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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $98,171,752 as of March 25, 1998.
As of March 25, 1998, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 65,611,864 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for 1998 Annual Meeting of Stockholders to be filed
within 120 days of December 27, 1997 - 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 4.
Item 3. Legal Proceedings, page 4.
Item 4. Submission of Matters to a Vote of Security Holders, page 5.
Executive Officers of the Registrant, page 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters, page 6.
Item 6. Selected Financial Data, page 7.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 8.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk,
page 21.
Item 8. Financial Statements and Supplementary Data, page 21.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure, page 21.
Item 10. Directors and Executive Officers of the Registrant, page 22.
Item 11. Executive Compensation, page 22.
Item 12. Security Ownership of Certain Beneficial Owners and Management,
page 22.
Item 13. Certain Relationships and Related Transactions, page 22.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K,
page 23.
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PART I
ITEM 1. BUSINESS
DEVELOPMENT
Collins & Aikman Corporation (the "Company") is a global supplier of
automotive interior systems, including textile and plastic trim, acoustics and
convertible top systems. The Company (formerly Collins & Aikman Holdings
Corporation) is a Delaware corporation which was formed on September 21, 1988.
As of December 27, 1997, Blackstone Capital Partners, L.P. ("Blackstone
Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their
respective affiliates collectively own approximately 82% of the Common Stock of
the Company. The Company conducts all of its operating activities through its
wholly-owned Collins & Aikman Products Co. ("C&A Products") subsidiary.
Predecessors of C&A Products have been in operation for more than a century.
During 1997, the Company continued to execute its automotive growth
strategy. This strategy focuses 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, in 1997 and early 1998 the Company
completed several strategic corporate development projects and divested the
remainder of its significant non-automotive operations, all as discussed below.
On December 16, 1997, the Company acquired from Perstorp A.B.
("Perstorp") the remaining interest in the Collins & Aikman/Perstorp automotive
acoustics joint venture with operations in Sweden, Belgium and France. The
Company received the interest in settlement of certain disputed claims by the
Company against Perstorp arising from the Company's December 1996, and August
1997 purchases from Perstorp of certain of its automotive supply operations in
North America, the United Kingdom, Spain and Germany.
On December 4, 1997, the Company entered into a joint venture with
Courtaulds Textiles (Holdings) Limited ("Courtaulds"), a publicly-owned,
international textiles and clothing manufacturer located in the United Kingdom,
to manufacture automotive interior fabrics for European customers. The Company
and Courtaulds each have a 50% ownership interest in the joint venture. The
joint venture allows the Company to expand its automotive fabrics operations in
Europe and to further serve the European automotive market. Customers served by
the joint venture include the Rover Group, Toyota and the Opel division of
General Motors.
On November 5, 1997, the Company announced that it entered into an
agreement to sell its Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings")
to a company sponsored by an affiliate of Blackstone Partners. In connection
with the sale, the Company recorded a loss of approximately $21.1 million, net
of income taxes in the third quarter of 1997. The sale closed on March 13, 1998
for a purchase price of $71.2 million in cash, subject to adjustment, and an
option to acquire 6.7% of the common stock of the purchaser outstanding as of
closing. The purchaser includes both Wallcoverings and the wallcovering and
vinyl units of Borden Inc., which the purchaser also acquired.
On October 29, 1997, the Company entered into a joint venture with
Kigass Automotive Group ("Kigass") to manufacture plastic trim products in the
United Kingdom. The Company and Kigass each owned 50% of the joint venture. On
February 2, 1998, the Company acquired Kigass for approximately $24.2 million,
subject to post-closing adjustment.
On August 31, 1997, the Company purchased certain automotive acoustics
assets and assumed certain liabilities in Germany from Perstorp for
approximately $13.6 million.
On July 24, 1997, JPS Automotive L. P. ("JPS Automotive"), a subsidiary
of the Company acquired in December 1996, completed the sale of its Air
Restraint and Technical Products Division, an airbag and industrial fabric
business ("Airbag"), to Safety Components International, Inc. for a purchase
price of approximately $56 million. No gain or loss was recorded on the sale
since the sales price approximated the acquisition fair value of Airbag.
Pursuant to the indenture governing the JPS Automotive 11-1/8% Senior Notes due
2001 (the "JPS Automotive Senior Notes"), in connection with the sale of Airbag,
the Company caused JPS Automotive to make an offer to purchase (up to the amount
of the net proceeds from the sale) the JPS Automotive Senior Notes at 100% of
their principal amount. Pursuant to such offer, which expired September 16,
1997, JPS Automotive repurchased and retired $23 thousand principal amount of
JPS Automotive Senior Notes. During October 1997, the Company caused JPS
Automotive to use a portion of the proceeds remaining from the sale of Airbag to
make a distribution of $35.0 million to C&A Products, as permitted under the
restricted payments provisions of the JPS Automotive Senior Notes Indenture.
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On July 16, 1997, the Company completed its sale of the Mastercraft
Group, a manufacturer of flat woven upholstery fabric, to Joan Fabrics
Corporation, for a purchase price of approximately $310 million, subject to
adjustment. A portion of the net proceeds was used to reduce the Company's
long-term debt.
On February 6, 1997, the Company completed the sale of its
Floorcoverings subsidiary ("Floorcoverings") for net proceeds of approximately
$195.6 million. The proceeds were used to pay down debt incurred to finance the
Company's automotive acquisition strategy.
The Company has accounted for the financial results and net assets of
Floorcoverings, the Mastercraft Group (which were formerly reported in the
Interior Furnishings segment), Airbag, and Wallcoverings as discontinued
operations. Accordingly, previously reported financial results for all periods
have been restated to reflect those four businesses as discontinued operations.
GENERAL
The Company is a global supplier of automotive interior systems,
including textile and plastic trim, acoustics and convertible top systems with
1997 net sales of approximately $1.6 billion. The Company competes in five
principal automotive product groups--carpet and acoustics, automotive fabrics,
accessory floor mats, convertible top systems, and plastic-based interior
systems. The Company's acquisitions in 1996 of Collins & Aikman Plastics, Inc.
("C&A Plastics"), a subsidiary of the Company formerly known as Manchester
Plastics, JPS Automotive and Perstorp's automotive supply operations (primarily
acoustical products) in North America, the United Kingdom and Spain ("Perstorp
Components"), as well as the acquisitions and joint ventures in 1997 which are
discussed above, significantly increased the Company's content per build through
growth in existing product lines and the addition of complementary product
offerings.
The Company's sales are dependent on certain significant customers. In
1997, 1996, and 1995, 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 five years, North American light vehicle sales have
averaged 14.9 million units.
PRODUCTS
The Company operates in five principal automotive product groups:
carpet and acoustics, automotive fabrics, accessory floor mats, convertible top
systems and plastic-based interior systems. The Company also produces certain
other automotive and non-automotive products.
CARPET AND ACOUSTICS. The Company's Carpet and Acoustics group has three
primary product lines: molded floor carpets, luggage compartment trim and
acoustical products. Molded floor carpets include polyethylene, barrier-backed
and molded urethane underlay carpet. In 1997, 1996 and 1995, net sales of molded
floor carpets were $350.2 million, $234.1 million and $231.8 million,
respectively. 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. In 1997, 1996 and 1995, net sales of
luggage compartment trim were $94.6 million, $51.4 million and $52.4 million,
respectively.
The Company entered the acoustical product market with its December 1996
acquisition of Perstorp's North American, United Kingdom and Spanish automotive
supply operations and a joint venture interest in Perstorp's operations in
Sweden, Belgium and France. The Company acquired certain of Perstorp's German
automotive supply operations in August 1997 and acquired full ownership of the
operations in Sweden, Belgium and France in December 1997. These operations
supply acoustical products to both domestic and international automotive
manufacturers. Products manufactured include interior dash insulators, damping
materials and engine compartment NVH (noise, vibration and harshness) systems.
These products can be combined with molded floor carpets to provide complete
interior floor systems to the automotive industry. In 1997, the Company's net
sales of acoustical products were $188.8 million.
2
AUTOMOTIVE FABRICS. The Company manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. The Company also laminates
foam to bodycloth. In 1997, 1996 and 1995, the Company had net sales of
bodycloth of $283.7 million, $243.9 million and $327.5 million, respectively.
The Company's automotive fabrics group also manufactures small volumes of
certain other products, such as headliner fabrics, velvet furniture fabrics,
casket liners and woven fabrics for various commercial and industrial markets.
ACCESSORY FLOOR MATS. The Company produces carpeted automotive accessory
floor mats for North American produced and imported vehicles and for export
to Europe. In 1997, 1996 and 1995, net sales of accessory floor mats were $134.6
million, $83.7 million, and $80.3 million, respectively. This group also
produces residential floor mats.
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. Net sales of
convertible top systems in 1997, 1996, and 1995 were $86.6 million, $100.2
million and $58.2 million, respectively.
PLASTIC-BASED INTERIOR SYSTEMS. In January 1996, the Company acquired
C&A Plastics, a manufacturer of automotive door panels, headrests, floor console
systems and instrument panel components. The acquisition of C&A Plastics added a
broad range of molded plastic components to the Company's textile-based
automotive interior trim products. Net sales of plastic interior trim components
in 1997 and 1996 were $294.3 million and $176.4 million, respectively.
COMPETITION
The automotive supply business is highly competitive. The Company has
competitors in respect of 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
At December 27, 1997, the Company had 58 manufacturing, warehouse and
other facilities located in the U.S., Canada, Mexico, the United Kingdom, Spain,
Austria, Germany, Sweden, Belgium, France and Japan 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. The
increasing demand for accessory floormats posed capacity issues during 1997.
However, the addition of capacity in Tennessee in early 1998 is beginning to
alleviate the situation. Except for the foregoing constraints, which the Company
believes are 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.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company's revenues, operating profit and identifiable assets for
the last three fiscal years attributable to the Company's geographic areas and
export sales from the United States to foreign countries are disclosed in Note
21 to the Consolidated Financial Statements.
3
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 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 Matters" and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Environmental Matters".
EMPLOYEES
As of December 27, 1997, the Company's continuing operations employed
approximately 15,100 persons on a full-time or full-time equivalent basis.
Approximately 4,600 of such employees are represented 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.
YEAR 2000 ISSUES
For a discussion of the impact of Year 2000 compliance issues, see
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANLYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Impact of Year 2000 Compliance."
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 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 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
4
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 27,
1997, the Company has established reserves of approximately $46.5 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.
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, 1998) 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
---- --- --------
Thomas E. Hannah 59 Chief Executive Officer
Dennis E. Hiller 43 President of Automotive Carpet and Acoustics Group
John D. Moose 61 President of Automotive Fabrics Division
Elizabeth R. Philipp 41 Executive Vice President, General Counsel and Secretary
J. Michael Stepp 53 Executive Vice President and Chief Financial Officer
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 prior to that date was President and Chief Executive Officer of
the Collins & Aikman Textile Group. Mr. Hannah was named an executive officer of
the Company for purposes hereof in April 1993.
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 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.
5
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, Chief
Financial Officer and a Director of Purolator Products Company from December
1992 to January 1995.
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 23, 1998, there
were 145 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 1997 FISCAL 1996
-------------------- ------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 10-1/2 6 8-1/4 6-1/8
Second Quarter 12-1/8 8-5/8 7-1/8 5-1/2
Third Quarter 11-11/16 10 7 5-7/8
Fourth Quarter 11-3/16 7-15/16 6-5/8 5-3/4
No dividend or similar 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. 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.
6
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
FISCAL YEAR ENDED
------------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29,
1997 1996 (1) 1996 1995 1994
---- -------- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 1,629,332 $ 1,053,821 $ 902,017 $ 906,997 $ 689,286
Gross margin.............................. 232,211 188,475 161,925 172,487 120,250
Selling, general and administrative
expenses............................... 118,432 82,699 65,996 68,304 71,397
Management equity plan expense............ - - - - 26,736
Goodwill amortization..................... 6,669 3,872 270 - 1,657
Impairment of long-lived assets(2)........ 22,600 - - - 77,559
Operating income (loss)................... 84,510 101,904 95,659 104,183 (57,099)
Interest expense, net(3).................. 77,581 39,850 22,150 44,440 70,449
Loss on sale of receivables(4)............ 4,700 4,533 6,246 6,124 -
Income (loss) from continuing
operations before income taxes......... 2,907 57,408 67,263 51,361 (132,081)
Income tax expense (benefit).............. 12,998 24,442 (139,959) 10,031 9,580
Income (loss) from continuing
operations............................. (10,091) 32,966 207,222 41,330 (141,661)
Income (loss) from discontinued
operations, including disposals, net of
income taxes........................... 166,047 14,468 (781) 34,416 (136,003)
Income (loss) before extraordinary
items.................................. 155,956 47,434 206,441 75,746 (277,664)
Net income (loss)......................... 155,235 40,824 206,441 (30,782) (277,664)
Income (loss) from continuing operations:(5)
Per basic share........................ (0.15) 0.48 2.96 (1.06) (5.87)
Per diluted share...................... (0.15) 0.47 2.91 (1.06) (5.87)
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................. $ 1,302,392 $ 1,530,289 $ 991,361 $ 578,900 $ 819,819
Long-term debt, including current
portion................................ 782,677 1,175,594 759,966 557,039 914,938
Redeemable preferred stock................ - - - - 122,368
Common stockholders' deficit.............. (66,850) (194,578) (227,852) (412,622) (702,220)
OTHER DATA (FROM CONTINUING
OPERATIONS):
Capital expenditures...................... $ 56,521 $ 35,000 $ 53,156 $ 56,193 $ 29,266
Depreciation and leasehold
amortization........................... 42,712 24,457 24,146 24,648 23,259
EBITDA (6)................................ 165,950 134,299 124,086 128,831 72,559
(1) 1996 was a 48-week year.
(2) In 1997, C&A Plastics wrote down fixed assets by $5.1 million and reduced
goodwill by $17.5 million to reflect impairments in the carrying values
of certain assets and goodwill associated with two of its manufacturing
facilities. See Notes to Consolidated Financial Statements.
7
(3) Excludes amounts related to discontinued operations as follows:
DECEMBER 27, DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29,
1997 1996 1996 1995 1994
--------- --------- --------- --------- ----------
The Mastercraft Group, Floorcoverings,
Airbag and Wallcoverings................ $ 12,539 $ 26,734 $ 26,454 $ 31,243 $ 40,842
Operations discontinued prior to fiscal
1995.................................... - - - - 18,871
--------- --------- --------- --------- ----------
$ 12,539 $ 26,734 $ 26,454 $ 31,243 $ 59,713
========= ========= ========= ========= ==========
(4) Excludes amounts allocated to discontinued operations totaling $0.6
million, $2.2 million, $2.4 million and $1.5 million in 1997, 1996, 1995
and 1994, respectively.
(5) The earnings per share amounts have been restated to comply with
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). For further discussion of earnings per share and
the impact of SFAS 128, see the Notes to Consolidated Financial
Statements.
(6) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income taxes, depreciation, amortization,
other income and expense, 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
ACQUISITIONS AND JOINT VENTURES
On August 31, 1997, the Company purchased certain automotive acoustic
assets and assumed certain liabilities in Germany from Perstorp for
approximately $13.6 million.
On October 29, 1997, the Company entered into a joint venture
agreement with Kigass to manufacture plastic trim products in the United
Kingdom. The Company and Kigass each owned 50% of the joint venture. On
February 2, 1998, the Company acquired Kigass for approximately $24.2 million,
subject to post-closing adjustment.
On December 4, 1997, the Company entered into a joint venture with
Courtaulds, a publicly-owned, international textiles and clothing manufacturer
located in the United Kingdom, to manufacture automotive interior fabrics for
European customers. The Company and Courtaulds each have a 50% ownership in the
joint venture.
On December 16, 1997, the Company acquired Perstorp's remaining
interest in the Collins & Aikman/Perstorp automotive acoustics joint venture
with operations in Sweden, Belgium and France. The Company received the
ownership interest in settlement of certain disputed claims by the Company
against Perstorp arising from the Company's December 1996 and August 1997
purchases from Perstorp. The resulting goodwill is being amortized on a straight
line basis over 40 years.
DISCONTINUED OPERATIONS
On November 5, 1997, the Company announced that it entered into an
agreement to sell Wallcoverings to a company sponsored by Blackstone Capital
Partners III Merchant Banking Fund LP, an affiliate of Blackstone Partners. The
purchaser entered into a separate agreement to purchase the wallcovering and
vinyl units of Borden Inc. (the "Borden Business") and stated that it intended
to combine Wallcoverings with the Borden Business. The sale closed on March 13,
1998. The purchase price for Wallcoverings included $71.2 million in cash,
subject to adjustment, and an option to acquire 6.7% of the common stock of the
purchaser (which includes Wallcoverings and the Borden Business) outstanding on
the date of closing. In connection with the transaction, the Company recorded a
loss of approximately $21.1 million, net of income taxes, in the third quarter
of 1997 to adjust the recorded value to the expected proceeds. Accordingly, no
gain or loss was recognized at the sale date. Wallcoverings has been a
discontinued operation since April, 1996.
8
On July 24, 1997, JPS Automotive completed the sale of Airbag, its
airbag and industrial fabric business, to Safety Components International, Inc.
for a purchase price of approximately $56 million. No gain or loss was recorded
on the sale since the sales price approximated the acquisition fair value of
Airbag. Pursuant to the indenture governing the JPS Automotive Senior Notes, in
connection with such sale, the Company caused JPS Automotive to make an offer to
purchase (up to the amount of the net proceeds from the sale) the JPS Automotive
Senior Notes. During October 1997, the Company caused JPS Automotive to use a
portion of the proceeds remaining from the sale of Airbag to make a distribution
of $35 million to C&A Products, as permitted under the restricted payment
provisions of the JPS Automotive Senior Notes indenture. See "- Liquidity and
Capital Resources". The Company used the proceeds of this distribution to reduce
its long-term debt.
On July 16, 1997, the Company completed its sale of the Mastercraft
Group, a manufacturer of flat woven upholstery fabric, to Joan Fabrics
Corporation, for a purchase price of approximately $310 million, subject to
adjustment. A portion of the net proceeds was used to reduce the Company's
long-term debt. The sale resulted in a net after-tax gain of $97.5 million.
On February 6, 1997, the Company completed the sale of its
Floorcoverings subsidiary for net proceeds of $195.6 million. The net proceeds
were used to pay down debt incurred to finance the Company's automotive
strategy. The sale resulted in a net after-tax gain of $85.3 million.
The Company has accounted for the financial results and net assets of
Wallcoverings, Floorcoverings, the Mastercraft Group and Airbag 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 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.
GENERAL
The Company is a global supplier of automotive interior systems,
including textile and plastic trim, acoustics and convertible top systems. The
Company's net sales in fiscal 1997 were $1,629.3 million compared to $1,053.8
million in fiscal 1996. 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 1997 and
1995 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.
The automotive supply industry in which the Company competes is
cyclical and is influenced by the level of North American vehicle production.
Management believes the long term trends in the design and manufacture of
automotive products include 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 suppliers who will manufacture and deliver
required components. The Company anticipates these capabilities will be
essential to its long term stategic positioning as a key supplier within the
automotive industry and with its customers.
9
RESULTS OF OPERATIONS
FISCAL YEAR ENDED
--------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
--------------- --------------- ---------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
(IN MILLIONS)
Net sales.......................................................... $ 1,629.3 $ 1,053.8 $ 902.0
Cost of goods sold................................................. 1,397.1 865.3 740.1
Gross margin....................................................... 232.2 188.5 161.9
Selling, general and administrative expenses....................... 118.4 82.7 66.0
Goodwill amortization.............................................. 6.7 3.9 0.3
Impairment of long-lived assets.................................... 22.6 - -
Operating income................................................... 84.5 101.9 95.7
Gross margin percentages........................................... 14.3% 17.9% 18.0%
Operating margin percentages....................................... 5.2% 9.7% 10.6%
EBITDA (1)......................................................... $ 166.0 $ 134.3 $ 124.1
(1) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income taxes, depreciation, amortization,
other income and expense 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.
1997 COMPARED TO 1996
As a result of the Company's decision to change its year-end, fiscal
1996 was a 48-week period as compared to fiscal 1997, which was a 52-week
period. Therefore, sales in all product lines and the associated costs and
expenses were impacted by reporting a longer period in 1997. Additional
significant increases in sales and associated costs and expenses resulted from
the Company's 1996 acquisitions. A discussion of the results of operations for
the Company follows:
NET SALES: The Company's net sales increased 54.6% to $1,629.3 million
in 1997, up $575.5 million from 1996. The majority of this increase resulted
from the December 1996 acquisitions of JPS Automotive and Perstorp Components,
which together generated revenues of $422.5 million in fiscal 1997. Sales to
General Motors and Chrysler during 1997 were negatively impacted by United Auto
Workers' strikes in the second quarter. The decrease in net sales attributable
to these strikes is estimated at $17.4 million. 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
attributed to these strikes is estimated at $33.5 million. Sales in the
Company's five principal product groups are discussed below.
CARPET AND ACOUSTICS: Molded carpet sales increased 49.6% to $350.2
million in 1997, up $116.1 million from 1996 sales, primarily as a result of the
JPS Automotive acquisition and increased sales to the European automotive
market. Overall, average sales prices declined due to the acquisition of JPS
Automotive and the impact of currency rates on sales in Canada. Sales were also
positively impacted by increased sales to the Dodge Dakota and Durango and
Toyota T100. These increases were partially offset by decreased sales to the
Buick Century/Oldsmobile Ciera, Chrysler Minivan and Ford Mustang.
Luggage compartment trim sales increased 84.0% to $94.6 million, up
$43.2 million from 1996 primarily due to the acquisition of JPS Automotive.
Overall, average sales prices increased due to the acquisition of JPS
Automotive. Sales increases also resulted from higher Toyota Camry volumes and
the full year impact of the Buick Park Avenue and Subaru Legacy Wagon both of
which started production in mid-1996. Sales also increased to the Dodge Dakota
and Durango.
Acoustical products, which was acquired in December 1996 and August
1997, contributed $188.8 million in net sales to the North American and European
automotive markets during 1997.
AUTOMOTIVE FABRICS: Automotive bodycloth sales increased 16.3% to
$283.7 million in 1997, up $39.8 million from 1996. Average sales prices were
relatively unchanged from 1996. An increase in sales resulting from the
acquisition of JPS Automotive was offset by reduced sales for the Chrysler LH,
Minivans and the Ford Contour/Mercury Mystique and Ford Explorer.
10
ACCESSORY FLOOR MATS: Accessory floor mat sales increased 60.8% to
$134.6 million, up $50.9 million over 1996. The overall increase is attributable
to increased sales to General Motors' minivans, the Oldsmobile Cutlass, Buick
Regal, Pontiac Grand Prix, Toyota Camry, Nissan Maxima and Sentra and new export
programs, offset by decreased sales to the Honda Accord and Civic and Mitsubishi
Galant.
CONVERTIBLE TOP SYSTEMS: Convertible top systems sales decreased 13.5%
to $86.6 million, down $13.6 million from 1996, principally due to decreased
production of the Chrysler Sebring and the Ford Mustang convertibles.
PLASTIC-BASED INTERIOR TRIM SYSTEMS: Plastic interior trim component
sales increased 66.9% to $294.3 million, up $117.9 million from 1996. This
increase in sales relates primarily to the launch during the latter part of 1996
of new programs for which C&A Plastics is the supplier as well as the negative
impact of a General Motors strike on C&A Plastics' sales for the first quarter
of 1996. New programs increasing 1997 sales included the Cadillac
Concours/Deville, Buick Century and Regal, Chevrolet Malibu and the Ford
Econoline. These increases were partially offset by decreases to the Chevrolet
Corsica/Beretta.
OTHER: In addition, the Company had $196.5 million and $158.6 million in
sales of non-automotive products in fiscal 1997 and 1996, respectively, which
are spread among four of the Company's five principal product groups discussed
above.
Approximately 35% of the Company's sales were attributable to products
utilized in vehicles built outside of North America.
The above factors resulted in an increase in the Company's average
revenue per North American-produced vehicle to approximately $89 for 1997 up
from approximately $68 for 1996. The Company's content per build in Europe was
approximately $17 in 1997 including the operations in Sweden, Belgium and France
which were jointly owned in 1997.
GROSS MARGIN: For 1997, gross margin was 14.3%, down from 17.9% in
1996. During the third quarter of 1997, the Company incurred charges of
approximately $57.9 million principally related to C&A Plastics. These charges,
which primarily related to manufacturing inefficiencies experienced by C&A
Plastics related to product launches and record volume for its products,
included asset impairments, reductions in goodwill, provisions for certain
programs operating at a loss, inventory adjustments, certain previously deferred
costs and other provisions. Of the $57.9 million of charges, $34.0 million is
included in cost of goods sold, $22.6 million is discussed below as impairment
of long lived assets and $1.3 million relates to selling costs. Adjusted for
certain of the charges taken by C&A Plastics, gross margin was 15.2%. The
decrease in gross margin is attributable primarily to lower margins in products
sold by JPS Automotive and Perstorp Components, the decrease in sales of higher
margin convertible top systems and manufacturing inefficiencies and product
launch costs at C&A Plastics and Akro.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased 44.5% to $125.1 million, up $38.5 million from
1996. This increase is primarily due to the acquisitions of JPS Automotive and
Perstorp Components in December 1996. As a percentage of sales, selling, general
and administrative expenses decreased to 7.7% in 1997 from 8.2% in 1996.
IMPAIRMENT OF LONG LIVED ASSETS: During the third quarter of 1997, C&A
Plastics wrote down fixed assets by $5.1 million to realizable value and reduced
its goodwill by $17.5 million, as a result of an evaluation of the
recoverability of the long lived assets of C&A Plastics that was conducted in
connection with the determination of the charges discussed above.
INTEREST EXPENSE: Interest expense allocated to continuing operations,
net of interest income of $5.7 million in 1997 and $4.0 million in 1996,
increased $37.7 million to $77.6 million in 1997 from $39.9 million in 1996. The
overall increase in interest expense was due to a higher amount of overall
outstanding indebtedness, primarily related to the JPS Automotive and Perstorp
Components acquisitions, as well as higher interest rates associated with the
$400 million principal amount of the Subordinated Notes issued by C&A Products
in June 1996. The Subordinated Notes are guaranteed by the Company. Total net
interest expense, including amounts allocated to discontinued operations, was
$90.1 million in 1997 and $66.6 million in 1996.
LOSS ON SALE OF RECEIVABLES: The Company sells on a continuous basis,
though its Carcorp subsidiary, interests in a pool of accounts receivable. In
connection with the receivable sales, a loss of $4.7 million, net of amounts
allocated to discontinued operations, was incurred in 1997 compared to a loss of
$4.5 million, net of amounts allocated to discontinued operations, in 1996.
Total loss on sale of receivables, including amounts allocated to discontinued
operations, was $5.3 million in 1997 and $6.7 million in 1996.
11
OTHER (INCOME) EXPENSE: In 1997, the Company recognized a gain of $1.7
million related to the sale of the Borg Textiles Division of its principal
Canadian subsidiary, and income of $0.9 million related to its investment in the
Collins & Aikman/Perstorp joint venture. These gains were offset by a $1.9
million loss on foreign currency transactions. The Company recognized a $0.1
million loss on foreign currency transactions in 1996. The loss in 1997 is
primarily due to fluctuations in the Canadian dollar.
INCOME TAXES: In 1997, the Company recognized a $13.0 million tax
provision compared to a $24.4 million provision in 1996. The Company's effective
tax rate in 1997 was 447%, compared to 42% in 1996. The higher tax rate in 1997
is primarily due to the inclusion in the income tax calculation of nondeductible
goodwill including the $17.5 million of goodwill written off by C&A Plastics.
DISCONTINUED OPERATIONS: The Company's income from discontinued
operations was $4.3 million in 1997 compared to $14.5 million in 1996. The
decrease results primarily from the sale of Floorcoverings in February 1997 and
the sale of the Mastercraft Group in July 1997.
The sale of Floorcoverings for approximately $195.6 million was
completed in February 1997 and resulted in a gain of $85.3 million net of income
taxes of $53.4 million. The sale of the Mastercraft Group was completed in July
1997 for approximately $310.0 million, resulting in a gain on the sale of
discontinued operations of $97.5 million, net of taxes of $65.0 million. In
connection with the agreement to sell Wallcoverings, the Company recorded a loss
of $21.2 million, net of an income tax benefit of $33.0 million, during the
third quarter of 1997 to adjust the recorded value to the expected proceeds.
EXTRAORDINARY LOSS: In 1997, the Company recognized a loss of $0.7
million, net of income taxes of $0.4 million, in connection with the purchase by
JPS Automotive of $19.4 million principal amount of JPS Automotive Senior Notes
on the open market at prices in excess of carrying values. In 1996, the Company
recognized a non-cash extraordinary charge of $6.6 million, net of income taxes
of $4.7 million, related to the refinancing of its bank facilities. The
refinancing was done in conjunction with the Company's offering of the
Subordinated Notes.
NET INCOME: The combined effect of the foregoing resulted in net income
of $155.2 million in 1997 compared to net income of $40.8 million in 1996.
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 16.8% to $1,053.8 million
in 1996, up $151.8 million over 1995. The majority of this increase resulted
from the January 1996 acquisition of C&A 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 $11.9 million from
December 11, 1996 through year end. Sales in 1996 were also negatively impacted
by the March 1996 and October 1996 strikes at General Motors discussed above.
CARPET AND ACOUSTICS: 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.
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.
The acoustics operations acquired on December 11, 1996 contributed $5.6
million in sales.
12
AUTOMOTIVE FABRICS: 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.
ACCESSORY FLOOR MATS: Accessory floor 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.
CONVERTIBLE TOP SYSTEMS: 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.
PLASTIC-BASED INTERIOR TRIM SYSTEMS: C&A 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. C&A
Plastics' 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.
OTHER: In addition, the Company had $158.6 million and $141.0 million
in sales of non-automotive products in fiscal 1996 and 1995, respectively, which
are spread among four of the Company's five principal product groups discussed
above.
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, C&A 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.
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 C&A 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, net
interest expense, including amounts allocated to discontinued operations
increased to $66.6 million from $48.5 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 C&A 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 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.
13
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 $0.8 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$24.0 million and $14.3 million at December 27, 1997 and December 28, 1996,
respectively. The Company had a total of $232.0 million of borrowing
availability under its credit arrangements as of December 27, 1997. The total
was comprised of $217.8 million under the Revolving Facility, approximately
$11.2 million under bank demand lines of credit in Canada and Austria, and $3.0
million available under the Receivables Facility.
As part of a recapitalization in 1994, 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, which was terminated and replaced with the
Receivables Facility described below. On December 22, 1995, the Company and C&A
Products entered into a $197 million credit facility (the "Term Loan B
Facility") to finance the January 1996 purchase of C&A 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 consisted 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.
On February 6, 1997, the Company sold its Floorcoverings subsidiary for
$195.6 million. The net proceeds were used to pay down the outstanding portion
of the Revolving Facility and a portion of the Receivables Facility. The Company
completed the sale of the Mastercraft Group in July 1997 for a purchase price of
approximately $310 million, subject to adjustment. The Company utilized a
portion of the net proceeds from the sale to further reduce long-term debt. In
addition, effective July 16, 1997, receivables generated by members of the
Mastercraft Group ceased to be sold in connection with the Receivables Facility,
as discussed below. Also, the Company completed the sale of Airbag in July 1997
for a purchase price of approximately $56 million. Pursuant to the indenture
governing the JPS Automotive Senior Notes, in connection with such sale, the
Company caused JPS Automotive to make an offer to purchase (up to the amount of
the net proceeds from the sale) the JPS Automotive Senior Notes at 100% of their
principal amount. Pursuant to such offer (which expired September 16, 1997), JPS
Automotive repurchased and retired $23 thousand principal amount of JPS
Automotive Senior Notes. In December 1997, the Company repaid $88.5 million
under the Term Loan Facility (including $27 million under the Canadian facility)
and $13.5 million under the Term Loan B Facility. At December 27, 1997, the
Company had $10.0 million outstanding on the Revolving Credit Facility, $17.6
million on the Term Loan Facility and $167.4 million on the Term Loan B
Facility.
14
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. Certain of these tests and covenants
were waived for the second, third and fourth quarters of 1997 and the first
quarter of 1998 in connection with the charges incurred at C&A Plastics and the
sales of the Mastercraft Group and Floorcoverings. The Company requires a
modification of these tests and covenants for the remainder of 1998 and beyond
due to these sales and its increasing international presence and expects to
renegotiate them in connection with a broader modification of its existing
credit facilities to conform to the Company's current corporate and financing
structure. The Company expects this modification to occur in the first half of
1998. 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) pay permitted dividends. 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 (which amount was increased to $24 million for fiscal 1997) 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 in amounts representing certain net proceeds from the sale of
Wallcoverings. 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.
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 and increasing to 2.25 to 1.0 after June 30, 1998) 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, dividends to
stockholders of the Company of the net available proceeds from the sale or other
disposition of Wallcoverings 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 Senior Notes and to allow the Company to use the proceeds from the
sale of Floorcoverings to pay down the Revolving Facility and a portion of the
Receivables Facility. 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. 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 purchased by JPS Automotive in the first
quarter of 1997. During the second quarter of 1997, an additional $19.4 million
principal amount of JPS Automotive Notes were purchased by JPS Automotive on the
open market and retired. No open market purchases were made during the third and
fourth quarters of 1997, although $23 thousand principal amount of JPS
Automotive Senior Notes were repurchased and retired pursuant to an offer to
purchase due to the sale of Airbag. After giving effect to the above, JPS
Automotive had as of December 27, 1997 approximately $91.8 million of
indebtedness outstanding (including a premium of $3.2 million) related to the
JPS Automotive Senior Notes. The Company is operating 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;
15
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 27, 1997. 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 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 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 Company was entitled to draw upon the Delayed Draw Term Loan until
December 11, 1997. Prior to the JPS Automotive Acquisition, the Company had
purchased in the open market $68.0 million principal amount of JPS Automotive
Senior Notes, which were subsequently retired by JPS Automotive. As of December
27, 1997, $23.8 million had been drawn under the Delayed Draw Term Loan and
there was no further availability. The Delayed Draw Term Loan's security and
restrictive covenants are identical to those in the Bank Credit Facilities.
Certain of these tests and covenants were waived for the second, third and
fourth quarters of 1997 and the first quarter of 1998 in connection with the
charges incurred at C&A Plastics and the sales of the Mastercraft Group and
Floorcoverings. The Company requires a modification of these tests and covenants
for the remainder of 1998 and beyond due to these sales and its increasing
international presence and expects to renegotiate them in connection with a
broader modification of its existing credit facilities to conform to the
Company's current corporate and financing structure. The Company expects this
modification to occur in the first half of 1998.
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 automotive 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
27, 1997 approximately $3.0 million was available under the variable funding
certificates, none of which was utilized.
In connection with the proposed disposition of Wallcoverings,
Wallcoverings was terminated as a Seller of receivables under the Receivables
Facility on September 21, 1996. 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. In connection with the sale of the
Mastercraft Group, effective July 16, 1997 receivables generated by the
Mastercraft Group ceased to be sold to Carcorp and transferred to the Trust, and
the Company terminated Ack-Ti-Lining, Inc., a member of the Mastercraft Group,
as a Seller of receivables under the Receivables Facility. The collections of
these Mastercraft Group receivables resulted in the redemption of $30 million
face value of term certificates on November 25, 1997. The reduction in the term
certificates was offset by increases in the variable funding certificates
through the addition of C&A Plastics and its subsidiaries as Sellers under the
facility.
16
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 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 also has outstanding indebtedness totaling approximately
$49.8 million at its subsidiaries operating in Sweden, Belgium and France
constituting the former operations of the Collins & Aikman/Perstorp Joint
Venture. This debt consists of: (i) a 120 million Swedish krona loan ($15.5
million at December 27, 1997), which bears interest at the Stockholm interbank
offered rate for Krona denominated deposits ("STIBOR") plus 0.75% and is secured
by a pledge of the operating assets of the Swedish operating subsidiary; (ii) a
108 million Swedish krona loan ($13.9 million at December 27, 1997), which bears
interest at STIBOR plus 0.75% and is due in June 1998; (iii) a 100 million
Swedish krona loan ($12.9 million at December 27, 1997), which bears interest at
STIBOR plus 1.0% and was repaid in February 1998; and (iv) a 200 million Belgium
franc loan ($5.5 million at December 27, 1997), which bears interest at the
Brussels interbank offered rate for deposits denominated in Belgian francs
("BIBOR") plus 1% and is secured by a pledge of the operating assets of the
Belgian operating subsidiary. In addition, Perstorp has provided a loan in the
amount of 75 million Belgian francs ($2.0 million at December 27, 1997), to the
Belgian subsidiary, which bears interest at BIBOR plus 1% and is due on August
1, 1998.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At December 27, 1997, 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. In
the year ended December 27, 1997, the Company made lease payments relating to
continuing operations of approximately $5.6 million 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 $5.8 million during
fiscal 1998.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Bank Credit Facilities and
the sale of receivables under the Receivables Facility. Net cash provided by the
operating activities of the Company's continuing operations was $98.9 million
for 1997.
The Company's principal uses of funds from operating activities and
borrowings for the next several years are expected to be to fund interest and
principal payments on its indebtedness, net working capital increases and
capital expenditures. At December 27, 1997, the Company had total outstanding
indebtedness of $782.7 million (excluding approximately $22.1 million of
outstanding letters of credit and $.4 million of indebtedness of the
discontinued operations) at an average interest rate of 9.9% per annum. Of the
total outstanding indebtedness, $618.8 million relates to the Bank Credit
Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to
$10 million in 1998 to repurchase shares of the Company's Common Stock at
management's discretion. The Company believes it has sufficient liquidity under
its existing credit arrangements to effect the repurchase program. The Company
spent $19.7 million to repurchase shares during fiscal 1997 and $9.6 million to
repurchase shares during fiscal 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 ("Chase'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
27, 1997. 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'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 27, 1997 was 8.0%. The weighted average interest rate on the
sold interests under the Receivables Facility at December 27, 1997 was 6.75%.
Under the Receivables Facility, the term certificates bear interest at an
average rate equal to one month LIBOR plus .34% per
17
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 was $93.0 million
and $60.0 million for the fiscal years ended December 27, 1997 and December 28,
1996, 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%. In addition, during April 1997, the Company entered into a
two year interest rate swap agreement in which the Company effectively exchanged
$27.0 million of 11-1/2% fixed rate debt for floating rate debt at six month
LIBOR plus a 4.72% margin. In connection with this swap agreement, the Company
also limited its interest rate exposure by entering into an 8.50% cap on LIBOR
on $27.0 million of notional principal amount. Based upon amounts outstanding at
December 27, 1997, a .5% increase in LIBOR (6.0% at December 27, 1997) would
impact interest costs by approximately $1.1 million annually on the Bank Credit
Facilities and the Delayed Draw Term Loan and $1.0 million annually on the
Receivables Facility. During April 1997, the Company entered into an agreement
to limit its foreign currency exposure related to $45.0 million of US dollar
denominated borrowings of a Canadian subsidiary. The agreement swaps LIBOR based
interest rates for the Canadian equivalent as well as fixes the exchange rate
for the principal balance when the amount comes due in 2002. At December 27,
1997, the remaining $18.0 million of U.S. dollar denominated borrowings of the
Canadian subsidiary were hedged under this agreement.
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
for 1998, 1999, 2000, 2001 and 2002 are $30.3 million, $28.2 million, $59.9
million, $128.9 million and $80.9 million, respectively. The JPS Automotive
Senior Notes 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 or Wallcoverings, 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 will require quarterly installments of approximately $2.2 million
beginning in July 1999 and ending January 2002. 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. As discussed
above, the Company caused JPS Automotive to make such an offer to purchase JPS
Automotive Senior Notes in connection with the sale of Airbag.
The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of December 27, 1997, the Company's continuing
operations had approximately $28.6 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations including its outstanding commitments in fiscal 1998 will
aggregate approximately $85 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.
The Company is sensitive to price movements in its raw material supply
base. During fiscal 1997, prices for most of the Company's primary raw materials
remained constant with price levels at December 28, 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.
18
Since Wallcoverings was classified as a discontinued operation in April
1996, Wallcoverings has continued to experience sales declines. From April 1996
through October 1997, the Company has expended approximately $67.1 million to
fund operations, working capital and capital expenditures and to replace
receivables previously sold to Carcorp. Of these amounts, $21.0 million
represents repayments of intercompany amounts owed to Wallcoverings. From
November 1, 1997 through its disposition, the Company expended approximately
$19.2 million prior to the disposition of Wallcoverings principally to fund
Wallcoverings' operations, working capital and capital expenditure requirements.
Of this amount, $13.2 million was the responsibility of the purchaser of
Wallcoverings under the sales agreement and an estimate, which is subject to
adjustment, was included in the purchase price paid at closing.
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, will be approximately $19 million in fiscal 1998. 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 can be provided by operating activities from
continuing operations and by borrowings under the Bank Credit Facilities.
TAX MATTERS
At December 27, 1997, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $119.4 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2011. The Company also has unused Federal tax credits of approximately $14.9
million, $2.2 million of which expire during the period 1998 to 2006.
Approximately $17.1 million of the Company's NOLs and $2.2 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. 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 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 disposition 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 was more likely than not that previously unrecognized net
deferred tax assets totaling approximately $150 million would be realized.
Similarly, management concluded that it was more likely than not that net
deferred tax assets of $74.6 million and $148.4 million at December 27, 1997 and
December 28, 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 27, 1997 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 $19.6 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
19
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 27, 1997, including sites
relating to the acquisition of C&A 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 25 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 27, 1997, the Company's estimate of its liability
for these 34 sites, which exclude sites related to Wallcoverings, is
approximately $33.8 million. As of December 27, 1997, the Company has
established reserves of approximately $46.5 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.
IMPACT OF YEAR 2000 COMPLIANCE
In order to improve operating performance, the Company has undertaken,
or will undertake in the near future, a number of significant information
systems initiatives. One goal of such systems initiatives is to make the
Company's systems Year 2000 compliant. Based upon a recent assessment, the
Company expects at this time that the cost of the overall information systems
initiatives (which includes the cost of ensuring that its remaining computer
systems are Year 2000 compliant) should not have a material adverse effect on
the Company. The Company has completed a preliminary assessment of each of its
operations and their Year 2000 readiness and believes that appropriate actions
are being taken. The Company currently expects to complete its overall Year 2000
remediation prior to any anticipated impact on its operations. The Company
believes that, with modifications to existing software and conversions to new
systems, the Year 2000 issue should not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
adverse impact on the operations of the Company. Whether such modifications and
conversions are timely completed may to some extent depend on the availability
of outside consultants as well as establishing reliable telecommunication links
with the Company's operations in Europe and Mexico. Further, while the Company
has initiated communications with a number of its significant suppliers to
determine the extent to which the Company's interface systems are
20
vulnerable to those third parties' failure to remediate their own Year 2000
issues, and plans to initiate similar communications with the balance of its
major suppliers and major customers in 1998, there is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
CURRENCY RATE EXPOSURE
The primary purpose of the Company's foreign currency hedging
activities is to protect against the volatility associated with foreign currency
purchase transactions. Corporate policy prescribes the range of allowable
hedging activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months.
Gains and losses related to qualifying hedges of foreign currency firm
commitments or anticipated transactions are included in the basis of the
underlying transactions. To the extent that a qualifying hedge is terminated or
ceases to be effective as a hedge, any deferred gains and losses up to that
point continue to be deferred and are included in the basis of the underlying
transaction. All other foreign exchange contracts are marked-to-market on a
current basis and are generally charged to other income (expense). To the extent
that the anticipated transactions are no longer likely to occur, the related
hedges are closed with gains or losses charged to earnings on a current basis.
Based on the Company's overall currency rate exposure at December 27,
1997, including derivative and other foreign currency sensitive instruments, a
near-term change in currency rates in amounts indicated by historical currency
rate movements would not materially affect the consolidated financial position,
results of operations, or cash flows of the Company.
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 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, changes in consumer preferences, dependence on significant
automotive customers, the level of competition in the automotive supply industry
and Year 2000 compliance issues, as well as factors more specific to the Company
such as the substantial leverage of the Company and its subsidiaries,
limitations imposed by the Company's debt facilities and changes made in
connection with the integration of 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 also see the Company's other filings
with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosures are not required at this time.
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.
21
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 1998 Annual Meeting of Stockholders, which will be filed in final form
with the Commission not later than 120 days after December 27, 1997 (the "Proxy
Statement"), captioned "Election of Directors--Information as to Nominees and
Other Directors". 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 Company's knowledge, in the Proxy Statement.
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", "Security Ownership of Management" 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".
22
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 27, 1997,
December 28, 1996, and January 27, 1996 F-2
Consolidated Balance Sheets at December 27, 1997 and December 28, 1996 F-3
Consolidated Statements of Cash Flows for the fiscal years ended December 27, 1997,
December 28, 1996, and January 27, 1996 F-4
Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended
December 27, 1997, December 28, 1996, and January 27, 1996 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 27, 1997, December 28, 1996, and
January 27, 1996 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.
23
Exhibit
Number Description
- ------ -----------
2.1 - Mastercraft Group Acquisition Agreement dated as of April 25, 1997 among Collins & Aikman Products Co., Joan
Fabrics Corporation and MC Group Acquisition Company L.L.C., is hereby incorporated by reference to Exhibit 2.1
of Collins & Aikman Corporation's Report on Form 10-Q for this fiscal quarter ended March 29, 1997.
2.2 - Asset Purchase Agreement dated as of June 30, 1997 by and between JPS Automotive L.P. and Safety Components
International, Inc. is hereby incorporated by reference to Exhibit 2.1 of JPS Automotive L.P.'s and JPS
Automotive Products Corp.'s Current Report on Form 8-K dated July 24, 1997.
2.3 - Closing Agreement dated July 24, 1997 between JPS Automotive L.P., Safety Components International, Inc. and
Safety Components Fabric Technologies, Inc. is hereby incorporated by reference to Exhibit 2.2 of JPS Automotive
L.P.'s and JPS Automotive Products Corp.'s Current Report on Form 8-K dated July 24, 1997.
2.4 - Amended and Restated Acquisition Agreement dated as of November 4, 1997 and amended and restated as of March 9,
1998, among Collins & Aikman Products Co., Imperial Wallcoverings Inc. and BDPI Holdings Corporation.
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 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.
24
Exhibit
Number Description
- ------ -----------
4.6 - Waiver, dated as of June 28, 1997, to the Amended and Restated Credit Agreement, dated as of June 3, 1996 among
Collins & Aikman Products Co., Collins & Aikman Canada, Inc., Collins & Aikman Corporation, the Lenders parties
thereto 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 June 28, 1997.
4.7 - Waiver, dated as of October 27, 1997, to the Amended and Restated Credit Agreement, dated as of June 3, 1996
among Collins & Aikman Products Co., Collins & Aikman Canada Inc., Collins & Aikman Corporation, the Lenders
parties thereto, and The Chase Manhattan Bank, as Administrative Agent is hereby incorporated by reference to
Exhibit 4.7 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended September 27, 1997.
4.8 - Waiver, dated as of January 12, 1998, to the Amended and Restated Credit Agreement, dated as of June 3, 1996
among Collins & Aikman Products Co., Collins & Aikman Canada Inc., Collins & Aikman Corporation the Lenders
parties thereto, and The Chase Manhattan Bank, as Administrative Agent.
4.9 - 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.
4.10 - Waiver, dated as of June 28, 1997, to the Credit Agreement, dated as of December 5, 1996, among Collins & Aikman
Products Co., Collins & Aikman Corporation, the Lenders parties thereto and The Chase Manhattan Bank, as
Administrative Agent is hereby incorporated by reference to Exhibit 4.8 of Collins & Aikman Corporation's Report
on Form 10-Q for the fiscal quarter ended June 28, 1997.
4.11 - Waiver, dated as of October 27, 1997, to the Credit Agreement, dated as of December 5, 1996, among Collins &
Aikman Products Co., Collins & Aikman Corporation, the Lenders parties thereto, and The Chase Manhattan Bank, as
Administrative Agent is hereby incorporated by reference to Exhibit 4.10 of Collins & Aikman Corporation's Report
on Form 10-Q for the fiscal quarter ended September 27, 1997.
4.12 Waiver, dated as of January 12, 1998, to the Credit Agreement, dated as of December 5, 1996, among Collins &
Aikman Products Co., Collins & Aikman Corporation, the Lenders parties thereto and The Chase Manhattan Bank, as
Administrative Agent.
4.13 Waiver, dated as of March 27, 1998 to the Amended and Restated Credit Agreement dated as of June 3, 1996 among
Collins & Aikman Products Co., Collins & Aikman Canada Inc., Collins & Aikman Corporation, the Lenders parties
thereto, and The Chase Manhattan Bank, as Administrative Agent.
4.14 Waiver, dated as of March 27, 1998 to the Credit Agreement, dated as of December 5, 1996, among Collins &
Aikman Products Co., Collins & Aikman Corporation, the Lenders parties thereto, and The Chase Manhattan Bank, as
Administrative Agent.
25
Exhibit
Number Description
- ------ -----------
4.15 Amendment, dated as of March 27, 1997 to the Amended and Restated Credit Agreement, dated as of June 3, 1996,
among Collins & Aikman Products Co., Collins & Aikman Canada Inc., Collins & Aikman Corporation, the Lenders
parties thereto, and The Chase Manhattan Bank, as Administrative Agent.
4.16 Amendment, dated as of March 27, 1997, to the Credit Agreement, dated as of December 5, 1996, among Collins &
Aikman Products Co., Collins & Aikman Corporation, the Lenders parties thereto, and The Chase Manhattan Bank, as
Administrative Agent.
4.17 - 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.
4.18 - 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.
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 - 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.*
10.6 - Third Amendment dated as of August 1, 1997, to the Employment Agreement dated as of July 22, 1992, as amended,
between the Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.35 of Collins
& Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended September 27, 1997.*
10.7 - 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.*
10.8 - 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.*
10.9 - 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.*
10.10 - Letter Agreement dated October 9, 1992 between Collins & Aikman Corporation and an executive officer.*
10.11 - Collins & Aikman Corporation 1997 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 September 27,
1997.*
* 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.
26
Exhibit
Number Description
- ------ -----------
10.12 - 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.*
10.13 - 1993 Employee Stock Option Plan, as amended and restated, 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.*
10.14 - 1994 Employee Stock Option Plan, as amended through February 7, 1997, is hereby incorporated by reference to
Exhibit 10.12 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended March 29,
1997.*
10.15 - 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.*
10.16 - 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.*
10.17 - Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an executive officer.*
10.18 - Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an executive officer.*
10.19 - Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an executive officer.*
10.20 - Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an executive officer.*
10.21 - 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.
10.22 - 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.
10.23 - 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.
10.24 - 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.
10.25 - 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.
* 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.
27
Exhibit
Number Description
- ------ -----------
10.26 - 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.
10.27 - 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.
10.28 - 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.
10.29 - 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.
10.30 - 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.
10.31 - 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.
10.32 - 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.
10.33 - 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.
10.34 - 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, 1996, is hereby incorporated by reference to
Exhibit 2.3 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996.
10.35 - 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.
10.36 - 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.
28
Exhibit
Number Description
- ------ -----------
10.37 - 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.
10.38 - 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.
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.
(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 no reports on Form 8-K.
29
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, 1998.
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, 1998
- ----------------------------------
DAVID A. STOCKMAN Board of Directors
/s/ Randall J. Weisenburger Co-Chairman of the March 27, 1998
- ----------------------------------
RANDALL J. WEISENBURGER Board of Directors
/s/ Thomas E. Hannah Director and Chief Executive Officer March 27, 1998
- ----------------------------------- (Principal Executive Officer)
THOMAS E. HANNAH
/s/ J. Michael Stepp Executive Vice President and Chief March 27, 1998
- ----------------------------------- Financial Officer (Principal Financial and
J. MICHAEL STEPP Accounting Officer)
/s/ Robert C. Clark Director March 27, 1998
- ------------------------------------
ROBERT C. CLARK
/s/ George L. Majoros, Jr. Director March 27, 1998
- --------------------------------
GEORGE L. MAJOROS, JR.
/s/ James J. Mossman Director March 27, 1998
- --------------------------------
JAMES J. MOSSMAN
/s/ Warren B. Rudman Director March 27, 1998
- ------------------------------
WARREN B. RUDMAN
/s/ Stephen A. Schwarzman Director March 27, 1998
- ---------------------------
STEPHEN A. SCHWARZMAN
/s/ W. Townsend Ziebold, Jr. Director March 27, 1998
- ------------------------------
W. TOWNSEND ZIEBOLD, JR.
30
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
27, 1997 and December 28, 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 27, 1997. 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 27, 1997 and December 28,
1996 and the results of their operations and their cash flows for each of the
three fiscal years in the period ended December 27, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
February 9, 1998 (except with
respect to the matters discussed in
Note 26, as to which the date
is March 13, 1998).
F-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED
---------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
------------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Net sales .................................................... $ 1,629,332 $ 1,053,821 $ 902,017
------------- ------------ ------------
Cost of goods sold ........................................... 1,397,121 865,346 740,092
Selling, general and administrative expenses ................. 125,101 86,571 66,266
Impairment of long lived assets .............................. 22,600 -- --
1,544,822 951,917 806,358
------------- ------------ ------------
Operating income ............................................. 84,510 101,904 95,659
Interest expense, net of interest income of $5,685, $3,987,
and $1,556 ................................................. 77,581 39,850 22,150
Loss on sale of receivables .................................. 4,700 4,533 6,246
Other (income) expense ....................................... (678) 113 --
------------- ------------ ------------
Income from continuing operations before income taxes ........ 2,907 57,408 67,263
Income tax expense (benefit) ................................. 12,998 24,442 (139,959)
------------- ------------ ------------
Income from continuing operations ............................ (10,091) 32,966 207,222
Income (loss) from discontinued operations, net of income
taxes of $2,835, $9,317 and $844 .......................... 4,306 14,468 (781)
Gain on sale of discontinued operations, net of income
taxes of $85,358 .......................................... 161,741 -- --
------------- ------------ ------------
Income before extraordinary loss ............................. 155,956 47,434 206,441
Extraordinary loss, net of income taxes of $443, $4,709 and $0 (721) (6,610) --
------------- ------------ ------------
Net income ................................................... $ 155,235 $ 40,824 $ 206,441
============= ============ ============
Net income (loss) per basic common share:
Continuing operations .................................... $ (0.15) $ 0.48 $ 2.96
Discontinued operations .................................. 0.06 0.21 (0.01)
Gain on sale of discontinued operations .................. 2.44 -- --
Extraordinary item ....................................... (0.01) (0.10) --
------------- ------------ ------------
Net income ............................................... $ 2.34 $ 0.59 $ 2.95
============= ============ ============
Net income (loss) per diluted common share:
Continuing operations .................................... $ (0.15) $ 0.47 $ 2.91
Discontinued operations .................................. 0.06 0.21 (0.01)
Gain on sale of discontinued operations .................. 2.44 -- --
Extraordinary item ....................................... (0.01) (0.10) --
------------- ------------ ------------
Net income ............................................... $ 2.34 $ 0.58 $ 2.90
============= ============ ============
Average common shares outstanding:
Basic .................................................... 66,337 68,997 70,015
============= ============ ============
Diluted .................................................. 66,337 69,887 71,181
============= ============ ============
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 27, DECEMBER 28,
1997 1996
------------------ ------------------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 24,004 $ 14,314
Accounts and other receivables, net of allowances of $9,275 and
$10,380.................................................................. 198,125 200,763
Inventories.................................................................. 142,042 121,971
Net assets of discontinued operations........................................ 53,004 263,523
Other........................................................................ 92,116 128,762
------------------ ------------------
Total current assets..................................................... 509,291 729,333
Property, plant and equipment, net.............................................. 388,087 351,282
Deferred tax assets............................................................. 59,293 91,690
Goodwill, net................................................................... 263,007 283,271
Other assets.................................................................... 82,714 74,713
------------------ ------------------
$ 1,302,392 $ 1,530,289
================== ==================
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable................................................................ $ 1,314 $ 1,920
Current maturities of long-term debt......................................... 30,301 37,565
Accounts payable............................................................. 135,468 123,899
Accrued expenses............................................................. 148,201 176,147
------------------ ------------------
Total current liabilities................................................ 315,284 339,531
Long-term debt.................................................................. 752,376 1,138,029
Other, including postretirement benefit obligation.............................. 301,582 247,307
Commitments and contingencies...................................................
Common Stockholders' Deficit:
Common stock (150,000 shares authorized, 70,521 shares issued
and 65,851 shares outstanding at December 27, 1997, 70,521 705 705
shares issued and 67,723 shares outstanding at December 28, 1996)
Other paid-in capital........................................................ 585,890 585,207
Accumulated deficit.......................................................... (576,851) (729,315)
Foreign currency translation adjustments..................................... (29,123) (20,798)
Pension equity adjustment.................................................... (10,700) (10,165)
Treasury stock, at cost (4,670 shares at December 27, 1997 and 2,798
shares at December 28, 1996).............................................. (36,771) (20,212)
------------------ ------------------
Total common stockholders' deficit....................................... (66,850) (194,578)
------------------ ------------------
$ 1,302,392 $ 1,530,289
================== ==================
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 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
---------------- --------------- ----------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
OPERATING ACTIVITIES
Income (loss) from continuing operations............................... $ (10,091) $ 32,966 $ 207,222
Adjustments to derive cash flow from continuing operating activities:
Impairment of long lived assets..................................... 22,600 - -
Deferred income tax expense (benefit)............................... 4,251 12,228 (149,822)
Depreciation and leasehold amortization............................. 42,712 24,457 24,146
Goodwill amortization............................................... 6,669 3,872 270
Amortization of other assets and liabilities........................ 7,592 7,545 5,995
(Increase) decrease in accounts and other receivables............... 35,819 (22,333) 2,762
(Increase) decrease in inventories.................................. (8,078) (1,006) 5,593
Increase (decrease) in interest and dividends payable............... (520) 7,784 1,353
Increase (decrease) in accounts payable............................. (4,126) (8,734) 2,136
Other, net.......................................................... 2,053 332 (21,548)
---------------- --------------- ----------------
Net cash provided by continuing operating activities.............. 98,881 57,111 78,107
---------------- --------------- ----------------
Cash provided by (used in) Wallcoverings, Floorcoverings, Airbag and
the Mastercraft Group discontinued operations (4,719) (2,631) 24,861
Cash used in other discontinued operations............................. (12,252) (6,160) (22,886)
---------------- --------------- ----------------
Net cash provided by (used in) discontinued operations............ (16,971) (8,791) 1,975
---------------- --------------- ----------------
INVESTING ACTIVITIES
Additions to property, plant and equipment............................. (71,775) (78,454) (93,698)
Sales of property, plant and equipment................................. 5,879 4,119 2,733
Proceeds from sale-leaseback arrangements.............................. - - 32,818
Acquisitions of businesses, net of cash acquired....................... 3,447 (225,256) (190,338)
Net proceeds from disposition of discontinued operations............... 562,100 - -
Other, net ............................................................ (92,534) (10,198) (5,507)
---------------- --------------- ----------------
Net cash provided by (used in) investing activities............... 407,117 (309,789) (253,992)
---------------- --------------- ----------------
FINANCING ACTIVITIES
Issuance of long-term debt............................................. 12,235 453,475 213,658
Proceeds from (reduction of) participating interests in
accounts receivable, net of redemptions............................. (13,000) 7,000 (17,000)
Repayment and defeasance of long-term debt............................. (261,416) (286,406) (18,979)
Net borrowings (repayments) on revolving credit facilities............. (194,000) 127,804 5,000
Purchases of treasury stock............................................ (19,715) (9,594) (11,736)
Other, net ............................................................ (3,441) (17,473) 627
---------------- --------------- ----------------
Net cash provided by (used in) financing activities............... (479,337) 274,806 171,570
---------------- --------------- ----------------
Increase (decrease) in cash and cash equivalents....................... 9,690 13,337 (2,340)
Cash and cash equivalents at beginning of year......................... 14,314 977 3,317
---------------- --------------- ----------------
Cash and cash equivalents at end of year............................... $ 24,004 $ 14,314 $ 977
================ =============== ================
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 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)
Compensation expense adjustment..... - 683 - - - - 683
Net income.......................... - - 155,235 - - - 155,235
Purchase of treasury stock (2,245
shares).......................... - - - - - (19,715) (19,715)
Exercise of stock options (373 shares) - - (2,771) - - 3,156 385
Foreign currency translation
adjustments...................... - - - (8,325) - - (8,325)
Pension equity adjustment........... - - - - (535) - (535)
--------- ----------- -------------- ------------ ------------ ------------ -----------
BALANCE AT DECEMBER 27, 1997 $ 705 $ 585,890 $ (576,851) $ (29,123) $ (10,700) $ (36,771) $ (66,850)
========= =========== ============== ============ ============ ============ ===========
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. As of December 27, 1997,
Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella
Partners L.P. ("WP Partners") and their respective affiliates collectively own
approximately 82% of the common stock of the Company.
The Company conducts all of its operating activities through its
wholly-owned Collins & Aikman Products Co. ("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 1997 presentation and are primarily
related to the reclassification of JPS Automotive L.P.'s ("JPS Automotive")
discontinued airbag and industrial fabric operation ("Airbag"). 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 - Fiscal 1997 was a 52-week year which ended on December
27, 1997. 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 was a 52-week year which ended on January 27,
1996. See Note 5.
EARNINGS (LOSS) PER SHARE - Basic earnings per share is based on income
available to common shareholders divided by the weighted average number of
common shares outstanding. Diluted earnings per share is 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.
Diluted potential common shares include shares issued upon the assumed exercise
of employee stock options less the number of treasury shares assumed to be
purchased from the proceeds, including applicable compensation expense. See Note
25.
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. In June 1996, the Financial Accounting Standards Board
("FASB") 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. The Company adopted
the provisions of SFAS No. 125 on December 29, 1996. The Company's Receivables
Facility complies with the provisions of SFAS No. 125, and, accordingly,
adoption of this statement did not have a material impact on the Company's
consolidated financial position or results of operations.
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 27, 1997 and
December 28, 1996 included $1.2 million and $0.5 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 liability
insurance. The Company's reserves for these claims were determined based upon
actuarial analyses and aggregated $21.3 million and $18.0 million at December
27, 1997 and December 28, 1996, respectively. Of these reserves, $4.7 million
were classified in current liabilities at December 27, 1997 and December 28,
1996.
F-6
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. During the third quarter of fiscal 1997,
Collins & Aikman Plastics, Inc. ("C&A Plastics"), a wholly-owned subsidiary of
the Company, incurred charges of $31.3 million for provisions for certain
programs operating at a loss, inventory adjustments, certain previously deferred
costs and other provisions. These charges primarily related to manufacturing
inefficiencies experienced by C&A Plastics related to product launches and
record volume for its products. In addition, the recoverability of C&A Plastics'
assets and goodwill was evaluated and the Company determined that the carrying
values of certain assets and the goodwill allocated to two of its manufacturing
facilities were impaired. Accordingly, the Company wrote down fixed assets by
$5.1 million and the carrying value of goodwill was reduced by $17.5 million.
The adjustments were determined based on management's estimate of the future
cash flows generated by the assets and their values.
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 a period of forty years. Amortization of goodwill
applicable to continuing operations for fiscal years 1997 and 1996 was $6.7
million and $3.9 million, respectively. Accumulated amortization at December 27,
1997 and December 28, 1996 was $10.9 million, and $4.2 million, respectively.
The carrying value of goodwill at an enterprise level is reviewed periodically
based on the non-discounted cash flows and pretax income of the entities
acquired over the remaining amortization periods. At December 27, 1997, the
Company believes the recorded value of goodwill in the amount of $263.0 million
is fully recoverable. See Note 3.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company utilizes derivative
financial instruments to manage risks associated with foreign exchange rate and
interest rate market volatility. Gains and losses on hedges of existing assets
or liabilities are included in the carrying amounts of those assets or
liabilities and are ultimately recognized in income as part of those carrying
amounts. Gains and losses related to qualifying hedges of firm commitments or
anticipated transactions are deferred and are recognized in income or as
adjustments of carrying amounts when the hedged transaction occurs. Gains and
losses on derivative contracts that do not qualify as hedges are recognized
currently in other income (expense). The Company does not hold or issue
derivative financial instruments for trading purposes. See Note 6.
To the extent that a qualifying hedge is terminated or ceases to be
effective as a hedge, any deferred gains and losses up to that point continue to
be deferred and are included in the basis of the underlying transaction. To the
extent that the anticipated transactions are no longer likely to occur, the
related hedges are closed with gains or losses charged to earnings on a current
basis.
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 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.
Gains and losses resulting from foreign currency transactions are
recognized in other income (expense). Recorded balances that are denominated in
a currency other than the functional currency are adjusted to reflect the
exchange rate at the balance sheet date.
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
non-current
F-7
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. The Company adopted the provisions of SOP 96-1 on December 29, 1996.
Adoption of this standard did not have a material impact on the Company's
consolidated financial position or results of operations.
NEWLY ISSUED ACCOUNTING STANDARDS - In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This statement is effective for
fiscal years beginning after December 15, 1997.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that is used internally for evaluating segment performance. This
statement also requires that a public business enterprise report descriptive
information about the way that the operating segments were determined and the
products and services provided by the operating segments. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the impact of this statement on its
disclosure requirements.
3. ACQUISITIONS AND JOINT VENTURES:
On December 4, 1997, the Company entered into a joint venture with
Courtaulds Textiles (Holdings) Limited ("Courtaulds") to manufacture automotive
interior fabrics in the United Kingdom. The Company and Courtaulds each own 50%
of the joint venture. The Company's investment in the joint venture of $5.9
million has been included in other assets in the accompanying December 27, 1997
consolidated balance sheet.
On October 29, 1997, the Company entered into a joint venture with
Kigass Automotive Group ("Kigass") to manufacture automotive interior plastic
trim products in the United Kingdom. The Company and Kigass each own 50% of the
joint venture. The Company's investment in the joint venture of $0.7 million has
been included in other assets in the accompanying December 27, 1997 consolidated
balance sheet. On February 2, 1998, the Company acquired Kigass for
approximately $24.2 million, subject to post closing adjustment. See Note 26.
On August 31, 1997, the Company purchased certain automotive acoustics
assets in Germany and assumed certain liabilities from Perstorp AB ("Perstorp")
for approximately $13.6 million.
On December 11, 1996, the Company acquired Perstorp's automotive supply
operations (primarily acoustical products) in North America, the United Kingdom
and Spain (collectively referred to as "Perstorp Components") for $108 million.
In addition, in December 1996, the Company and Perstorp entered into a joint
venture agreement (the "Collins & Aikman/Perstorp Joint Venture") relating to
Perstorp's automotive supply operations (primarily acoustical and plastic
components) in Sweden, Belgium and France. During 1997, the Company finalized
the purchase price for the Perstorp Components acquisition with the seller. In
settlement of disputed claims by the Company against Perstorp arising from the
December 1996 and August 1997 acquisitions, Perstorp transferred its 50%
interest in the Collins & Aikman/Perstorp Joint Venture to the Company on
December 16, 1997. The Company is in the process of finalizing the allocation of
the purchase price for the newly-acquired interest. Goodwill resulting from
these 1996 and 1997 acquisitions is approximately $25.0 million.
F-8
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 11, 1996, the Company also acquired JPS Automotive for $220
million, 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. The purchase
price allocation related to the JPS Automotive acquisition established certain
reserves related to management's plans to rationalize certain acquired
manufacturing facilities. See Note 16. During 1997, the Company finalized the
purchase price and received approximately $11.2 million from the seller as a
reduction of the purchase price.
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.
On January 3, 1996, the Company completed the acquisition of C&A
Plastics (formerly known as Manchester Plastics) for a purchase price of
approximately $184.0 million, including $40.4 million of debt extinguished in
connection with the acquisition.
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 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.
The acquisitions were accounted for under the purchase method of
accounting. 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 suppliers 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. PRO FORMA INFORMATION:
Set forth below are unaudited pro forma consolidated results from
continuing operations assuming (i) the fiscal 1997 acquisition of Perstorp's
interest in the Collins & Aikman/Perstorp Joint Venture (see Note 3) had
occurred as of the beginning of fiscal 1997 and 1996, (ii) the 1996 acquisitions
of JPS Automotive and Perstorp Components had occurred as of the beginning of
fiscal 1996, and (iii) the issuance of the Subordinated Notes, the application
of the net proceeds to pay down indebtedness and the amendments to the Bank
Credit Facilities (as defined in Note 11) had occurred as of the beginning of
fiscal 1996 (in thousands, except per share amounts):
FISCAL YEAR ENDED
----------------------------------------------------
DECEMBER 27, 1997 DECEMBER 28, 1996
-------------------------- ------------------------
(52 WEEKS) (48 WEEKS)
Net sales.......................................................... $ 1,768,944 $ 1,539,741
Operating income................................................... 89,478 126,870
Interest expense, net.............................................. 80,624 72,406
Loss on the sale of receivables.................................... 4,700 4,533
Income (loss) from continuing operations........................... (8,201) 29,952
Income (loss) from continuing operations per common share:
Per basic common share.......................................... $ (0.12) $ 0.43
Per diluted common share........................................ (0.12) 0.43
Average shares outstanding:
Basic........................................................... 66,337 68,997
Diluted......................................................... 66,337 69,887
F-9
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
After giving effect to the adjustments above, net income (loss) for
fiscal 1997 and 1996 on a pro forma basis would have been $157.1 million and
$42.4 million, respectively.
Set forth below are unaudited pro forma consolidated results from
continuing operations assuming (i) the fiscal 1996 acquisitions of JPS
Automotive and Perstorp Components (see Note 3) had occurred as of the beginning
of fiscal 1996 and 1995, (ii) 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 (iii) the fiscal 1995 acquisitions of C&A
Plastics and Amco (see Note 3) had occurred as of the beginning of fiscal 1995
(in thousands, except per share amounts):
FISCAL YEAR ENDED
---------------------------------------------------------
DECEMBER 28, 1996 JANUARY 27, 1996
---------------------------- --------------------------
(48 WEEKS) (52 WEEKS)
Net sales..................................................... $ 1,414,828 $ 1,554,114
Operating income.............................................. 123,635 136,547
Interest expense, net......................................... 69,088 73,786
Loss on the sale of receivables............................... 4,533 6,246
Income from continuing operations............................. 29,819 196,457
Income from continuing operations:
Per basic common share..................................... $ 0.43 $ 2.81
Per diluted common share................................... 0.43 2.76
Average common shares outstanding:
Basic...................................................... 68,997 70,015
Diluted.................................................... 69,887 71,181
After giving effect to the adjustments above, net income for fiscal
1996 and 1995 on a pro forma basis would have been $42.1 million and $189.3
million, respectively. The extraordinary loss in fiscal 1996 would have been
eliminated because the pro forma adjustments assume that the transaction that
created the extraordinary loss would have occurred at the beginning of the year.
Set forth below are unaudited pro forma consolidated results from
continuing operations assuming (i) the fiscal 1995 acquisitions of C&A Plastics
and Amco (see Note 3) had occurred as of the beginning of fiscal 1995 and 1994
(ii) the July 1994 common stock offering and recapitalization had occurred as of
the beginning of fiscal 1994 (in thousands, except per share amounts):
FISCAL YEAR ENDED
---------------------------------------------------------
JANUARY 27, 1996 JANUARY 28, 1995
------------------------ --------------------------
(52 WEEKS) (52 WEEKS)
Net sales.............................................. $ 1,084,080 $ 1,084,094
Operating income....................................... 99,947 127,365
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 basic common share............................. $ 2.80 $ 1.26
Per diluted common share........................... 2.76 1.26
Average common shares outstanding:
Basic.............................................. 70,015 52,186
Diluted............................................ 71,181 52,186
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 to 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.
F-10
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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 52 and
53-week periods ended December 27, 1997 and December 28, 1996 (in thousands,
except per share amounts):
PERIOD ENDED
--------------------------------------------
DECEMBER 28, 1996
DECEMBER 27, 1997 (UNAUDITED)
(52 WEEKS) (53 WEEKS)
----------------- ------------------
Net sales.......................................................... $ 1,629,332 $ 1,140,027
Operating income................................................... 84,510 108,796
Income (loss) from continuing operations........................... (10,091) 185,008
Income (loss) from discontinued operations......................... 4,306 (6,752)
Gain on sale of discontinued operations............................ 161,741 -
Extraordinary loss................................................. (721) (6,610)
Net income......................................................... 155,235 171,646
Net income (loss) per basic share:
Continuing operations............................................ $ (0.15) $ 2.68
Discontinued operations.......................................... 0.06 (0.10)
Gain on sale of discontinued operations.......................... 2.44 -
Extraordinary loss............................................... (0.01) (0.10)
----------------- ------------------
Net income....................................................... $ 2.34 $ 2.48
================= ==================
Net income (loss) per diluted share:
Continuing operations............................................ $ (0.15) $ 2.65
Discontinued operations.......................................... 0.06 (0.10)
Gain on sale of discontinued operations.......................... 2.44 -
Extraordinary loss............................................... (0.01) (0.10)
----------------- ------------------
Net income....................................................... $ 2.34 $ 2.45
================= ==================
The following information presents comparative data for the 48 and
47-week periods ended December 28, 1996 and December 23, 1995 (in thousands,
except per share amounts):
PERIOD ENDED
--------------------------------------------
DECEMBER 23, 1995
DECEMBER 28, 1996 (UNAUDITED)
(48 WEEKS) (47 WEEKS)
----------------- ------------------
Net sales.......................................................... $ 1,053,821 $ 815,811
Operating income................................................... 101,904 88,767
Income from continuing operations.................................. 32,966 55,180
Income from discontinued operations................................ 14,468 20,440
Extraordinary loss................................................. (6,610) -
Net income......................................................... 40,824 75,620
Net income (loss) per basic share:
Continuing operations............................................ $ 0.48 $ 0.79
Discontinued operations.......................................... 0.21 0.29
Extraordinary loss............................................... (0.10) -
----------------- ------------------
Net income....................................................... $ 0.59 $ 1.08
================= ==================
Net income (loss) per diluted share:
Continuing operations............................................ $ 0.47 $ 0.77
Discontinued operations.......................................... 0.21 0.29
Extraordinary loss............................................... (0.10) -
----------------- ------------------
Net income....................................................... $ 0.58 $ 1.06
================= ==================
F-11
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INTEREST RATE AND FOREIGN CURRENCY PROTECTION PROGRAMS:
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%. In addition, during April 1997, the
Company entered into a two year interest rate swap agreement in which the
Company effectively exchanged $27 million of 11-1/2% fixed rate debt for
floating rate debt at six month LIBOR plus a 4.72% margin. In connection with
this swap agreement, the Company also limited its interest rate exposure by
entering into an 8.50% cap on LIBOR on $27 million of notional principal amount.
Payments to be received, if any, as a result of these agreements are accrued as
an adjustment to interest expense.
The effect of the above interest rate protection agreements on the
operating results of the Company was to decrease interest expense by $0.1
million in fiscal 1997 and increase interest expense by $0.7 million and $0.7
million in fiscal 1996 and 1995, respectively.
The primary purpose of the Company's foreign currency hedging
activities is to protect against the volatility associated with foreign currency
purchase transactions. Corporate policy prescribes the range of allowable
hedging activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months. The Company
has in place forward exchange contracts denominated in multiple currencies which
will mature during fiscal 1998. These contracts, which aggregated a U.S. dollar
equivalent of $13.0 million at December 27, 1997, are to manage the currency
volatility associated with purchase transactions. The fair value of these
contracts approximated the contract value at December 27, 1997.
During April 1997, the Company entered into an agreement to limit its
foreign currency exposure related to $45 million of US dollar denominated
borrowings of a Canadian subsidiary. The agreement swaps LIBOR based interest
rates for the Canadian equivalent as well as fixes the exchange rate for the
principal balance when the remaining amount comes due in 2002. During fiscal
1997, this agreement resulted in reductions of interest expense and other
expenses of approximately $1.7 million. At December 27, 1997, the remaining $18
million of U.S. dollar denominated borrowings of the Canadian subsidiary were
hedged under this agreement. See Note 11.
7. INVENTORIES:
Inventory balances are summarized below (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
------------------ ------------------
Raw materials................................................. $ 72,862 $ 60,438
Work in process............................................... 31,066 26,192
Finished goods................................................ 38,114 35,341
------------------ ------------------
$ 142,042 $ 121,971
================== ==================
8. OTHER CURRENT ASSETS:
Other current asset balances are summarized below (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
------------------ ------------------
Deferred tax assets........................................... $ 33,345 $ 63,911
Prepaid tooling and molds..................................... 32,460 24,319
Other......................................................... 26,311 40,532
------------------ ------------------
$ 92,116 $ 128,762
================== ==================
F-12
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, net, are summarized below (in
thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
------------------ ------------------
Land and improvements......................................... $ 24,177 $ 26,511
Buildings..................................................... 129,507 118,137
Machinery and equipment....................................... 414,136 375,294
Leasehold improvements........................................ 1,830 1,840
Construction in progress...................................... 30,589 19,149
------------------ ------------------
600,239 540,931
Less accumulated depreciation and amortization................ (212,152) (189,649)
------------------ ------------------
$ 388,087 $ 351,282
================== ==================
Depreciation and leasehold amortization of property, plant and
equipment applicable to continuing operations was $42.7 million, $24.5
million, and $24.1 million for fiscal 1997, 1996 and 1995,
respectively.
10. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
------------------ ------------------
Payroll and employee benefits................................. $ 40,181 $ 51,777
Interest...................................................... 15,495 15,023
Other......................................................... 92,525 109,347
------------------ ------------------
$ 148,201 $ 176,147
================== ==================
11. LONG-TERM DEBT:
Long-term debt is summarized below (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
------------------ ------------------
Bank Credit Facilities:
Revolving Credit Facility.................................. $ 10,000 $ 204,000
Term Loan Facility......................................... 17,566 190,333
Term Loan B Facility....................................... 167,380 193,250
Delayed Draw Term Loan..................................... 23,845 53,000
Public Indebtedness:
11-1/2% Senior Subordinated Notes.......................... 400,000 400,000
JPS Automotive 11-1/8% Senior Notes........................ 91,843 117,221
Other......................................................... 72,043 17,790
------------------ ------------------
Total debt.................................................... 782,677 1,175,594
Less current maturities....................................... (30,301) (37,565)
------------------ ------------------
$ 752,376 $ 1,138,029
================== ==================
F-13
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANK CREDIT FACILITIES
The Bank Credit Facilities of C&A Products 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 original principal amount of $195.8 million due in quarterly
installments through December 2002 and (iv) Delayed Draw Term Loan Facility,
which was entered into in December 1996 and is 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, in connection with the acquisition of JPS Automotive,
the Company 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 the Company's Floorcoverings subsidiary ("Floorcoverings").
Additionally, in December 1996, the Company entered into a $200 million Delayed
Draw Term Loan Facility to finance or refinance the purchase of JPS Automotive
Senior Notes. As of December 11, 1997, the Company was no longer entitled to
draw additional funds against the Delayed Draw Term Loan Facility. At December
27, 1997, the Delayed Draw Term Loan Facility outstanding balance was $23.8
million, and is due in quarterly installments of approximately $2.2 million
beginning in July 1999 and ending January 2002. The $23.8 million was drawn 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.
The Company used the majority of the proceeds received from the 1997
dispositions of the discontinued operations (described in Note 15 below) to
repay indebtedness. In conjunction with the February 1997 disposition of
Floorcoverings, the Company applied approximately $100.0 million of the net
proceeds to the Revolving Credit Facility and $30.0 million of such proceeds
against the Receivables Facility (see Note 12). Under the terms of the credit
agreement, the Company was required to apply approximately $78.4 million of the
proceeds received in the Mastercraft Group disposition as repayment of the Term
Loan Facility and the Term Loan B Facility (together the "Term Loan
Facilities"). In December 1997, the Company repaid $88.5 million under the Term
Loan Facility (including $27.0 million on the Canadian facility), $13.5 million
on the Term Loan B Facility and $13.0 million on the Delayed Draw Term Loan
Facility. As a result of these repayments, the Company is not required to make
quarterly installments on the Term Loan Facilities until 1999.
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. Dividends paid are limited 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 year and amounts representing net
proceeds from the sale of Imperial Wallcoverings Inc. subsidiary
("Wallcoverings"). In addition, the Bank Credit Facilities provide for mandatory
prepayments with certain excess cash flows of the Company and certain other
transactions. After giving effect to waivers obtained for fiscal 1997, the
Company was in compliance with all restrictive covenants at December 27, 1997.
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
F-14
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revolving Credit Facility and the Delayed Draw Term Loan Facility, at December
27, 1997, 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 27, 1997 was 8.0%.
The Company had a total of $229.0 million of borrowing availability
under the Bank Credit Facilities and other credit lines as of December 27, 1997.
The total is comprised of approximately $217.8 million under the Revolving
Facility, approximately $10.9 million under demand lines of credit in Canada and
Austria and approximately $0.3 million under a C&A Plastics demand line of
credit. At December 27, 1997, the Company had approximately $22.1 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, dividends to stockholders of the Company or stock repurchases in the
amount of the net proceeds from the sale of Wallcoverings 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 11-1/8% Senior Notes due 2001 (the "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 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. In
addition, JPS Automotive repurchased $23 thousand of JPS Automotive Senior notes
in conjunction with an offer to purchase as a result of the 1997 sale of the
Airbag subsidiary. See Note 15. In addition, during 1997, JPS Automotive
purchased $19.4 million of JPS Automotive Senior Notes in the open market. These
notes were subsequently retired. 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.
OTHER INDEBTEDNESS:
The Company has outstanding indebtedness totaling approximately $49.8
million at its subsidiaries operating in Sweden, Belgium and France constituting
the former operations of the Collins & Aikman/Perstorp Joint Venture. This debt
consists of: (i) a 120 million Swedish krona loan ($15.5 million at December 27,
1997), which bears interest at the Stockholm interbank offered rate for Krona -
denominated deposits ("STIBOR") plus 0.75% and is secured by a pledge of the
operating assets of the Swedish operating subsidiary; (ii) a 108 million Swedish
krona loan ($13.9 million at December 27, 1997), which bears interest at STIBOR
plus 0.75% and is due in June 1998; (iii) a 100 million Swedish krona loan
($12.9 million at December 27, 1997), which bears interest at
F-15
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STIBOR plus 1% and was repaid in February 1998; and (iv) a 200 million Belgium
franc loan ($5.5 million at December 27, 1997), which bears interest at the
Brussels interbank offered rate for deposits denominated in Belgian francs
("BIBOR") plus 1% and is secured by a pledge of the operating assets of the
Belgian operating subsidiary. In addition, Perstorp has provided a loan in the
amount of 75 million Belgian francs ($2.0 million at December 27, 1997), to the
Belgian subsidiary, which bears interest at BIBOR plus 1% and is due on August
1, 1998.
At December 27, 1997, the scheduled annual maturities of long-term debt
are as follows (in thousands):
FISCAL YEAR ENDING
December 1998........................................ $ 30,301
December 1999........................................ 28,205
December 2000........................................ 59,877
December 2001........................................ 128,859
December 2002........................................ 80,903
Later Years.......................................... 454,532
---------
$ 782,677
=========
Total interest paid by the Company on all indebtedness was $93.0
million, $60.0 million, and $45.8 million for fiscal 1997, 1996 and 1995,
respectively.
12. RECEIVABLES FACILITY:
During fiscal 1994, 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").
On March 31, 1995, C&A Products repaid the Bridge Receivables Facility
and entered, through a 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 the "Sellers. The certificates represent the right to receive
payments generated by the receivables held by the trust.
In connection with the proposed disposition by the Company of
Wallcoverings, as discussed in Note 15, Wallcoverings was terminated as a Seller
of receivables under the Receivables Facility on September 21, 1996. Also, in
connection with the sale of Floorcoverings, as discussed in Note 15,
Floorcoverings was terminated as a Seller of receivables under the Receivables
Facility on February 6, 1997. On March 25, 1997, the Trust redeemed $30.0
million face value of term certificates primarily as a result of the Trust
collecting Wallcoverings and Floorcoverings receivables which were not replaced
with eligible receivables. In connection with the sale of the Mastercraft Group,
as discussed in Note 15, effective July 16, 1997, receivables generated by
members of the Mastercraft Group ceased to be sold and Ack-Ti-Lining, Inc., a
member of the Mastercraft Group, was terminated as a Seller of receivables under
the Receivables Facility. On November 25, 1997, the Trust redeemed $30.0 million
face value of term certificate as a result of the Trust collecting Mastercraft
receivables which were not replaced with eligible receivables. Effective June 2,
1997, C&A Plastics and its subsidiaries and the domestic operations of Amco were
added as Sellers of receivables under the Receivables Facility.
Availability under the variable funding certificates at any time
depends primarily on the amount of receivables generated by the Sellers from
sales to the automotive 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
27, 1997 approximately $75.0 million was available under the variable funding
certificates, of which $72.0 million was utilized. As of December 27, 1997,
$50.0 million of the term certificates remained outstanding.
In connection with the receivables sales, losses of $4.7 million, $4.5
million, and $6.2 million were incurred for continuing operations in fiscal
1997, 1996, and 1995 respectively.
F-16
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 27, 1997 and December 28, 1996, Carcorp's total
receivables pool was $193.4 million and $178.0 million, respectively. As of
December 27, 1997 and December 28, 1996, the holders of term certificates and
variable funding certificates collectively had invested $122.0 million and
$135.0 million, respectively, 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 and other receivables
balances as of those dates.
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 the Company sold
and leased back equipment utilized in its manufacturing operations. During
fiscal 1995, equipment of its continuing operations having aggregate net book
values totaling $18.8 million was removed from the balance sheet and gains
realized on the sale totaling approximately $.1 million, were deferred and are
being recognized as an adjustment 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 $5.6 million, $4.0 million and $4.6
million for fiscal 1997, 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 the lessor's approval.
At December 27, 1997, future minimum lease payments under operating
leases for continuing operations are as follows (in thousands):
FISCAL YEAR ENDING
December 1998........................................ $ 18,606
December 1999........................................ 17,427
December 2000........................................ 15,409
December 2001........................................ 13,862
December 2002........................................ 12,374
Later years........................................... 11,892
------------
$ 89,570
============
Rental expense of continuing operations under operating leases was
$15.4 million, $15.2 million, and $13.2 million for fiscal 1997, 1996 and 1995,
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.
F-17
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net periodic pension cost of continuing operations for fiscal 1997,
1996 and 1995 includes the following components (in thousands):
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
----------------- ------------------ -----------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Service cost................................................. $ 7,294 $ $4,043 $ 3,341
Interest cost on projected benefit obligation and
service cost.............................................. 9,640 6,905 6,218
Actual gain on assets........................................ (13,027) (11,066) (9,446)
Net amortization and deferral................................ 3,475 4,773 4,922
----------------- ------------------ -----------------
Net periodic pension cost.................................... $ 7,382 $ 4,655 $ 5,035
================= ================== =================
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets, excluding
Wallcoverings, Floorcoverings, Airbag, and the Mastercraft Group at December 27,
1997 and December 28, 1996 (in thousands):
DECEMBER 27, 1997 DECEMBER 28, 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..................... $ (31,255) $ (94,945) $ (24,633) $ (81,046)
================= ================== ================= ==================
Accumulated benefit obligation................ $ (32,356) $ (102,789) $ (25,417) $ (89,982)
================= ================== ================= ==================
Projected benefit obligation.................. (34,151) (107,644) (28,068) (95,995)
Plan assets at fair value......................... 39,791 82,259 35,923 73,382
----------------- ------------------ ----------------- ------------------
Projected benefit obligation less than (in
excess of) plan assets....................... 5,640 (25,385) 7,855 (22,613)
Unrecognized net loss (gain)...................... (113) 17,995 (1,401) 13,700
Prior service amounts not yet recognized in
net periodic pension cost....................... 1,649 (2,107) 907 (2,664)
Adjustment required to recognize minimum
liability....................................... - (12,175) - (7,359)
----------------- ------------------ ----------------- ------------------
Pension asset (liability) recognized in the
consolidated balance sheets ................... $ 7,176 $ (21,672) $ 7,361 $ (18,936)
================= ================== ================= ==================
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 7.0% and 7.6% at December 27, 1997 and December 28, 1996,
respectively. The weighted average expected rate of increase in future
compensation levels is 4.5% and 5.4%, respectively, and the expected long-term
rate of return on plan assets was 9% in fiscal 1997 and 1996.
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 27, 1997
and December 28, 1996 include an intangible pension asset of $0.2 million; an
additional minimum pension liability of $10.9 million and $10.4 million,
respectively; and a contra-equity balance of $10.7 million and $10.2 million,
respectively. These amounts relate to all operations of the Company and are
reflected in the Company's consolidated balance sheets.
F-18
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 specified in the plan
documents. Contributions related to continuing operations were $3.5 million,
$2.8 million and $2.7 million for fiscal 1997, 1996 and 1995, 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 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
------------------- ------------------- ---------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Service cost................................................. $ 1,204 $ 769 $ 670
Interest cost on accumulated postretirement
benefit obligation........................................ 4,362 1,756 1,884
Net amortization............................................. (2,345) (934) (1,206)
------------------- ------------------- ---------------
Net periodic postretirement benefit cost..................... $ 3,221 $ 1,591 $ 1,348
=================== =================== ===============
The following table sets forth the amount of net postretirement benefit
obligation included in the Company's consolidated balance sheets, excluding
Wallcoverings, Floorcoverings, Airbag, and the Mastercraft Group (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
--------------- ----------------
Retirees....................................................................... $ 41,077 $ 35,217
Fully eligible active plan participants........................................ 11,637 8,814
Other active plan participants................................................. 14,373 10,176
--------------- ----------------
Accumulated postretirement benefit obligation.................................. 67,087 54,207
Unrecognized prior service gain from plan amendments........................... 12,455 13,942
Unrecognized net gain.......................................................... 8,325 11,781
--------------- ----------------
Net postretirement benefit obligation.......................................... $ 87,867 $ 79,930
=============== ================
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% at December 27, 1997 and 7.5% at
December 28, 1996. The Company does not fund its postretirement benefit plans.
For purposes of the December 27, 1997 and December 28, 1996 valuations,
a 9% and a 10%, 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 27, 1997 by $1.1
million and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $0.1 million.
F-19
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in the United States. 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 July 24, 1997, JPS Automotive completed the sale of Airbag to Safety
Components International, Inc. for a purchase price of $56.3 million, subject to
adjustment. No gain or loss was recorded on the sale since the sales price
approximated the acquisition fair value of Airbag. Pursuant to the indenture
governing the JPS Automotive Senior Notes, in connection with the sale of
Airbag, the Company caused JPS Automotive to make an offer to purchase (up to
the amount of the net proceeds from the sale) the JPS Automotive Senior Notes at
100% of their principal amount. Pursuant to such offer (which expired September
16, 1997), JPS Automotive repurchased and retired $23 thousand principal amount
of JPS Automotive Senior Notes. During October 1997, the Company caused JPS
Automotive to use a portion of the proceeds remaining from the sale of Airbag to
make a distribution of $35.0 million to C&A Products, as permitted under the
restricted payments provisions of the JPS Automotive Senior Notes indenture.
See Note 11.
On July 16, 1997, the Company completed its sale of the Mastercraft
Group for a purchase price of approximately $310 million, subject to adjustment.
A portion of the net proceeds from the sale was used to reduce the Company's
long-term debt. The sale resulted in a net after-tax gain of $97.5 million.
On February 6, 1997, the Company completed the sale of its
Floorcoverings subsidiary for $195.6 million and the net proceeds were used to
pay down debt incurred to finance the Company's automotive strategy. The sale
resulted in a net after-tax gain of $85.3 million.
On April 9, 1996, the Company announced a proposed plan to spin off
Wallcoverings to the Company's stockholders in the form of a stock dividend. On
October 28, 1997, the Company announced that it received a proposal for the
acquisition of Wallcoverings and was reviewing all its options with respect to
Wallcoverings. On November 5, 1997, the Company announced that it entered into
an agreement to sell Wallcoverings to a company sponsored by an affiliate of
Blackstone Partners. The transaction closed on March 13, 1998. See Note 26.
The Company has accounted for the financial results and net assets of
Airbag, 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.
Net sales of discontinued operations in fiscal 1997, 1996 and 1995 were
$200.4 million, $443.3 million and $594.7 million, respectively. The following
information relates to income (loss) from discontinued operations, net of income
taxes (in thousands):
FISCAL YEAR ENDED
-----------------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
------------------ ------------------- -------------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Mastercraft Group $ 3,401 $ 6,376 $ 8,406
Floorcoverings 518 7,598 14,094
Airbag 387 145 -
Wallcoverings - 349 (23,281)
------------------ ------------------- -------------------
$ 4,306 $ 14,468 $ (781)
================== =================== ===================
Wallcoverings incurred operating losses subsequent to April 29, 1996
which were charged to the Company's existing discontinued operations reserves.
Wallcoverings' operating losses were in excess of management's forecasted
expectations as of the date of discontinuance but within previously established
accruals. Included in the loss on sale of Wallcoverings discussed above were
expected operating losses to be incurred through the date of disposition.
Included in Wallcoverings' first quarter 1995 loss were $9.9 million in charges
related to the consolidation of distribution activities
F-20
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the first quarter of 1995.
Net interest expense of discontinued operations (including amounts
attributable to discontinued operations) was $12.5 million, $26.7 million and
$26.5 million in fiscal 1997, 1996 and 1995, respectively. Interest expense of
$12.6 million, $26.5 million and $25.4 million during fiscal 1997, 1996, and
1995, 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, 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 1997, 1996 and 1995, amounts allocated to discontinued
operations for the loss on sale of receivables totaled $.6 million, $2.2 million
and $2.4 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 27, 1997 as follows (in thousands):
Minimum Lease Sublease Rental
Fiscal Years Ending Payments Receipts
- ----------------------------------------------------------- -------------- ---------------
December 1998............................................... $ 6,551 $ 2,750
December 1999............................................... 5,040 3,078
December 2000............................................... 3,168 3,060
December 2001............................................... 2,500 2,542
December 2002............................................... 2,106 2,321
Later years................................................. 10,512 11,746
-------------- --------------
$ 29,877 $ 25,497
============== ==============
16. FACILITY CLOSING COSTS:
In January 1996, 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 until 1997 due to
construction delays at the new Knoxville distribution center which became
operational in 1997.
In connection with the acquisition of JPS Automotive, the Company
eliminated certain redundant sales and administrative functions, closed one
manufacturing facility in 1997 and finalized plans to exit two additional
manufacturing facilities in 1998. In addition, the Company is in the process of
relocating certain manufacturing processes from a facility acquired from JPS
Automotive to an existing facility. These actions affect approximately 640
employees. Original estimates of the total costs accrued for the shutdown of
facilities and severance and other personnel costs were $2.2 million and $7.0
million, respectively. During 1997, the Company revised these estimates upon
finalization of the plans and increased the accruals for the shutdown of
facilities and severance and other personnel costs to $2.7 million and $7.7
million, respectively.
The components of the reserves for these facilities are as follows (in
thousands):
REMAINING RESERVE
ORIGINAL RESERVE CHANGES IN RESERVE DECEMBER 27,1997
---------------------------- --------------------------- ---------------------------
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.......... 3,259 2,766 (430) (1,902) 2,829 864
Anticipated severance benefits.......... 8,061 1,410 (3,214) (1,285) 4,847 125
--------- ------------- ----------- ------------- ----------- ------------
$ 11,705 $ 9,897 $ (4,029) $ (8,908) $ 7,676 $ 989
========= ============= =========== ============= =========== ============
F-21
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. STOCK OPTION PLANS:
The 1994 Employee Stock Option Plan ("1994 Plan") was adopted as a
successor to the 1993 Employee Stock Option 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 27, 1997, options representing 1,897,379 shares of
common stock were available for grants.
Effective February 23, 1995, the Company adopted the 1994 Directors
Stock Option Plan which provides for the issuance of options to acquire a
maximum of 600,000 shares of common stock to directors who are not part of
management and are not affiliated with a major stockholder. As of December 27,
1997, 70,000 options had been granted.
Stock option activity under the plans is as follows:
DECEMBER 27, 1997 DECEMBER 28, 1996 JANUARY 27, 1996
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER OF AVERAGE NUMBER AVERAGE
OF EXERCISE SHARES EXERCISE OF EXERCISE
SHARES PRICE PRICE SHARES PRICE
------------ ------------ ------------ ------------ ------------ ------------
Outstanding beginning of year............ 3,287,106 $ 5.25 3,298,036 $ 5.12 3,096,802 $ 4.64
Awarded.................................. 584,000 8.33 145,000 6.71 431,500 8.21
Cancelled................................ (83,127) 6.46 (19,492) 4.10 (135,003) 4.79
Exercised................................ (370,210) 4.70 (69,022) 3.99 (95,263) 3.99
Surrendered.............................. (685,574) 5.57 (67,416) 3.99 -
------------ ------------ ------------
Outstanding at end of year............... 2,732,195 $ 5.86 3,287,106 $ 5.25 3,298,036 $ 5.12
============ ============ =============
At December 27, 1997, December 28, 1996 and January 27, 1996,
1,858,685, 2,709,094 and 1,251,887, respectively, of the outstanding options
were exercisable at a weighted average price of $4.78, $4.74 and $4.66,
respectively.
Of the total options outstanding at December 27, 1997, 1,508,324 have
an exercise price in the range of $3.99 and $4.43 with a weighted average
exercise price of $4.00 and a weighted average contractual life of 6 years.
These options are currently exercisable at a weighted average exercise price of
$4.00. The remaining 1,223,871 of total options outstanding at December 27, 1997
have an exercise price in the range of $6.00 and $11.75 with a weighted average
exercise price of $8.16 and a weighted average contractual life of 8 years;
350,361 of these options are currently exercisable at a weighted average
exercise price of $8.15. Upon a change of control, as defined, all of the above
options become fully vested and exercisable.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. 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 continue to utilize the accounting provisions of 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 amounts):
F-22
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEAR ENDED
-------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
--------------- --------------- --------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Net income:
As reported.................................... $ 155,235 $ 40,824 $ 206,441
Pro forma...................................... 154,525 40,261 206,148
Basic EPS:
As reported.................................... $ 2.34 $ 0.59 $ 2.95
Pro forma...................................... 2.33 0.58 2.94
Diluted EPS:
As reported.................................... $ 2.34 $ 0.58 $ 2.90
Pro forma...................................... 2.33 0.58 2.90
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 1997, 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 1997, 1996 and 1995 was $5.41, $4.32 and $5.27,
respectively.
Because the 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.
18. INCOME TAXES:
The provisions for income taxes applicable to continuing operations for
fiscal 1997, 1996 and 1995 are summarized as follows (in thousands):
FISCAL YEAR ENDED
---------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
------------------- ------------------ ----------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Current
Federal.......................................... $ - $ 250 $ 1,330
State............................................ 2,600 2,006 2,293
Foreign.......................................... 6,147 9,958 6,240
------------------- ------------------ ----------------
8,747 12,214 9,863
Deferred
Federal.......................................... 4,833 9,871 (140,705)
State............................................ 882 1,811 (9,050)
Foreign.......................................... (1,464) 546 (67)
------------------- ------------------ ----------------
4,251 12,228 (149,822)
------------------- ------------------ ----------------
Income tax expense (benefit)........................ $ 12,998 $ 24,442 $ (139,959)
=================== ================== ================
Domestic and foreign components of income from continuing operations
before income taxes are summarized as follows (in thousands):
FISCAL YEAR ENDED
---------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
------------------- ------------------ ----------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Domestic......................................... $ (4,545) $ 25,905 $ 53,545
Foreign.......................................... 7,452 31,503 13,718
------------------- ------------------ ----------------
$ 2,907 $ 57,408 $ 67,263
=================== ================== ================
F-23
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
------------------ ------------------ -----------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
Amount at statutory Federal rate...................... $ 1,017 $ 20,093 $ 23,542
State taxes, net of Federal income tax................ 2,263 2,481 1,490
Tax differential on foreign earnings.................. 123 (698) 925
Foreign losses with no tax benefit.................... 1,436 176 447
Foreign dividend income............................... - 410 800
Amortization and write-down of goodwill............... 7,770 1,243 95
Other................................................. 389 737 1,250
Change in valuation allowance......................... - - (168,508)
------------------ ------------------ -----------------
Income tax expense (benefit).......................... $ 12,998 $ 24,442 $ (139,959)
================== ================== =================
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 assets as of December 27,
1997 and December 28, 1996 were as follows (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
--------------- ---------------
Deferred tax assets:
Employee benefits, including postretirement benefits..................... $ 35,041 $ 54,512
Net operating loss carryforwards......................................... 41,796 101,099
Investment tax credit carryforwards...................................... 2,200 4,200
Alternative minimum tax credits.......................................... 12,650 8,500
Other liabilities and reserves........................................... 81,018 71,125
Valuation allowance...................................................... (40,586) (44,277)
--------------- ----------------
Total deferred tax assets........................................... 132,119 195,159
Deferred tax liabilities:
Property, plant and equipment............................................ (50,245) (39,146)
Undistributed earnings of foreign subsidiaries........................... (7,226) (7,600)
--------------- ---------------
Total deferred tax liabilities...................................... (57,471) (46,746)
--------------- ---------------
Net deferred tax asset .................................................... $ 74,648 $ 148,413
=============== ================
The valuation allowance at December 27, 1997 and 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.
During fiscal 1997 the valuation allowance decreased $3.7 million from
fiscal 1996. This decrease resulted primarily from the expiration of tax credits
and restricted net operating loss carryforwards. During fiscal 1996, the
valuation allowance decreased $7.3 million from fiscal 1995.
The above amounts have been classified in the consolidated balance
sheets as follows (in thousands):
DECEMBER 27, DECEMBER 28,
1997 1996
--------------- --------------------
Deferred tax assets (liabilities):
Current, included in other current assets......................... $ 33,345 $ 63,911
Current foreign, included in accrued expenses..................... (395) -
Noncurrent........................................................ 59,293 91,690
Noncurrent foreign, included in other noncurrent
liabilities..................................................... (17,595) (7,188)
---------------- --------------------
$ 74,648 $ 148,413
================ ====================
F-24
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 then 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 previously unrecognized net
deferred tax assets totaling approximately $150 million would be realized.
Similarly, management concluded that it was more likely than not that net
deferred tax assets of $74.6 million and $148.4 million at December 27, 1997 and
December 28, 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.
At December 27, 1997, 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................................. $ 17,124 2000-2009
Postacquisition, unrestricted.......................................... 102,294 2008-2011
--------------
$ 119,418
==============
Net operating losses - alternative minimum tax
Preacquisition, subject to limitations................................. $ 14,948 2000-2009
Postacquisition, unrestricted.......................................... 35,836 2008-2011
--------------
$ 50,784
==============
Investment tax and other credits
Preacquisition, subject to limitations................................. $ 2,200 1998-2006
==============
Alternative minimum tax credits........................................ $ 12,650
==============
The above amounts include the tax attributes of Wallcoverings. In
addition, the Company's net deferred tax assets at December 27, 1997 include
amounts related to Wallcoverings. At December 28, 1996, the amounts attributable
to Wallcoverings were excluded since they would not have been available to the
Company under the proposed spin-off plan contemplated at that time.
Approximately $17.1 million of the Company's NOLs and $2.2 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. 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.
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 $19.6 million. In the opinion of
management, the final determination of any
F-25
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 future operations.
Income taxes paid, net of refunds, were $40.4 million, $10.4 million,
and $13.5 million for fiscal 1997, 1996 and 1995, respectively.
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's continuing operations'
financial instruments are summarized as follows (in thousands):
DECEMBER 27, 1997 DECEMBER 28, 1996
-------------------------------- -------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- -------------
Long-term investments........................ $ 3,125 $ 3,125 $ 3,255 $ 3,255
Interest rate protection agreements.......... - 296 - -
Long-term debt............................... 782,675 838,975 1,176,219 1,214,919
The following methods and assumptions were used to estimate these fair
values:
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.
Carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts and other receivables, accounts payable and
accrued expenses approximate fair value due to the short-term nature of these
instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore, cannot be determined with precision changes in
assumptions could significantly affect these estimates.
20. RELATED PARTY TRANSACTIONS:
During fiscal 1997, the Company incurred fees and expenses for services
performed by Blackstone Partners and WP Partners, or their respective
affiliates, in connection with the dispositions of Floorcoverings, Mastercraft
Group and Wallcoverings of approximately $2.6 million, $4.0 million, and $0.8
million, respectively. During fiscal 1996, the Company incurred fees and
expenses 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 $2.7 million, $1.2 million and $0.8 million,
respectively. 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 C&A 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.
On November 5, 1997, the Company announced that it entered into an
agreement to sell Wallcoverings to a company sponsored by an affiliate of
Blackstone Partners. The transaction was approved by a special committee of the
Company's Board of Directors composed of independent directors. The sale closed
on March 13, 1998. See Notes 15 and 26.
Under the Amended and Restated Stockholders' Agreement among the
Company, 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 in quarterly
installments.
F-26
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. 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:
1997 1996 1995
---- ---- ----
General Motors Corporation....................... 37.1% 34.0% 33.3%
Ford Motor Company............................... 14.2% 15.4% 16.6%
Chrysler Corporation............................. 16.2% 21.1% 18.2%
Information about the Company's continuing operations in different
geographic areas for fiscal 1997, 1996 and 1995 is presented below (in
thousands). These amounts have been restated to reflect Floorcoverings,
Wallcoverings, Airbag and the Mastercraft Group as discontinued operations (see
Note 15):
UNITED OTHER DISCONTINUED
STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -------------- ---------------
FISCAL 1997
Net sales.............................. $ 1,089,114 $ 348,056 $ 71,706 $ 120,456 $ - $ 1,629,332
Operating income (a)................... 35,875 23,166 20,980 4,489 - 84,510
Depreciation and amortization (b)...... 37,928 10,332 2,722 5,991 - 56,973
Identifiable assets ................... 787,118 217,649 36,164 208,457 53,004 1,302,392
Capital expenditures .................. 38,576 13,797 660 3,488 15,254 71,775
UNITED OTHER DISCONTINUED
STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -------------- ---------------
FISCAL 1996
Net sales.............................. $ 716,710 $ 233,334 $ 74,287 $ 29,490 $ - $ 1,053,821
Operating income (a)................... 43,542 38,599 18,686 1,077 - 101,904
Depreciation and amortization (b)...... 28,862 3,734 2,133 1,145 - 35,874
Identifiable assets ................... 907,275 235,064 38,771 85,656 263,523 1,530,289
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
(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. Corporate services
provided by the Company have been allocated to the business units based
on a combination of estimated use and the relative sales of the business
units to the total consolidated operations of the Company.
(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 1997, 1996 and 1995, export sales from the United States to foreign
countries were $136.7 million, $69.9 million and $77.8 million, respectively.
As of December 27, 1997, the Company's continuing operations employed
approximately 15,100 persons on a full-time or full-time equivalent basis.
Approximately 4,600 of such employees are represented by labor unions.
Approximately 3,000 employees are represented by collective bargaining
agreements that expire during fiscal 1998.
F-27
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. 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 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 27, 1997, 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 25 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 27,
1997, the Company's estimate of its liability for these 34 sites, which exclude
sites related to Wallcoverings, is approximately $33.8 million. As of December
27, 1997, the Company has established reserves of approximately $46.5 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 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
The Company and its subsidiaries have 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.
F-28
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER COMMITMENTS
The majority of the leased properties of the Company's previously
divested businesses have been assigned to third parties. Although releases have
been obtained from the lessors of certain properties, C&A Products 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-29
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. 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, Airbag
and the Mastercraft Group as discontinued operations.
FISCAL 1997
-------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- --------------
(3 MONTHS) (3 MONTHS) (3 MONTHS) (3 MONTHS)
Net sales as previously reported..................... $ 432,252 $ 416,018 $ 368,008 $ 429,746
Less discontinued operations......................... 16,692 - - -
-------------- -------------- -------------- --------------
Net sales as restated................................ $ 415,560 $ 416,018 $ 368,008 $ 429,746
============== ============== ============== ==============
Gross margin as previously reported.................. $ 72,331 $ 72,189 $ 16,953 $ 72,824
Less discontinued operations......................... 2,086 - - -
-------------- -------------- -------------- --------------
Gross margin as restated............................. $ 70,245 $ 72,189 $ 16,953 (a) $ 72,824
============== ============== ============== ==============
Income (loss) from continuing operations as
previously reported ............................ $ 11,307 $ 11,600 $ (57,919) $ 9,046
Less discontinued operations......................... 42 - - -
-------------- -------------- -------------- --------------
Income (loss) from continuing operations as
restated........................................... $ 11,265 $ 11,600 $ (57,919) (a) $ 9,046
============== ============== ============== ==============
Income before extraordinary loss..................... $ 97,478 $ 15,481 $ 33,951 $ 9,046
============== ============== ============== ==============
Net income .......................................... $ 97,478 $ 14,760 $ 33,951 $ 9,046
============== ============== ============== ==============
Basic earnings per share............................. $ 1.45 $ 0.22 $ 0.51 $ 0.14
============== ============== ============== ==============
Diluted earnings per share........................... $ 1.43 $ 0.22 $ 0.50 $ 0.14
============== ============== ============== ==============
Common stock prices
High............................................... $ 10-1/2 $ 12-1/8 $ 11-11/16 $ 11-3/16
============== ============== ============== ==============
Low................................................ $ 6 $ 8-5/8 $ 10 $ 7-15/16
============== ============== ============== ==============
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 2,110
-------------- -------------- -------------- --------------
Net sales as restated................................ $ 282,933 $ 275,698 $ 293,202 $ 201,988
============== ============== ============== ==============
Gross margin as previously reported.................. $ 77,956 $ 69,739 $ 71,868 $ 30,817
Less discontinued operations......................... 25,460 16,900 19,346 199
-------------- -------------- -------------- --------------
Gross margin as restated............................. $ 52,496 $ 52,839 $ 52,522 $ 30,618
============== ============== ============== ==============
Income (loss) from continuing operations as
previously reported ............................ $ 14,786 $ 11,804 $ 13,697 $ (2,110)
Less discontinued operations......................... 1,610 1,346 2,110 145
-------------- -------------- -------------- --------------
Income (loss) from continuing operations as
restated........................................... $ 13,176 $ 10,458 $ 11,587 $ (2,255)
============== ============== ============== ==============
Income before extraordinary loss..................... $ 15,142 $ 15,521 $ 15,922 $ 849
============== ============== ============== ==============
Net income .......................................... $ 15,142 $ 8,911 $ 15,922 $ 849
============== ============== ============== ==============
Basic and diluted earnings per share................. $ 0.22 $ 0.13 $ 0.23 $ 0.01
============== ============== ============== ==============
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
============== ============== ============== ==============
(a) In the third quarter of 1997, the Company incurred charges of $57.9 million
primarily related to C&A Plastics for asset impairments, reductions in
goodwill, provisions for certain programs operating at a loss, inventory
adjustments and other provisions. Of the $57.9 million in charges, $34.0
million is included in cost of goods sold, $22.6 million as impairment of
long-lived assets and $1.3 million relates to selling costs.
The Company's operations are not subject to significant seasonal
influences.
F-30
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24. 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 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
--------------- ------------- ---------------
Current assets.............................................. $ 508,864 $ 728,586 $ 455,729
Noncurrent assets........................................... 792,199 800,594 534,389
Current liabilities......................................... 315,268 339,519 231,898
Noncurrent liabilities...................................... 1,051,376 1,382,754 984,698
Net sales................................................... 1,629,332 1,053,821 902,017
Gross margin................................................ 232,211 188,475 161,925
Income from continuing operations........................... (10,338) 32,768 207,900
Income before extraordinary item............................ 155,709 47,236 207,119
Net income ................................................. 154,988 40,626 207,119
The consolidated financial information for fiscal 1997 and 1996 has
been restated to reflect Airbag as a discontinued operation. 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.
25. EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," (SFAS No. 128)
in December 1997. Basic earnings per common share were computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per common share were determined assuming the
exercise of the stock options issued under the Company's stock option plans (see
Note 17). The following table reconciles the number of common shares used in the
basic and diluted earnings per share from continuing operations.
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996 JANUARY 27, 1996
---------------------------------- --------------------------------- ---------------------------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
PER-SHARE PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- -------- ---------- ---------- -------- --------- ---------- -------- ---------
BASIC EARNINGS PER SHARE $ (10,091) 66,337 $ (0.15) $ 32,966 68,997 $ 0.48 $ 207,222 70,015 $ 2.96
Effect of stock option
plans - - - - 890 (0.01) - 1,166 (0.05)
----------- -------- ---------- ---------- -------- --------- ---------- -------- ---------
DILUTED EARNINGS PER
SHARE $ (10,091) 66,337 $ (0.15) $ 32,966 69,887 $ 0.47 $ 207,222 71,181 $ 2.91
=========== ======== ========== ========== ======== ========= ========== ======== =========
F-31
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has restated earnings per share for fiscal years 1996 and
1995 to conform to SFAS No. 128. The effect of this accounting change on
previously reported earnings per share data for income from continuing
operations is as follows:
FISCAL YEAR ENDED
----------------------------------
DECEMBER 26, JANUARY 27,
1996 1996
---------------- -------------
PER SHARE AMOUNTS:
Primary earnings per share as
previously reported $ 0.47 $ 2.91
Effect of SFAS No. 128 0.01 0.05
---------------- -------------
Basic earnings per share $ 0.48 $ 2.96
================ =============
26. SUBSEQUENT EVENTS
As discussed in Note 3, the Company acquired Kigass on February 2,
1998. The total purchase price for the acquisition was approximately $24.2
million, subject to adjustment. Kigass is a privately-held, automotive interior
plastic products manufacturer headquartered in the United Kingdom. Under the
terms of the agreement, the Company assumed effective control of Kigass on
January 1, 1998. The Company had previously entered into a joint venture
agreement with Kigass in October 1997.
On March 13, 1998, the Company completed its sale of Wallcoverings to
an affiliate of Blackstone Partners for a purchase price of $71.2 million,
subject to adjustment, and an option for 6.7% of the common stock of the
purchaser (which includes Wallcoverings and the wallcovering and vinyl units of
Borden, Inc.) outstanding as of the closing date. In connection with the sale,
the Company recorded a loss of approximately $21.1 million, net of an estimated
tax benefit of $33.0 million, in the third quarter of 1997 to adjust the
recorded value to the expected proceeds. Accordingly, no gain or loss was
recognized at the sale date.
F-32
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 9, 1998 (except with respect to the matters discussed in Note 26
to those financial statements, as to which the date is March 13, 1998). 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 9, 1998.
S-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 27, DECEMBER 28,
ASSETS 1997 1996
----------------- ------------------
Current Assets:
Cash .............................................................. $ 415 $ 747
Other .............................................................. 12 -
----------------- ------------------
Total current assets.............................................. 427 747
Other assets........................................................... 902 362
----------------- ------------------
$ 1,329 $ 1,109
================= ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities.................................................... $ 16 $ 12
Share of accumulated losses in excess of investments in
subsidiaries ...................................................... 65,581 193,093
Other noncurrent liabilities........................................... 2,582 2,582
Commitments and contingencies (Note 1).................................
Common stock........................................................... 705 705
Other stockholders' deficit............................................ (67,555) (195,283)
----------------- ------------------
Total stockholders' deficit....................................... (66,850) (194,578)
----------------- ------------------
$ 1,329 $ 1,109
================= ==================
The Notes to the Condensed Financial Statements
are an integral part of these condensed financial statements.
S-2
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FISCAL YEAR ENDED
-------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
----------------- ---------------- -----------------
Other expenses....................................................... $ (589) $ (592) $ (1,023)
Interest income...................................................... 836 790 345
----------------- ---------------- -----------------
Income (loss) from operations before equity in income of subsidiary 247 198 (678)
Equity in income of subsidiary....................................... 154,988 40,626 207,119
----------------- ---------------- -----------------
Net income........................................................... $ 155,235 $ 40,824 $ 206,441
================= ================ =================
The Notes to the Condensed Financial Statements
are an integral part of these condensed financial statements.
S-3
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
---------------- --------------- ----------------
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities................ $ (332) $ 122 $ (544)
FINANCING ACTIVITIES
Purchases of treasury stock........................................ (19,715) (9,594) (11,736)
Proceeds from exercise of stock options............................ 385 138 382
Intercompany transfers (to) from subsidiary........................ (2,094) 6,104 -
Dividends received from subsidiary................................. 21,424 3,000 12,000
------ ------ ------
Net cash provided by (used in) financing activities................ - (352) 646
------ ------ ------
Net increase (decrease) in cash.................................... (332) (230) 102
Cash at beginning of year.......................................... 747 977 875
------ ------ ------
Cash at end of year................................................ $ 415 $ 747 $ 977
====== ====== =======
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 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
FOR THE FISCAL YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND
JANUARY 27, 1996 (IN THOUSANDS)
BALANCE ADDITIONS CHARGE
AT RESULTING TO COSTS CHARGED BALANCE AT
BEGINNING FROM AND TO OTHER END OF
DESCRIPTION OF YEAR ACQUISITIONS EXPENSES ACCOUNTS DEDUCTIONS YEAR
- -------------------------- ----------- ------------ --------- ---------------- -------------------- ----------
FISCAL YEAR ENDED
DECEMBER 27, 1997
Allowance for doubtful
accounts............... $ 10,380 $ - $ 604 $ 96 (b) $ (1,805) (c) $ 9,275
FISCAL YEAR ENDED
DECEMBER 28, 1996
Allowance for doubtful
accounts............... $ 3,381 $ 6,461 $ 899 $ 37 (b) $ (398) (c) $ 10,380
FISCAL YEAR ENDED
JANUARY 27, 1996 (a)
Allowance for doubtful
accounts............... $ 5,102 $ 166 $ 432 $ 58 (b) $ (2,377) (c) $ 3,381
(a) The amounts for fiscal year ended January 27, 1996 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 other accounts and
uncollectible amounts written off.
S-5