of these and other important factors which
may affect the Company's operations, products and markets, see "ITEM 1.
BUSINESS" and the above discussion in this "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and see also the
Company's other filings with the Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of Collins & Aikman
Corporation and subsidiaries included herein and listed on the Index to
Financial Statements set forth in Item 14 (a) of this Form 10-K report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K regarding
executive officers is set forth in Part I hereof under the caption "Executive
Officers of the Registrant" and the information required by Item 401 of
Regulation S-K regarding directors is incorporated herein by reference to that
portion of the Registrant's definitive Proxy Statement to be used in connection
with its 1997 Annual Meeting of Stockholders, which will be filed in final form
with the Commission not later than 120 days after December 28, 1996 (the "Proxy
Statement"), captioned "Election of Directors--Information as to Nominees and
Other Directors". The information required by Item 405 of Regulation S-K is
incorporated herein by reference to that portion of the Proxy Statement
captioned "Section 16 (a) Beneficial Ownership Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to that portion of the Proxy Statement captioned "Executive
Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to those portions of the Proxy Statement captioned "Voting Securities
and Principal Stockholders" and "Election of Directors--Information as to
Nominees and Other Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to that portion of the Proxy Statement captioned "Compensation
Committee Interlocks and Insider Participation".
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
PAGE
NUMBER
Report of Independent Public Accountants F-1
Consolidated Statements of Operations for the fiscal years ended December 28, 1996,
January 27, 1996, and January 28, 1995 F-2
Consolidated Balance Sheets at December 28, 1996 and January 27, 1996 F-3
Consolidated Statements of Cash Flows for the fiscal years ended December 28, 1996,
January 27, 1996, and January 28, 1995 F-4
Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended
December 28, 1996, January 27, 1996, and January 28, 1995 F-5
Notes to Consolidated Financial Statements F-6
(a) (2) FINANCIAL SCHEDULES:
The following financial statement schedules of Collins & Aikman
Corporation for the fiscal years ended December 28, 1996, January 27, 1996 and
January 28, 1995 are filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Collins & Aikman
Corporation.
PAGE
NUMBER
Report of Independent Public Accountants on Schedules....................................................... S-1
Schedule I-Condensed Financial Information of the Registrant................................................ S-2
Schedule II-Valuation and Qualifying Accounts............................................................... S-5
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are omitted
because they are not required, are inapplicable, or the information is included
in the Consolidated Financial Statements or Notes thereto.
(a) (3) EXHIBITS:
Please note that in the following description of exhibits, the title of
any document entered into, or filing made, prior to July 7, 1994 reflects the
name of the entity a party thereto or filing, as the case may be, at such time.
Accordingly, documents and filings described below may refer to Collins & Aikman
Holdings Corporation, Collins & Aikman Group, Inc. or Wickes Companies, Inc., if
such documents and filings were made prior to July 7, 1994.
28
EXHIBIT
NUMBER DESCRIPTION
2.1 - Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS Automotive L.P. and Collins & Aikman Products
Co. dated August 28, 1996 is hereby incorporated by reference to Exhibit 2.1 of Collins & Aikman Corporation's
Report on Form 10-Q for the fiscal quarter ended July 27, 1996.
2.2 - Amendment No. 1 to Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS Automotive L. P., Foamex
International Inc. and Collins & Aikman Products Co. dated as of December 11, 1996 is hereby incorporated by
reference to Exhibit 2.2 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996.
2.3 - Equity Purchase Agreement by and among Seiren U.S.A. Corporation, Seiren Automotive Textile Corporation, Seiren
Co., Ltd. and Collins & Aikman Products Co. dated December 11, 19996, is hereby incorporated by reference to
Exhibit 2.3 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996.
2.4 - Acquisition Agreement between Perstorp A.B. and Collins & Aikman Products Co. dated December 11, 1996 is hereby
incorporated by reference to Exhibit 2.4 of Collins & Aikman Corporation's Current Report on Form 8-K dated
December 10, 1996.
2.5 - Agreement among Perstorp A. B., Perstorp GmbH, Perstorp Biotec A.B. and Collins & Aikman Products Co. dated
December 11, 1996 is hereby incorporated by reference to Exhibit 2.5 of Collins & Aikman Corporation's Current
Report on Form 8-K dated December 10, 1996.
2.6 - Shareholders Agreement among Collins & Aikman Products Co., Collins & Aikman Europe, Inc., Perstorp GmbH,
Perstorp A.B., Perstorp Biotec A.B., Perstorp Components N.V. and Perstorp Components A.B., dated December 11,
1996 is hereby incorporated by reference to Exhibit 2.6 of Collins & Aikman Corporation's Current Report on Form
8-K dated December 10, 1996.
2.7 - Acquisition Agreement dated as of December 9, 1996 among Collins & Aikman Products Co., Collins & Aikman Floor
Coverings Group, Inc., Collins & Aikman Floor Coverings, Inc., CAF Holdings, Inc. and CAF Acquisition Corp. is
hereby incorporated by reference to Exhibit 2.7 of Collins & Aikman Corporation's Current Report on Form 8-K
dated December 10, 1996.
3.1 - Restated Certificate of Incorporation of Collins & Aikman Corporation is hereby incorporated by reference to
Exhibit 4.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 30, 1994.
3.2 - By-laws of Collins & Aikman Corporation, as amended, are hereby incorporated by reference to Exhibit 3.2 of
Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 27, 1996.
3.3 - Certificate of Elimination of Cumulative Exchangeable Redeemable Preferred Stock of Collins & Aikman Corporation
is hereby incorporated by reference to Exhibit 3.3 of Collins & Aikman Corporation's Report on Form 10-Q for the
fiscal quarter ended October 28, 1995.
4.1 - Specimen Stock Certificate for the Common Stock is hereby incorporated by reference to Exhibit 4.3 of Amendment
No. 3 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179)
filed June 21, 1994.
4.2 - Indenture, dated as of June 1, 1996, between Collins & Aikman Products Co., Collins & Aikman Corporation and
First Union National Bank of North Carolina, as Trustee, is hereby incorporated
29
EXHIBIT
NUMBER DESCRIPTION
by reference to Exhibit 4.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended
April 27, 1996.
4.3 - First Supplemental Indenture dated as of June 1, 1996, between Collins & Aikman Products Co., Collins & Aikman
Corporation and First Union National Bank of North Carolina, as Trustee, is hereby incorporated by reference to
Exhibit 4.3 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended April 27, 1996.
4.4 - Amended and Restated Credit Agreement, dated as of June 3, 1996, among Collins & Aikman Products Co., as
Borrower, Collins & Aikman Canada Inc., as Canadian Borrower, Collins & Aikman Corporation, as Guarantor, the
lenders named therein, Bank of America N.T.S.A. and NationsBank, N.A., as Managing Agents, and Chemical Bank, as
Administrative Agent, is hereby
incorporated by reference to Exhibit 4.1 of Collins & Aikman Corporation's Current Report on Form 8-K dated June
3, 1996.
4.5 - Amendment, dated as of December 5, 1996, to the Amended and Restated Credit Agreement, dated as of June 3, 1996,
among Collins & Aikman Products Co., as Borrower, Collins & Aikman Canada Inc., as Canadian Borrower, Collins &
Aikman Corporation, as Guarantor, the Lenders parties thereto, and The Chase Manhattan Bank, as Administrative
Agent, is hereby incorporated by reference to Exhibit 4.5 of Collins & Aikman Corporation's Report on Form 10-Q
for the fiscal quarter ended October 26, 1996.
4.6 - Credit Agreement, dated as of December 5, 1996, among Collins & Aikman Products Co., as Borrower, Collins &
Aikman Corporation, as Guarantor, the Lenders named therein and The Chase Manhattan Bank, as Administrative Agent
is hereby incorporated by reference to Exhibit 4.6 of Collins & Aikman Corporation's Report on Form 10-Q for the
fiscal quarter ended October 26, 1996.
4.7 - Indenture dated as of June 28, 1994, between JPS Automotive Products Corp., as Issuer, JPS Automotive L. P., as
Guarantor and Shawmut Bank Connecticut, N.A., as Trustee, is hereby incorporated by reference to Exhibit 4.2 of
JPS Automotive Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
4.8 - First Supplemental Indenture, dated as of October 5, 1994, between JPS Automotive Products Corp. and JPS
Automotive L.P., as Co-Obligors and Shawmut Bank Connecticut, N.A., as Trustee is hereby incorporated by
reference to Exhibit 4.48A of JPS Automotive L. P.'s and JPS Automotive Products Corp.'s Report on Form 10-Q for
the fiscal quarter ended October 2, 1994.
Collins & Aikman Corporation agrees to furnish to the Commission upon request in accordance with Item 601 (b)(4)
(iii) (A) of Regulation S-K copies of instruments defining the rights of holders of long-term debt of Collins &
Aikman Corporation or any of its subsidiaries, which debt does not exceed 10% of the total assets of Collins &
Aikman Corporation and its subsidiaries on a consolidated
basis.
10.1 - Amended and Restated Stockholders Agreement dated as of June 29, 1994 among the Company, Collins & Aikman Group,
Inc., Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. is hereby incorporated by reference
to Exhibit 10.1 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995.
30
EXHIBIT
NUMBER DESCRIPTION
10.2 - Employment Agreement dated as of July 18, 1990 between Wickes Companies, Inc. and an executive officer is hereby
incorporated by reference to Exhibit 10.3 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year
ended January 26, 1991. *
10.3 - Letter Agreement dated as of May 16, 1991 and Employment Agreement dated as of July 22, 1992 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins &
Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30, 1993.*
10.4 - First Amendment to Employment Agreement dated as of February 24, 1994 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman Holdings Corporation's
Registration Statement on Form S-2 (Registration No. 33-53179) filed April 19, 1994.*
10.5 - Letter Agreement dated as of May 16, 1991 between Collins & Aikman Corporation and an executive officer is hereby
incorporated by reference to Exhibit 10.14 of Collins & Aikman Holdings Corporation's Registration Statement on
Form S-2 (Registration No. 33-53179) filed April 19, 1994.*
10.6 - Employment Agreement dated as of April 6, 1995 between Collins & Aikman Products Co. and an executive officer is
hereby incorporated by reference to Exhibit 10.24 of Collins & Aikman Corporation's Report on Form 10-K for the
fiscal year ended January 28, 1995.*
10.7 - Letter Agreement dated as of June 30, 1995 between Collins & Aikman Corporation and an executive officer is
hereby incorporated by reference to Exhibit 10.6 of Collins & Aikman Corporation's Report on Form 10-K for the
fiscal year ended January 27, 1996.*
10.8 - Lease, executed as of the 1st day of June 1987, between Dura Corporation and Dura Acquisition Corp. is hereby
incorporated by reference to Exhibit 10.24 of Amendment No. 5 to Collins & Aikman Holdings Corporation's
Registration Statement on Form S-2 (Registration No. 33-53179) filed July 6, 1994.
10.9 - Collins & Aikman Corporation 1996 Executive Incentive Compensation Plan is hereby incorporated by reference to
Exhibit 10.9 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 27, 1996.*
10.10 - Collins & Aikman Corporation Supplemental Retirement Income Plan is hereby incorporated by reference to Exhibit
10.23 of Amendment No. 5 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2
(Registration No. 33-53179) filed July 6, 1994.*
10.11 - 1993 Employee Stock Option Plan, as amended, is hereby incorporated by reference to Exhibit 10.13 of Collins &
Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended April 29, 1995.*
10.12 - 1994 Employee Stock Option Plan is hereby incorporated by reference to Exhibit 10.14 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended April 29, 1995.*
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14
(c) of this report.
31
EXHIBIT
NUMBER DESCRIPTION
10.13 - 1994 Directors Stock Option Plan is hereby incorporated by reference to Exhibit 10.15 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995.*
10.14 - Excess Benefit Plan of Collins & Aikman Corporation is hereby incorporated by reference to Exhibit 10.25 of
Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995.*
10.15 - Amended and Restated Receivables Sale Agreement dated as of March 30, 1995 among Collins & Aikman Products Co.,
Ack-Ti-Lining, Inc., WCA Canada Inc., Imperial Wallcoverings, Inc., The Akro Corporation, Dura Convertible
Systems Inc., each of the other subsidiaries of Collins & Aikman Products Co. from time to time parties thereto
and Carcorp, Inc. is hereby incorporated by reference to Exhibit 10.18 of Collins & Aikman Corporation's Report
on Form 10-K to the fiscal year ended January 28, 1995.
10.16 - Servicing Agreement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master
Servicer, each of the subsidiaries of Collins & Aikman Products Co. from time to time parties thereto and
Chemical Bank, as Trustee is hereby incorporated by reference to Exhibit 10.19 of Collins & Aikman Corporation's
Report on Form 10-K to the fiscal year ended January 28, 1995.
10.17 - Pooling Agreement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master
Servicer and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.20 of Collins & Aikman
Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995.
10.18 - Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as
Master Servicer and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.21 of Collins &
Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995.
10.19 - Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as
Master Servicer, the Initial Purchasers parties thereto, Societe Generale, as Agent for the Purchasers and
Chemical Bank, as Trustee is hereby incorporated by reference to Exhibit 10.22 of Collins & Aikman Corporation's
Report on Form 10-K to the fiscal year ended January 28, 1995.
10.20 - Amendment No. 1, dated September 5, 1995, among Carcorp, Inc., as Company, Collins & Aikman Products Co., as
Master Servicer, and Chemical Bank, as Trustee, to the Pooling Agreement, dated as of March 30, 1995, among the
Company, the Master Servicer and Trustee is hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended July 29, 1995.
10.21 - Amendment No. 2, dated October 25, 1995, among Carcorp, Inc., as Company, Collins & Aikman Products Co., as
Master Servicer, and Chemical Bank, as Trustee, to the Pooling Agreement, dated as of March 30, 1995, among the
Company, the Master Servicer and the Trustee is hereby incorporated by reference to Exhibit 10.2 of Collins &
Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 28, 1995.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14
(c) of this report.
32
EXHIBIT
NUMBER DESCRIPTION
10.22 - Amendment No. 1, dated February 29, 1996, to the Series 1995-1 Supplement, dated as of March 30, 1995, among
Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, and Chemical Bank, as Trustee, is hereby
incorporated by reference to Exhibit 10.20 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal
year ended January 27, 1996.
10.23 - Amendment No. 1, dated February 29, 1996, to the Series 1995-2 Supplement, dated as of March 30, 1995, among
Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, Societe Generale, as agent, and Chemical Bank,
as Trustee, is hereby incorporated by reference to Exhibit 10.21 of Collins & Aikman Corporation's Report on Form
10-K for the fiscal year ended January 27, 1996.
10.24 - Master Equipment Lease Agreement dated as of September 30, 1994, between NationsBanc Leasing Corporation of North
Carolina and Collins & Aikman Products Co. Is hereby incorporated by reference to Exhibit 10.27 of Collins &
Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 29, 1994.
10.25 - Underwriting Agreement dated June 5, 1996 between Collins & Aikman Products Co., Collins & Aikman Corporation,
Wasserstein Perella Securities, Inc., Chase Securities Inc. and BA Securities, Inc. is hereby incorporated by
reference to Exhibit 1.1 of Collins & Aikman Corporation's Current Report on Form 8-K dated June 3, 1996.
10.26 - Second Amendment, dated as of October 3, 1996, to the Employment Agreement, dated as of July 22, 1992, as
amended, between Collins & Aikman Products Co. and an executive officer is hereby incorporated by reference to
Exhibit 10.26 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 26,
1996.*
11 - Computation of Earnings Per Share.
21 - Subsidiaries of the Registrant.
23 - Consent of Arthur Andersen LLP
27 - Financial Data Schedule.
99 - Voting Agreement between Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. is hereby
incorporated by reference to Exhibit 99 of Amendment No. 4 to Collins & Aikman Holdings Corporation's
Registration Statement on Form S-2 (Registration No. 33-53179) filed June 27, 1994.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14
(c) of this report.
33
(b) REPORTS ON FORM 8-K.
During the last quarter of the fiscal year for which this report on
Form 10-K was filed, the Company filed a report on Form 8-K dated December 10,
1996, reporting (i) under Item 2 thereof, the acquisition on December 11, 1996
by the Company of JPS Automotive L.P. and Perstorp AB's automotive supply and
related operations in North America, the United Kingdom and Spain and (ii) under
Item 5 thereof, the execution on December 10, 1996 of a definitive agreement to
sell the Company's Floorcoverings subsidiary and the execution on December 11,
1996 of a joint venture agreement with Perstorp AB (which closed on December 17,
1996) relating to automotive components supply facilities in Sweden, Belgium and
France. In connection with this filing, the Company filed on February 24, 1997,
by amendment to Form 8-K, the following financial statements under Item 7 of
Form 8-K:
Independent Auditors' Report dated February 9, 1996.
Consolidated Balance Sheets of JPS Automotive L. P. and Subsidiaries as
of December 31, 1995 and January 1, 1995 (Audited)
Consolidated Statements of Operations of JPS Automotive L. P. and
Subsidiaries for the year ended December 31, 1995, and the period
from June 29, 1994 to January 1, 1995 (Audited).
Consolidated Statements of Owners' Equity of JPS Automotive L. P. and
Subsidiaries (Audited).
Consolidated Statements of Cash Flows of JPS Automotive L. P. and
Subsidiaries for the year ended December 31, 1995, and the period
from June 29, 1994 to January 1, 1995 (Audited).
Notes to Consolidated Financial Statements.
Consolidated Balance Sheets of JPS Automotive L. P. and Subsidiaries as
of September 29, 1996 (Unaudited).
Consolidated Statements of Operations of JPS Automotive L. P. and
Subsidiaries for the Nine Months Ended September 29, 1996
(Unaudited).
Consolidated Statements of Cash Flows of JPS Automotive L. P. and
Subsidiaries for the Nine Months Ended September 29, 1996
(Unaudited).
Notes to Consolidated Condensed Financial Statements of JPS Automotive
L. P. and Subsidiaries.
Pro Forma Consolidated Statement of Operations of Collins & Aikman
Corporation and Subsidiaries for the fiscal year ended January 27,
1996 (Unaudited).
Pro Forma Consolidated Statement of Operations of Collins & Aikman
Corporation and Subsidiaries for the Nine Months ended October 26,
1996 (Unaudited).
Pro Forma Consolidated Balance Sheet of Collins & Aikman Corporation
and Subsidiaries at October 26, 1996 (Unaudited).
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1997.
COLLINS & AIKMAN CORPORATION
By: /s/ David A. Stockman By: /s/ Randall J. Weisenburger
--------------------------------- -----------------------------------
DAVID A. STOCKMAN RANDALL J. WEISENBURGER
CO-CHAIRMAN OF THE BOARD OF DIRECTORS CO-CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------ ---------------------------------------------- -------------------------------
/s/ David A. Stockman Co-Chairman of the March 27, 1997
- --------------------------------
DAVID A. STOCKMAN Board of Directors
/s/ Randall J. Weisenburger Co-Chairman of the March 27, 1997
- -----------------------------
RANDALL J. WEISENBURGER Board of Directors
/s/ Thomas E. Hannah Director and Chief Executive Officer March 27, 1997
- --------------------------------
THOMAS E. HANNAH (Principal Executive Officer)
/s/ J. Michael Stepp Executive Vice President and Chief March 27, 1997
- -----------------------------------
J. MICHAEL STEPP Financial Officer (Principal Financial and
Accounting Officer)
/s/ Robert C. Clark Director March 27, 1997
- ------------------------------------
ROBERT C. CLARK
/s/ George L. Majoros, Jr. Director March 27, 1997
- --------------------------------
GEORGE L. MAJOROS, JR.
/s/ James J. Mossman Director March 27, 1997
- --------------------------------
JAMES J. MOSSMAN
/s/ Warren B. Rudman Director March 27, 1997
- ------------------------------
WARREN B. RUDMAN
/s/ Stephen A. Schwarzman Director March 27, 1997
- ---------------------------
STEPHEN A. SCHWARZMAN
/s/ W. Townsend Ziebold, Jr. Director March 27, 1997
- ------------------------------
W. TOWNSEND ZIEBOLD, JR.
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Collins & Aikman Corporation:
We have audited the accompanying consolidated balance sheets of
Collins & Aikman Corporation (a Delaware Corporation) and subsidiaries
as of December 28, 1996 and January 27, 1996 and the related
consolidated statements of operations, cash flows, and common
stockholders' deficit for each of the three fiscal years in the period
ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Collins & Aikman Corporation and subsidiaries as of December 28, 1996
and January 27, 1996 and the results of their operations and their cash
flows for each of the three fiscal years in the period ended December
28, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 19, 1997.
F-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- ---------------- ---------------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
Net sales....................................................... $ 1,055,931 $ 902,017 $ 906,997
---------------- ------------ ------------
Cost of goods sold.............................................. 867,257 740,092 734,510
Selling, general and administrative expenses.................... 86,625 66,266 68,304
---------------- ------------ ------------
953,882 806,358 802,814
---------------- ------------ ------------
Operating income................................................ 102,049 95,659 104,183
Interest expense, net of interest income of $3,987,
$1,556, and $6,374............................................ 39,850 22,150 44,440
Loss on sale of receivables..................................... 4,533 6,246 6,124
Dividends on preferred stock of subsidiary...................... - - 2,258
Other expense 113 - -
---------------- ------------ ------------
Income from continuing operations before income taxes........... 57,553 67,263 51,361
Income tax expense (benefit).................................... 24,442 (139,959) 10,031
---------------- ------------ ------------
Income from continuing operations............................... 33,111 207,222 41,330
Income (loss) from discontinued operations, net of
income taxes of $9,317, $844 and $1,506....................... 14,323 (781) 34,416
---------------- ------------ ------------
Income before extraordinary loss................................ 47,434 206,441 75,746
Extraordinary loss, net of income taxes of $4,709 and $0........ (6,610) - (106,528)
---------------- ------------ ------------
Net income (loss)............................................... $ 40,824 $ 206,441 $ (30,782)
================= ============ ============
Dividends and accretion on preferred stock...................... - - (14,408)
Excess of redemption cost over book value of
preferred stock............................................... - - (82,022)
---------------- ------------ ------------
Income (loss) applicable to common
stockholders.................................................. $ 40,824 $ 206,441 $ (127,212)
================= ============ ============
Net income (loss) per primary and fully diluted
common share:
Continuing operations....................................... $ .47 $ 2.91 $ (1.04)
Discontinued operations..................................... .20 (.01) .65
Extraordinary item.......................................... (.09) - (2.01)
---------------- ------------ ------------
Net income (loss)........................................... $ .58 $ 2.90 $ (2.40)
================= ============== ==============
Average common shares outstanding:
Primary..................................................... 69,908 71,194 52,905
================= ============== ==============
Fully diluted............................................... 69,938 71,234 52,905
================= ============== ==============
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-2
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 28, JANUARY 27,
1996 1996
------------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 14,316 $ 977
Accounts and other receivables, net of allowances of $10,601
and $3,381................................................................. 210,263 127,376
Inventories.................................................................. 129,860 96,928
Net assets of discontinued operations........................................ 212,039 161,025
Other........................................................................ 129,065 70,666
------------------ --------------
Total current assets..................................................... 695,543 456,972
Property, plant and equipment, net.............................................. 375,974 193,438
Deferred tax assets............................................................. 92,011 132,294
Goodwill, net................................................................... 298,239 159,347
Other assets.................................................................... 74,713 49,310
------------------ --------------
$ 1,536,480 $ 991,361
================= =============
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable................................................................ $ 1,920 $ 2,101
Current maturities of long-term debt......................................... 38,190 49,228
Accounts payable............................................................. 126,927 93,603
Accrued expenses............................................................. 177,462 87,001
------------------ --------------
Total current liabilities................................................ 344,499 231,933
Long-term debt.................................................................. 1,138,029 710,738
Other, including postretirement benefit obligation.............................. 248,530 276,542
Commitments and contingencies...................................................
Common Stockholders' Deficit:
Common stock (150,000 shares authorized, 70,521 shares issued
and 67,723 shares outstanding at December 28, 1996 and
70,521 shares issued and 69,074 shares outstanding at January 27, 1996).... 705 705
Other paid-in capital........................................................ 585,207 585,469
Accumulated deficit.......................................................... (729,315) (770,139)
Foreign currency translation adjustments..................................... (20,798) (23,719)
Pension equity adjustment.................................................... (10,165) (9,090)
Treasury stock, at cost (2,798 shares at December 28, 1996 and
1,447 shares at January 27, 1996))......................................... (20,212) (11,078)
------------------ --------------
Total common stockholders' deficit....................................... (194,578) (227,852)
------------------ --------------
$ 1,536,480 $ 991,361
================= =============
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-3
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- ---------------- ---------------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
OPERATING ACTIVITIES
Income from continuing operations...................................... $ 33,111 $ 207,222 $ 41,330
Adjustments to derive cash flow from continuing operating activities:
Deferred income tax expense (benefit)............................... 12,228 (149,822) (105)
Depreciation and leasehold amortization............................. 24,568 24,146 24,648
Goodwill amortization............................................... 3,898 270 -
Amortization of other assets and liabilities........................ 7,545 5,995 5,277
(Increase) decrease in accounts and other receivables............... (22,575) 2,762 (89,898)
(Increase) decrease in inventories.................................. (486) 5,593 (16,312)
Increase (decrease) in interest and dividends payable............... 7,784 1,353 (14,479)
Increase (decrease)in accounts payable.............................. (10,608) 2,136 14,445
Other, net.......................................................... 359 (21,548) (20,730)
------------------ -------------- -------------
Net cash provided by (used in) continuing operating
activities...................................................... 55,824 78,107 (55,824)
------------------ -------------- -------------
Cash provided by (used in) Wallcoverings, Floorcoverings and the
Mastercraft Group discontinued operations............................ (1,342) 24,861 106,331
Cash used in other discontinued operations............................. (6,160) (22,886) (30,925)
------------------ -------------- -------------
Net cash provided by (used in) discontinued operations............ (7,502) 1,975 75,406
------------------ -------------- -------------
INVESTING ACTIVITIES
Additions to property, plant and equipment............................. (78,454) (93,698) (84,423)
Sales of property, plant and equipment................................. 4,119 2,733 805
Proceeds from sale-leaseback arrangements.............................. - 32,818 30,365
Acquisitions of businesses, net of cash acquired....................... (225,256) (190,338) -
Net proceeds from disposition of discontinued operations............... - - 68,861
Other, net............................................................. (10,198) (5,507) 1,915
__________________ ______________ _____________
Net cash provided by (used in) investing activities............... (309,789) (253,992) 17,523
------------------ -------------- -------------
FINANCING ACTIVITIES
Issuance of common stock............................................... - - 232,436
Issuance of long-term debt............................................. 453,475 213,658 675,234
Proceeds from (reduction of) participating interests in
accounts receivable, net of redemptions............................. 7,000 (17,000) 145,000
Redmption of preferred stock........................................... - - (219,110)
Repayment and defeasance of long-term debt............................. (286,406) (18,979) (884,908)
Net borrowings (repayments) on revolving credit facilities, excluding
the Recapitalization................................................. 127,804 5,000 (60,000)
Net borrowings (repayments) on notes payable........................... (163) 214 (2,066)
Purchases of treasury stock............................................ (9,594) (11,736) -
Proceeds from exercise of stock options................................ 138 382 -
Other, net............................................................. (17,448) 31 (1,747)
------------------ -------------- -------------
Net cash provided by (used in) financing activities............... 274,806 171,570 (115,161)
Decrease in cash and cash equivalents.................................. 13,339 (2,340) (78,056)
Cash and cash equivalents at beginning of year......................... 977 3,317 81,373
------------------ -------------- -------------
Cash and cash equivalents at end of year............................... $ 14,316 $ 977 $ 3,317
================== ============== =============
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-4
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
FOREIGN
OTHER CURRENCY PENSION
COMMON PAID-IN ACCUMULATED TRANSLATION EQUITY TREASURY
STOCK CAPITAL DEFICIT ADJUSTMENTS ADJUSTMENT STOCK TOTAL
--------- ---------- ----------- ------------ ----------- --------- ---------
BALANCE AT JANUARY 29, 1994 $ 282 $ 160,317 $(849,337) $ (5,735) $ (7,747) $ - $ (702,220)
Issuance of shares through the
Recapitalization.................. 423 426,759 - - - - 427,182
Compensation expense adjustment..... - (795) - - - - (795)
Net loss............................ - - (30,782) - - - (30,782)
Redeemable preferred stock
dividends........................ - - (12,380) - - - (12,380)
Accretion of redeemable preferred
stock............................ - - (2,028) - - - (2,028)
Excess of redemption cost over book
value of redeemable preferred
stock............................ - - (82,022) - - - (82,022)
Foreign currency translation
adjustments...................... - - - (7,920) - - (7,920)
Pension equity adjustment........... - - - - (1,657) - (1,657)
BALANCE AT JANUARY 28, 1995 $ 705 $ 586,281 $(976,549) $ (13,655) $ (9,404) $ - $ (412,622)
Compensation expense adjustment..... - (567) - - - - (567)
Net income.......................... - - 206,441 - - - 206,441
Purchase of treasury stock (1,542
shares).......................... - - - - - (11,736) (11,736)
Exercise of stock options (95 shares) - (245) (31) - - 658 382
Foreign currency translation
adjustments...................... - - - (10,064) - - (10,064)
Pension equity adjustment........... - - - - 314 - 314
BALANCE AT JANUARY 27, 1996......... $ 705 $ 585,469 $(770,139) $ (23,719) $ (9,090) $ (11,078) $ (227,852)
Compensation expense adjustment..... - 60 - - - - 60
Net income.......................... - - 40,824 - - - 40,824
Purchase of treasury stock (1,420
shares).......................... - - - - - (9,594) (9,594)
Exercise of stock options (69 shares) - (322) - - - 460 138
Foreign currency translation
adjustments...................... - - - 2,921 - - 2,921
Pension equity adjustment........... - - - - (1,075) - (1,075)
BALANCE AT DECEMBER 28, 1996 $ 705 $ 585,207 $(729,315) $ (20,798) $ (10,165) $ (20,212) $ (194,578)
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-5
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman
Holdings Corporation) is a Delaware corporation. Prior to July 13, 1994, the
Company was a wholly-owned subsidiary of Collins & Aikman Holdings II
Corporation ("Holdings II"). In connection with an initial public offering of
common stock and a recapitalization (the "Recapitalization") (described below),
Holdings II was merged into the Company. Concurrently, Collins & Aikman Group,
Inc., a wholly-owned subsidiary of the Company ("Group"), was merged into its
wholly-owned subsidiary, Collins & Aikman Corporation, which changed its name to
Collins & Aikman Products Co. ("C&A Products"). On July 7, 1994, the Company
changed its name from Collins & Aikman Holdings Corporation to Collins & Aikman
Corporation.
Prior to the Recapitalization, the Company was jointly owned by
Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella
Partners, L.P. ("WP Partners") and their respective affiliates. As of December
28, 1996, Blackstone Partners and WP Partners and their respective affiliates
collectively own approximately 80% of the common stock of the Company.
The Company conducts all of its operating activities through its
wholly-owned C&A Products subsidiary.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
items have been eliminated in consolidation. Certain prior year items have been
reclassified to conform with the fiscal 1996 presentation and are primarily
related to the reclassification of Wallcoverings, the Mastercraft Group and the
Floorcoverings subsidiary as discontinued operations. See Note 15.
The preparation of consolidated 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
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FISCAL YEAR - During fiscal 1996, the Company changed its fiscal year
to end on the last Saturday of December. Fiscal 1996 was a 48-week year which
ended on December 28, 1996. Fiscal 1995 and fiscal 1994 were 52-week years which
ended on January 27, 1996 and January 28, 1995, respectively. See Note 6.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per common share is based
on the weighted average number of shares of common stock outstanding during each
period and the assumed exercise of employee stock options less the number of
treasury shares assumed to be purchased from the proceeds, including applicable
compensation expense. In connection with the merger of Holdings II into the
Company, the 35,035,000 shares of common stock of the Company outstanding prior
to the Recapitalization were canceled and approximately 28,164,000 shares of
common stock were issued in exchange for the common stock of Holdings II. All
historical amounts and earnings (loss) per share computations have been adjusted
to reflect the merger. Net losses have been adjusted by dividends and accretion
requirements on preferred stock and the excess of redemption cost over book
value of preferred stock to compute the losses applicable to common
stockholders.
FOREIGN CURRENCY - Foreign currency activity is reported in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS No. 52"). SFAS No. 52 generally
F-6
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
provides that the assets and liabilities of foreign operations be translated at
the current exchange rates as of the end of the accounting period and that
revenues and expenses be translated using average exchange rates. The resulting
translation adjustments arising from foreign currency translations are
accumulated as a separate component of common stockholders' deficit. Translation
adjustments during fiscal 1996, 1995 and 1994 were $2.9 million, ($10.1)million,
and ($7.9) million, respectively.
Gains and losses resulting from foreign currency transactions are
recognized in income. Recorded balances that are denominated in a currency other
than the Company's functional currency are adjusted to reflect the exchange rate
at the balance sheet date.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three months
or less.
ACCOUNTS AND OTHER RECEIVABLES - Accounts and other receivables consist
primarily of the Company's trade receivables and the retained interest in the
Receivables Facility. See Note 12. The Company has provided an allowance against
uncollectible accounts. At December 28, 1996, $10.6 million of allowance existed
of which $6.7 million related to JPS Automotive and Perstorp Components. See
Note 3.
INVENTORIES - Inventories are valued at the lower of cost or market,
but not in excess of net realizable value. Cost is determined on the first-in,
first-out basis.
INSURANCE DEPOSITS - Other current assets as of December 28, 1996 and
January 27, 1996 included $.5 million and $.5 million, respectively, which were
on deposit with an Insurer to cover a portion of the self-insured portion of the
Company's workers' compensation, automotive and general liabilities. During
fiscal 1995, the Company replaced certain of these deposits with letters of
credit. The Company's reserves for these claims were determined based upon
actuarial analyses and aggregated $18.0 million and $21.9 million at December
28, 1996 and January 27, 1996, respectively. Of these reserves, $4.7 million and
$5.1 million, respectively, were classified in current liabilities.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost. Provisions for depreciation are primarily computed on a
straight-line basis over the estimated useful lives of the assets, presently
ranging from 3 to 40 years. Leasehold improvements are amortized over the lesser
of the lease term or the estimated useful lives of the improvements.
LONG LIVED ASSETS - In the fourth quarter of fiscal 1995, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, and that
certain long-lived assets and identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
adoption of SFAS No. 121 did not have a material impact on the Company's
consolidated results of operations.
GOODWILL - Goodwill, representing the excess of purchase price over the
fair value of net assets of the acquired entities, is being amortized on a
straight-line basis over the period of forty years. Amortization of goodwill
applicable to continuing operations for fiscal years 1996 and 1995 was $3.9
million and $.3 million, respectively. Accumulated amortization at December 28,
1996 was $4.2 million. The carrying value of goodwill will be reviewed
periodically based on the nondiscounted cash flows and pretax income of the
entities acquired over the remaining amortization periods. Should this review
indicate that the goodwill
F-7
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
balance will not be recoverable, the Company's carrying value of the goodwill
will be reduced. At December 28, 1996, the Company believes the goodwill of
$298.2 million was fully recoverable. See Note 3.
ENVIRONMENTAL - The Company records its best estimate when it believes
it is probable that an environmental liability has been incurred and the amount
of loss can be reasonably estimated. The Company also considers estimates of
certain reasonably possible environmental liabilities in determining the
aggregate amount of environmental reserves. Accruals for environmental
liabilities are generally included in the consolidated balance sheet as other
noncurrent liabilities at undiscounted amounts and exclude claims for recoveries
from insurance or other third parties. Accruals for insurance or other third
party recoveries for environmental liabilities are recorded when it is probable
that the claim will be realized.
NEWLY ISSUED ACCOUNTING STANDARDS - In June 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125") which was amended by Statement
of Financial Accounting Standards No. 127, "Amendment to SFAS No. 125". SFAS No.
125, as amended, establishes standards of accounting for transfers of assets in
which the transferor has some continuing involvement with the assets transferred
or with the transferee. It also clarifies the accounting for arrangements
whereby assets are set aside for the extinguishment of a liability. SFAS No. 125
is generally effective for transactions occurring after December 31, 1996, with
early or retroactive application prohibited. The Company does not expect
adoption of this standard will have a material impact on its, consolidated
financial position or results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP
96-1"). SOP 96-1 provides authoritative guidance on specific accounting issues
related to the recognition, measurement, display and disclosure of environmental
remediation liabilities. SOP 96-1 addresses only those actions undertaken in
response to a threat of litigation or assertion of a claim. It does not address
accounting for pollution control costs with respect to current operations or for
costs of future site restoration or closure required upon cessation of
operations. SOP 96-1 is effective for fiscal years beginning after December 15,
1996. The Company does not expect adoption of this standard will have a material
impact on its consolidated financial position or results of operations.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued. SFAS No. 128 requires
presentation of basic earnings per share and diluted earnings per share and
supersedes or amends all previous earnings per share presentation requirements.
Basic earnings per share will be based on income available to common
shareholders divided by the weighted average number of common shares
outstanding. Diluted earnings per share is also based on income available to
common shareholders divided by the sum of the weighted average number of common
shares outstanding and all diluted potential common shares. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997. Earlier adoption is
not allowed and the Company has not determined the impact on its future earnings
per share presentations.
3. ACQUISITIONS:
During fiscal 1996 and 1995, the Company acquired the entities
described below, which were accounted for by the purchase method of accounting.
The results of operations of the acquired companies are included in the
Company's consolidated statements of operations for the periods in which they
were owned by the Company.
On December 11, 1996 the Company acquired JPS Automotive L. P. ("JPS
Automotive") for $220 million, subject to post-closing adjustment, consisting of
approximately $195 million of indebtedness of JPS Automotive and approximately
$25 million of cash. The Company also acquired the minority interest in a JPS
F-8
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Automotive subsidiary for $10 million. JPS Automotive has seven manufacturing
locations located in the United States and Mexico which serve the North American
automotive industry. JPS Automotive's significant product lines include molded
floor carpet, bodycloth and headliner fabric. The purchase price allocation
related to the JPS Automotive acquisition established certain reserves related
to management's preliminary plans to rationalize certain acquired manufacturing
facilities. See Note 16 for additional information.
On December 11, 1996 the Company acquired Perstorp AB's automotive
supply operations (primarily acoustical products) in North America, the United
Kingdom and Spain (collectively referred to as "Perstorp Components") for $108
million, subject to adjustment. In addition, the Company and Perstorp AB entered
into a joint venture agreement relating to Perstorp AB's automotive supply
operations (primarily acoustical and plastic components) in Sweden, Belgium and
France.
On May 1, 1996, the Company acquired the business of BTR Fatati Limited
("Fatati"), a manufacturer and supplier of molded floor carpets and luggage
compartment trim for the European automotive market. Fatati's manufacturing
operations are located in the United Kingdom.
On January 3, 1996, the Company completed the acquisition of Manchester
Plastics for a purchase price of approximately $184.0 million, including $40.4
million of debt extinguished in connection with the acquisition. The
acquisition, related fees and expenses and estimated Manchester Plastics working
capital requirements were financed with the proceeds from a $197 million term
loan facility. Manchester Plastics is a designer and manufacturer of high
quality plastic-based automotive door panels, headrests, floor console systems
and instrument panel components used in the interior of automobiles, light
trucks, sport utility vehicles and minivans. It serves the North American
automakers from seven manufacturing plants in the United States and Canada.
In November 1995, the Company acquired certain assets of Amco
Manufacturing Corporation and its Mexican affiliate Omca, Inc. (collectively
"Amco") for approximately $7 million. The assets acquired are used in the
manufacture and design of convertible tops and related parts for the automotive
manufacturers in the United States and Mexico as well as the automotive
aftermarket.
The excess of the purchase price for each acquisition over the
estimated fair value of the tangible and identifiable intangible net assets
acquired is being amortized over a period of forty years on a straight line
basis. In determining the amortization period of goodwill assigned to these
automotive industry acquisitions, management assessed the impact of these
acquisitions on the Company's ability to strategically position itself with the
long term trends in the design and manufacture of automotive products. The
trends that management has identified are the increased use of plastic
components, the increased sourcing of interior systems and U.S. automotive
manufacturers' movement
to fewer suppliers and to suppliers with engineering and design capabilities.
The Company anticipates the reduction in the supply chain will result in
integration whereby the complete interior of an automobile will be co-designed
and developed with fewer supplies who will manufacture and deliver required
components. The Company anticipates these capabilities will be essential to its
long term strategic positioning as a key supplier within the automotive industry
and with its customers.
4. RECAPITALIZATION:
On July 13, 1994, the Company completed an initial public offering (the
"Offering") of 15,000,000 shares of its common stock. The Offering provided net
proceeds to the Company of $145.4 million. In addition, the Company sold to its
principal stockholders, Blackstone Partners and WP Partners, and their
respective affiliates an additional 8,810,000 shares for $87 million. These
proceeds were combined with $720 million of proceeds from new credit facilities
and existing cash to redeem all outstanding shares of preferred stock issued by
the Company and Group as well as virtually all their outstanding indebtedness
totaling approximately $983.1
F-9
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
million. The redemption of this indebtedness resulted in a loss of $106.5
million consisting of premiums paid of $9.6 million, unamortized debt discounts
and deferred debt expenses of $79.7 million and $11.8 million, respectively, and
post-defeasance interest of $5.4 million. In a noncash transaction,
approximately 18,500,000 shares were issued by the Company in exchange for
outstanding indebtedness in an amount of $194.7 million.
5. PRO FORMA INFORMATION:
Set forth below are unaudited pro forma consolidated results from
continuing operations assuming (i) the fiscal 1996 acquisitions of JPS
Automotive and Perstorp Components had occurred as of the beginning of fiscal
1996 and 1995 (see Note 3), (ii) the application of net proceeds of the sale of
Floorcoverings had occurred as of the beginning of fiscal 1996 and 1995 (see
Note 15), (iii) the issuance of the Subordinated Notes, the application of the
net proceeds to pay down indebtedness and the amendment to the Bank Credit
Facilities (as defined in Note 11) had occurred as of the beginning of fiscal
1996 and 1995 and (iv) the fiscal 1995 acquisitions of Manchester Plastics and
Amco had occurred as of the beginning of the 1995 fiscal year (in thousands,
except per share amounts):
FISCAL YEAR ENDED
---------------------------
DECEMBER 28, JANUARY 27,
1996 1996
-------------- ------------
(48 WEEKS) (52 WEEKS)
Net sales......................................... $1,474,642 $1,554,114
Operating income.................................. 127,224 136,547
Interest expense, net............................. 66,994 73,786
Loss on the sale of receivables................... 4,533 6,246
Income from continuing operations................. 31,900 196,457
Income from continuing operations per
common share................................... .46 2.76
Average shares outstanding........................ 69,908 71,194
After giving effect to the adjustments above, net income for fiscal
1996 and 1995 on a pro forma basis would have been $37.2 million and $177.0
million, respectively. In addition to the adjustments to income from continuing
operations, income from discontinued operations for fiscal 1996 would have
decreased as a result of (i) additional interest being allocated to the
Mastercraft Group relating to the increased consolidated interest expense of the
Company and (ii) the operating results for Floorcoverings being excluded because
of the assumption that the sale would have occurred at the beginning of the
year. Fiscal 1995 loss from discontinued operations would have increased for the
same reasons identified for fiscal 1996. The extraordinary loss in fiscal 1996
would have been eliminated because the pro forma adjustments are based as if the
transaction that created the extraordinary loss would have occurred at the
beginning of the year.
F-10
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Set forth below are unaudited pro forma consolidated results from
continuing operations assuming (i) the fiscal 1995 acquisitions of Manchester
Plastics and Amco had occurred as of the beginning of the 1995 and 1994 fiscal
years and (ii) the Offering and Recapitalization had occurred as of the
beginning of the 1994 fiscal year (in thousands, except per share amounts):
FISCAL YEAR ENDED
JANUARY 27, JANUARY 28,
1996 1995
--------------- ----------------
(52 WEEKS) (52 WEEKS)
Net sales............................. $1,084,080 $1,084,094
Operating income...................... 99,947 127,305
Interest expense, net................. 37,050 39,713
Loss on the sale of receivables....... 6,246 7,799
Income from continuing operations..... 196,362 65,729
Income from continuing operations
per common share................... 2.76 .91
Average shares outstanding............ 71,194 72,166
After giving effect to the adjustments above, net income for fiscal 1995
and 1994 would have been $195.6 million and $118.5 million, respectively. The
pro forma adjustments identified above for fiscal 1995 would not impact the
results from discontinued operations as presented. The income from discontinued
operations for fiscal 1994 after giving effect for the pro forma adjustments
would have increased as a result of reduced allocated interest expense. The
extraordinary loss in fiscal 1994 would have been eliminated as a result of the
Recapitalization occurring at the beginning of fiscal 1994.
The pro forma data above excludes all interest and other charges
related to the preferred stock and indebtedness redeemed as part of the Offering
and Recapitalization.
F-11
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CHANGE IN FISCAL YEAR
During fiscal 1996, the Company changed its fiscal year-end to the last
Saturday in December. As a result of this change, fiscal 1996 was a 48-week
period. The following information presents comparative data for the periods
ended December 28, 1996 and December 23, 1995 (amounts in thousands, except per
share data):
PERIOD ENDED
-------------------------------
DECEMBER 23,
DECEMBER 28, 1995
1996 (UNAUDITED)
---------------- --------------
(48 WEEKS) (47 Weeks)
Net sales.............................. $ 1,055,931 $ 815,811
Operating income....................... 102,049 88,767
Income from continuing operations...... 33,111 55,180
Income from discontinued operations.... 14,323 20,440
Extraordinary loss..................... (6,610) -
Net income............................. 40,824 75,620
Net income per primary and fully
diluted share:
Continuing operations................ $ .47 $ .77
Discontinued operations.............. .20 .29
Extraordinary items.................. (.09) -
------------- ------------
Net income........................... $ .58 $ 1.06
============= ============
7. INTEREST RATE PROTECTION PROGRAM:
The Company maintains a program designed to reduce its exposure to
changes in the cost of its variable rate borrowings by the use of interest rate
collar agreements. The Company has limited its exposure through April 2, 1998 on
$80 million of notional principal amount utilizing zero cost collars with 4.75%
floors and a weighted average cap of 7.86%. Payments to be received, if any, as
a result of these agreements are accrued as a reduction of interest expense.
Amortization of certain interest rate protection agreements that
expired during October 1996 amounted to $.7 million, $.7 million and $.1
million, respectively, during fiscal 1996, 1995 and 1994.
8. INVENTORIES:
Inventory balances are summarized below (in thousands):
DECEMBER 28, JANUARY 27,
1996 1996
------------------- ----------------
Raw materials................ $ 62,413 $ 48,702
Work in process.............. 29,069 15,450
Finished goods............... 38,378 32,776
------------------- ----------------
$ 129,860 $ 96,928
==================== ================
F-12
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, net, are summarized below (in
thousands):
DECEMBER 28, JANUARY 27,
1996 1996
------------------- ----------------
Land and improvements.......... $ 26,887 $ 17,210
Buildings...................... 108,707 81,246
Machinery and equipment........ 324,825 170,202
Leasehold improvements......... 1,253 1,188
Construction in progress....... 19,766 9,054
------------------- ----------------
481,438 278,900
Less accumulated depreciation
and amortization......... (105,464) (85,462)
------------------- ----------------
$ 375,974 $ 193,438
=================== ================
Depreciation and leasehold amortization of property, plant and
equipment applicable to continuing operations was $24.6 million, $24.1 million,
and $24.6 million for fiscal 1996, 1995 and 1994, respectively.
10. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
DECEMBER 28, JANUARY 27
1996 1996
------------------- ---------------
Payroll and employee benefits.... $ 52,542 $ 27,545
Interest......................... 15,023 7,239
Other............................ 109,897 52,217
------------------- ---------------
$ 177,462 $ 87,001
=================== ===============
F-13
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LONG-TERM DEBT:
Long-term debt is summarized below (in thousands):
DECEMBER 28, JANUARY 27
1996 1996
------------- -----------
Bank Credit Facilities:
Revolving Credit Facility............. $ 204,000 $ 75,000
Term Loan Facility.................... 190,333 461,806
Term Loan B Facility.................. 193,250 197,000
Delayed Draw Term Loan................ 53,000 -
Public Indebtedness:
11-1/2% Senior Subordinated Notes..... 400,000 -
JPS Automotive 11-1/8% Senior Notes... 117,221 -
Other.................................... 18,415 26,160
------------- -----------
Total debt............................... 1,176,219 759,966
Less current maturities.................. (38,190) (49,228)
------------- -----------
$1,138,029 $710,738
============= ===========
BANK CREDIT FACILITIES
The Company's Bank Credit Facilities consist of a (i) $250 million
Revolving Credit Facility due July 2001, (ii) $195 million Term Loan Facility
due in quarterly installments through July 2002, (iii) Term Loan B Facility in
the principal amount of $195.8 million due in quarterly installments through
December 2002 and (iv) $200 million Delayed Draw Term Loan Facility which was
entered into in December 1996 payable in quarterly installments through March
2002.
In June 1996, the Company amended and restated the Revolving Credit,
Term Loan, and Term Loan B Facilities in connection with the sale of $400
million in Senior Subordinated Notes (discussed below). The amendment resulted
in the use of proceeds from such sale to repay various outstanding amounts under
the Revolving and Term Loan Facilities. In connection with such amendment and
repayment, the Company recognized a non-cash extraordinary charge of $6.6
million, net of income taxes of $4.7 million.
In December 1996, the Company, in connection with the acquisition of
JPS Automotive, amended the Revolving Credit, Term Loan and Term Loan B
Facilities to allow for the existence of the JPS Automotive 11-1/8% Senior Notes
("JPS Automotive Senior Notes") and to allow the Company to retain proceeds from
the sale of its Floorcoverings subsidiary. Additionally, in December 1996, the
Company entered into the $200 million Delayed Draw Term Loan Facility to finance
or refinance the purchase of JPS Automotive Senior Notes. The Company may draw
$20 million of the facility for general corporate purposes. The Delayed Draw
Term Loan Facility will be available until December 11, 1997. As of December 28,
1996, the Company had drawn $53 million under the Delayed Draw Term Loan to
refinance and repurchase a portion of the $68 million of JPS Automotive Senior
Notes purchased by the Company prior to its acquisition of JPS Automotive and
subsequently retired by JPS Automotive.
F-14
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Bank Credit Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
covenants including maintenance of EBITDA (i.e. earnings before interest,
taxes, depreciation, amortization and other non-cash charges) and interest
coverage ratios, leverage and liquidity tests and various other restrictive
covenants which are customary for such facilities. In addition, C&A Products
is generally prohibited from paying dividends or making other distributions
to the Company except for the Company's expenses and for permitted dividends
or stock repurchases and in certain other circumstances. In addition, the Bank
Credit Facilities provide for mandatory prepayments with certain excess cash
flows of the Company and certain other transactions.
The Company's obligations under the Bank Credit Facilities are secured
by a pledge of the stock of C&A Products and its significant subsidiaries.
Indebtedness under the Term Loan Facility, Revolving Credit Facility
and the Delayed Draw Term Loan bears interest at a per annum rate equal to the
Company's choice of (i) Chase Manhattan Bank's ("Chase's") Alternate Base Rate
plus a margin (the "ABR Margin") ranging from 0% to .75% or (ii) the offered
rates for Eurodollar deposits ("LIBOR") plus a margin (the "LIBOR Margin")
ranging from 1% to 1.75%. Pursuant to the terms of the Term Loan Facility, the
Revolving Credit Facility and the Delayed Draw Term Loan at December 28, 1996,
the ABR Margin is .75% and the LIBOR Margin is 1.75%. Indebtedness under the
Term Loan B Facility bears interest at a per annum rate equal to the Company's
choice of (i) Chase's Alternate Base Rate plus a margin of 1.25% or (ii) the
offered rates for LIBOR plus a margin of 2.25%. The weighted average rate of
interest on the balances outstanding under the Bank Credit Facilities at
December 28, 1996 was 7.54%.
The Company had a total of $66.1 million of borrowing availability
under the Bank Credit Facilities and other credit lines as of December 28, 1996.
The total is comprised of approximately $20.1 million under the Revolving
Facility, $35.0 million under the Delayed Draw Term Loan and approximately $11.0
million under demand lines of credit in Canada and Austria. An additional $112.0
million was available at that date under the Delayed Draw Term Loan to finance
the purchase of JPS Automotive Senior Notes in the future. At December 28, 1996,
the Company had approximately $25.9 million outstanding in letters of credit.
PUBLIC INDEBTEDNESS:
In June 1996, the Company's wholly-owned subsidiary, C&A Products,
issued at face value $400 million principal amount of 11-1/2% Senior
Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by
the Company. The Company used approximately $356.8 million of the total net
proceeds of $387.0 million to repay $348.2 million principal amount of
outstanding bank borrowings plus accrued interest on such borrowings and related
fees and expenses and used the remainder for general corporate purposes. The
indenture governing the Subordinated Notes generally prohibits the Company, C&A
Products and any Restricted Subsidiary (as defined) from making certain payments
and investments unless a certain financial test is satisfied and the aggregate
amount of such payments and investments since the issue date is less than a
specified amount. The prohibition is subject to a number of significant
exceptions, including dividends to stockholders of the Company or stock
repurchases not exceeding $10 million in any fiscal year or $20 million in the
aggregate until the maturity of the Subordinated Notes and dividends to the
Company to permit it to pay its operating and administrative expenses. The
Subordinated Notes indenture also contains other restrictive covenants
(including, among others, limitations on the incurrence of indebtedness, asset
dispositions and transactions with affiliates) which are customary for such
securities. These covenants are also subject to a number of significant
exceptions.
On the JPS Automotive acquisition date, $180 million principal amount
of JPS Automotive Senior Notes were outstanding. Of this amount, $68 million had
been purchased by the Company in the open market and were subsequently
contributed to or repurchased by JPS Automotive. The remaining $112 million face
value of JPS Automotive Senior Notes were recorded at a market value of $117.2
million on the date of the
F-15
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquisition. Holders of the JPS Automotive Senior Notes had the right to
put their notes to JPS Automotive at a price of 101% of their principal
amount plus accrued interest as a result of the JPS Automotive acquisition.
Approximately $3.9 million principal amount of JPS Automotive Senior Notes were
so put to JPS Automotive and then repurchased by JPS Automotive on March 10,
1997. The indenture governing the JPS Automotive Senior Notes generally
prohibits JPS Automotive from making certain payments and investments
(generally, dividends and distributions on its equity interests; purchases or
redemptions of its equity interests; purchases of any indebtedness subordinated
to the JPS Automotive Senior Notes; and investments other than as permitted)
unless a certain financial test is satisfied and the aggregate amount of such
payments and investments since the issue date is less than a specified amount
(the "JPS Automotive Restricted Payments Tests"). These conditions were
satisfied immediately following the closing of the JPS Automotive Acquisition.
The JPS Automotive Restricted Payments Tests are subject to a number of
significant exceptions. The indenture governing the JPS Automotive Senior Notes
also contains other restrictive covenants (including, among others, limitations
on the incurrence of indebtedness and preferred stock, asset dispositions and
transactions with affiliates including the Company and C&A Products) which are
customary for such securities. These covenants are also subject to a number of
significant exceptions.
At December 28, 1996, the scheduled annual maturities of long-term debt
are as follows (in thousands):
FISCAL YEAR ENDING
December 1997.................... $ 38,190
December 1998.................... 53,150
December 1999.................... 62,074
December 2000.................... 67,535
December 2001.................... 187,935
Later Years...................... 767,335
-------------
$ 1,176,219
=============
Total interest paid by the Company on all indebtedness was $60.0
million, $45.8 million, and $77.9 million for fiscal 1996, 1995 and 1994,
respectively.
12. RECEIVABLES FACILITY:
In connection with the Recapitalization, C&A Products and certain of
its subsidiaries (the "Sellers") sold approximately $190.0 million of customer
trade receivables to Carcorp, Inc. ("Carcorp"), a wholly-owned, bankruptcy
remote subsidiary of C&A Products which, in turn, sold an undivided senior
interest in the receivables pool for $136.8 million to Chase pursuant to a
Receivables Transfer and Servicing Agreement with Chase, as administrative agent
(the "Bridge Receivables Facility"). Carcorp purchases on a revolving basis
virtually all trade receivables generated by the Sellers.
On March 31, 1995, C&A Products entered, through the trust formed by
Carcorp, into the Receivables Facility, comprised of (i) term certificates,
which were issued on March 31, 1995, in an aggregate face amount of $110 million
and have a term of five years and (ii) variable funding certificates, which
represent revolving commitments of up to an aggregate of $75 million and have a
term of five years. Carcorp purchases on a revolving basis and transfers to the
trust virtually all trade receivables generated by C&A Products and certain of
its subsidiaries (the "Sellers"). The certificates represent the right to
receive payments generated by the receivables held by the trust.
F-16
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the proposed spin-off of Wallcoverings (see Note
15), Wallcoverings was terminated as a seller of receivables under the
Receivables Facility on September 21, 1996. Receivables sold by Wallcoverings
prior to the termination will remain in the trust until their collection. As of
December 28, 1996, the trust had not been required to redeem the term
certificates resulting from the trust's collection of Wallcoverings receivables.
The Company also terminated Floorcoverings as of February 6, 1997 as a seller
of receivables under the Receivables Facility in connection with the Company's
sale of Floorcoverings. The Company believes that approximately $30 million
face value of term certificates will be redeemed as the trust collects the
Floorcoverings and Wallcoverings receivables.
Availability under the variable funding certificates at any time
depends primarily on the amount of receivables generated by the Sellers from
sales to the auto industry, the rate of collection on those receivables and
other characteristics of those receivables that affect their eligibility (such
as bankruptcy or downgrading below investment grade of the obligor, delinquency
and excessive concentration). Based on these criteria, at December 28, 1996
approximately $28.3 million was available under the variable funding
certificates, of which $25.0 million was utilized.
In connection with the receivables sales, a loss of $4.5 million, $6.2
million and $6.1 million was incurred for continuing operations in fiscal 1996,
1995 and 1994, respectively. Of the fiscal 1994 loss, $1.0 million related to
initial fees and expenses associated with the sales and $5.1 million related to
discounts on the receivables sold.
As of December 28, 1996, Carcorp's total receivables pool was $178.0
million net of reserves for doubtful accounts. As of December 28, 1996, the
holders of term certificates and variable funding certificates collectively had
invested $135 million to purchase an undivided senior interest (net of
settlements in transit) in the trust's receivables pool and, accordingly, such
receivables were not reflected in the Company's accounts receivable balance as
of that date.
13. LEASE COMMITMENTS:
The Company is lessee under various long-term operating leases for land
and buildings for periods up to forty years. The majority of these leases
contain renewal provisions. In addition, the Company leases transportation,
operating and administrative equipment for periods ranging from one to ten
years.
On September 30, 1994, the Company entered into a master equipment
lease agreement. Pursuant to that agreement, during fiscal 1995 and 1994 the
Company sold and leased back equipment utilized in its manufacturing operations.
During fiscal 1995 and 1994, equipment of its continuing operations having
aggregate net book values totaling $18.8 million and $22.6 million,
respectively, were removed from the balance sheet and gains realized on the
sales totaling approximately $.1 million and $.5 million, respectively, were
deferred and are being recognized as adjustments to rent expense over the lease
terms. Payments under the lease began in 1995 and the Company made lease
payments related to continuing operations of approximately $4.0 million and $4.6
million for fiscal 1996 and 1995, respectively. The Company has a purchase
option on the equipment at the end of the lease term based on the fair market
value of the equipment and has additional options to cause the sale of some or
all of the equipment or to purchase some or all of the equipment at prices
determined under the agreement. The Company has classified the leases as
operating. The Company may sell and lease back additional equipment in the
future under the same master lease agreement, subject to lessors' approval.
F-17
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 28, 1996, future minimum lease payments under operating
leases for continuing operations are as follows (in thousands):
FISCAL YEAR ENDING
December 1997......................................... $ 16,863
December 1998......................................... 14,472
December 1999......................................... 13,591
December 2000......................................... 12,684
December 2001......................................... 12,196
Later years........................................... 16,540
---------
$ 86,346
=========
Rental expense of continuing operations under operating leases was
$15.2 million, $13.2 million, and $11.4 million for fiscal 1996, 1995 and 1994,
respectively. Obligations under capital leases are not significant.
14. EMPLOYEE BENEFIT PLANS:
DEFINED BENEFIT PLANS
Subsidiaries of the Company have defined benefit pension plans covering
substantially all employees who meet eligibility requirements. Plan benefits are
generally based on years of service and employees' compensation during their
years of employment. Funding of retirement costs for these plans complies with
the minimum funding requirements specified by the Employee Retirement Income
Security Act. Assets of the pension plans are invested primarily in equity and
fixed income securities.
The net periodic pension cost of continuing operations for fiscal 1996,
1995 and 1994 includes the following components (in thousands):
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- -------------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
Service cost....................... $ 4,043 $ 3,341 $ 3,382
Interest cost on projected benefit
obligation and service cost..... 6,905 6,218 5,326
Actual loss (gain) on assets....... (11,066) (9,446) 2,207
Net amortization and deferral...... 4,773 4,922 (6,477)
-------- ------- -------
Net periodic pension cost.......... $ 4,655 $ 5,035 $ 4,438
======== ======= =======
F-18
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets, excluding
Wallcoverings, Floorcoverings and the Mastercraft Group at December 28, 1996 and
January 27, 1996 (in thousands):
DECEMBER 28, 1996 JANUARY 27, 1996
---------------------------------- ------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
---------------- ----------------- ---------------- -----------------
Actuarial present value of benefit obligations:
Vested benefit obligation..................... $ (14,833) $ (81,272) $ (22,462) $ (64,266)
================ ================ =============== ===============
Accumulated benefit obligation................ (15,417) (90,230) (23,043) (69,879)
================ ================ =============== ===============
Projected benefit obligation.................. (16,968) (96,376) (24,552) (73,499)
Plan assets at fair value......................... 21,423 73,572 27,013 51,406
---------------- ---------------- --------------- ---------------
Projected benefit obligation less than (in
excess of) plan assets......................... 4,455 (22,804) 2,461 (22,093)
Unrecognized net loss (gain)...................... (1,401) 13,700 15 11,473
Prior service amounts not yet recognized in net
periodic pension cost.......................... 907 (2,664) 942 (3,134)
Adjustment required to recognize minimum
liability...................................... - (7,359) - (7,255)
---------------- ---------------- --------------- ---------------
Pension asset (liability) recognized in the
consolidated balance sheets..................... $ 3,961 $ (19,127) $ 3,418 $ (21,009)
================ ================ =============== ===============
The weighted average discount rate used in determining the above
actuarial present value of the projected benefit obligation of each of the
Company's plans was 7.6% and 7.5% at December 28, 1996 and January 27, 1996,
respectively. The weighted average expected rate of increase in future
compensation levels is 5.4% and 5.5%, respectively, and the expected long-term
rate of return on plan assets was 9% in fiscal 1996 and 1995.
The provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS No. 87") require companies with any
plans that have an unfunded accumulated benefit obligation to recognize an
additional minimum pension liability, an offsetting intangible pension asset
and, in certain situations, a contra-equity balance. In accordance with the
provisions of SFAS No. 87, the consolidated balance sheets at December 28, 1996
and January 27, 1996 include an intangible pension asset of $.2 million; an
additional minimum pension liability of $10.4 million and $9.3 million,
respectively; and a contra-equity balance of $10.2 million and $9.1 million,
respectively. These amounts relate to all operations of the Company and are
reflected in the Company's consolidated balance sheets.
DEFINED CONTRIBUTION PLANS
Subsidiaries of the Company sponsor defined contribution plans covering
employees who meet eligibility requirements. Subsidiary contributions are based
on formulas or are at the Company's discretion as
F-19
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
specified in the plan documents. Contributions related to continuing operations
were $2.8 million, $2.7 million and $2.1 million for fiscal 1996, 1995 and 1994,
respectively.
POSTRETIREMENT BENEFIT PLANS
Subsidiaries of the Company have provided postretirement life and
health coverage for certain retirees under plans currently in effect. Many of
the subsidiaries' domestic employees may be eligible for coverage if they reach
retirement age while still employed by the Company.
The net periodic postretirement benefit cost of continuing operations,
determined on the accrual basis, includes the following components (in
thousands):
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- ------------
(48 WEEKS) (52 WEEKS) (52 Weeks)
Service cost................................ $ 769 $ 670 $ 817
Interest cost on accumulated postretirement
benefit obligation....................... 1,756 1,884 1,869
Net amortization............................ (934) (1,206) (992)
------- ------- -------
Net periodic postretirement benefit cost.... $ 1,591 $ 1,348 $1,694
======= ======= =======
The following table sets forth the amount of net postretirement benefit
obligation included in the Company's consolidated balance sheets, excluding
Wallcoverings, Floorcoverings and the Mastercraft Group (in thousands):
DECEMBER 28, JANUARY 27,
1996 1996
------------ ----------
Retirees............................................. $35,495 $32,700
Fully eligible active plan participants.............. 8,919 7,881
Other active plan participants....................... 10,333 9,438
------- --------
Accumulated postretirement benefit obligation........ 54,747 50,019
Unrecognized prior service gain from plan amendments. 13,942 15,269
Unrecognized net gain................................ 11,701 9,349
------- --------
Net postretirement benefit obligation................ $80,390 $74,637
======= ========
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at December 28, 1996 and January 27,
1996. The Company does not fund its postretirement benefit plans.
For purposes of the December 28, 1996 and January 27, 1996 valuations,
a 10% and an 11%, respectively, annual rate of increase in the per capita cost
of covered health care benefits was assumed; the rate was assumed to decrease 1
percentage point per year to 6% and remain at that level thereafter. The health
care cost trend rate assumption has an impact on the amounts reported; however,
the Company's obligation is limited by certain amended provisions of the various
plans, as further described below. To illustrate, increasing the assumed health
care cost trend rates by 1 percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 28, 1996 by $.9
million and the
F-20
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $.1 million.
Effective April 1, 1994, the Company amended the postretirement benefit
plan which covers substantially all of the eligible current and retired
employees of the Company's continuing operations. Pursuant to the amendment, the
Company's obligation for future inflation of health care costs will be limited
to 6% per year through March 31, 1998. Subsequent to March 1998, the Company's
portion of coverage costs will not be adjusted for inflation in health care
costs.
15. DISCONTINUED OPERATIONS:
On December 10, 1996, the Company announced that it entered into an
agreement to sell its Floorcoverings subsidiary ("Floorcoverings") for $197
million, subject to adjustment. This sale occurred during February 1997 and the
net proceeds of $195.6 million (subject to adjustment) were used to pay down
debt incurred to finance the Company's automotive strategy.
On December 4, 1996, the Company announced that it is considering the
sale of the Mastercraft Group, a leading manufacturer of upholstery fabric.
Based on determinations of value from potential purchasers, the Company has
decided to pursue the sale of the Mastercraft Group and anticipates the sale to
be completed by the summer of 1997.
On April 9, 1996, the Company announced a plan to spin off its Imperial
Wallcoverings, Inc. subsidiary ("Wallcoverings") to the Company's stockholders
in the form of a stock dividend. The proposed spin-off requires, among other
things, the declaration of the dividend by the Company's Board of Directors.
However, as a result of management changes at Wallcoverings and other factors,
the Company currently expects the spin-off to occur in the second half of 1997.
The Company has accounted for the financial results and net assets of
the Mastercraft Group, Floorcoverings and Wallcoverings as discontinued
operations. Accordingly, previously reported financial results for all periods
have been restated to reflect these businesses as discontinued operations.
The Mastercraft Group reported income of $6.4 million, $8.4 million and
$19.4 million in fiscal 1996, 1995 and 1994, respectively. Floorcoverings
reported income of $7.6 million, $14.1 million and $9.4 million in fiscal 1996,
1995 and 1994, respectively. Wallcoverings reported income of $.3 million during
the first quarter of 1996. Wallcoverings' incurred operating losses subsequent
to the first quarter which were charged to the Company's existing discontinued
operations reserves. These operating losses were in excess of management's
forecasted expectations as of the date of discontinuance but within previously
established accruals. Wallcoverings incurred a $23.3 million loss in fiscal 1995
and income of $5.8 million in fiscal 1994. Included in Wallcoverings' fiscal
1995 loss were $9.9 million in charges related to the consolidation of
distribution activities, and the closure of the segment's Hammond, Indiana
facility. See Note 16 for further discussion on facility closings. Additionally,
$3.0 million in charges related to the impairment of assets and $10.8 million
related to a write-down of inventory were incurred in fiscal 1995.
Net sales of discontinued operations in fiscal 1996, 1995, and 1994
aggregated approximately $441.2 million, $594.7 million, and $629.0 million,
respectively. Subsequent to the first quarter of 1996, after which
Wallcoverings' results were charged to existing discontinued operations
reserves, Wallcoverings' sales aggregated $113.8 million. Net interest expense
of discontinued operations (including amounts attributable to discontinued
operations) was $26.7 million, $26.5 million and $31.2 million in fiscal 1996,
1995 and 1994, respectively. Interest expense of $26.5 million, $25.4 million
and $30.0 million during fiscal 1996, 1995, and 1994, respectively, was
allocated to discontinued operations based upon the ratio of net book value of
discontinued operations (including reserves for loss on disposal) to
consolidated invested capital. In addition,
F-21
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
a portion of loss on sale of receivables has been allocated to discontinued
operations based on the ratio of (x) receivables included in the trust's
receivable pool related to Floorcoverings and the Mastercraft Group to (y) the
total trust's receivables pool. For fiscal 1996, 1995 and 1994, amounts
allocated to discontinued operations totaled $2.2 million, $2.4 million and $1.5
million, respectively.
In connection with the retained lease liabilities of certain
discontinued operations, the Company has future minimum lease payments and
future sublease rental receipts at December 28, 1996 as follows (in thousands):
Minimum Lease Sublease Rental
Fiscal Years Ending Payments Receipts
December 1997.................... $ 11,099 $ 2,755
December 1998.................... 8,740 2,487
December 1999.................... 7,055 2,139
December 2000.................... 5,848 1,423
December 2001.................... 4,573 494
Later years...................... 11,091 226
$ 48,406 $ 9,524
16. FACILITY CLOSING COSTS:
In the fourth quarter of fiscal 1995, the Company in its continuing
operations provided for the cost to rationalize one manufacturing facility
affecting approximately 90 employees. Additionally, the Company provided for the
cost to exit one manufacturing and three distribution centers in its
discontinued Wallcoverings segment. The Wallcoverings closings affected
approximately 200 employees. The closure of the three distribution centers was
delayed into 1997 due to construction delays at the new Knoxville distribution
center which became operational in 1997. The components of the reserves for
these facility closings, which are expected to be completed during fiscal 1997,
are as follows (in thousands):
REMAINING RESERVE
ORIGINAL RESERVE CHANGES IN RESERVE DECEMBER 28,1996
---------------------------- --------------------------- ---------------------------
CONTINUING DISCONTINUED CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS OPERATIONS OPERATIONS
------------ -------------- ----------- -------------- ------------ -------------
Anticipated losses associated with
the disposal of property, plant
and equipment..................... $ 385 $ 5,721 $ (385) $ (5,721) $ - $ -
Anticipated expenditures to close and
dispose of idled facilities....... 513 2,766 (107) (438) 406 2,328
Anticipated severance benefits....... 406 1,410 (318) (598) 88 812
----------- ---------- --------- ---------- ---------- ----------
$ 1,304 $ 9,897 $ (810) $ (6,757) $ 494 $ 3,140
=========== ========== ========= ========== ========== ==========
In connection with the acquisition of JPS Automotive, the Company has
developed preliminary plans for JPS Automotive to rationalize certain
manufacturing locations as well as marketing and administrative functions. These
plans have not been finalized. Costs accrued for the shutdown of facilities and
severance and other personnel costs were $2.2 million and $7.0 million,
respectively.
F-22
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMON STOCK AND PREFERRED STOCK:
At January 29, 1994, 1,000 shares of $1.00 par value common stock were
authorized, issued and outstanding. The Company's Certificate of Incorporation
was amended on April 27, 1994 to authorize 150,000,000 shares of common stock,
to reduce the par value of the common stock from $1.00 to $.01 per share and to
authorize a 35,035 for 1 stock split of all outstanding shares of common stock.
The stock split was effective April 27, 1994. In connection with the merger of
Holdings II into the Company, the 35,035,000 shares of common stock of the
Company outstanding prior to the Recapitalization were canceled and
approximately 28,164,000 shares of common stock were issued in exchange for the
common stock of Holdings II. All historical amounts and earnings (loss) per
share computations have been adjusted to reflect the merger and the stock split.
In connection with the 1989 merger of a wholly owned subsidiary of the
Company into Group, approximately 4,250,000 shares of 15 1/2% Cumulative
Exchangeable Redeemable Preferred Stock ("Merger Preferred Stock"), par value
$.01 (authorized 16,000,000 shares), were issued. At January 29, 1994,
approximately 6,268,000 shares were outstanding. Dividends payable in additional
shares accrued during fiscal 1994, including accretion for the difference
between redemption value and fair value at date of issuance, aggregated
approximately $14.4 million. All of the shares of Merger Preferred Stock were
redeemed in connection with the Recapitalization.
At January 29, 1994, 30,000,000 shares of $.10 par value preferred stock
of Group were authorized and approximately 1,806,000 shares of $2.50 Convertible
Preferred Stock, Series A of Group ("Series A Preferred Stock") were
outstanding. Each share of Series A Preferred Stock of Group had an annual
dividend of $2.50 per share. All of the Series A Preferred Stock of Group was
redeemed in connection with the Recapitalization.
The Company has not declared or paid cash dividends on its common stock
since its incorporation. The Bank Credit Facilities limit any dividends paid to
a maximum of $12 million per fiscal year unless certain conditions are satisfied
(in which case the Bank Credit Facilities limit dividends paid in any year to a
maximum of 25% of net income for the prior fiscal year and amounts representing
net proceeds from any sale of Wallcoverings in the event the proposed spin-off
is not consummated).
18. STOCK OPTION PLANS:
Effective on January 28, 1994, the Company adopted the 1993 Employee
Stock Option Plan ("1993 Plan") for certain key employees. The 1993 Plan was
created primarily for the special purpose of rewarding key employees for the
appreciation earned through prior service under the Company's previous equity
share plan that was terminated on October 29, 1993. The 1993 Plan authorizes the
issuance of 3,119,466 shares of common stock. Effective on January 28, 1994, the
Company granted options to acquire 3,119,466 shares of the common stock. The
majority of these options vested 40% in June 1995 and the remainder in June
1996. In connection with the adoption of this plan, the Company recorded a
charge of $26.7 million for management equity plan expense in fiscal 1993.
In addition, effective in April 1994, the 1994 Employee Stock Option
Plan ("1994 Plan") was adopted as a successor to the 1993 Plan to facilitate
awards to certain key employees and to consultants. The 1994 Plan authorizes the
issuance of up to 2,980,534 shares of common stock and provides that no options
may be granted after 10 years from the effective date of this plan. Options
vest, in each case, as specified by the Company's compensation committee,
generally over three years after issuance. At December 28, 1996, options
representing 2,391,152 shares of common stock were available for grants.
Effective on February 23, 1995, the Company adopted the 1994 Directors
Stock Option Plan ("the Directors Plan") which provides for the issuance of
options to acquire a maximum of 600,000 shares of
F-23
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common stock to directors who are not part of management and are not affiliated
with a major stockholder. As of December 28, 1996, 50,000 options had been
granted.
Stock option activity under the plans is as follows:
DECEMBER 28, 1996 JANUARY 27, 1996 JANUARY 28, 1995
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
PRICE PRICE PRICE
------------ ------------ ------------ ------------ ------------ ------------
Outstanding beginning of year............ 3,298,036 $ 5.12 3,096,802 $ 4.64 3,119,466 $ 4.57
Awarded.................................. 145,000 6.71 431,500 8.21 186,634 5.98
Cancelled................................ (19,492) 4.10 (135,003) 4.79 (209,298) 4.76
Exercised................................ (69,022) 3.99 (95,263) 3.99 - -
Surrendered.............................. (67,416) 3.99 - - -
--------- --------- ---------
Outstanding at end of year............... 3,287,106 $ 5.25 3,298,036 $ 5.12 3,096,802 $ 4.64
========= ========= =========
At December 28, 1996 and January 27, 1996, 2,709,094 and 1,251,887,
respectively, of the outstanding options were exercisable at a weighted
average price of $4.74 and $4.66, respectively. At January 28, 1995 none of
the outstanding options were exercisable.
Of the total options outstanding at December 28, 1996, 2,279,873 have
an exercise price in the range of $3.99 and $4.43 with a weighted average
exercise price of $4.01 and a weighted average contractual life of 7 years.
2,243,124 of these options are currently exercisable at a weighted average
exercise price of $4.00. The remaining 1,007,233 of total options outstanding
at December 28, 1996 have an exercise price in the range of $6.00 and $10.50
with a weighted average exercise price of $8.04 and a weighted average
contractual life of 9 years. 465,970 of these options are currently
exercisable at a weighted average exercise price of $8.27. Upon a change of
control, as defined, all of the above options become fully vested and
exercisable.
F-24
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1995, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued.
SFAS No. 123 is effective for fiscal years beginning after December 15,
1995. SFAS No. 123 encourages companies to adopt the fair value method for
compensation expense recognition related to employee stock options.
Existing accounting requirements of Accounting Principles Board Opinion No. 25
("APB No. 25") use the intrinsic value method in determining compensation
expense which represents the excess of the market price of the stock over the
exercise price on the measurement date. The Company elected to remain under
the APB No. 25 rules for stock options, and is required to provide pro
forma disclosures of what net income and earnings per share would have
been had the Company adopted the new fair value method for recognition
purposes. The following information is presented as if the Company had adopted
SFAS No. 123 and restated its results (in thousands, except per share data):
FISCAL YEAR ENDED
------------------------------------
DECEMBER 28, JANUARY 27,
1996 1996
------------------- ---------------
Net income:
As reported......... $ 40,824 $ 206,441
Pro forma........... $ 40,261 $ 206,148
Primary EPS:
As reported......... $ .58 $ 2.90
Pro forma........... $ .58 $ 2.90
Fully diluted EPS:
As reported......... $ .58 $ 2.90
Pro forma........... $ .58 $ 2.89
For the above information, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for grants in fiscal 1996 and 1995: expected
volatility of 40%, expected lives of 10 years which equals the lives of the
grants, the risk free interest rate ranged from 5.94% to 7.82% and a zero
expected dividend rate. The weighted average grant-date fair value of an option
granted during fiscal 1996 and 1995 was $4.32 and $5.27, respectively.
Because SFAS No. 123 method of accounting has not been applied to
options granted prior to January 28, 1995, the above pro forma amounts may not
be representative of the compensation costs to be expected in future years.
F-25
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. INCOME TAXES:
The provisions for income taxes applicable to continuing operations for
fiscal 1996, 1995 and 1994 are summarized as follows (in thousands):
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
--------- --------- ----------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
Current
Federal....................... $ 250 $ 1,330 $ 150
State......................... 2,006 2,293 3,592
Foreign....................... 9,958 6,240 6,394
-------- -------- ---------
12,214 9,863 10,136
Deferred
Federal....................... 9,871 (140,705) -
State......................... 1,811 (9,050) 162
Foreign....................... 546 (67) (267)
-------- ---------- --------
12,228 (149,822) (105)
-------- ---------- --------
Income tax expense (benefit)..... $ 24,442 $(139,959) $10,031
======== ========== ========
Domestic and foreign components of income from continuing operations
before income taxes are summarized as follows (in thousands):
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- --------------- ----------------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
Domestic.........$ 26,050 $ 53,545 $ 32,238
Foreign........... 31,503 13,718 19,123
-------------- ------------ -----------------
$ 57,553 $ 67,263 $ 51,361
============== ============ =================
A reconciliation between income taxes computed at the statutory Federal
rate of 35% and the provisions for income taxes applicable to continuing
operations is as follows (in thousands):
FISCAL YEAR ENDED
-------------------------------------
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1996
---------- --------- ---------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
Amount at statutory Federal rate........ $ 20,144 $ 23,542 $ 17,976
State income taxes, net of Federal
income tax....................... 2,481 1,490 2,440
Foreign tax more (less) than Federal tax
at statutory rate...................... (522) 1,372 (566)
Foreign dividend income.................. 410 800 21,965
Amortization of goodwill................. 1,243 95 -
Other.................................... 686 1,250 2,898
Change in valuation allowance............ - (168,508) (34,682)
-------- --------- --------
Income tax expense (benefit)............ $24,442 $(139,959) $ 10,031
======= ========= =======
F-26
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes are provided for the temporary differences between the
financial reporting and tax basis of the Company's assets and liabilities. The
components of the net deferred tax asset as of December 28, 1996 and January 27,
1996 for continuing operations were as follows (in thousands):
DECEMBER 28, JANUARY 27,
1996 1996
------------------ -----------------
Deferred tax assets:
Employee benefits, including postretirement benefits.......$ 54,908 $ 57,587
Net operating loss carryforwards........................... 101,099 101,984
Investment tax credit carryforwards........................ 4,200 6,900
Alternative minimum tax credits............................ 8,500 8,700
Other liabilities and reserves............................. 71,242 76,518
Valuation allowance........................................ (44,277) (51,573)
---------------- ----------------
Total deferred tax assets............................. 195,672 200,116
Deferred tax liabilities:
Property, plant and equipment............................... (39,151) (30,655)
Undistributed earnings of foreign subsidiaries.............. (7,600) (7,600)
---------------- ---------------
Total deferred tax liabilities........................ (46,751) (38,255)
---------------- ---------------
Net deferred tax asset .......................................$ 148,921 $ 161,861
=============== ===============
The valuation allowance at December 28, 1996 and January 27, 1996
provides for certain deferred tax assets that in management's assessment may not
be realized due to tax limitations on the use of such amounts or that relate to
tax attributes that are subject to uncertainty due to the long-term nature of
their realization.
During fiscal 1996 the valuation allowance decreased $7.3 million from
fiscal 1995. This decrease resulted primarily from the expiration of tax credits
and restricted net operating loss carryforwards. During fiscal 1995, the
valuation allowance decreased $213.2 million from fiscal 1994. This decrease
resulted primarily from the recognition of certain deferred tax assets discussed
below as well as the utilization of deferred tax assets by continuing
operations. An additional reduction of $44.7 million related primarily
utilization of tax assets by discontinued operations, to changes in reserves for
discontinued operations and certain other adjustments.
The above amounts have been classified in the consolidated balance
sheet as follows (in thousands):
DECEMBER 28, JANUARY 27,
1996 1996
----------------- --------------
Deferred tax assets (liabilities):
Current, included in other current assets........ $ 64,098 $ 29,567
Noncurrent....................................... 92,011 132,294
Noncurrent foreign, included in other noncurrent
liabilities.................................... (7,188) -
------------------ --------------
$ 148,921 $ 161,861
================== ==============
F-27
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In fiscal 1993 and prior years, the Company incurred significant
financial reporting and tax losses principally as a result of a capital
structure that contained a substantial amount of high interest rate debt. In
addition, losses were incurred as the Company exited businesses which it did not
consider to be consistent with its long-term strategy. Although substantial net
deferred tax assets were generated during these periods, a valuation allowance
was established because in management's assessment the historical operating
trends made it uncertain whether the net deferred tax assets would be realized.
During July 1994, the Company completed the Offering and
Recapitalization, which reduced the Company's indebtedness, lowered interest
expense and provided liquidity for operations and other general corporate
purposes. As a result of the Recapitalization, the Company's annual financing
costs were reduced from $115 million in fiscal 1993 to $57 million in fiscal
1995. In fiscal 1994, the Company reported taxable income and had net income
before an extraordinary loss on the Recapitalization for financial reporting
purposes; however, management determined, largely because of the Company's prior
losses, that it remained uncertain whether the net deferred tax assets would be
realized.
In fiscal 1995, the Company's continuing business segments generated
substantial operating income, consistent with historical trends, that, when
combined with the post-Recapitalization capital structure, resulted in income
for both tax and financial reporting purposes. The proposed spin-off of
Wallcoverings that was announced in April 1996 further clarified management's
assessment of the Company's likely future performance. Management considered
these factors as well as the future outlook for its continuing businesses in
concluding that it is more likely than not that net deferred tax assets of
$148.9 million and $161.9 million at December 28, 1996 and January 27, 1996,
respectively, will be realized. While continued operating performance at current
levels is sufficient to realize these assets, the Company's ability to generate
future taxable income is dependent on numerous factors, including general
economic conditions, the state of the automotive industry and other factors
beyond management's control. Therefore, there can be no assurance that the
Company will meet its expectation of future taxable income.
Deferred income taxes and withholding taxes have been provided on
earnings of the Company's foreign subsidiaries to the extent it is anticipated
that the earnings will be remitted in the future as dividends. Deferred income
taxes and withholding taxes have not been provided on the remaining
undistributed earnings of foreign subsidiaries as such amounts are deemed to be
permanently reinvested. The cumulative undistributed earnings on which the
Company has not provided deferred income taxes and withholding taxes are not
significant.
F-28
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 28, 1996, the Company had the following tax attributes
carryforwards available for Federal income tax purposes (in thousands):
EXPIRATION
AMOUNT DATES
----------- -----------
Net operating losses - regular tax
Preacquisition, subject to limitations............... $ 85,900 1997-2010
Postacquisition, unrestricted........................ 198,300 2006-2008
----------
$ 284,200
==========
Net operating losses - alternative minimum tax
Preacquisition, subject to limitations............... $ 66,900 1997-2010
Postacquisition, unrestricted........................ 145,400 2006-2008
-----------
$ 212,300
===========
Investment tax and other credits
Preacquisition, subject to limitations............... $ 4,200 1997-2007
===========
Alternative minimum tax credits...................... .$ 8,500 No limit
===========
The above amounts exclude $10.4 million of NOLs attributable to the
discontinued Wallcoverings segment. In addition, approximately $28 million of
future net Federal and state tax deductions have been excluded in determining
the Company's net deferred tax assets. If the proposed spin-off occurs as
expected, these Wallcoverings' deferred tax assets, which total $13.4 million of
future tax benefits, will no longer be available to the Company. Because of the
uncertainties regarding Wallcoverings' future performance, a valuation allowance
offsetting this amount has been maintained. Accordingly, these net deferred tax
assets had no impact on the net assets or operating results of discontinued
operations presented in the accompanying consolidated financial statements.
Approximately $85.9 million of the Company's NOLs and $4.2 million of
the Company's unused Federal tax credits may be used only against the income and
apportioned tax liability of the specific corporate entity that generated such
losses or credits or its successors. The Company believes that a substantial
portion of these tax benefits will be realized in the future. Future sales of
common stock by the Company or its principal stockholders, or changes in the
composition of its principal stockholders, could constitute a "change in
control" that would result in annual limitations on the Company's use of its
NOLs and unused tax credits. Management cannot predict whether such a "change in
control" will occur. If such a "change in control" were to occur, the resulting
annual limitations on the use of NOLs and tax credits would depend on the value
of the equity of the Company and the amount of "built-in gain" or "built-in
loss" in the Company's assets at the time of the "change in control", which
cannot be known at this time.
During 1995, the IRS completed the audit of the Company's Federal income
tax returns for the period 1988 through 1991. The Company agreed to pay tax and
interest of $1.4 million and to reduce its NOLs by $6.1 million.
In fiscal 1995, the California Franchise Tax Board issued a notice of
tax assessment for approximately $11.8 million related to the treatment of
the sale of certain foreign subsidiaries during 1987. The Company disputes
the assessment and has filed a protest with the Franchise Tax Board. If the
Franchise Tax Board were to maintain its position and such position were to be
upheld in litigation, the Company would also become liable for the payment of
interest which is currently estimated to be $16.5 million. In the opinion of
F-29
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management, the final determination of any additional tax and interest liability
related to this matter will not have a material adverse effect on the
Company's consolidated financial condition or results of operations.
Income taxes paid, net of refunds, were $10.4 million, $13.5 million,
and $5.1 million for fiscal 1996, 1995 and 1994, respectively.
20. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate fair value:
CASH AND CASH EQUIVALENTS - The carrying amount approximates fair
value because of the short maturity of these instruments.
LONG-TERM INVESTMENTS - Fair value approximates carrying value.
INTEREST RATE PROTECTION AGREEMENTS - The fair value of interest rate
cap and corridor agreements is based on quoted market prices as if the
agreements were entered into on the measurement date.
LONG-TERM DEBT - The fair value of the Subordinated Notes and JPS
Automotive Senior Notes is based upon quoted market price. The fair
value of the other long-term debt of the Company approximates the
carrying value.
The estimated fair values of the Company's continuing operations'
financial instruments are summarized as follows (in thousands):
DECEMBER 28, 1996 JANUARY 27, 1996
--------------------------------- ----------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------- -------------- --------------- ---------------
Long-term investments....... $ 3,255 $ 3,255 $ 3,646 $ 3,646
Interest rate protection
agreements............... - - 680 -
Long-term debt.............. $1,176,219 $1,214,919 $ 759,966 $ 759,966
21. RELATED PARTY TRANSACTIONS:
During fiscal 1996, the Company incurred fees for services performed by
Blackstone Partners and WP Partners, or their respective affiliates, in
connection with the 1996 acquisitions of JPS Automotive and Perstorp Components
and the joint venture entered into with Perstorp of approximately $2.9 million,
$1.4 million and $.9 million, respectively. In addition, the Company has agreed
to reimburse Blackstone Partners and WP Partners for expenses incurred in
connection with these transactions. These amounts were accrued and not yet paid
as of December 28, 1996. During 1995, the Company incurred fees and expenses for
services performed by Blackstone Partners and WP Partners, or their respective
affiliates, in connection with the 1995 acquisition of Manchester Plastics
totaling $2.5 million. In addition, Wasserstein Perella Securities, Inc., ("WP
Securities") an affiliate of WP Partners, acted as the lead underwriter in the
Subordinated Notes offering and was paid fees of approximately $5.4 million by
C&A Products in connection therewith.
Pursuant to the Stockholders' Agreement among the Company, Group,
Blackstone Partners and WP Partners dated December 1988, the Company paid
Blackstone Partners and WP Partners, or their respective affiliates, operating,
management and advisory fees aggregating $5.0 million annually until the
agreement's amendment in July 1994. Under the Amended and Restated Stockholders'
Agreement among the Company,
F-30
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C&A Products, Blackstone Partners and WP Partners, the Company pays Blackstone
Partners and WP Partners, or their respective affiliates, each an annual
monitoring fee of $1.0 million, which is payable quarterly and which commenced
in the quarter ended October 29, 1994.
During the first quarter of fiscal 1994, the Company incurred expenses
of $2.5 million in fees and expenses for services performed by affiliates of
Blackstone Partners and WP Partners in connection with a comprehensive review of
the Company's liabilities associated with discontinued operations, including
surplus real estate, postretirement and workers' compensation liabilities. The
Company also incurred during the first quarter of fiscal 1994 expenses of $2.75
million for services performed by affiliates of WP Partners and $3.25 million
for services performed by affiliates of Blackstone Partners in connection with
the Company's review of refinancing and strategic alternatives as well as other
advisory services; these fees are included in "selling, general and
administrative expenses" for the first quarter of fiscal 1994.
The Company incurred fees during the first quarter of fiscal 1994
included $.1 million to an affiliate of Blackstone Partners for advisory
services in connection with the sale of Builders Emporium's inventory, real
estate and other assets. In September 1993, an affiliate of Blackstone Partners
negotiated with a real estate consultant to receive 20% of the incentive fees
payable to the consultant by the Company in connection with the resolution of
lease liabilities of Builders Emporium. Such affiliate received approximately
$.5 million in fees during fiscal 1994 pursuant to this arrangement.
22. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
The Company's continuing operations primarily supply automotive
interior systems - textile and plastic trim, acoustics and convertible tops - to
the global automotive industry.
The Company performs periodic credit evaluations of its customers'
financial condition and, although the Company does not generally require
collateral, it does require cash payments in advance when the assessment of
credit risk associated with a customer is substantially higher than normal.
Receivables generally are due within 45 days, and credit losses have
consistently been within management's expectations and are provided for in the
consolidated financial statements.
Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:
1996 1995 1994
---- ---- ----
General Motors Corporation... 34.0% 33.3% 31.0%
Ford Motor Company........... 15.4% 16.6% 20.5%
Chrysler Corporation......... 21.1% 18.2% 17.4%
F-31
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information about the Company's continuing operations in different
geographic areas for fiscal 1996, 1995 and 1994 is presented below (in
thousands). These amounts have been restated to reflect Floorcoverings and the
Mastercraft Group as discontinued operations follow (see Note 15):
UNITED OTHER DISCONTINUED
STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ---------------- --------------
FISCAL 1996
Net sales $ 718,820 $ 233,334 $ 74,287 $ 29,490 $ - $ 1,055,931
Operating income (a) 43,687 38,599 18,686 1,077 - 102,049
Depreciation and amortization (b) 28,999 3,734 2,133 1,145 - 36,011
Identifiable assets 964,950 235,064 38,771 85,656 212,039 1,536,480
Capital expenditures 24,570 6,141 1,763 2,526 43,454 78,454
UNITED OTHER DISCONTINUED
STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ---------------- ----------------
FISCAL 1995
Net sales $ 762,293 $ 123,958 $ 14,466 $ 1,300 $ - $ 902,017
Operating income (loss) (a)......... 75,083 20,426 (5) 155 - 95,659
Depreciation and amortization (b) 26,276 2,795 1,190 150 - 30,411
Identifiable assets 549,782 245,943 24,579 10,032 161,025 991,361
Capital expenditures 39,269 5,055 1,739 7,093 40,542 93,698
UNITED OTHER DISCONTINUED
STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED
----------- ------------ ------------ ------------- -------------- ----------------
FISCAL 1994
Net sales $ 795,197 $ 107,845 $ 3,955 $ - $ - $ 906,997
Operating income (a) 83,777 20,406 - - - 104,183
Depreciation and amortization (b) 26,909 2,537 479 - - 29,925
Identifiable assets 369,295 40,084 13,471 2,145 153,905 578,900
Capital expenditures 44,336 4,498 5,907 1,452 28,230 84,423
(a) Operating income (loss) is determined by deducting all operating expenses,
including goodwill write-off and other costs, from revenues. Operating
expenses do not include interest expense.
(b) Depreciation and amortization includes the amortization of goodwill and
other assets and liabilities.
Intersegment sales between geographic areas are not material. For
fiscal years 1996, 1995 and 1994, export sales from the United States to foreign
countries were $69.9 million, $77.8 million and $86.8 million, respectively.
23. COMMITMENTS AND CONTINGENCIES:
ENVIRONMENTAL
The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating
F-32
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contaminated sites, remediation efforts by other parties, data released by the
EPA, the professional judgment of the Company's environmental experts, outside
environmental specialists and other experts, and the likelihood that other
parties which have been named as PRPs will have the financial resources to
fulfill their obligations at sites where they and the Company may be jointly and
severally liable. Under the theory of joint and several liability, the Company
could be liable for the full costs of investigation and remediation even if
additional parties are found to be responsible under the applicable laws. It is
difficult to estimate the total cost of investigation and remediation due to
various factors including incomplete information regarding particular sites and
other PRPs, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. The Company records its best estimate when it
believes it is probable that an environmental liability has been incurred and
the amount of loss can be reasonably estimated. The Company also considers
estimates of certain reasonably possible environmental liabilities in
determining the aggregate amount of environmental reserves. In its assessment
the Company makes its best estimate of the liability based upon information
available to the Company at that time, including the professional judgment of
the Company's environmental experts, outside environmental specialists and other
experts. As of December 28, 1996, including sites relating to the acquisitions
of Manchester Plastics, JPS Automotive and Perstorp Components and excluding
sites at which the Company's participation is anticipated to be de minimis or
otherwise insignificant or where the Company is being indemnified by a third
party for the liability, there are 22 sites where the Company is participating
in the investigation or remediation of the site either directly or through
financial contribution, and 9 additional sites where the Company is alleged to
be responsible for costs of investigation or remediation. As of December 28,
1996, the Company's estimate of its liability for these 31 sites, which exclude
sites related to Wallcoverings, is approximately $33.8 million. As of December
28, 1996, the Company has established reserves of approximately $46.1 million
for the estimated future costs related to all its known environmental sites,
excluding sites related to Wallcoverings. In the opinion of management, based on
the facts presently known to it, the environmental costs and contingencies will
not have a material adverse effect on the Company's consolidated financial
condition or future results of operations. However, there can be no assurance
that the Company has identified or properly assessed all potential environmental
liability arising from the activities or properties of the Company, its present
and former subsidiaries and their corporate predecessors.
The Company is subject to Federal, state and local environmental laws
and regulations that (i) affect ongoing operations and may increase capital
costs and operating expenses and (ii) impose liability for the costs of
investigation and remediation and certain other damages related to on-site and
off-site soil and groundwater contamination. The Company's management believes
that it has obtained, and is in material compliance with, all material
environmental permits and approvals necessary to conduct its various businesses.
Environmental compliance costs for continuing businesses currently are accounted
for as normal operating expenses or capital expenditures of such business units.
In the opinion of management, based on the facts presently known to it, such
environmental compliance costs will not have a material adverse effect on the
Company's consolidated financial condition or future results of operations.
LITIGATION
During 1991, a Fifth Consolidated Amended Complaint was filed in IN RE
IVAN F. BOESKY SECURITIES LITIGATION, involving numerous claims against a
variety of defendants including Group, among other things, alleging a conspiracy
to manipulate the price of Group's common stock in 1986 for the purpose of
triggering a redemption of certain outstanding preferred stock of Group. In
November 1996, plaintiffs and C&A Products agreed to a settlement whereby
plaintiffs released all claims relating to the litigation against Group and the
individual Group-related defendants in exchange for payment by C&A Products of
$4.25 million. In
F-33
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 1995, C&A Products paid $4.25 million into an escrow account with the court
pursuant to the terms of the settlement in principal. In December 1996, the
Court preliminarily approved the final settlement. In March 1997, the Court
ratified the settlement. The settlement was within previously established
accruals.
The Company and its subsidiaries also have other lawsuits and claims
pending against them and have certain guarantees outstanding which were made in
the ordinary course of business.
The ultimate outcome of the legal proceedings to which the Company is a
party will not, in the opinion of the Company's management based on the facts
presently known to it, have a material adverse effect on the Company's
consolidated financial condition or future results of operations.
OTHER COMMITMENTS
The majority of Builders Emporium's leased properties have been
assigned to third parties. In addition, Group has assigned leases in connection
with the divestiture of the Kayser-Roth Corporation, the Wickes Engineering
Group and other divested businesses. Although Group has obtained releases from
the lessors of certain properties, C&A Products, as successor by merger to
Group, remains contingently liable under most of the leases. C&A Products'
future liability for these leases, in management's opinion, based on the facts
presently known to it, will not have a material adverse effect on the Company's
consolidated financial condition or future results of operations.
F-34
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. QUARTERLY FINANCIAL DATA (UNAUDITED):
(in thousands, except for per share data)
The quarterly data below is based on the Company's previous fiscal
periods and has been restated to reflect Wallcoverings, Floorcoverings and the
Mastercraft Group as discontinued operations.
FISCAL 1996
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------------- ----------------- ----------------- -----------------
(3 MONTHS) (3 MONTHS) (3 MONTHS) (2 MONTHS)
Net sales as previously reported..................... $ 373,611 $ 347,609 $ 371,027 $ 204,098
Less discontinued operations......................... 90,678 71,911 77,825 -
---------------- -------------- --------------- --------------
Net sales as restated................................ $ 282,933 $ 275,698 $ 293,202 $ 204,098
============== ============== =============== ==============
Gross margin as previously reported.................. $ 77,956 $ 69,739 $ 71,868 $ 30,817
Less discontinued operations......................... 25,460 16,900 19,346 -
---------------- -------------- --------------- --------------
Gross margin as restated............................. $ 52,496 $ 52,839 $ 52,522 $ 30,817
============== ============== =============== ==============
Income (loss) from continuing operations as previously
reported.......................................... $ 14,786 $ 11,804 $ 13,697 $ (2,110)
Less discontinued operations......................... 1,610 1,346 2,110 -
---------------- -------------- --------------- --------------
Income (loss) from continuing operations as
restated........................................... $ 13,176 $ 10,458 $ 11,587 $ (2,110)
================ ============= =============== ==============
Income before extraordinary loss..................... $ 15,142 $ 15,521 $ 15,922 $ 849
============== ============== =============== ==============
Net income .......................................... $ 15,142 $ 8,911 $ 15,922 $ 849
============== ============== =============== ==============
Primary and fully diluted earnings per share......... $ .22 $ .13 $ .23 $ .01
============== ============== =============== ==============
Common stock prices
High............................................... $ 8-1/4 $ 7-1/8 $ 7 $ 6-5/8
============== ============== =============== ==============
Low................................................ $ 6-1/8 $ 5-1/2 $ 5-7/8 $ 5-3/4
============== ============== =============== ==============
FISCAL 1995
-------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------------- ----------------- ----------------- -----------------
(3 MONTHS) (3 MONTHS) (3 MONTHS) (3 MONTHS)
Net sales as previously reported..................... $ 334,890 $ 265,160 $ 298,072 $ 226,909
Less discontinued operations......................... 92,148 60,885 69,981 -
---------------- ----------------- ----------------- -----------------
Net sales as restated................................ $ 242,742 $ 204,275 $ 228,091 $ 226,909
============== ============== =============== ==============
Gross margin as previously reported.................. $ 73,583 $ 49,211 $ 58,678 $ 40,079
Less discontinued operations......................... 27,841 14,029 17,756 -
---------------- ----------------- ----------------- -----------------
Gross margin as restated............................. $ 45,742 $ 35,182 $ 40,922 $ 40,079
============== ============== =============== ==============
Income from continuing operations as previously
reported (a)......................................... $ 24,767 $ 9,398 $ 18,104 $ 161,809
Less discontinued operations......................... 3,691 (476) 3,641 -
---------------- ----------------- ----------------- -----------------
Income from continuing operations as restated........ $ 21,076 $ 9,874 $ 14,463 $ 161,809
============== ============== =============== ==============
Income before extraordinary loss..................... $ 28,901 $ 15,445 $ 20,640 $ 141,455
============== ============== =============== ==============
Net income .......................................... $ 28,901 $ 15,445 $ 20,640 $ 141,455
============== ============== =============== ==============
Primary and fully diluted earnings per share......... $ .40 $ .22 $ .29 2.01
============== ============== =============== ==============
Common stock prices
High............................................... $ 8-3/8 $ 9 $ 9-1/4 $ 8-3/8
============== ============== ============== ==============
Low................................................ $ 7-1/2 $ 6-3/8 $ 7-1/2 $ 6-1/8
============= ============== ============== ==============
F-35
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(a) Income from continuing operations in the fourth quarter of fiscal 1995
includes a reduction in the valuation allowance against net deferred
tax assets as discussed in Note 19.
The Company's operations are not subject to significant seasonal
influences.
25. SIGNIFICANT SUBSIDIARY:
The Company conducts all of its operating activities through its
wholly-owned subsidiary C&A Products. The following represents summarized
consolidated financial information of C&A Products and its subsidiaries for the
fiscal years ending (in thousands):
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
-------------- ------------- ----------
Current assets.............................................. $ 694,796 $ 455,729 $ 373,009
Noncurrent assets........................................... 840,575 534,389 204,998
Current liabilities......................................... 344,487 231,898 200,588
Noncurrent liabilities...................................... 1,383,977 984,698 788,352
Net sales................................................... 1,055,931 902,017 906,997
Gross margin................................................ 188,674 161,925 172,487
Income from continuing operations........................... 32,913 207,900 56,486
Income before extraordinary item............................ 47,236 207,119 90,902
Net income (loss)........................................... 40,626 207,119 (15,626)
Separate financial statements of C&A Products are not presented because
they would not be material to the holders of any debt securities of C&A Products
that may be issued, there being no material differences between the financial
statements of C&A Products and the Company. The absence of separate financial
statements of C&A Products is also based upon the fact that any debt of C&A
Products issued, and the assumption that any debt to be issued, under the
Registration Statement on Form S-3 filed by the Company and C&A Products
(Registration No. 33-62665) is or will be fully and unconditionally guaranteed
by the Company.
F-36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Collins & Aikman Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Collins & Aikman Corporation
and subsidiaries included in this Form 10-K, and have issued our report thereon
dated February 19, 1997. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedules listed in Item 14 of
this Form 10-K are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 19, 1997.
S-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 28, JANUARY 27,
ASSETS 1996 1996
------------- ----------------
Current Assets:
Cash $ 747 $ 977
Other - 266
----------- ----------
Total current assets................... 747 1,243
Other assets................................ 362 -
----------- ----------
$ 1,109 $ 1,243
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities......................... $ 12 $ 35
Share of accumulated losses in excess of
investments in subsidiaries............... 193,093 226,478
Other noncurrent liabilities................ 2,582 2,582
Commitments and contingencies (Note 1)......
Common stock................................ 705 705
Other stockholders' deficit................. (195,283) (228,557)
----------- ----------
Total stockholders' deficit............ (194,578) (227,852)
=========== ==========
$ 1,109 $ 1,243
=========== ==========
S-2
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FISCAL YEAR ENDED
------------------------------------
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------- -------- --------
Other expenses............................. $ (592) $(1,023) $ (349)
Interest income (expense).................. 790 345 (12,549)
------- ------ -------
Loss from operations before equity
in income (loss) of subsidiaries......... 198 (678) (12,898)
Equity in income (loss) of subsidiaries.... 40,626 207,119 (17,884)
------- -------- --------
Net income (loss).......................... $40,824 $206,441 $(30,782)
======= ======== ========
S-3
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- --------------- ---------------
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities.................. $ 122 $ (544) $ (405)
-------------- -------------- --------------
INVESTING ACTIVITIES
Investment in subsidiary............................................. - - (52,351)
Other, net........................................................... - - 1,309
------------- ------------- ------------
Net cash used in investing activities................................ - - (51,042)
------------- ------------- ------------
FINANCING ACTIVITIES
Issuances of common stock............................................ - - 232,436
Redemption of preferred stock........................................ - - (173,367)
Repayment of long-term debt.......................................... - - (9,757)
Purchases of treasury stock.......................................... (9,594) (11,736) -
Proceeds from exercise of stock options.............................. 138 382 -
Intercompany transfers received from subsidiary...................... 6,104 - -
Dividends received from subsidiary................................... 3,000 12,000 -
------------- ------------- ------------
Net cash provided by (used in) financing activities.................. (352) 646 49,312
------------- ------------- ------------
Net increase (decrease) in cash...................................... (230) 102 (2,135)
Cash at beginning of year............................................ 977 875 3,010
------------- ------------- ------------
Cash at end of year.................................................. $ 747 $ 977 $ 875
============= ============= ============
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. PRESENTATION:
These condensed financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. For disclosures regarding redeemable
preferred stock and commitments and contingencies, see Notes 17 and 23,
respectively, to Consolidated Financial Statements.
2. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL
DISCLOSURES.
S-4
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (a)
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996,
JANUARY 27, 1996 AND JANUARY 28, 1995 (IN THOUSANDS)
BALANCE ADDITIONS CHARGE BALANCE
AT RESULTING TO COSTS CHARGED AT
DESCRIPTION BEGINNING FROM AND TO OTHER ADDITIONS/ END OF
OF YEAR ACQUISITIONS EXPENSES ACCOUNTS (DEDUCTIONS) YEAR
---------- ------------- ---------- ---------- ------------ ---------
FISCAL YEAR ENDED
DECEMBER 28, 1996
Allowance for doubtful
accounts $ 3,381 $ 6,682 $ 899 $ 37 (b) $ (398) (c) $ 10,601
FISCAL YEAR ENDED
JANUARY 27, 1996
Allowance for doubtful
accounts $ 5,102 $ 166 $ 432 $ 58 (b) $ (2,377) (c) $ 3,381
FISCAL YEAR ENDED
JANUARY 28, 1995
Allowance for doubtful
accounts $ 1,899 $ - $ 570 $ 10 (b) $ 2,623 (c) $ 5,102
(a) The fiscal years ended January 27, 1996 and January 28, 1995 have been
restated to exclude amounts related to discontinued operations.
(b) Reclassifications and collection of accounts previously written off.
(c) Reclassifications to discontinued operations and uncollectible amounts
written off.
S-5