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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 26, 1998
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 $35,174,217 as of March 25, 1999.
As of March 25, 1999, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 61,932,264 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for 1999 Annual Meeting of Stockholders to be filed within
120 days of December 26, 1998 -- Items 10, 11, 12 and 13.*
* Only the portions of this document expressly described in the items listed
are incorporated by reference herein.
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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.
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 23.
Item 8. Financial Statements and Supplementary Data, page 24.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure, page 24.
Item 10. Directors and Executive Officers of the Registrant, page 25.
Item 11. Executive Compensation, page 25.
Item 12. Security Ownership of Certain Beneficial Owners and Management, page 25.
Item 13. Certain Relationships and Related Transactions, page 25.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, page 26.
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 26, 1998, Blackstone Capital Partners, L.P. ("Blackstone
Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their
respective affiliates collectively own approximately 87% 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.
On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North America
Automotive Interior Systems, to be headquartered in the Detroit metro area, and
Europe Automotive Interior Systems, to be headquartered in Germany. The
Reorganization is designed to enable the Company to more effectively respond to
the automotive manufacturers' demand for interior trim systems and more
sophisticated components. In addition, automotive manufacturers are reducing
the number of suppliers and awarding business to suppliers with comprehensive
design and engineering capabilities. The Reorganization will allow the Company
to increase customer service on a global basis and maintain local expertise to
provide specialized sales, marketing, development, design, engineering and
program management services capable of delivering interior systems and
individual components.
As part of the Reorganization, the Company has also established the
Specialty Automotive Products division, which includes the Company's automotive
fabrics and Dura Convertible Systems businesses. These products are not
typically sold in conjunction with the Company's other interior trim offerings.
While the Company expects the Reorganization to be substantially complete
by the end of fiscal 1999, certain elements of the plan are expected to take up
to 24 months to fully implement. The one-time pre-tax costs associated with the
Reorganization are estimated to be between $14 million and $18 million,
including a restructuring charge estimated to be between $8 million and $9
million, which the Company will recognize in the first quarter of fiscal 1999.
The Company estimates that approximately 500 employees will be affected by the
Reorganization, some of whom will be offered other positions within the
Company.
During 1998, the Company, having divested the remainder of its significant
non-automotive operations, completed several strategic corporate development
projects, primarily to increase the Company's presence outside the United
States, all as discussed below.
On August 26, 1998, the Company acquired from a third party the remaining
50% interest in Industrias Enjema, S.A. de C.V. ("Enjema"), 50% of which was
already owned by JPS Automotive L.P. ("JPS Automotive"), a wholly-owned
subsidiary of the Company. The total purchase price for the acquisition was
approximately $1.0 million. Enjema, a carpet systems manufacturer located in
Mexico, is operated as part of the Company's North America Automotive Interior
Systems division. In September 1998, JPS Automotive distributed its 50%
ownership interest in Enjema to the Company. The Company plans to merge Enjema
into its subsidiary, Collins & Aikman de Mexico, S.A. de C.V., in fiscal 1999.
On June 30, 1998, the Company acquired for approximately $4.7 million,
Pepers Beheer B.V., an automotive accessory floormat manufacturer located in
the Netherlands, which has been renamed Collins & Aikman Automotive Floormats
Europe, B.V. ("C&A Floormats Europe"). Under the terms of the purchase
agreement, the Company is required to make additional contingent payments to
the sellers in amounts of up to approximately $3.6 million if C&A Floormats
Europe meets certain operating goals in fiscal 1998 and fiscal 1999. The
Company currently expects to pay into escrow approximately $0.5 million during
1999 for operating goals met in fiscal 1998. This amount will be paid to the
sellers in 2000 provided the Company has no claims for indemnification against
the sellers as of the date of release of the funds. C&A Floormats Europe is
operated as part of the Company's Europe Automotive Interior Systems division.
The Company anticipates that the acquisition will allow it to better serve its
existing European customers, such as Volvo and Ford, as well as the existing
customers of C&A Floormats Europe, including Volkswagen, Audi and Renault.
On March 13, 1998, the Company completed the sale of its Imperial
Wallcoverings, Inc. subsidiary ("Wallcoverings") to an affiliate of Blackstone
Partners for a sales price of $71.9 million and an option for 6.7% of the
common stock of the purchaser (which includes Wallcoverings and the former
wallcovering and vinyl units of Borden, Inc.) outstanding as of the closing
date. The proceeds were used to repay long-term debt. In connection with the
sale, the Company recorded a loss of
1
approximately $21.1 million, net of an estimated income tax benefit, 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.
The Company entered into a joint venture agreement to manufacture plastic
trim products in the United Kingdom with Kigass Automotive Group ("Kigass") in
October 1997 in which the Company and Kigass each owned 50% of the joint
venture. The Company acquired Kigass on February 2, 1998. The purchase price
for the acquisition was approximately $25.2 million. Kigass has been renamed
Collins & Aikman Plastics (UK) Limited ("C&A Plastics UK"). C&A Plastics UK
manufactures automotive interior plastic trim products in the United Kingdom
and is operated as part of the Company's Europe Automotive Interior Systems
division. Under the terms of the purchase agreement, the Company assumed
effective control of C&A Plastics UK on January 1, 1998. C&A Plastics UK's
customers include Nissan, Opel and Rover.
In 1996, the Company acquired Collins & Aikman Plastics, Inc., formerly
known as Manchester Plastics ("C&A Plastics"), JPS Automotive L.P. ("JPS
Automotive") and the automotive supply operations (primarily acoustical
products) of Perstorp A.B. ("Perstorp") in North America, the United Kingdom
and Spain. The Company also entered into a joint venture including Perstorp's
acoustics operations in Sweden, Belgium and France (the "Collins &
Aikman/Perstorp Joint Venture) in December 1996. The Company and Perstorp each
owned 50% of the joint venture. The Company also acquired certain of Perstorp's
German operations (the "German Operations") in August 1997 and the remaining
interest in the Collins & Aikman/Perstorp Joint Venture in December 1997. The
Company entered into an automotive fabrics joint venture with Courtaulds
Textiles (Holdings) Limited ("Courtaulds") in December 1997. These acquisitions
and joint venture, together with the acquisitions in 1998 discussed above,
significantly increased the Company's content per build through growth in
existing product lines and the addition of complementary product offerings.
General
The Company is a global supplier of automotive interior systems, including
textile and plastic trim, acoustics and convertible top systems, with 1998 net
sales of approximately $1.8 billion. The Company operates through three
divisions: North America Automotive Interior Systems, Europe Automotive
Interior Systems and Specialty Automotive Products. The Company's North America
Automotive Interior Systems and Europe Automotive Interior Systems divisions
compete in five principal product lines -- molded floor carpet, acoustical
products, luggage compartment trim, accessory floormats, and plastic-based
interior trim systems. The Company's Specialty Automotive Products division
competes in automotive fabrics and convertible top systems.
The Company's North America Automotive Interior Systems and Europe
Automotive Interior Systems divisions sell principally to automotive original
equipment manufacturers ("OEMs"). The Specialty Automotive Products division
sells automotive fabrics to other automotive suppliers, including suppliers
with which the Company competes in certain product lines. Convertible top
systems, also marketed through the Specialty Automotive Products division, are
sold directly to OEMs. The majority of customers for all three divisions are
located in the North American and European markets.
Approximately 20% of the Company's sales for 1998 were attributable to
products utilized in vehicles built outside of North America, compared to
approximately 10% in 1997. The change in sales mix is attributable to the
Company's acquisitions in the United Kingdom, Germany, Sweden, France, Belgium
and the Netherlands. The Company's North American content per build was
approximately $89 in 1998 and 1997 and $68 in 1996. The Company's content per
build in Europe increased to approximately $17 in 1998, compared to
approximately $8 in 1997. This increase is primarily due to higher European
sales resulting from the Company's 1997 and 1998 acquisitions.
The Company is dependent on certain significant customers. In 1998, 1997
and 1996, direct and indirect sales to each of General Motors Corporation, Ford
Motor Company and DaimlerChrysler A.G. 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 trends in the driving age population and
disposable 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 15.2 million units. For the last five years, European light vehicle
sales averaged 15.7 million units, from a low of 14.1 million in 1994 to a high
of 17.8 million in 1998.
Although the Company's operations are not subject to significant seasonal
influences, the Company has historically experienced sales declines during the
OEMs' scheduled summer shut-downs usually occurring in the third quarter of the
year.
2
Products
The Company's North America Automotive Interior Systems and Europe
Automotive Interior Systems divisions include the following product groups:
molded floor carpet, acoustical products, luggage compartment trim, accessory
floormats and plastic-based interior trim systems. The Specialty Automotive
Products division includes automotive fabrics and convertible top systems. The
Company also produces certain other automotive and non-automotive products. The
Company's automotive products are used primarily in automobiles and light
trucks.
Molded Floor Carpet. Molded floor carpets include polyethylene,
barrier-backed and molded urethane underlay carpet. In 1998, 1997 and 1996, the
Company's net sales of molded floor carpets were $417.0 million, $384.7 million
and $234.7 million, respectively.
Acoustical Products. 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. Products include interior dash insulators, damping materials and
engine compartment NVH (noise, vibration and harshness) systems. Acoustical
products can be combined with molded floor carpets to provide complete interior
floor systems. In 1998 and 1997, the Company's net sales of acoustical products
were $225.1 million and $167.8 million, respectively.
Luggage Compartment Trim. Luggage compartment trim includes one-piece
molded trunk systems and assemblies, wheelhouse covers and center pan mats,
seatbacks, tireboard covers and other trunk trim products. In 1998, 1997 and
1996, the Company's net sales of luggage compartment trim were $95.9 million,
$101.0 million and $56.8 million, respectively.
Accessory Floormats. Accessory automotive floormats include rubber-backed,
carpeted floormats typically installed to preserve the quality of original
floor carpets. In 1998, 1997 and 1996, the Company's net sales of accessory
floormats were $157.2 million, $139.3 million and $114.5 million, respectively.
The Company did not have floormat operations in Europe prior to its acquisition
of C&A Floormats Europe in June 1998. The Company also produces residential and
commercial floormats.
Plastic-based Interior Trim Systems. The Company manufactures automotive
door panels, headrests, floor console systems and instrument panel components.
At the beginning of 1998, the Company acquired C&A Plastics UK, which increased
the Company's capacity to provide plastic-based trim and systems in Europe. The
Company's net sales of plastic-based interior trim systems in 1998, 1997 and
1996 were $417.5 million, $294.6 million and $176.4 million, respectively.
Automotive Fabrics. The Company's automotive fabrics operations produce a
wide variety of automotive seat fabric ("bodycloth"), including flat-wovens,
velvets and knits, and headliner fabric. The Company also laminates foam to
bodycloth. In 1998, 1997 and 1996, the Company had net sales of automotive
fabrics of $267.2 million, $319.0 million and $246.1 million, respectively. The
Company also manufactures certain other products, including velvet furniture
fabrics, casket liners and woven fabrics for various commercial and industrial
markets.
Convertible Top Systems. The Company designs and manufactures convertible
top systems through for vehicles built in North America and Europe. In October
1993, the Company 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. The Company's net sales of
convertible top systems in 1998, 1997 and 1996 were $104.3 million, $88.8
million and $105.1 million, respectively.
For further discussion on the Company's operating segments, including each
segment's revenues from external customers, operating income and total assets,
see Note 21 to the Consolidated Financial Statements.
Competition
The automotive supply business is highly competitive. The Company has
competitors in respect of each of its automotive products, some of which 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 associated with vehicle build in North America and
Europe, a failure to obtain purchase orders for new or redesigned models,
pricing pressure from the major automotive companies and a shift in consumer
taste away from products that the Company manufactures.
3
Working Capital
The Company's working capital consists of investments in accounts
receivable and inventory and balances of accounts payable which are typical for
automotive suppliers. Accounts receivable are primarily concentrated with large
companies such as General Motors, Ford, DaimlerChrysler and Toyota, whom have
historically paid within terms. Inventories are typically built for specific
customer purchase orders and delivered on a just-in-time ("JIT") basis. The
Company maintains normal terms and conditions with its vendors.
Facilities
At December 26, 1998, the Company had 65 manufacturing, warehouse and
other facilities located in the U.S., Canada, Mexico, the United Kingdom,
Spain, Austria, Germany, Sweden, Belgium, France, the Netherlands and Japan
aggregating approximately 10.4 million square feet. Approximately 84% of the
total square footage of these facilities is owned and the remainder is leased.
Many facilities are strategically located to provide 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. Due to increasing demand for accessory
floormats and resulting capacity issues in 1997, additional capacity was added
to the Company's Tennessee plant during 1998 which alleviated the situation.
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.
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 26, 1998, the Company's continuing operations employed
approximately 15,900 persons on a full-time or full-time equivalent basis.
Approximately 5,400 of such employees are represented by labor unions.
Approximately 2,200 employees are represented by collective bargaining
agreements that expire during 1999. Management believes that the Company's
relations with its employees and with the unions that represent certain of them
are generally good. The Reorganization is expected to affect approximately 500
employees, some of whom will be offered other positions within the Company.
Year 2000 Issues
For a discussion of the impact of Year 2000 compliance issues, see "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 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.
4
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 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 26, 1998, 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 24 sites where the Company is participating
in the investigation or remediation of the site, either directly or through
financial contribution, and 8 additional sites where the Company is alleged to
be responsible for costs of investigation or remediation. As of December 26,
1998, the Company's estimate of its liability for the 32 sites is approximately
$24.6 million. As of December 26, 1998, the Company has established reserves of
approximately $41.8 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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
5
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 24, 1999, there were 133
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 1998 Fiscal 1997
------------------- ----------------------
High Low High Low
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First Quarter .......... 9 11/16 7 11/16 10 1/2 6
Second Quarter ......... 9 1/2 6 13/16 12 1/8 8 5/8
Third Quarter .......... 7 1/2 6 3/16 11 11/16 10
Fourth Quarter ......... 7 7/16 4 15/16 11 3/16 7 15/16
On March 1, 1999, the Company paid a special dividend of approximately
$6.2 million, representing $0.10 per share on all outstanding shares of Common
Stock held by stockholders of record at the close of business on February 22,
1999. No other 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
Fiscal Year Ended
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December 26, December 27, December 28, January 27, January 28,
1998 1997 1996 (1) 1996 1995
-------------- -------------- -------------- ------------- ------------
(in thousands, except per share data)
Statement of Operations Data:
Net sales ........................................ $1,825,469 $1,629,332 $ 1,053,821 $ 902,017 $ 906,997
Gross margin ..................................... 248,225 233,160 188,475 161,925 172,487
Selling, general and administrative expenses ..... 142,724 119,381 82,699 65,996 68,304
Goodwill amortization ............................ 7,023 6,669 3,872 270 --
Impairment of long-lived assets (2) .............. -- 22,600 -- -- --
Operating income ................................. 98,478 84,510 101,904 95,659 104,183
Interest expense, net (3) ........................ 82,004 77,581 39,850 22,150 44,440
Loss on sale of receivables (4) .................. 6,066 4,700 4,533 6,246 6,124
Income from continuing operations before
income taxes .................................... 5,193 2,907 57,408 67,263 51,361
Income tax expense (benefit) ..................... 5,284 12,998 24,442 (139,959) 10,031
Income (loss) from continuing operations ......... (91) (10,091) 32,966 207,222 41,330
Income (loss) from discontinued operations,
including disposals, net of income taxes ........ -- 166,047 14,468 (781) 34,416
Income (loss) before extraordinary items ......... (91) 155,956 47,434 206,441 75,746
Net income (loss) ................................ (3,815) 155,235 40,824 206,441 (30,782)
Income (loss) from continuing operations:
Per basic share ................................. -- (0.15) 0.48 2.96 (1.06)
Per diluted share ............................... -- (0.15) 0.47 2.91 (1.06)
Balance Sheet Data (at period end):
Total assets ..................................... $1,382,211 $1,302,392 $ 1,530,289 $ 991,361 $ 578,900
Long-term debt, including current portion ........ 866,049 772,934 1,175,594 759,966 557,039
Common stockholders' deficit ..................... (79,771) (66,850) (194,578) (227,852) (412,622)
Other Data (from Continuing Operations):
Capital expenditures ............................. $ 95,847 $ 56,521 $ 35,000 $ 53,156 $ 56,193
Depreciation and leasehold amortization .......... 52,608 42,712 24,457 24,146 24,648
EBITDA (5) ....................................... 167,547 165,950 134,299 124,086 128,831
- - ---------
(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.
(3) Excludes amounts allocated to discontinued operations totaling $12.5
million, $26.7 million, $26.5 million and $31.2 million in 1997, 1996,
1995 and 1994, respectively. No amounts were allocated to discontinued
operations in 1998.
(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. No amounts were allocated to discontinued
operations in 1998.
(5) 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.
7
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Recent Developments
Dividend
On March 1, 1999, the Company paid a special dividend of approximately
$6.2 million, representing $0.10 per share on all outstanding shares of Common
Stock held by stockholders of record as of the close of business on February
22, 1999. The dividend reduced the amount authorized by the Company's Board of
Directors for the Company's 1999 share repurchase program from $25 million to
approximately $19 million.
Reorganization
On February 10, 1999, the Company announced the Reorganization, a
comprehensive plan to reorganize the Company's global automotive carpet,
acoustics, plastics and accessory floormats businesses into two divisions:
North America Automotive Interior Systems, to be headquartered in the Detroit
metro area, and Europe Automotive Interior Systems, to be headquartered in
Germany. The Reorganization is designed to enable the Company to more
effectively respond to the automotive manufacturers' demand for interior trim
systems and more sophisticated components. In addition, automotive
manufacturers are reducing the number of suppliers and awarding business to
suppliers with comprehensive design and engineering capabilities. The
Reorganization will allow the Company to increase customer service on a global
basis and maintain local expertise to provide specialized sales, marketing,
development, design, engineering and program management services capable of
delivering interior systems and individual components.
As part of the Reorganization, the Company also established the Specialty
Automotive Products division, which includes the Company's automotive fabrics
and Dura Convertible Systems businesses. These products are not typically sold
in conjunction with the Company's other interior trim offerings.
While the Company expects the Reorganization to be substantially complete
by the end of fiscal 1999, certain elements of the plan are expected to take up
to 24 months to fully implement. The one-time pre-tax costs associated with the
Reorganization are estimated to be between $14 million and $18 million,
including a restructuring charge estimated to be between $8 million and $9
million, which the Company will recognize in the first quarter of fiscal 1999.
The Company estimates that approximately 500 employees will be affected by the
Reorganization, some of whom will be offered other positions within the
Company.
Acquisitions
On February 2, 1998, the Company acquired the remaining interest in C&A
Plastics UK, with operations in the United Kingdom. The purchase price for the
acquisition was approximately $25.2 million. Under the terms of the purchase
agreement, the Company assumed effective control of C&A Plastics UK on January
1, 1998. C&A Plastics UK is operated as part of the Company's Europe Automotive
Interior Systems division.
On June 30, 1998, the Company acquired C&A Floormats Europe, an automotive
accessory floormat manufacturer located in the Netherlands for approximately
$4.7 million. C&A Floormats Europe is operated as part of the Company's Europe
Automotive Interior Systems division.
On August 26, 1998, the Company acquired the remaining interest in Enjema,
50% of which was already owned by JPS Automotive. The total purchase price for
the acquisition was approximately $1.0 million. Enjema, a carpet systems
manufacturer located in Mexico, is operated as part of the Company's North
America Automotive Interior Systems division. In September 1998, JPS Automotive
distributed its 50% ownership interest in Enjema to the Company. The Company
plans to merge Enjema into its subsidiary, Collins & Aikman de Mexico, S.A. de
C.V., in fiscal 1999.
Discontinued Operations
On March 13, 1998, the Company completed its sale of Wallcoverings to an
affiliate of Blackstone Partners for a sales price of $71.9 million and an
option for 6.7% of the common stock of the purchaser (which includes
Wallcoverings and the former wallcovering and vinyl units of Borden, Inc.)
outstanding as of the closing date. The proceeds were used to repay long-term
debt. In connection with the sale, the Company recorded a loss of approximately
$21.1 million, net of an estimated income tax benefit, 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.
8
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 1998 were $1,825.5 million compared to $1,629.3 million in
fiscal 1997. During 1996, the Company changed its 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. 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 and European vehicle
production. Management believes the long-term trends in the design and
manufacture of automotive products include increased use of plastic components,
increased sourcing of interior systems and increased reliance of automotive
manufacturers on fewer suppliers, utilizing primarily those suppliers who can
provide comprehensive engineering and design capabilities. The Company
anticipates the reduction in the supply chain could result in integration
whereby the complete interior of an automobile is co-designed and developed by
suppliers who will also manufacture, deliver and potentially install interior
systems. As a result of these trends, the Company has undertaken the
Reorganization, a comprehensive plan designed to allow the Company to better
serve its customers through the creation of two divisions, North America
Automotive Interior Systems and Europe Automotive Interior Systems, to produce
interior systems products, including molded floor carpet, luggage compartment
trim, acoustical products, accessory floormats and plastic-based interior trim
systems. As part of the Reorganization, the Company also established the
Specialty Automotive Products division, which manufactures products that are
not typically sold in conjunction with other interior trim offerings.
Results of Operations
1998 Compared to 1997
The Divisions
The Company operates three divisions, with seven primary product lines.
Certain prior year product line sales data have been reclassified to conform
with reporting of the Company's three divisions created in the Reorganization.
For additional information regarding the Company's divisions, see Note 21 to
the Consolidated Financial Statements.
North America Automotive Interior Systems
Net Sales: Net sales for the North America Automotive Interior Systems division
increased 1.1% to $1,065.5 million in 1998, up $11.9 million from 1997. This
increase is due in part to the acquisition of Enjema, which generated sales of
$8.3 million. A strike at General Motors during the second and third quarters
of 1998 negatively impacted sales by $37.1 million. Strikes at DaimlerChrysler
and General Motors in the second quarter of 1997 negatively impacted sales by
$10.7 million. Sales for the division's product lines are discussed below:
Molded Floor Carpet: Molded floor carpet sales for the division increased
6.8% to $376.2 million in 1998, up $24.1 million from 1997. The sales increase
was due to higher sales to the Dodge Durango, General Motors Alero/Grand Am and
Toyota Sienna. Sales also increased due to the acquisition of Enjema, which
generated molded floor carpet sales of $6.3 million in 1998. These increases
were offset by decreased sales to General Motors as a result of the strike.
Acoustical Products: Acoustical products sales for the division increased
7.6% to $105.0 million in 1998, up $7.4 million from 1997. The increase is due
to increased sales to Ford for the F-350 truck and to Mercedes for the M-Class
sport utility vehicle. These increases were offset by decreased sales to the
Ford Contour/Mystique and Explorer.
Luggage Compartment Trim: Luggage compartment trim sales for the division
decreased 26.9% to $72.0 million in 1998, down $26.4 million from 1997. Sales
increased $2.0 million due to the Enjema acquisition and increased sales to the
Dodge Durango and Chysler LH. These increases were offset by decreased sales to
the discontinued Ford Thunderbird, Honda Accord and Nissan Sentra.
Accessory Floormats: Accessory floormats sales for the division increased
5.8% to $147.4 million, up $8.1 million from 1997. The sales increase is due to
increased sales to the General Motors C/K Truck series, including the Suburban
and Tahoe, the Ford Explorer, Honda Accord and Toyota Sienna, offset by
decreased sales to the General Motors Park Avenue, Chrysler Ram truck, Nissan
Maxima and Toyota Corolla. The General Motors strike also negatively impacted
sales of accessory floormats in 1998.
9
Plastic-based Interior Trim Systems: Plastic-based interior trim systems
sales for the division increased 1.6% to $299.0 million in 1998, up $4.7
million from 1997. The increase in sales was driven by increased sales of
instrument panels to the Cadillac S5S, door trim panels to the General Motors
Alero and C/K Truck series, and climate control systems to the Chrysler L.H.
These increases were offset by decreased sales to several General Motors models
due to the strike.
Other: The North America Automotive Interior Systems division had sales of
other automotive and non-automotive products of $65.9 million and $71.5 million
in 1998 and 1997, respectively.
Operating Income: Operating income for the division increased 86.0% to $74.5
million in 1998, up from $40.1 million in 1997. During the third quarter of
1997, the division 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 in connection with
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 in charges, $34.0 million is included in cost
of goods sold, $22.6 million is included in impairment of long-lived assets and
$1.3 million is included in selling costs. In 1998, the division's operating
income was negatively impacted by the General Motors strike. The division
experienced sales volume losses to General Motors during the strike and also
incurred a number of cost increases as the division resumed production
following the strike. Many of General Motors' post-strike plant start-ups were
erratic, causing the division certain manufacturing inefficiencies and cost
overruns, especially at C&A Plastics. The division also experienced delays in
achieving planned cost reductions due to these strike-related factors.
Manufacturing inefficiencies associated with the closure of the division's
Salisbury, North Carolina, carpet manufacturing operations, which were
relocated to the division's Parker plant in Greenville, South Carolina and
relocation of certain manufacturing operations from the Parker plant to the
division's Albemarle, North Carolina plant, also contributed to the decrease.
The division's floormat operations also incurred a $2.0 million unfavorable
inventory adjustment. In addition, the division incurred increased expenditures
at C&A Plastics in 1998 in connection with improvement programs and increased
costs relating to systems upgrades and Year 2000 compliance efforts. As a
percentage of sales, operating margin for the division increased to 7.0% in
1998 from 3.8% in 1997.
Europe Automotive Interior Systems
Net Sales: Net sales for the Europe Automotive Interior Systems division
increased 180.6% to $338.0 million in 1998, up $217.6 million from 1997. The
increase is primarily due to the acquisitions of the German Operations, the
remaining interest in the Collins & Aikman/Perstorp Joint Venture, C&A Plastics
UK and C&A Floormats Europe. These entities generated combined incremental
sales of $213.1 million in 1998. Sales for the division's product lines are
discussed below:
Molded Floor Carpet: Molded floor carpet sales for the division increased
25.0% to $40.8 million in 1998, up $8.1 million from 1997. Sales increased to
Rover, Ford and Toyota in the United Kingdom, offset by decreased sales to
Chrysler in Austria.
Acoustical Products: Acoustical products sales for the division increased
71.2% to $120.1 million in 1998, up $49.9 million from 1997. This increase is
due to the August 1997 acquisition of the German Operations and the acquisition
of the remaining interest in the Collins & Aikman/Perstorp Joint Venture in
December 1997.
Luggage Compartment Trim: Luggage compartment trim sales for the division
increased to $23.9 million, up from $2.6 million in 1997. The increase is
primarily due to the acquisition of the remaining interest in the Collins &
Aikman/ Perstorp Joint Venture in December 1997.
Accessory Floormats: C&A Floormats Europe, acquired by the Company in June
1998, generated accessory floormat sales of $9.8 million in 1998. The Company
did not have accessory floormats operations in Europe prior to the acquisition
of C&A Floormats Europe.
Plastic-based Interior Trim Systems: The Company's acquisitions of
Perstorp's remaining interest in the operations constituting the former Collins
& Aikman/Perstorp Joint Venture in December 1997 and C&A Plastics UK in January
1998 generated sales of plastic-based interior trim systems of $118.5 million
in 1998. The Company's operations in Spain generated sales of plastic-based
interior systems of $0.2 million in 1998, compared to $0.3 million in 1997.
Other: The Europe Automotive Interior Systems division had sales of other
automotive and non-automotive products of $24.9 million and $15.1 million in
1998 and 1997, respectively.
Operating Income: Operating income for the division increased 107.6% to $9.2
million in 1998, up $4.8 million from 1997. The increase is primarily due to
the acquisitions of the German Operations, the remaining interest in the
Collins & Aikman/
10
Perstorp Joint Venture, C&A Plastics UK and C&A Floormats Europe. These
entities generated combined incremental operating income of $4.1 million in
1998. As a percentage of sales, operating margin decreased to 2.7% in 1998 from
3.6% in 1997, primarily due to costs associated with systems upgrades and Year
2000 compliance efforts incurred in 1998.
Specialty Automotive Products:
Net Sales: Net sales for the Specialty Automotive Products division decreased
7.3% to $422.0 million in 1998, down $33.4 million from 1997. The sales
decrease was primarily due to lower automotive fabric sales as discussed below.
In addition, the General Motors strike in the second and third quarters in 1998
negatively impacted the division's sales by $7.0 million. The strikes at
DaimlerChrysler and General Motors during the second and third quarters of 1997
negatively impacted sales by $6.7 million. Sales for the division's product
lines are discussed below:
Automotive Fabrics: Automotive fabrics sales decreased 16.2% to $267.2
million in 1998, down $51.8 million from 1997. Sales were adversely impacted by
an increased demand for leather seating applications, which management expects
to continue for the forseeable future, program run-outs, an unfavorable mix on
several models and a decrease in build on several key vehicles. Sales increases
to Chrysler for the Caravan/Voyager, General Motors for the Supreme/Intrigue
and Ford Windstar were offset by decreased sales to several General Motors
models, including the Grand Am and C/K Truck series.
Convertible Top Systems: Convertible top systems sales increased 17.5% to
$104.3 million in 1998, up $15.5 million from 1997. The sales increase was
driven by higher sales to the Ford Mustang, General Motors Corvette and the
Chrysler Sebring.
Other: The Specialty Automotive Products division had sales of other
automotive and non-automotive products of $50.4 million and $47.5 million in
1998 and 1997, respectively.
Operating Income: Operating income for the division decreased 62.7% to $14.2
million in 1998, down $23.9 million from 1997. The Company's automotive fabrics
operations experienced unfavorable manufacturing variances resulting from lower
volume, program run-outs and an unfavorable product mix and also incurred
charges related to idle equipment. In addition, the division incurred costs
associated with systems upgrades and Year 2000 compliance efforts. As a
percentage of sales, operating margin decreased to 3.4% in 1998 from 8.4% in
1997.
The Company as a Whole
Net Sales: The Company's net sales increased 12.0% to $1,825.5 million in 1998,
up $196.1 million from 1997, resulting primarily from the factors discussed
above.
Gross Margin: Gross margin for the Company was 13.6% in 1998, down from 14.3%
in 1997. 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 in connection with 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 in 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 was included in selling costs.
Adjusted for certain of the charges taken by C&A Plastics, gross margin was
15.2% in 1997. The decrease in gross margin is due in part to the 1998 General
Motors strike. The Company experienced sales volume losses to General Motors
during the strike and also incurred a number of cost increases as the Company
resumed production following the strike. Many of General Motors' post-strike
plant start-ups were erratic, causing the Company certain manufacturing
inefficiencies and cost overruns, especially at C&A Plastics. The Company also
experienced delays in achieving planned cost reductions due to these
strike-related factors. In addition, manufacturing inefficiencies associated
with the closure of the Company's Salisbury, North Carolina carpet
manufacturing operations, which were relocated to the Company's Parker plant in
Greenville, South Carolina, and relocation of certain manufacturing operations
from the Parker plant to the Company's Albemarle, North Carolina plant also
contributed to the decrease. The Company's automotive fabrics operations
experienced unfavorable manufacturing variances resulting from lower volume,
program run-outs and an unfavorable product mix and also incurred charges
related to idle equipment.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased 18.8% in 1998 to $149.7 million, up from
$126.1 million in 1997. The increase is primarily attributable to the Company's
recent acquisitions of C&A Plastics UK, the German Operations, Perstorp's
remaining interest in the operations constituting the former Collins &
Aikman/Perstorp Joint Venture, C&A Floormats Europe and Enjema. These
operations had combined incremental selling, general and administrative
expenses of $20.6 million. The remaining increase is due to costs associated
with systems
11
upgrades, Year 2000 compliance efforts and increased expenditures at C&A
Plastics in connection with improvement programs. As a percentage of sales,
selling, general and administrative expenses increased to 8.2% in 1998 from
7.7% in 1997. The increase as a percentage of sales is primarily due to lower
sales volumes in automotive fabrics.
Impairment of Long Lived Assets: As previously discussed, during the third
quarter of 1997, C&A Plastics wrote down fixed assets by $5.1 million to net
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 $3.7 million and $5.7 million in 1998 and 1997,
respectively, increased $4.4 million to $82.0 million in 1998 from $77.6
million in 1997. The increase is due to a higher outstanding debt balance in
1998. Total net interest expense, including amounts allocated to discontinued
operations, was $90.1 million in 1997. No amounts were allocated to
discontinued operations in 1998.
Loss on the Sale of Receivables: The Company sells on a continuous basis,
through its Carcorp subsidiary, interests in a pool of accounts receivable. In
connection with the receivables sales, a loss of $6.1 million was recognized in
1998, compared to a loss of $4.7 million in 1997. The increase in the loss on
the sale of receivables is due to an increase in sales. In addition, C&A
Plastics was added as a seller under the Receivables Facility (as hereinafter
defined) during June 1997. Total loss on the sale of receivables, including
amounts allocated to discontinued operations, was $5.3 million in 1997.
Other (Income) Expense: The Company recognized foreign currency transaction
losses of $4.8 million in 1998, compared to $1.9 million in 1997. These losses
incurred in 1998 was primarily due to the strengthening of the U.S. dollar
against the Canadian dollar. Other expense in 1998 also includes the loss from
the Company's joint venture with Courtaulds of $0.1 million. Other income in
1997 also includes income from the Collins & Aikman/Perstorp Joint Venture of
$0.9 million and a $1.7 million gain on the sale of the Borg Textiles division
in the third quarter of 1997.
Income Taxes: The Company recognized a provision for income taxes of $5.3
million in 1998, compared to $13.0 million in 1997. The Company's effective tax
rate in 1998 was 102%, compared to 447% in 1997. The decrease in the Company's
tax expense and effective rate is due primarily to lower non-deductible
goodwill in 1998 compared to 1997, which included the $17.5 million of goodwill
written off by C&A Plastics.
Discontinued Operations: No income from discontinued operations has been
reflected in 1998, as the operations of Wallcoverings prior to its sale were
charged to the Company's discontinued operations reserves. The Company's income
from discontinued operations of $4.3 million in 1997 includes the operations of
the Company's Mastercraft Group and Floorcoverings subsidiary
("Floorcoverings") and JPS Automotive's Air Restraint and Technical Products
Division ("Airbag"). Losses incurred by Wallcoverings from April 29, 1996 to
the date of sale have been charged to the Company's existing discontinued
operations reserves.
As previously discussed, Wallcoverings was sold on March 13, 1998. The Company
recorded a loss of $21.1 million, net of income tax benefits, in September
1997, to adjust the recorded value of Wallcoverings to the expected proceeds.
Accordingly, no gain or loss resulted from the sale of Wallcoverings.
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 $309.5 million, resulting in a gain on the sale of discontinued
operations of $97.5 million, net of income taxes of $65.0 million. The Company
sold Airbag for approximately $56 million. No gain or loss was recorded on the
sale since the sales price approximated the acquisition fair value and book
value of Airbag.
Extraordinary Loss: In 1998, the Company recognized an extraordinary loss
consisting of a non-cash extraordinary charge of $3.6 million, net of income
taxes of $2.4 million, relating to the refinancing of the Company's bank
facilities and a charge of $0.1 million, net of income taxes of $90 thousand,
recognized in connection with the repurchase of $2.6 million principal amount
of JPS Automotive 11 1/8% Senior Notes due 2001 (the "JPS Automotive Senior
Notes") on the market at prices in excess of carrying values. 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.
Net Income (Loss): The combined effect of the foregoing resulted in a net loss
of $3.8 million, compared to net income of $155.2 million in 1997.
12
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 shorter period in 1996. Additional significant
increases in sales and associated costs and expenses resulted from the
Company's 1996 acquisitions. Certain prior years' product line sales data has
been reclassified to conform with reporting of the Company's three divisions
created in the Reorganization. A discussion of the results of operations for
the Company follows:
The Divisions
North America Automotive Interior Systems
Net Sales: Net sales for the North America Automotive Interior Systems division
increased 65.7% to $1,053.5 million in 1997, up $417.9 million from 1996. This
increase is primarily due to the December 1996 acquisitions of JPS Automotive
and Perstorp's automotive supply operations in North America, which together
generated revenues of $215.1 million. Sales for the division's product lines
are discussed below:
Molded Carpet: Molded carpet sales for the division increased 61.2% to
$352.1 million in 1997, up $133.7 million from 1996 sales, primarily as a
result of the JPS Automotive acquisition. 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.
Acoustical Products: The division's acoustical products operations, which
were acquired in December 1996 from Perstorp, contributed $97.6 million in net
sales during 1997, compared to $2.9 million in 1996.
Luggage Compartment Trim: Luggage compartment trim sales for the division
increased 79.5% to $98.4 million, up $43.6 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.
Accessory Floormats: Accessory floormat sales for the division increased
21.6% to $139.3 million in 1997, up $24.8 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.
Plastic-based Interior Trim Systems: Plastic-based interior trim systems
sales for the division 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: The North America Automotive Interior Systems division had sales of
other automotive and non-automotive products of $71.6 million and $68.7 million
in 1997 and 1996, respectively.
Operating Income: Operating income for the division decreased 34.3% to $40.1
million in 1997, down $20.9 million from 1996. During the third quarter of
1997, the division 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 in connection with
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 in charges, $34.0 million is included in cost
of goods sold, $22.6 million is included in impairment of long-lived assets and
$1.3 million is included in selling costs. As a percentage of sales, operating
margin decreased to 3.8% in 1997 from 9.6% in 1996.
Europe Automotive Interior Systems
Net Sales: Net sales for the Europe Automotive Interior Systems division
increased 308.5% to $120.5 million in 1997, up $91.0 million from 1996. This
increase is primarily due to the acquisition of Perstorp's automotive supply
operations in the
13
United Kingdom and Spain and the German Operations, which generated combined
revenues of $90.9 million in 1997. Sales for the division's product lines are
discussed below:
Molded Floor Carpet: Molded floor carpet sales for the division increased
100.5% to $32.6 million in 1997, up $16.3 million from 1996. The increase is
due to the acquisition of Perstorp's automotive supply operations in the United
Kingdom and Spain in December 1996.
Acoustical Products: Acoustical product sales were $70.2 million in 1997,
compared to $2.1 million in 1996. The Company acquired its acoustical products
operations in the United Kingdom and Spain in December 1996 and the German
Operations in August 1997.
Luggage Compartment Trim: Luggage compartment trim sales at the Company's
carpet operations in the United Kingdom increased 31.2% to $2.6 million in
1997, up $0.6 million from 1996. These operations were acquired in May 1996.
Plastic-based Interior Trim Systems: The Company's operations in Spain
generated $0.3 million of sales of plastic-based interior trim systems in 1997.
Other: The Europe Automotive Interior Systems division had sales of other
automotive and non-automotive products of $15.1 million and $9.1 million in
1997 and 1996, respectively.
Operating Income: Operating income for the division increased to $4.5 million
in 1997, up from $1.1 million in 1996. The increase is primarily due to the
acquisitions discussed above. As a percentage of sales, operating margin was
3.7% and 3.6% in 1997 and 1996, respectively.
Specialty Automotive Products
Net Sales: Net sales for the Specialty Automotive Products division increased
17.1% to $455.3 million in 1997, up $66.6 million in 1996. This increase is
primarily due to the December 1997 acquisition of JPS Automotive, which
generated sales of $87.4 million in 1997. Sales for the division's product
lines are discussed below:
Automotive Fabrics: Automotive fabrics sales increased 29.6% to $319.0
million in 1997, up $72.9 million from 1996. An increase in sales resulting
from the acquisition of JPS Automotive was offset by reduced sales for the
Chrysler LH and Minivans and the Ford Contour/Mercury Mystique and Ford
Explorer.
Convertible Top Systems: Convertible top systems sales decreased 15.5% to
$88.8 million, down $16.3 million from 1996, principally due to decreased
production of the Chrysler Sebring and the Ford Mustang convertibles.
Other: The Specialty Automotive Products division also had sales of other
automotive and non-automotive products of $47.5 million and $37.5 million in
1997 and 1996, respectively.
Operating Income: Operating income for the division decreased 3.7% to $38.1
million in 1997, down $1.5 million from 1996. This decrease is primarily due to
the decrease in sales of high margin convertible top systems. As a percentage
of sales, operating margin decreased to 8.4% in 1997, down from 10.2% in 1996.
The Company as a Whole
Net Sales: The Company's net sales increased 54.6% to $1,629.3 million in 1997,
up $575.5 million from 1996, primarily due to the factors discussed above. In
addition, sales to General Motors and Chrysler during 1997 were negatively
impacted by United Auto Workers' strikes in the second quarter of 1997. 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.
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 in
connection with 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's automotive supply
14
operations in North America, the United Kingdom and Spain, the decrease in
sales of higher margin convertible top systems and manufacturing inefficiencies
and product launch costs at C&A Plastics and the Company's North American
floormat operations.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased 45.6% to $126.1 million, up $39.5 million
from 1996. This increase is primarily due to the acquisitions of JPS Automotive
and Perstorp's automotive supply operations in North America, the United
Kingdom and Spain 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: As previously discussed, during the third
quarter of 1997, C&A Plastics wrote down fixed assets by $5.1 million to net
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 acquisition and the
acquisition of Perstorp's automotive supply operations in North America, the
United Kingdom and Spain, as well as higher interest rates associated with the
$400 million principal amount of 11 1/2% Senior Subordinated Notes due 2006
(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.
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 $309.5 million, resulting in a gain on the sale of discontinued
operations of $97.5 million, net of income taxes of $65.0 million. In
connection with the agreement to sell Wallcoverings, the Company recorded a
loss of $21.1 million, net of income tax benefits, 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.
15
Liquidity and Capital Resources
The Company and its subsidiaries had cash and cash equivalents totaling
$23.8 million and $24.0 million at December 26, 1998 and December 27, 1997,
respectively. The Company had a total of $91.8 million of borrowing
availability under its credit arrangements as of December 26, 1998.
Availability as of December 26, 1998 under the revolving credit facility has
been reduced by outstanding letters of credit of $22.1 million. The total was
comprised of $84.0 million under the Company's revolving credit facility
(including $2.6 million available to the Canadian Borrowers, as hereinafter
defined), approximately $7.7 million under bank demand lines of credit in
Canada and Austria, and $0.1 million available under the Receivables Facility.
On May 28, 1998, the Company entered into new credit facilities consisting
of: (i) a senior secured term loan facility in the amount of $100 million
payable in quarterly installments until final maturity on December 31, 2003
(the "Term Loan A Facility"); (ii) a senior secured term loan facility in the
principal amount of $125 million payable in quarterly installments until final
maturity on June 30, 2005 (the "Term Loan B Facility" and, together with the
Term Loan A Facility, the "Term Loan Facilities"); and (iii) a senior secured
revolving credit facility in an aggregate principal amount of up to $250
million terminating on December 31, 2003, of which $60 million (or the
equivalent thereof in Canadian dollars) is available to two of the Company's
Canadian subsidiaries (the "Canadian Borrowers"), and of which up to $50
million is available as a letter of credit facility (the "Revolving Credit
Facility" and together with the Term Loan facilities, the "Credit Agreement
Facilities"). In addition, the Credit Agreement Facilities include a provision
for a Tranche C credit facility (the "Tranche C Facility") of up to $150
million in loan borrowings having amortization and interest rate terms to be
agreed upon between the Company and the applicable lenders who may supply
commitments at such time as the Tranche C Facility may be utilized. The Credit
Agreement Facilities (including the Tranche C Facility, if utilized) replace
and refinance the Company's previously outstanding bank credit facilities,
including the facilities entered into in June 1994 and December 1995 and
amended and restated in June 1996 and those entered into in connection with the
acquisition of JPS Automotive in December 1996 (collectively, the "Replaced
Facilities").
On March 13, 1998, the Company sold Wallcoverings for $71.9 million and an
option for 6.7% of the common stock of the purchaser outstanding as of the
closing date. The proceeds were used to repay long-term debt.
At December 26, 1998, the Company had outstanding $100.0 million under the
Term Loan A Facility, $125.0 million under the Term Loan B Facility, and $143.9
million under the Revolving Credit Facility (including $57.4 million borrowed
by the Canadian Borrowers).
The Credit Agreement Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
covenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities and
are generally similar to the covenants and ratios contained in the Replaced
Facilities. The interest coverage and leverage ratios were waived for the third
and fourth quarters of 1998 due to the General Motors strike and decreased
sales of automotive fabrics. Effective March 8, 1999, the Company, in view of
the decreased sales of automotive fabrics and the General Motors strike,
obtained an amendment to the Credit Agreement Facilities primarily in order to
modify the covenants relating to interest coverage and leverage ratios. The
amendment resulted generally in an increase in the interest rates charged under
the Credit Agreement Facilities. At December 26, 1998, the Company's effective
borrowing rate under the amended Credit Agreement Facilities would have
increased by 0.59% per annum. In addition, under the Credit Agreement
Facilities, 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. The Company
is permitted to pay dividends and repurchase shares of the Company (i) in any
fiscal year in an aggregate amount up to $12 million and (ii) if certain
financial ratios are satisfied, for the period from April 28, 1996 through the
last day of the Company's most recently ended fiscal quarter, in an aggregate
amount equal to 50% of the Company's cumulative consolidated net income for
that period and, in addition, is permitted to pay dividends and repurchase
shares in amounts representing net proceeds from the sale of Wallcoverings. The
Company's obligations under the Credit Agreement Facilities are secured by a
pledge of the stock of C&A Products and its significant subsidiaries. These
restrictions on dividends and distributions are generally similar to those
contained in the Replaced Facilities.
16
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 2.25 to 1) 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 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. The Company
does not currently meet the Subordinated Notes indenture's general test for the
incurrence of indebtedness, and does not expect to meet such test during 1999.
However, the Company expects all its borrowing needs for the foreseeable future
to be allowed under exceptions for permitted indebtedness in the indenture.
The indenture governing the JPS Automotive Senior Notes generally
prohibits JPS Automotive from making certain restricted payments and
investments (generally, dividends and distributions on its equity interests;
purchases or redemptions of its equity interests; purchases of any indebtedness
subordinated to the JPS Automotive Senior Notes; and investments other than as
permitted) ("JPS Automotive Restricted Payments") unless (i) there is no
default under the JPS Automotive Senior Notes indenture; (ii) after giving pro
forma effect to the JPS Automotive Restricted Payment, JPS Automotive would be
permitted to incur at least $1.00 of additional indebtedness under the
indenture's general test for the incurrence of indebtedness, which is a
specified ratio (currently 2.5 to 1.0) of cashflow to interest expense, and
(iii) the aggregate of all JPS Automotive Restricted Payments from the issue
date is less than a specified threshold (based, generally, on 50% of JPS
Automotive's cumulative consolidated net income since the issue date plus 100%
of the aggregate net cash proceeds of the issuance by JPS Automotive of certain
equity and convertible debt securities and cash contributions to JPS
Automotive) (the "JPS Automotive Restricted Payments Tests"). These conditions
were satisfied immediately following the closing of the JPS Automotive
Acquisition and as of December 26, 1998. 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. During the second and fourth quarters of 1998, $2.0
million and $0.6 million, respectively, principal amount of JPS Automotive
Senior Notes were repurchased by JPS Automotive on the open market and retired.
As of December 26, 1998, JPS Automotive had approximately $88.2 million of
indebtedness outstanding (including a premium of $2.2 million) related to the
JPS Automotive Senior Notes. The Company is operating JPS Automotive as a
restricted subsidiary under the Credit Agreement Facilities and the indenture
governing the Subordinated Notes.
On March 31, 1995, C&A Products entered, through the Trust formed by
Carcorp, into a receivables facility (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") in the United
States and Canada. 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
26, 1998 the maximum amount available under the variable funding certificates
was $64.6 million, of which $0.1 million was unutilized.
17
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 scheduled
amortization of the Receivables Facility begins December 25, 1999. The Company
is currently reviewing proposals to replace this facility.
During 1998, the Company repaid indebtedness totaling approximately $46.9
million of its subsidiaries operating in Sweden, Belgium and France
constituting the former operations of the Collins & Aikman/Perstorp Joint
Venture. The repayments were funded through borrowings by the Canadian
Borrowers under the Revolving Credit Facility and by cash generated from
operations.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At December 26, 1998, 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 26, 1998, the Company made lease payments relating to
continuing operations of approximately $5.4 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 approximately
$5.8 million during fiscal 1999.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Credit Agreement
Facilities and the sale of receivables under the Receivables Facility. Net cash
provided by the continuing operating activities of the Company was $13.4
million for 1998.
The Company's principal uses of funds from operating activities and
borrowings for the next several years are expected to fund interest and
principal payments on its indebtedness, net working capital increases and
capital expenditures. At December 26, 1998, the Company had total outstanding
indebtedness of $866.0 million (excluding approximately $22.1 million of
outstanding letters of credit) at an average interest rate of 9.5% per annum.
Of the total outstanding indebtedness, $768.9 million relates to the Credit
Agreement Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to $25
million in 1999 to repurchase shares of the Company's Common Stock at
management's discretion. This amount was reduced by the approximately $6.2
million special dividend paid on March 1, 1999. The Company believes it has
sufficient liquidity under its existing credit arrangements to effect the
repurchase program. The Company spent approximately $25.0 million to repurchase
shares during fiscal 1998 and approximately $19.7 million to repurchase shares
during fiscal 1997.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility as amended March 8, 1999 bears
interest at a per annum rate equal to the Company's choice of (i) The 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/Canadian Prime
Rate Margin") ranging from .25% to 1.25% 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 (the "LIBOR/BA Margin") ranging from
1.25% to 2.25%. Margins, which are subject to adjustment based on changes in
the Company's ratio of funded debt to EBITDA (i.e., earnings before interest,
taxes, depreciation, amortization and other non-cash charges) were 1.75% in the
case of the LIBOR/BA Margin and .75% in the case of the ABR/Canadian Prime Rate
Margin on December 26, 1998, prior to the March 8, 1999 amendment. Had the
terms of the March 8, 1999 amendment been applied at December 26, 1998, the
LIBOR/BA Margin would have been 2.25% and the ABR/Canadian Prime Rate Margin
would have been 1.25%. Canadian-dollar denominated indebtedness incurred by the
Canadian Borrowers under the Revolving Credit Facility bears interest at a per
annum rate equal to the Canadian Borrowers' choice of (i) the Canadian Prime
Rate (which is the greater of Chase's prime rate for Canadian
dollar-denominated loans in Canada and the Canadian dollar-denominated one
month bankers' acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate
Margin or (ii) the bill of exchange rate ("Bankers' Acceptance" or "BA")
denominated in Canadian dollars for one, two, three or six months plus the
LIBOR/BA Margin. Indebtedness under the Term Loan B Facility as amended March
8, 1999 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 ranging from
1.25% to 1.75% (the "Tranche B ABR Margin") or
18
(ii) LIBOR of one, two, three, or six months, as selected by the Company, plus
a margin ranging from 2.25% to 2.75% (the "Tranche B LIBOR Margin"). The
Tranche B ABR Margin and the Tranche B LIBOR Margin, were 1% and 2%,
respectively, at December 26, 1998. Had the terms of the March 8, 1999
amendment been applied at December 26, 1998, the Tranche B ABR Margin would
have been 1.75% and the Tranche B LIBOR Margin would have been 2.75%. The
weighted average rate of interest on the Credit Agreement Facilities at
December 26, 1998 was 7.3%. The weighted average interest rate on the sold
interests under the Receivables Facility at December 26, 1998 was 6.0%. Under
the Receivables Facility, the term certificates bear interest at an average
rate equal to one month LIBOR plus .34% 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 11.5% per annum. The
JPS Automotive Senior Notes bear interest at a rate of 11.125% per annum. Cash
interest paid was $86.6 million and $93.0 million for the fiscal years ended
December 26, 1998 and December 27, 1997, respectively.
Due to the variable interest rates under the Credit Agreement Facilities
and the Receivables Facility, the Company is sensitive to changes in interest
rates. Accordingly, 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 on $27.0 million of notional principal
amount by entering into an 8.50% cap on LIBOR. Based upon amounts outstanding
at December 26, 1998, a .5% increase in each of LIBOR and Canadian bankers'
acceptance rates (5.6% and 5.1%, respectively, at December 26, 1998) would
impact interest costs by approximately $1.8 million annually on the Credit
Agreement Facilities and $0.6 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 swapped LIBOR based interest rates for
the Canadian bankers' acceptance rates and fixed the exchange rate for the
principal balance upon maturation. This agreement was terminated on June 1,
1998 as a result of repayment of the then-outstanding Canadian term loan. The
Canadian term loan balance was repaid in conjunction with the refinancing and
replacement of the Replaced Facilities.
The current maturities of long-term debt primarily consist of the current
portion of the Credit Agreement Facilities, vendor financing, an industrial
revenue bond and other miscellaneous debt. The maturities of long-term debt of
the Company's continuing operations during 1999, 2000, 2001, 2002, and 2003,
are $19.9 million, $24.1 million, $113.4 million, $28.9 million and $24.4
million, respectively. The JPS Automotive Senior Notes will mature in 2001. In
addition, the Credit Agreement Facilities provide for mandatory prepayments of
the Term Loan A and Term Loan B Facilities with certain excess cash flow of the
Company, net cash proceeds of certain asset sales or other dispositions by the
Company, 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
Credit Agreement Facilities) 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 indenture governing the JPS Automotive Senior Notes requires JPS
Automotive to apply the net proceeds from the sale of assets of JPS Automotive
to offer to purchase JPS Automotive Senior Notes, to the extent not applied
within 270 days of such asset sale to an investment in capital expenditures or
other long term tangible assets of JPS Automotive, to permanently reduce senior
indebtedness of JPS Automotive or to purchase JPS Automotive Senior Notes in
the open market. The Company caused JPS Automotive to make such an offer to
purchase JPS Automotive Senior Notes in connection with the sale of Airbag in
July 1997.
The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of December 26, 1998, the Company's
continuing operations had approximately $19.1 million in outstanding capital
expenditure commitments. The Company currently anticipates that its capital
expenditures for continuing operations for fiscal 1999 will be in the range of
$80 million to $90 million, a portion of which may be financed through leasing.
The Company's capital expenditures in future years will depend upon demand for
the Company's products and changes in technology.
The Company is sensitive to price movements in its raw material supply
base. During fiscal 1998, prices for most of the Company's primary raw
materials remained constant with price levels at December 27, 1997. The prices
of certain types of yarn utilized in fabric manufacturing declined during 1998,
resulting in cost savings of approximately $5.3 million through December 26,
1998. In addition, the price of polyethylene has declined slightly in both
North America and Europe. While the Company may not be able to pass on future
raw material price increases to its customers, it believes that a significant
19
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.
After Wallcoverings was classified as a discontinued operation in April
1996, Wallcoverings continued to experience sales declines. From April 1996
through October 1997, the Company 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 in March 1998, the Company expended approximately $19.9
million principally to fund Wallcoverings' operations, working capital and
capital expenditure requirements. Of this amount, approximately $13.9 million
was added to the base purchase price of $58 million provided in the sales
agreement and was paid by the purchaser as part of the final purchase price.
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 will be approximately $26 million in fiscal 1999. 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 its credit facilities.
Tax Matters
At December 26, 1998, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $219.2 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2018. The Company also has unused Federal tax credits of approximately $13.3
million, $1.1 million of which expire during the period 1999 to 2006.
Approximately $19.8 million of the Company's NOLs and $1.1 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.
Management has reviewed the Company's operating results for recent years
as well as the outlook for its continuing businesses in concluding it is more
likely than not that the net deferred tax assets of $81.6 million at December
26, 1998 will be realized. A major goal of the Reorganization is to lower the
overall cost structure of the Company and thereby increase profitability. These
factors along with the timing of the reversal of its temporary differences and
the expiration dates of its NOLs were also considered in reaching this
conclusion. 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 26, 1998 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.
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 relate 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
20
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 26, 1998, 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 24 sites where the Company is participating
in the investigation or remediation of the site, either directly or through
financial contribution, and 8 additional sites where the Company is alleged to
be responsible for costs of investigation or remediation. As of December 26,
1998, the Company's estimate of its liability for these 32 sites, is
approximately $24.6 million. As of December 26, 1998, the Company has
established reserves of approximately $41.8 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.
Impact of Year 2000 Compliance
The Company has developed a comprehensive plan intended to address Year
2000 issues (the "Year 2000 Plan"). The Year 2000 Plan includes the
acceleration of the Company's Business Systems Integration Plan (the "BSIP
Plan"), initiated in connection with the Company's 1996 acquisitions to create
common manufacturing, financial reporting and cost control information systems
throughout the Company as a whole. The BSIP Plan, which affects essentially all
the Company's locations worldwide, involves new installations of hardware and
software at acquired operations and upgrades to hardware and software at
pre-existing locations.
As part of the Year 2000 Plan, the Company has selected a team of managers
and outside consultants to identify, evaluate and implement a time-table aimed
at bringing all of the Company's critical business systems and applications
into Year 2000 compliance prior to December 31, 1999. The Year 2000 Plan
addresses the Company's information technology and non-information technology
and categorizes them into the following areas which are vulnerable to Year 2000
risk: (i) business computer systems, including financial, human resources,
purchasing, manufacturing and sales and marketing systems; (ii) manufacturing,
warehousing and servicing equipment, including shop floor controls; (iii)
technical infrastructure, including local area networks, mainframes and
communication systems; (iv) end-user computing, including personal computers;
(v) suppliers, agents and service providers, including systems which interface
with customers; (vi) environmental operations, including fire, security,
emission and waste controls and elevators; and (vii) dedicated research and
development facilities, including CAD/CAE/CAM systems and product testing
systems.
21
The Company has evaluated the state of readiness of each area vulnerable
to Year 2000 risk using the following definitions:
Inventory -- Systems are being surveyed and documented regarding compliance
Remediation -- Strategies are being implemented to modify or replace affected hardware and software
Testing -- Systems are being tested by Company employees or third party consultants
Complete -- Systems are Year 2000 compliant
Currently, the Company estimates that a majority of its locations are
progressing through the Remediation or Testing phases for each area of Year
2000 risk.
The Company intends for all of its systems in North America and Europe to
become Year 2000 compliant during 1999. The Company is in the process of
finalizing formal contingency plans for each location. These contingency plans
include, among other things, the following: (i) establishing back-up production
capacities within the Company to shift the manufacturing of similar products
between plants if a plant should be unable to complete its scheduled production
requirements; (ii) carrying extra inventory of raw materials and finished goods
to cover production requirements if critical suppliers indicate that they will
not be Year 2000 compliant in a timely manner; and (iii) maintaining offline
documentation of production schedules, releases and inventory levels. The
Company has not yet quantified the costs associated with these contingency
plans.
The Company currently anticipates that the total cost of the Year 2000
Plan, including approximately $14 million of costs associated with the BSIP
Plan but excluding costs associated with contingency plans, will be
approximately $23 million. Included in this estimate is approximately $4
million of salaries and other payroll costs of Company employees to the extent
that they have devoted a portion of their time to the project. Approximately
$12 million of these costs have been incurred through December 26, 1998,
including approximately $3 million of salaries and other payroll costs. The
Company has been expensing and capitalizing the costs to complete the Year 2000
Plan in accordance with appropriate accounting policies. The Company is funding
the expenditures related to the Year 2000 Plan with cash flows from operations.
The Company's current cost estimate of $23 million is higher than its previous
estimates primarily due to increased use of external consultants and increased
allocation of internal resources to assist with implementing the BSIP Plan at
the Company's European locations.
Due to the general uncertainty inherent in the Year 2000 process at this
stage, it is difficult for the Company to determine a reasonable likely Year
2000 worst case scenario. One possible scenario would be the failure of the
Company's key suppliers to become compliant. To mitigate the risk of this, the
Company is in the process of assessing responses to questionnaires previously
issued to its suppliers and visiting certain of these suppliers to assess their
Year 2000 readiness. This process is expected to continue over the next several
months. As discussed above, the Company is incorporating the responses received
from the suppliers in formulating contingency plans. Due to the number of
suppliers that the Company deals with, the Company is unable to make a
meaningful estimate of the revenue that would be lost in the event such a
scenario was realized.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. The Company currently anticipates that, with the
modifications discussed above, the Year 2000 issue should not pose significant
operational problems for the Company. However, if such modifications are not
made, or are not completed timely, or if contingency plans fail, the Year 2000
issue could have a material adverse impact on the operations of the Company.
Success of the Year 2000 plan 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, 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.
The cost of the Company's Year 2000 Plan and the dates by which the
Company believes it will be Year 2000 compliant are based on management's
current best estimates, which were derived based on numerous assumptions of
future events, some of which are beyond the control of the Company, including
the continued availability of certain resources, third party modification plans
and other factors. There can be no guarantee, however, that these estimates
will be achieved, and actual results could differ materially from those
anticipated.
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
22
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 and European 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, pricing pressure from automotive customers 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
Risk Management
The Company is exposed to market risk from changes in interest rates and
foreign exchange rates. To modify the risk from these interest rate and foreign
currency exchange rate fluctuations, the Company enters into various hedging
transactions that have been authorized pursuant to policies and procedures. The
Company does not use derivative financial instruments for trading purposes.
Interest Rate Exposure
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's long-term debt obligations. The interest
rate exposure for the Company's variable rate debt obligations is currently
indexed to LIBOR, for U.S.-denominated debt, or the Canadian bankers'
acceptance rate, for Canadian-denominated debt, of one, two, three or six
months, as selected by the Company. The Company uses interest rate swaps and
other interest rate protection agreements to modify its exposure to interest
rate movements and to reduce borrowing rates.
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including debt obligations and interest rate
protection agreements. For debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
For interest rate protection agreements, the table presents notional amounts
and weighted average interest rates by expected (contractual) maturity dates.
Weighted average variable interest rates are based on implied LIBOR and
Canadian bankers' acceptance forward rates in the yield curve at the reporting
date. The information is presented in U.S. dollar equivalents, which is the
Company's reporting currency. The instrument's actual cash flows are
denominated in both U.S. dollar ($US) and Canadian dollar ($CAD), as indicated
in parentheses (dollar amounts in thousands).
Expected Maturity Date
-----------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
------------ ------------ ------------ ------------ ------------ ------------
Debt:
Fixed rate ($US) ............ $ 86,043 $ 400,000
Average interest rate ..... 11.1% 11.5%
Variable rate ($US) ......... $ 18,000 $ 22,750 $ 24,000 $ 27,750 $ 23,375 $ 195,625
Average interest rate ..... 7.4% 7.6% 7.7% 7.7% 7.7% 7.9%
Variable rate ($CAD) ........ $ 57,378
Average interest rate ..... 7.5%
Interest Rate Derivatives:
Fixed to variable swap ($US) $ 27,000
Average pay rate ............ 9.9%
Average receive rate ........ 11.5%
Interest rate cap on LIBOR
Notional amount ($US) ....... $ 27,000
Average strike price ........ 8.5%
Fair Value
December 26,
Total 1998
----------- -------------
Debt:
Fixed rate ($US) ............ $486,043 $507,584
Average interest rate .....
Variable rate ($US) ......... $311,500 $311,500
Average interest rate .....
Variable rate ($CAD) ........ $ 57,378 $ 57,378
Average interest rate .....
Interest Rate Derivatives:
Fixed to variable swap ($US) $ 202
Average pay rate ............
Average receive rate ........
Interest rate cap on LIBOR
Notional amount ($US) .......
Average strike price ........ --
23
Currency Rate Exposure
The Company is subject to currency rate exposure primarily related to
foreign currency purchase and sale transactions and intercompany and third
party loans. The primary purpose of the Company's foreign currency hedging
activities is to protect against the volatility associated with these foreign
currency exposures. The Company primarily utilizes forward exchange contracts
and purchased options with durations of generally less than 12 months.
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "Participating Countries") established fixed conversion rates
between their existing sovereign currencies and the Euro. The Participating
Countries have agreed to adopt the Euro as their common currency on that date.
The conversion did not have a material adverse effect on the Company's
consolidated financial position or results of operations.
At December 26, 1998, the Company had outstanding the following foreign
currency forward and option contract amounts (amounts in thousands, except
average contract rate):
Weighted
Currency Contract Average Unrealized
Currency Sold Received Amount(1) Contract Rate(2) Gain
- - ---------------------- ---------------- ----------- ------------------ -----------
Foreign currency forward contracts:(3)
Austrian schilling British pound $ 4,450 19.71 $--
Belgian franc British pound 2,632 57.23 --
Belgian franc Swedish krona 10,569 4.35 6
British pound German mark 11,540 0.36 26
British pound Italian lire 2,271 0.0004 24
British pound Spanish peseta 5,099 0.004 --
Canadian dollar U.S. dollar 65,902 1.55 --
Dutch guilder British pound 3,431 3.15 --
German mark British pound 13,784 2.79 --
Spanish peseta German mark 876 85.16 --
Spanish peseta Swedish krona 299 19.01 --
Swedish krona British pound 27,324 13.43 --
Foreign currency options:
Canadian dollar U.S. dollar $71,400 1.55 $--
- - ---------
(1) Contract amount is presented in U.S. dollar equivalents based upon the
year-end exchange rates.
(2) Weighted average contract rates represent the rates of exchange, stated in
the currency sold, as reflected in the underlying contract.
(3) All forward contracts mature in 1999.
The above table does not fully reflect the net foreign exchange rate
exposure of the Company because it does not include the intercompany funding
arrangements denominated in foreign currencies and the foreign
currency-denominated cash flows from anticipated sales and purchases.
Management believes that the foreign currency exposure relating to these items
would substantially offset the exposures listed in the table above.
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.
24
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 401 of Regulation S-K regarding executive
officers and directors is incorporated herein by reference to that portion of
the Registrant's definitive Proxy Statement to be used in connection with its
1999 Annual Meeting of Stockholders, which will be filed in final form with the
Commission not later than 120 days after December 26, 1998 (the "Proxy
Statement"), captioned "Executive Officers of the Company" and "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".
25
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 26, 1998,
December 27, 1997 and December 28, 1996 .................................................. F-2
Consolidated Balance Sheets at December 26, 1998 and December 27, 1997 ................... F-3
Consolidated Statements of Cash Flows for the fiscal years ended December 26, 1998,
December 27, 1997 and December 28, 1996 .................................................. F-4
Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended
December 26, 1998, December 27, 1997 and December 28, 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 26, 1998, December 27, 1997 and
December 28, 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.
Exhibit
Number Description
- - -------- --------------------------------------------------------------------------------------------------------
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.
26
Exhibit
Number Description
- - -------- ---------------------------------------------------------------------------------------------------------
4.4 Credit Agreement, dated as of May 28, 1998, among Collins & Aikman Products Co., as Borrower,
Collins & Aikman Canada, Inc. and Collins & Aikman Plastics, Ltd., as Canadian Borrowers, Collins &
Aikman Corporation, as Guarantor, the lenders named therein, Bank of America N.T.S.A., as
Documentation Agent, The Chase Manhattan Bank, as Administrative Agent, and The Chase Manhattan
Bank of Canada, as Canadian Administrative Agent, is hereby incorporated by reference to Exhibit 4.4 of
Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended June 27, 1998.
4.5 Waiver dated as of October 27, 1998 under the Credit Agreement dated as of May 28, 1998, among
Collins & Aikman Products Co., Collins & Aikman Canada, Inc. and Collins & Aikman Plastics, Ltd., as
Canadian Borrowers, Collins & Aikman Corporation, as Guarantor, the Lender Parties thereto, Bank of
America, N.T.S.A., as Documentation Agent, The Chase Manhattan Bank, as Administrative Agent, and
The Chase Manhattan Bank of Canada, as Canadian 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 September 26, 1998.
4.6 Waiver dated as of December 22, 1998 under the Credit Agreement dated as of May 28, 1998, among
Collins & Aikman Products Co., Collins & Aikman Canada, Inc. and Collins & Aikman Corporation, as
Guarantor, the Lender Parties thereto, Bank of America, N.T.S.A., as Documentation Agent, The Chase
Manhattan Bank, as Administrative Agent, and The Chase Manhattan Bank of Canada, as Canadian
Administrative Agent.
4.7 Amendment and Waiver dated as of March 8, 1999, among Collins & Aikman Products Co., Collins &
Aikman Canada, Inc., Collins & Aikman Plastics Ltd., Collins & Aikman Corporation, as Guarantor, the
Lender Parties thereto, Bank of America N.T.S.A., as Documentation Agent, The Chase Manhattan Bank,
as Administrative Agent, and The Chase Manhattan Bank of Canada, as Canadian Administrative Agent.
4.8 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.
4.9 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 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 March 23, 1999 with an executive officer.*
10.8 Amended and Restated Employment Agreement dated as of January 20, 1999 between Collins & Aikman
Products Co. and an executive officer.*
- - ---------
* 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
- - -------- ---------------------------------------------------------------------------------------------------------
10.9 Employment Agreement dated as of January 20, 1999 between Collins & Aikman Products Co. and an
executive officer.*
10.10 Collins & Aikman Corporation 1998 Executive Incentive Compensation Plan.*
10.11 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.*
10.12 Amendment to Collins & Aikman Corporation Supplemental Retirement Income Plan.*
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 as amended and restated.*
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 is hereby incorporated by reference to Exhibit 10.17 of Collins & Aikman Corporation's
Report on Form 10-K for the fiscal year ended December 27, 1997.*
10.18 Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.18 of Collins & Aikman Corporation's
Report on Form 10-K for the fiscal year ended December 27, 1997.*
10.19 Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.19 of Collins & Aikman Corporation's
Report on Form 10-K for the fiscal year ended December 27, 1997.*
10.20 Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.20 of Collins & Aikman Corporation's
Report on Form 10-K for the fiscal year ended December 27, 1997.*
10.21 Change in control agreement dated March 17, 1998 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.22 of Collins & Aikman Corporation's
report on Form 10-Q for the fiscal quarter ended March 28, 1998.*
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products
Co., as Master Servicer and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit
10.21 of Collins & Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28,
1995.
10.27 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.
- - ---------
* 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.
28
Exhibit
Number Description
- - ---------- --------------------------------------------------------------------------------------------------------
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 Settlement and Amendment Agreement dated as of December 16, 1997 by and among Collins & Aikman
Products Co., Perstorp A.B., Perstorp GmbH, Collins & Aikman Holding A.B., Collins & Aikman
Automotive Systems GmbH, Collins & Aikman Automotive Systems N.V., Collins & Aikman Automotive
Systems A.B. and Perstorp Components GmbH and related Letter Amendment Agreement is hereby
incorporated by reference to Exhibit 10.38 of Collins & Aikman Corporation's Report or Form 10-Q for
the fiscal quarter ended September 26, 1998.
10.39 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.
10.40 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 the fiscal quarter
ended March 29, 1997.
10.41 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.
10.42 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.
29
Exhibit
Number Description
- - ---------- ----------------------------------------------------------------------------------------------------
10.43 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 is hereby incorporated by reference to Exhibit 2.4 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended December 27, 1997.
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.
30
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 26th day of
March, 1999.
COLLINS & AIKMAN CORPORATION
By:
-------------------------------------
David A. Stockman
Co-Chairman of the Board of Directors
By: /s/ Bruce R. Barnes
-------------------------------------
Bruce R. Barnes
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
- - ---------------------------------------- --------------------------------------- ---------------
Co-Chairman of the Board of Directors March 26, 1999
----------------------------------
David A. Stockman
/s/ BRUCE R. BARNES Co-Chairman of the Board of Directors March 26, 1999
----------------------------------
Bruce R. Barnes
/s/ THOMAS E. HANNAH Director and Chief Executive Officer March 26, 1999
---------------------------------- (Principal Executive Officer)
Thomas E. Hannah Executive Vice President and Chief
/s/ J. MICHAEL STEPP Financial Officer (Principal Financial March 26, 1999
---------------------------------- and Accounting Officer)
J. Michael Stepp
/s/ ROBERT C. CLARK Director March 26, 1999
----------------------------------
Robert C. Clark
/s/ GEORGE L. MAJOROS, JR. Director March 26, 1999
----------------------------------
George L. Majoros, Jr.
/s/ JAMES J. MOSSMAN Director March 26, 1999
----------------------------------
James J. Mossman
/s/ WARREN B. RUDMAN Director March 26, 1999
----------------------------------
Warren B. Rudman
/s/ STEPHEN A. SCHWARZMAN Director March 26, 1999
----------------------------------
Stephen A. Schwarzman
31
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 26,
1998, and December 27, 1997, 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 26, 1998. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Collins & Aikman
Corporation and subsidiaries as of December 26, 1998, and December 27, 1997,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended December 26, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 22, 1999 (except with respect
to the matters discussed in Note 11,
as to which the date is March 19, 1999).
F-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Net sales ................................................................... $1,825,469 $1,629,332 $1,053,821
---------- ---------- ----------
Cost of goods sold .......................................................... 1,577,244 1,396,172 865,346
Selling, general and administrative expenses ................................ 149,747 126,050 86,571
Impairment of long lived assets ............................................. -- 22,600 --
---------- ---------- ----------
1,726,991 1,544,822 951,917
---------- ---------- ----------
Operating income ............................................................ 98,478 84,510 101,904
Interest expense, net of interest income of $3,725, $5,685, and $3,987....... 82,004 77,581 39,850
Loss on sale of receivables ................................................. 6,066 4,700 4,533
Other (income) expense ...................................................... 5,215 (678) 113
---------- ---------- ----------
Income from continuing operations before income taxes ....................... 5,193 2,907 57,408
Income tax expense .......................................................... 5,284 12,998 24,442
---------- ---------- ----------
Income (loss) from continuing operations .................................... (91) (10,091) 32,966
Income from discontinued operations, net of income taxes of $2,835
and $9,317.................................................................. -- 4,306 14,468
Gain on sale of discontinued operations, net of income taxes of $85,358 ..... -- 161,741 --
---------- ---------- ----------
Income (loss) before extraordinary loss ..................................... (91) 155,956 47,434
Extraordinary loss, net of income taxes of $2,482, $443, and $4,709.......... (3,724) (721) (6,610)
---------- ---------- ----------
Net income (loss) ........................................................... $ (3,815) $ 155,235 $ 40,824
========== ========== ==========
Net income (loss) per basic common share:
Continuing operations ...................................................... $ -- $ (0.15) $ 0.48
Discontinued operations .................................................... -- 0.06 0.21
Gain on sale of discontinued operations .................................... -- 2.44 --
Extraordinary item ......................................................... (0.06) (0.01) (0.10)
---------- ---------- ----------
Net income (loss) .......................................................... $ (0.06) $ 2.34 $ 0.59
========== ========== ==========
Net income (loss) per diluted common share:
Continuing operations ...................................................... $ -- $ (0.15) $ 0.47
Discontinued operations .................................................... -- 0.06 0.21
Gain on sale of discontinued operations .................................... -- 2.44 --
Extraordinary item ......................................................... (0.06) (0.01) (0.10)
---------- ---------- ----------
Net income (loss) .......................................................... $ (0.06) $ 2.34 $ 0.58
========== ========== ==========
Average common shares outstanding:
Basic ...................................................................... 64,348 66,337 68,997
========== ========== ==========
Diluted .................................................................... 64,348 66,337 69,887
========== ========== ==========
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 26, December 27,
1998 1997
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents ............................................................... $ 23,755 $ 24,004
Accounts and other receivables, net of allowances of $7,228 and $9,275................... 237,645 198,125
Inventories ............................................................................. 152,840 142,042
Net assets of discontinued operations ................................................... -- 53,004
Other ................................................................................... 96,156 92,116
---------- ----------
Total current assets .................................................................. 510,396 509,291
Property, plant and equipment, net ....................................................... 447,121 388,087
Deferred tax assets ...................................................................... 70,632 59,293
Goodwill, net ............................................................................ 264,138 263,007
Other assets ............................................................................. 89,924 82,714
---------- ----------
$1,382,211 $1,302,392
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings ................................................................... $ 10,954 $ 11,057
Current maturities of long-term debt .................................................... 19,942 20,558
Accounts payable ........................................................................ 169,808 135,468
Accrued expenses ........................................................................ 143,302 148,201
---------- ----------
Total current liabilities ............................................................. 344,006 315,284
Long-term debt ........................................................................... 846,107 752,376
Other, including postretirement benefit obligation ....................................... 271,869 301,582
Commitments and contingencies ............................................................
Common stock (150,000 shares authorized, 70,521 shares issued and
62,182 shares outstanding at December 26, 1998, and 150,000 shares authorized, 70,521
shares issued and 65,851 shares outstanding at December 27, 1997) ....................... 705 705
Other paid-in capital .................................................................... 585,401 585,890
Accumulated deficit ...................................................................... (580,666) (576,851)
Accumulated other comprehensive loss ..................................................... (23,427) (39,823)
Treasury stock, at cost (8,339 shares at December 26, 1998, and 4,670 shares
at December 27, 1997) ................................................................... (61,784) (36,771)
---------- ----------
Total common stockholders' deficit ...................................................... (79,771) (66,850)
---------- ----------
$1,382,211 $1,302,392
========== ==========
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 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
OPERATING ACTIVITIES
Income (loss) from continuing operations ........................................... $ (91) $ (10,091) $ 32,966
Adjustments to derive cash flow from continuing operating activities:
Impairment of long lived assets ................................................... -- 22,600 --
Deferred income tax expense (benefit) ............................................. (7,233) 4,252 12,228
Depreciation and leasehold amortization ........................................... 52,608 42,712 24,457
Goodwill amortization ............................................................. 7,023 6,669 3,872
Amortization of other assets ...................................................... 7,443 9,459 4,066
(Increase) decrease in accounts and other receivables ............................. (5,980) 35,819 (22,333)
Increase in inventories ........................................................... (4,841) (8,078) (1,006)
Increase (decrease) in interest payable ........................................... (2,629) (520) 7,784
Increase (decrease) in accounts payable ........................................... 10,031 (4,126) (8,734)
Other, net ........................................................................ (42,963) 185 3,811
---------- ---------- ----------
Net cash provided by continuing operating activities ............................ 13,368 98,881 57,111
---------- ---------- ----------
Cash used in Wallcoverings, Floorcoverings, Airbag and the Mastercraft Group
discontinued operations ........................................................... (15,052) (4,719) (2,631)
Cash used in other discontinued operations ......................................... (14,043) (12,252) (6,160)
---------- ---------- ----------
Net cash used in discontinued operations ........................................ (29,095) (16,971) (8,791)
---------- ---------- ----------
INVESTING ACTIVITIES
Additions to property, plant and equipment ......................................... (98,991) (71,775) (78,454)
Sales of property, plant and equipment ............................................. 7,953 5,879 4,119
Acquisitions of businesses, net of cash acquired ................................... (25,257) 3,447 (225,256)
Net proceeds from disposition of discontinued operations ........................... 71,200 562,100 --
Other, net ......................................................................... 2,711 (92,534) (10,198)
---------- ---------- ----------
Net cash provided by (used in) investing activities ............................. (42,384) 407,117 (309,789)
---------- ---------- ----------
FINANCING ACTIVITIES
Issuance of long-term debt ......................................................... 226,969 12,235 453,475
Proceeds from (reduction of) participating interests in accounts receivable, net
of redemptions .................................................................... (7,500) (13,000) 7,000
Repayment and defeasance of long-term debt ......................................... (267,807) (261,416) (286,406)
Net borrowings (repayments) on revolving credit facilities ......................... 136,717 (194,000) 127,804
Purchases of treasury stock ........................................................ (25,013) (19,715) (9,594)
Other, net ......................................................................... (5,504) (3,441) (17,473)
---------- ---------- ----------
Net cash provided by (used in) financing activities ............................. 57,862 (479,337) 274,806
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents ................................... (249) 9,690 13,337
Cash and cash equivalents at beginning of year ..................................... 24,004 14,314 977
---------- ---------- ----------
Cash and cash equivalents at end of year ........................................... $ 23,755 $ 24,004 $ 14,314
========== ========== ==========
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)
Current Year
Comprehensive Accumulated
Income Total Deficit
--------------- -------------- -------------
Balance at January 27, 1996 .................... $ (227,852) $ (770,139)
Comprehensive income:
Net income .................................... $ 40,824 40,824 40,824
Other comprehensive income, net of tax:
Foreign currency translation
adjustments ................................. 2,921 2,921 --
Pension equity adjustment .................... (1,075) (1,075) --
--------
$ 42,670
========
Compensation expense adjustment ................ 60 --
Purchase of treasury stock (1,420 shares) ...... (9,594) --
Exercise of stock options (69 shares) .......... 138 --
---------- ----------
Balance at December 28, 1996 ................... (194,578) (729,315)
Comprehensive income:
Net income .................................... $155,235 155,235 155,235
Other comprehensive income, net of tax:
Foreign currency translation
adjustments ................................. (8,325) (8,325) --
Pension equity adjustment .................... (535) (535) --
--------
$146,375
========
Compensation expense adjustment ................ 683 --
Purchase of treasury stock (2,245 shares) ...... (19,715) --
Exercise of stock options (373 shares) ......... 385 (2,771)
---------- ----------
Balance at December 27, 1997 ................... (66,850) (576,851)
Comprehensive income:
Net loss ...................................... $ (3,815) (3,815) (3,815)
Other comprehensive income, net of tax:
Foreign currency translation
adjustments ................................. 7,569 7,569 --
Pension equity adjustment .................... 8,827 8,827 --
--------
$ 12,581
========
Compensation expense adjustment ................ (489) --
Purchase of treasury stock (3,669 shares) ...... (25,013) --
---------- ----------
Balance at December 26, 1998 ................... $ (79,771) $ (580,666)
========== ==========
Accumulated
Other Other
Comprehensive Common Paid-in Treasury
Loss Stock Capital Stock
--------------- -------- ----------- -------------
Balance at January 27, 1996 .................... $ (32,809) $705 $585,469 $ (11,078)
Comprehensive income:
Net income .................................... -- -- -- --
Other comprehensive income, net of tax:
Foreign currency translation
adjustments ................................. 2,921 -- -- --
Pension equity adjustment .................... (1,075) -- -- --
Compensation expense adjustment ................ -- -- 60 --
Purchase of treasury stock (1,420 shares) ...... -- -- -- (9,594)
Exercise of stock options (69 shares) .......... -- -- (322) 460
--------- ---- -------- ---------
Balance at December 28, 1996 ................... (30,963) 705 585,207 (20,212)
Comprehensive income:
Net income .................................... -- -- -- --
Other comprehensive income, net of tax:
Foreign currency translation
adjustments ................................. (8,325) -- -- --
Pension equity adjustment .................... (535) -- -- --
Compensation expense adjustment ................ -- -- 683 --
Purchase of treasury stock (2,245 shares) ...... -- -- -- (19,715)
Exercise of stock options (373 shares) ......... -- -- -- 3,156
--------- ---- -------- ---------
Balance at December 27, 1997 ................... (39,823) 705 585,890 (36,771)
Comprehensive income:
Net loss ...................................... -- -- -- --
Other comprehensive income, net of tax:
Foreign currency translation
adjustments ................................. 7,569 -- -- --
Pension equity adjustment .................... 8,827 -- -- --
Compensation expense adjustment ................ -- -- (489) --
Purchase of treasury stock (3,669 shares) ...... -- -- -- (25,013)
--------- ---- -------- ---------
Balance at December 26, 1998 ................... $ (23,427) $705 $585,401 $ (61,784)
========= ==== ======== =========
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-5
COLLINS & AIKMAN CORPORATON 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 26, 1998,
Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein
Perella Partners L.P. ("WP Partners") and their respective affiliates
collectively own approximately 87% 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 1998 presentation.
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 1998 and fiscal 1997 were both 52-week years which
ended on December 26, 1998 and December 27, 1997, respectively. 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.
Earnings 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
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," which was amended by SFAS 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 and Reserves -- Other current assets as of December 26,
1998 and December 27, 1997 included $1.2 million, 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 $18.4 million and $25.8 million at December 26, 1998
and December 27, 1997, respectively. Of these reserves, $6.3 million and $4.7
million were classified in current liabilities at December 26, 1998 and
December 27, 1997, respectively.
F-6
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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 -- SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," 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. 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, at that time 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 1998 and 1997 was $7.0
million and $6.7 million, respectively. Accumulated amortization at December
26, 1998 and December 27, 1997 was $17.9 million, and $10.9 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 26,
1998, the Company believes the recorded value of goodwill in the amount of
$264.1 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 SFAS No. 52, "Foreign Currency Translation". 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 component of other comprehensive income.
Gains and losses resulting from foreign currency transactions are
recognized in other income (expense). The Company recognized losses from
foreign currency transactions of $4.8 million, $1.9 million and $0.1 million in
fiscal 1998, 1997 and 1996, respectively. 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.
F-7
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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 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 No. ("SOP") 96-1, "Environmental Remediation
Liabilities". 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 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively. The
Company is currently analyzing the impact of adopting SFAS No. 133. The
adoption of SFAS No. 133 could increase volatility in earnings and other
comprehensive income.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 provides guidance on the
accounting for the costs of computer software developed or obtained for
internal use. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998 and should be applied to internal-use
computer software costs incurred in those fiscal years for all projects,
including those projects in progress upon initial application. The Company does
not expect the adoption of this standard to have a material impact on its
consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires that all nongovernmental
entities expense the costs of start-up activities as these costs are incurred
instead of being capitalized and amortized. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company
adopted SOP 98-5 on December 27, 1998. The initial impact of adopting SOP 98-5
resulted in a charge of approximately $9.0 million, net of income taxes, which
will be reflected as a cumulative effect of a change in accounting principle.
3. ACQUISITIONS AND JOINT VENTURES
On August 26, 1998, the Company acquired from a third party the remaining
50% interest in Industrias Enjema, S.A. de C.V. ("Enjema"), 50% of which was
already owned by the Company's JPS Automotive L.P. subsidiary ("JPS
Automotive"). The total purchase price for the acquisition was approximately
$1.0 million. Enjema is a carpet systems manufacturer located in Mexico. In
September 1998, JPS Automotive distributed its 50% ownership interest in Enjema
to the Company.
On June 30, 1998, the Company acquired for approximately $4.7 million
Pepers Beheer B.V., an automotive accessory floormat manufacturer located in
the Netherlands, which has been renamed Collins & Aikman Automotive Floormats
Europe, B.V. ("C&A Floormats Europe"). Under the terms of the purchase
agreement, the Company is required to make additional
F-8
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. ACQUISITIONS AND JOINT VENTURES -- (Continued)
contingent payments to the sellers in amounts of up to approximately $3.6
million if C&A Floormats Europe meets certain operating goals in fiscal 1998
and fiscal 1999. The Company currently expects to pay into escrow approximately
$0.5 million during 1999 for operating goals met in fiscal 1998, which the
sellers will receive in 2000 if the Company has no claims against the escrowed
funds prior to such release.
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 $5.8
million at December 26, 1998 and $5.9 million at December 27, 1997 has been
included in other assets in the accompanying consolidated balance sheets.
The Company entered into a joint venture agreement to manufacture plastic
trim products in the United Kingdom with Kigass Automotive Group ("Kigass") in
October 1997 in which the Company and Kigass each owned 50% of the joint
venture. The Company acquired Kigass on February 2, 1998. The purchase price
for the acquisition was approximately $25.2 million. Kigass has been renamed
Collins & Aikman Plastics (UK) Limited ("C&A Plastics UK"). Under the terms of
the purchase agreement, the Company assumed effective control of C&A Plastics
UK on January 1, 1998. C&A Plastics UK's customers include Nissan, Opel and
Rover. Goodwill resulting from the acquisition was $15.0 million.
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. Goodwill resulting from these 1996 and 1997 acquisitions is
approximately $14.5 million.
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. During 1997,
the Company finalized the purchase price and received approximately $11.2
million from the seller as a reduction of the purchase price. The purchase
price allocation related to the JPS Automotive acquisition established goodwill
of approximately $105.9 million and certain reserves related to management's
plans to rationalize certain acquired manufacturing facilities. See Note 16.
On May 1, 1996, the Company acquired the business of BTR Fatati Limited
("Fatati"), a manufacturer and supplier of molded floor carpets and luggage
compartment trim for the European automotive market.
The 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 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.
F-9
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 Replaced 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 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
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 amendments
to the Replaced 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 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 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.
F-10
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 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
=========== ==========
6. INTEREST RATE AND FOREIGN CURRENCY PROTECTION PROGRAMS
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 and similar
agreements which expired in prior years on the operating results of the Company
was to decrease interest expense by $0.3 million in fiscal 1998 and $0.1
million in fiscal 1997 and to increase interest expense by $0.7 million in
fiscal 1996.
The primary purpose of the Company's foreign currency hedging activities
is to protect against the volatility associated with intercompany funding
arrangements, third party loans and foreign currency purchase and sale
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 1999. These contracts, which aggregated a U.S.
dollar equivalent of $148.2 million at December 26, 1998, are to manage the
currency volatility associated with purchase transactions. The fair value of
these contracts approximated the contract value at December 26, 1998.
During 1998, the Company purchased option contracts with a notional amount
of $71.4 million, giving the Company the right to purchase U.S. dollars for use
by its Canadian operations. These contracts expire periodically throughout
1999. The premium associated with these contracts of approximately $1.2 million
is being amortized over the contracts' terms.
During April 1997, the Company entered into an agreement to limit its
foreign currency exposure related to $45 million of U.S. dollar denominated
borrowings of a Canadian subsidiary. The agreement swapped LIBOR based interest
rates
F-11
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. INTEREST RATE AND FOREIGN CURRENCY PROTECTION PROGRAMS -- (Continued)
for the Canadian equivalent as well as fixed the exchange rate for the
principal balance upon maturation. During fiscal 1997, this agreement resulted
in reductions of interest expense and other expenses of approximately $1.7
million. This agreement was terminated on June 1, 1998 as a result of the
repayment of the Canadian term loan. The term loan balance was repaid in
conjunction with the refinancing and replacement of the Company's credit
facilities. See Note 11 for additional information on the new credit facility.
7. INVENTORIES
Inventory balances are summarized below (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Raw materials ........... $ 79,285 $ 72,862
Work in process ......... 32,408 31,066
Finished goods .......... 41,147 38,114
-------- --------
$152,840 $142,042
======== ========
8. OTHER CURRENT ASSETS
Other current asset balances are summarized below (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Deferred tax assets ............... $ 30,027 $ 33,345
Prepaid tooling and molds ......... 36,722 32,460
Other ............................. 29,407 26,311
-------- --------
$ 96,156 $ 92,116
======== ========
9. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, are summarized below (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Land and improvements ..................... $ 25,260 $ 24,177
Buildings ................................. 146,577 129,507
Machinery and equipment ................... 481,532 414,136
Leasehold improvements .................... 1,171 1,830
Construction in progress .................. 53,673 30,589
---------- ----------
708,213 600,239
Less accumulated depreciation and amortization (261,092) (212,152)
---------- ----------
$ 447,121 $ 388,087
========== ==========
Depreciation and leasehold amortization of property, plant and equipment
applicable to continuing operations was $52.6 million, $42.7 million, and $24.5
million for fiscal 1998, 1997 and 1996, respectively.
F-12
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. ACCRUED EXPENSES
Accrued expenses are summarized below (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Payroll and employee benefits ..... $ 46,733 $ 40,181
Interest .......................... 12,636 15,495
Other ............................. 83,933 92,525
--------- ---------
$ 143,302 $ 148,201
========= =========
11. LONG-TERM DEBT
Long-term debt is summarized below (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Bank Credit Facilities:
Revolving Credit Facility, including $57.4 million by the Canadian
Borrowers at December 26, 1998 .................................. $ 143,878 $ 10,000
Term Loan A Facility ............................................. 100,000 17,566
Term Loan B Facility ............................................. 125,000 167,380
Delayed Draw Term Loan ........................................... -- 23,845
Public Indebtedness:
11 1/2% Senior Subordinated Notes ................................ 400,000 400,000
JPS Automotive 11 1/8% Senior Notes, including premiums of
$2.2 million and $3.2 million, respectively ..................... 88,247 91,843
Other .............................................................. 8,924 62,300
--------- ---------
Total debt ......................................................... 866,049 772,934
Less current maturities ............................................ (19,942) (20,558)
--------- ---------
$ 846,107 $ 752,376
========= =========
Bank Credit Facilities
On May 28, 1998, the Company entered into new credit facilities consisting
of: (i) a senior secured term loan facility in the amount of $100 million
payable in quarterly installments until final maturity on December 31, 2003
(the "Term Loan A Facility"); (ii) a senior secured term loan facility in the
principal amount of $125 million payable in quarterly installments until final
maturity on June 30, 2005 (the "Term Loan B Facility" and, together with the
Term Loan A Facility, the "Term Loan Facilities"); and (iii) a senior secured
revolving credit facility in an aggregate principal amount of up to $250
million terminating on December 31, 2003, of which $60 million (or the
equivalent thereof in Canadian dollars) is available to two of the Company's
Canadian subsidiaries (the "Canadian Borrowers"), and of which up to $50
million is available as a letter of credit facility (the "Revolving Credit
Facility" and together with the Term Loan Facilities, the "Credit Agreement
Facilities"). In addition, the Credit Agreement Facilities include a provision
for a Tranche C credit facility (the "Tranche C Facility") of up to $150
million in loan borrowings having amortization and interest rate terms to be
agreed upon between the Company and the applicable lenders who may supply
commitments at such time as the Tranche C Facility may be utilized. The Credit
Agreement Facilities (including the Tranche C Facility, if utilized) replace
and refinance the Company's previously outstanding bank credit facilities,
including the facilities entered into in June 1994 and December 1995 and
amended and restated in June 1996 and the Delayed Draw Term Loan Facility
entered into by the Company in connection with the acquisition of JPS
Automotive in December 1996 (collectively, the "Replaced Facilities"). In
conjunction with the refinancing, the Company wrote off deferred financing
charges relating to the previous bank facilities of $3.6 million, net of income
taxes of $2.4 million.
F-13
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. LONG-TERM DEBT -- (Continued)
In June 1996, the Company amended and restated the Replaced 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 Replaced 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 Replaced 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 the purchase of JPS Automotive Senior Notes. The Delayed Draw Term Loan
Facility was repaid in conjunction with the refinancing and replacement of the
Company's credit facilities in May 1998.
The Credit Agreement Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
covenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities and
are generally similar to the covenants and ratios contained in the Replaced
Facilities. The interest coverage and leverage ratios were waived for the third
and fourth quarters of 1998 due to the General Motors strike and decreased
sales of automotive fabrics. Effective March 8, 1999, the Company, in view of
the decreased sales of automotive fabrics and the General Motors strike,
obtained an amendment to the Credit Agreement Facilities primarily in order to
modify the covenants relating to interest coverage and leverage ratios. The
amendment resulted generally in an increase in the interest rates charged under
the Credit Agreement Facilities. At December 26, 1998, the Company's effective
borrowing rate under the amended Credit Agreement Facilities would have
increased by 0.59% per annum. In addition, under the Credit Agreement
Facilities, 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. The Company
is permitted to pay dividends and repurchase shares of the Company (i) in any
fiscal year in an aggregate amount up to $12 million and (ii) if certain
financial ratios are satisfied, for the period from April 28, 1996 through the
last day of the Company's most recently ended fiscal quarter, in an aggregate
amount equal to 50% of the Company cumulative consolidated net income for that
period and, in addition, is permitted to pay dividends and repurchase shares in
amounts representing net proceeds from the sale of the Company's Imperial
Wallcoverings, Inc. subsidiary ("Wallcoverings"). The Company's obligations
under the Credit Agreement Facilities are secured by a pledge of the stock of
C&A Products and its significant subsidiaries. These restrictions on dividends
and distributions are generally similar to those contained in the Replaced
Facilities.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility as amended March 8, 1999 bears
interest at a per annum rate equal to the Company's choice of (i) The 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/Canadian Prime
Rate Margin") ranging from .25% to 1.25% 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 (the "LIBOR/BA Margin") ranging from
1.25% to 2.25%. Margins, which are subject to adjustment based on changes in
the Company's ratio of funded debt to EBITDA (i.e., earnings before interest,
taxes, depreciation, amortization and other non-cash charges) were 1.75% in the
case of the LIBOR/BA Margin and .75% in the case of the ABR/Canadian Prime Rate
Margin on December 26, 1998, prior to the March 8, 1999 amendment. Had the
terms of the March 8, 1999 amendment been applied at December 26, 1998, the
LIBOR/BA Margin would have been 2.25% and the ABR/Canadian Prime Rate Margin
would have been 1.25%. Canadian-dollar denominated indebtedness incurred by the
Canadian Borrowers under the Revolving Credit Facility bears interest at a per
annum rate equal to the Canadian Borrowers' choice of (i) the Canadian Prime
Rate (which is the greater of Chase's prime rate for Canadian
dollar-denominated loans in Canada and the Canadian dollar-denominated one
month bankers' acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate
Margin or (ii) the bill of exchange rate ("Bankers' Acceptance" or "BA")
denominated in Canadian dollars for one, two, three or six months plus the
LIBOR/BA Margin. Indebtedness under the Term Loan B Facility as amended March
8, 1999 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 ranging from
1.25% to 1.75% (the "Tranche B ABR Margin") or
F-14
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. LONG-TERM DEBT -- (Continued)
(ii) LIBOR of one, two, three, or six months, as selected by the Company, plus
a margin ranging from 2.25% to 2.75% (the "Tranche B LIBOR Margin"). The
Tranche B ABR Margin and the Tranche B LIBOR Margin, were 1% and 2%,
respectively, at December 26, 1998. Had the terms of the March 8, 1999
amendment been applied at December 26, 1998, the Tranche B ABR Margin would
have been 1.75% and the Tranche B LIBOR Margin would have been 2.75%. The
weighted average rate of interest on the Credit Agreement Facilities at
December 26, 1998 was 7.3%.
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 its airbag and industrial fabric operation ("Airbag"). See Note 15. In
addition, during 1998 and 1997, JPS Automotive purchased $2.6 million and $19.4
million, respectively 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 and as of December 26, 1998. 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.
F-15
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. LONG-TERM DEBT -- (Continued)
At December 26, 1998, the scheduled annual maturities of long-term debt
are as follows (in thousands):
Fiscal Year Ending
- - -------------------------
December 1999 ......... $ 19,942
December 2000 ......... 24,110
December 2001 ......... 113,430
December 2002 ......... 28,933
December 2003 ......... 24,351
Later Years ........... 655,283
---------
$ 866,049
=========
Total interest paid by the Company on all indebtedness was $86.6 million,
$93.0 million, and $60.0 million for fiscal 1998, 1997 and 1996, respectively.
12. RECEIVABLES FACILITY
On March 31, 1995, C&A Products entered, through a trust formed by
Carcorp, Inc., ("Carcorp"), a wholly-owned, bankruptcy remote subsidiary of C&A
Products, into a receivables facility (the "Receivables Facility"), comprised
of (i) term certificates, which were issued on March 31, 1995 in an aggregate
face amount of $110 million having a term of five years and (ii) variable
funding certificates, which represent revolving commitments of up to an
aggregate of $75 million having 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") in
the United States and Canada. The certificates represent the right to receive
payments generated by the receivables held by the trust.
As a result of the Company's divestiture of its non-automotive businesses
(see Note 15), the trust was required to redeem certain of the outstanding term
certificates. As of December 26, 1998, and December 27, 1997, $50 million of
the term certificates remained outstanding. 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 26, 1998 the maximum amount available
under the variable funding certificates was $64.6 million, of which $0.1
million was unutilized.
The weighted average interest rate on the sold interests under the
Receivables Facility at December 26, 1998 was 6.0%. Under the Receivables
Facility, the term certificates bear interest at an average rate equal to one
month LIBOR plus .34% annum and the variable funding certificates bear
interest, at Carcorp's option, at LIBOR plus .40% per annum or a prime rate.
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 change
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 variable funding certificates, failure of the
receivables to satisfy certain performance criteria. The scheduled amortization
of the Receivables Facility begins December 25, 1999. The Company is currently
reviewing proposals to replace this facility.
In connection with the receivables sales, losses of $6.1 million, $4.7
million, and $4.5 million were incurred for continuing operations in fiscal
1998, 1997, and 1996 respectively.
F-16
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. RECEIVABLES FACILITY -- (Continued)
As of December 26, 1998 and December 27, 1997, Carcorp's total receivables
pool was $202.4 million and $193.4 million, respectively. As of December 26,
1998 and December 27, 1997, the holders of term certificates and variable
funding certificates collectively had invested $114.5 million and $122.0
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 the 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.
The Company maintains a master equipment lease arrangement with a bank.
The Company made lease payments under this arrangement related to continuing
operations of approximately $5.4 million, $5.6 million and $4.0 million for
fiscal 1998, 1997, and 1996, 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 26, 1998, future minimum lease payments under operating leases
for continuing operations are as follows (in thousands):
Fiscal Year Ending
- - -------------------------
December 1999 ......... $ 17,911
December 2000 ......... 16,671
December 2001 ......... 13,447
December 2002 ......... 11,314
December 2003 ......... 8,697
Later Years ........... 5,561
--------
$ 73,601
========
Rental expense of continuing operations under operating leases was $17.3
million, $15.4 million, and $15.2 million for fiscal 1998, 1997 and 1996,
respectively. Obligations under capital leases are not significant.
14. EMPLOYEE BENEFIT PLANS
Defined Pension and Postretirement 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.
Subsidiaries of the Company have also provided postretirement life and
health coverage for certain retirees under plans currently in effect. Many of
the subsidiaries' domestic and Canadian employees may be eligible for coverage
if they reach retirement age while still employed by the Company. Most of these
plans are contributory. In general, future increases in costs are fully passed
on to the retiree. However, future increases in costs for the Canadian
divisions and limited domestic operations are shared between the Company and
the retiree.
F-17
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. EMPLOYEE BENEFIT PLANS -- (Continued)
The following tables provide a reconciliation of the projected benefit
obligation, a reconciliation of plan assets, the funded status of the plans,
and amounts recognized in the Company's consolidated balance sheets at December
26, 1998 and December 27, 1997 (in thousands):
Pension Benefits Postretirement Benefits
----------------------------- ------------------------------
Fiscal Year Ended Fiscal Year Ended
December 26, December 27, December 26, December 27,
1998 1997 1998 1997
-------------- -------------- -------------- ---------------
Change in benefit obligation:
Benefit obligation at beginning of year ...................... $ 158,605 $ 161,584 $ 77,500 $ 83,168
Service cost ................................................. 8,713 7,295 1,611 1,328
Interest cost ................................................ 10,709 9,640 4,589 4,428
Amendments ................................................... 1,719 2,108 (60) --
Actuarial loss (gain) ........................................ 12,592 7,929 (3,925) 1,522
Employee contributions ....................................... -- -- 995 1,066
Acquisitions ................................................. -- 5,239 -- --
Discontinued operations, including effect of disposition ..... (7,960) (20,109) (9,729) (7,678)
Benefits paid ................................................ (16,175) (13,726) (5,026) (6,334)
Currency adjustment .......................................... (2,050) (1,355) -- --
---------- ---------- ---------- -----------
Benefit obligation at end of year ............................ $ 166,153 $ 158,605 $ 65,955 $ 77,500
========== ========== ========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year ............... $ 136,126 $ 141,095 $ -- $ --
Actual return on plan assets ................................. 17,504 17,691 -- --
Employer contributions ....................................... 16,368 13,879 4,031 5,268
Employee contributions ....................................... -- -- 995 1,066
Discontinued operations, including effect of disposition ..... (8,073) (21,500) -- --
Benefits paid ................................................ (16,175) (13,726) (5,026) (6,334)
Currency adjustment .......................................... (1,529) (1,313) -- --
---------- ---------- ---------- -----------
Fair value of plan assets at end of year ..................... $ 144,221 $ 136,126 $ -- $ --
========== ========== ========== ===========
Reconciliation of funded status to net amount recognized:
Funded status ................................................ $ (21,932) $ (22,479) $ (65,955) $ (77,500)
Unrecognized net loss (gain) ................................. 22,995 20,216 (10,306) (7,366)
Unrecognized prior service cost (gain) ....................... 1,324 (1,576) (11,066) (15,468)
---------- ---------- ---------- -----------
Net amount recognized ........................................ $ 2,387 $ (3,839) $ (87,327) $ (100,334)
========== ========== ========== ===========
Amounts recognized in the consolidated balance sheet
consist of:
Prepaid benefit cost ......................................... $ 18,666 $ 7,250 $ -- $ --
Accrued benefit liability .................................... (21,473) (23,358) (87,327) (100,334)
Intangible asset ............................................. 2,146 971 -- --
Accumulated other comprehensive loss ......................... 3,048 11,298 -- --
---------- ---------- ---------- -----------
Net amount recognized ........................................ $ 2,387 $ (3,839) $ (87,327) $ (100,334)
========== ========== ========== ===========
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $34.7 million, $32.5 million, and $12.1 million,
respectively, as of December 26, 1998 and $107.6 million, $102.8 million and
$82.3 million respectively, as of December 27, 1997.
F-18
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. EMPLOYEE BENEFIT PLANS -- (Continued)
The net periodic benefit cost of continuing operations for fiscal 1998,
1997, and 1996 includes the following components (in thousands):
Pension Benefits
--------------------------------------------
Fiscal Year Ended
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- --------------
(52 Weeks) (52 Weeks) (48 Weeks)
Components of net periodic benefit cost:
Service cost ............................... $ 8,713 $ 7,295 $ 4,043
Interest cost .............................. 10,709 9,640 6,905
Expected return on plan assets ............. (11,805) (9,701) (6,390)
Amortization of prior service cost (gain)... 426 (377) (248)
Recognized net actuarial loss (gain) ....... 699 525 345
---------- -------- --------
Net periodic benefit cost .................. $ 8,742 $ 7,382 $ 4,655
========== ======== ========
Postretirement Benefits
-------------------------------------------
Fiscal Year Ended
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Components of net periodic benefit cost:
Service cost ............................... $ 1,611 $ 1,328 $ 769
Interest cost .............................. 4,589 4,428 1,756
Expected return on plan assets ............. -- -- --
Amortization of prior service cost (gain)... (1,511) (1,492) (13)
Recognized net actuarial loss (gain) ....... (775) (854) (921)
-------- -------- -------
Net periodic benefit cost .................. $ 3,914 $ 3,410 $ 1,591
======== ======== =======
Weighted average assumptions are summarized as follows.
Postretirement
Pension Benefits Benefits
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Discount rate ................. 6.6% 7.0% 6.7% 7.0%
Expected return on plan assets 9.0% 9.0% N/A N/A
Rate of compensation increase . 4.5% 4.5% N/A N/A
For measurement purposes, health care costs for domestic plans were
assumed to increase 8% in 1999 grading down gradually to a constant level of 6%
annual increase. Health care costs for Canadian plans were assumed to increase
approximately 11% during 1999 grading down gradually to a constant level of
aproximately 5.5% annual increase.
Assumed health care cost trend rates have a significant effect on the
amounts reported for postretirement benefits. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
1-Percentage-Point 1-Percentage-Point
Increase Decrease
-------------------- -------------------
Effect on total of service and interest cost components .. $ 322 $ (276)
Effect on postretirement benefit obligation .............. 2,661 (2,294)
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 relating to continuing operations were $3.5 million,
$3.5 million, and $2.8 million in fiscal 1998, 1997, and 1996, respectively.
15. DISCONTINUED OPERATIONS
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners for a sales price of $71.9 million and an
option for 6.7% of the common stock of the purchaser (which includes
Wallcoverings and the former wallcovering and vinyl units of Borden, Inc.)
outstanding as of the closing date. The proceeds were used to repay long-term
debt. In connection with the sale, the Company recorded a loss of approximately
$21.1 million, net of an estimated income tax benefit 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. Losses incurred by Wallcoverings
from April 29, 1996, (the date of Wallcoverings' discontinuance) to the date of
sale were charged to the Company's existing discontinued operations reserves.
The Wallcoverings operating losses were in excess of management's forecasted
expectations as of the date of discontinuance but within previously established
accruals.
F-19
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. DISCONTINUED OPERATIONS -- (Continued)
On July 24, 1997, JPS Automotive 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 and book value of Airbag.
On July 16, 1997, the Company completed its sale of the Mastercraft Group
for a purchase price of approximately $309.5 million. 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.
The Company has accounted for the financial results and net assets of the
Mastercraft Group, Floorcoverings, Airbag and Wallcoverings as discontinued
operations. Information about the Company's discontinued operations is below
(in thousands):
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Net sales(a) ................. $ -- $ 200,350 $ 443,338
Net income ................... -- 4,306 14,468
Identifiable assets .......... -- 53,004 263,523
Capital expenditures ......... 3,144 15,254 43,454
- - ---------
(a) Amount is not included in consolidated totals.
Net interest expense of discontinued operations (including amounts
attributable to discontinued operations) was $12.5 million and $26.7 million in
fiscal 1997 and 1996, respectively. Interest expense of $12.6 million and $26.5
million during fiscal 1997, and 1996, 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. No interest expense was allocated to discontinued operations for the
year ended December 26, 1998. In addition, a portion of the 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 and 1996, amounts allocated to discontinued operations
for the loss on sale of receivables totaled $0.6 million and $2.2 million,
respectively. No allocation of loss on sale of receivables was made to
discontinued operations in the year ended December 26, 1998.
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 26, 1998 as follows (in thousands):
Minimum Lease Sublease Rental
Fiscal Years Ending Payments Receipts
- - ------------------------- --------------- ----------------
December 1999 ......... $ 2,603 $ 1,868
December 2000 ......... 2,562 2,120
December 2001 ......... 2,141 2,239
December 2002 ......... 1,918 2,117
December 2003 ......... 1,767 1,876
Later years ........... 8,825 10,406
-------- --------
$ 19,816 $ 20,626
======== ========
F-20
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. FACILITY CLOSING COSTS
In connection with the acquisition of JPS Automotive, the Company
eliminated certain redundant sales and administrative functions and closed one
manufacturing facility in 1997, a second facility in January 1998, and a third
facility in June 1998. The Company is currently in the process of relocating
certain manufacturing processes from a JPS Automotive facility to an existing
C&A Products facility.
These actions affected approximately 640 employees. Total costs accrued
for the shutdown of facilities and severance and other personnel costs were
$2.7 million and $7.7 million, respectively.
The components of the reserves for the relocation and facility closures,
which are expected to be completed during the second quarter of fiscal 1999,
are as follows (in thousands):
Remaining
Reserve
Original Changes December 26,
Reserve in Reserve 1998
---------- ------------ -------------
Anticipated expenditures to close and dispose of idled facilities ..... $ 2,746 $ (2,327) $ 419
Anticipated severance benefits ........................................ 7,655 (6,134) 1,521
-------- --------- -------
$ 10,401 $ (8,461) $ 1,940
======== ========= =======
17. COMMON STOCKHOLDERS' DEFICIT
Dividend
On February 10, 1999, the Company declared a special dividend of
approximately $6.2 million, representing $0.10 per share on all outstanding
shares of common stock held by stockholders of record as of the close of
business on February 22, 1999. The dividend was paid on March 1, 1999. The
dividend reduced the amount authorized by the Company's Board of Directors for
the Company's 1999 share repurchase program from $25 million to approximately
$19 million.
Accumulated Other Comprehensive Loss
The accumulated balances and activity for each component of Accumulated
Other Comprehensive Loss are as follows (in thousands):
Foreign Accumulated
Currency Pension Other
Translation Equity Comprehensive
Adjustments Adjustment Loss
------------- ------------ --------------
Balance at January 27, 1996 .......... $ (23,719) $ (9,090) $ (32,809)
Change in balance ................... 2,921 (1,075) 1,846
---------- --------- ----------
Balance at December 28, 1996 ......... (20,798) (10,165) (30,963)
Change in balance ................... (8,325) (535) (8,860)
---------- --------- ----------
Balance at December 27, 1997 ......... (29,123) (10,700) (39,823)
Change in balance ................... 7,569 8,827 16,396
---------- --------- ----------
Balance at December 26, 1998 ......... $ (21,554) $ (1,873) $ (23,427)
========== ========= ==========
The income tax benefit for the pension equity adjustment was $1.2 million
for fiscal 1998. No income taxes have been provided for the foreign currency
translation adjustments.
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 26, 1998, options representing
1,528,511 shares of common stock were available for grants.
F-21
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
17. COMMON STOCKHOLDERS' DEFICIT -- (Continued)
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 26, 1998, 100,000
options had been granted.
On January 14, 1997, the Company adopted the 1997 United Kingdom Scheme,
which provides for the issuance of options to key employees under the 1994
Plan. As of December 26, 1998, 24,974 options had been granted.
Stock option activity under the plans is as follows:
December 26, 1998 December 27, 1997 December 28, 1996
------------------------ ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
------------- ---------- ------------- ---------- ------------- -----------
Outstanding beginning of year ..... 2,732,195 $ 5.86 3,287,106 $ 5.25 3,298,036 $ 5.12
Awarded ........................... 480,000 8.65 584,000 8.33 145,000 6.71
Cancelled ......................... (71,000) 8.56 (83,127) 6.46 (19,492) 4.10
Exercised ......................... -- -- (373,570) 4.70 (69,022) 3.99
Surrendered ....................... -- -- (682,214) 5.57 (67,416) 3.99
--------- --------- ---------
Outstanding at end of year ........ 3,141,195 $ 6.23 2,732,195 $ 5.86 3,287,106 $ 5.25
========= ========= =========
At December 26, 1998, December 27, 1997 and December 28, 1996, 2,129,095,
1,858,685, and 2,709,094, respectively, of the outstanding options were
exercisable at a weighted average price of $5.22, $4.78, and $4.74,
respectively.
Of the total options outstanding at December 26, 1998, 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 5 years. These
options are currently exercisable. The remaining 1,632,871 of total options
outstanding at December 26, 1998 have an exercise price in the range of $6.00
and $11.75 with a weighted average exercise price of $8.28 and a weighted
average contractual life of 8 years; 620,771 of these options are currently
exercisable at a weighted average exercise price of $8.18. Upon a change of
control, as defined, all of the above options become fully vested and
exercisable.
SFAS No. 123, "Accounting for Stock-Based Compensation", 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 has elected to continue to utilize the accounting provisions of APB
No. 25 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 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):
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 weeks) (52 weeks) (48 weeks)
Net income (loss):
As reported .............. $ (3,815) $ 155,235 $ 40,824
Pro forma ................ (5,017) 154,525 40,261
Basic EPS:
As reported .............. $ (0.06) $ 2.34 $ 0.59
Pro forma ................ (0.08) 2.33 0.58
Diluted EPS:
As reported .............. $ (0.06) $ 2.34 $ 0.58
Pro forma ................ (0.07) 2.33 0.58
F-22
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
17. COMMON STOCKHOLDERS' DEFICIT -- (Continued)
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 1998, 1997 and 1996:
expected volatility of 40%, expected lives of 10 years which equals the lives
of the grants, the risk free interest rate ranged from 5.46% to 7.82% and a
zero expected dividend rate. The weighted average grant-date fair value of an
option granted during fiscal 1998, 1997 and 1996 was $5.43, $5.41 and $4.32,
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 1998, 1997 and 1996 are summarized as follows (in thousands):
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Current
Federal ................... $ -- $ -- $ 250
State ..................... 2,900 2,600 2,006
Foreign ................... 9,617 6,146 9,958
-------- -------- --------
12,517 8,746 12,214
Deferred
Federal ................... (7,097) 4,833 9,871
State ..................... (1,075) 882 1,811
Foreign ................... 939 (1,463) 546
-------- -------- --------
(7,233) 4,252 12,228
-------- -------- --------
Income tax expense ......... $ 5,284 $ 12,998 $ 24,442
======== ======== ========
Domestic and foreign components of income from continuing operations
before income taxes are summarized as follows (in thousands):
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Domestic ......... $ (26,900) $ (4,545) $ 25,905
Foreign .......... 32,093 7,452 31,503
---------- --------- --------
$ 5,193 $ 2,907 $ 57,408
========== ========= ========
F-23
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. INCOME TAXES -- (Continued)
A reconciliation between income taxes computed at the statutory U.S.
Federal rate of 35% and the provisions for income taxes applicable to
continuing operations is as follows (in thousands):
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Amount at statutory Federal rate ............ $ 1,818 $ 1,017 $ 20,093
State taxes, net of Federal income tax ...... 1,187 2,263 2,481
Tax differential on foreign earnings ........ 134 123 (698)
Foreign losses with no tax benefit .......... 379 1,436 176
Foreign dividend income ..................... -- -- 410
Amortization and write-down of goodwill ..... 1,470 7,770 1,243
Other ....................................... 296 389 737
------- -------- --------
Income tax expense .......................... $ 5,284 $ 12,998 $ 24,442
======= ======== ========
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 26, 1998 and
December 27, 1997 were as follows (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Deferred tax assets:
Employee benefits, including postretirement benefits$ 31,695 $ 35,041
Net operating loss carryforwards ................ 79,902 46,793
Investment tax credit carryforwards ............. 1,130 2,200
Alternative minimum tax credits ................. 12,190 12,650
Other liabilities and reserves .................. 74,386 81,018
Valuation allowance ............................. (44,320) (45,583)
--------- ---------
Total deferred tax assets ................... 154,983 132,119
Deferred tax liabilities:
Property, plant and equipment ................... (66,153) (50,245)
Undistributed earnings of foreign subsidiaries .. (7,226) (7,226)
--------- ---------
Total deferred tax liabilities .............. (73,379) (57,471)
--------- ---------
Net deferred tax asset ........................... $ 81,604 $ 74,648
========= =========
The valuation allowance at December 26, 1998 and 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. During fiscal 1998 the valuation allowance
decreased $1.3 million from fiscal 1997. This decrease resulted primarily from
the expiration of tax credits. During fiscal 1997, the valuation allowance
decreased $2.5 million from fiscal 1996.
F-24
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. INCOME TAXES -- (Continued)
The above amounts have been classified in the consolidated balance sheets
as follows (in thousands):
December 26, December 27,
1998 1997
-------------- -------------
Deferred tax assets (liabilities):
Current domestic and foreign, included in other current assets .. $ 30,027 $ 33,345
Current foreign, included in accrued expenses ................... -- (395)
Noncurrent domestic and foreign ................................. 70,632 59,293
Noncurrent foreign, included in other noncurrent liabilities .... (19,055) (17,595)
--------- ---------
$ 81,604 $ 74,648
========= =========
Management has reviewed the Company's operating results for recent years
as well as the outlook for its continuing operations in concluding that it is
more likely than not that the net deferred tax assets of $81.6 million at
December 26, 1998 will be realized. The Company announced a reorganization on
February 10, 1999 (see Note 21) to better align itself in the marketplace. A
major goal of this reorganization is to lower the overall cost structure of the
Company and thereby increase profitability. These factors along with the timing
of the reversal of its temporary differences and the expiration date of its
NOLs were also considered in reaching this conclusion. 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 26, 1998, the Company had the following tax attributes
carryforwards available for U.S. Federal income tax purposes (in thousands):
Expiration
Amount Dates
----------- -----------
Net operating losses -- regular tax
Preacquisition, subject to limitations ... $ 19,812 2000-2009
Postacquisition, unrestricted ............ 199,397 2008-2018
---------
$ 219,209
=========
Net operating losses -- alternative minimum tax
Preacquisition, subject to limitations ... $ 16,248 2000-2009
Postacquisition, unrestricted ............ 159,735 2008-2018
---------
$ 175,983
=========
Investment tax and other credits
Preacquisition, subject to limitations ... $ 1,130 1999-2006
=========
Alternative minimum tax credits .......... $ 12,190
=========
Approximately $19.8 million of the Company's NOLs and $1.1 million of the
Company's unused U.S. 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
F-25
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. INCOME TAXES -- (Continued)
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.
Income taxes paid (refunds received) were ($6.0) million, $40.4 million,
and $10.4 million for fiscal 1998, 1997 and 1996, 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 26, 1998 December 27, 1997
----------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ------------ ---------- -----------
Long-term investments ......... $ 3,332 $ 3,332 $ 3,125 $ 3,125
Long-term debt ................ 866,049 885,386 772,934 829,234
The following methods and assumptions were used to estimate these fair
values:
Long-Term Investments -- Fair value approximates carrying value.
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
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners. See Note 15.
During fiscal 1998, the Company incurred fees and expenses of $0.1 million
for services performed by Blackstone Partners or its affiliates for the 1996
acquisitions of JPS Automotive and Perstorp Components and the 1997 acquisition
of the remaining interest in the Collins & Aikman/Perstorp Joint Venture.
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 and
Mastercraft Group of approximately $2.6 million and $4.0 million, respectively.
The Company also incurred fees and expenses for services performed by WP
Partners, or their respective affiliates, in connection with the disposition of
Wallcoverings of approximately $0.7 million in 1997. 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 Collins
& Aikman/Perstorp Joint Venture of approximately $2.7 million, $1.2 million and
$0.8 million, respectively. In addition, Wasserstein Perella Securities, Inc.,
("WP Securities") an affiliate of WP Partners, acted as the lead underwriter in
the Subordinated Notes offering in June 1996 and was paid fees of approximately
$5.4 million by C&A Products in connection therewith.
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 CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. INFORMATION ABOUT THE COMPANY'S OPERATIONS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". 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. SFAS No. 131 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 years beginning after
December 15, 1997.
On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North America
Automotive Interior Systems, to be headquartered in the Detroit metro area, and
Europe Automotive Interior Systems, to be headquartered in Germany. As part of
the Reorganization, the Company has also established the Specialty Automotive
Products division, which includes the Company's automotive fabrics and Dura
Convertible Systems businesses. The Company's reportable segments reflect these
newly established divisions. Financial data for all periods has been presented
on this basis. North America Automotive Interior Systems and Europe Automotive
Interior Systems include the following product groups: molded floor carpet,
luggage compartment trim, acoustical products, accessory floormats and
plastic-based interior systems. The Specialty Automotive Products division
includes automotive fabrics and convertible top systems. The three divisions
also produce other automotive and non-automotive products.
The accounting policies of the divisions are the same as those described
in the Summary of Significant Accounting Policies (See Note 2). The Company
evaluates performance based on profit or loss from operations before interest
expense, foreign exchange gains and losses, loss on sale of receivables, other
income and expense, and income taxes.
Information about the Company's divisions is presented below (in
thousands).
Fiscal Year Ended December 26, 1998
-----------------------------------------
North America Europe
Automotive Automotive
Interior Systems Interior Systems
-------------------- --------------------
External revenues ............................ $ 1,065,461 $ 338,030
Inter-segment revenues ....................... 163,432 26,287
Depreciation and amortization ................ 34,348 16,832
Operating income ............................. 74,485 9,242
Total assets ................................. 788,054 260,023
Capital expenditures ......................... 53,550 12,440
Fiscal Year Ended December 27, 1997
------------------------------------------
North America Europe
Automotive Automotive
Interior Systems Interior Systems
-------------------- --------------------
External revenues ............................ $ 1,053,546 $ 120,456
Inter-segment revenues ....................... 65,869 2,938
Depreciation and amortization ................ 37,260 6,000
Impairment of long-lived assets (Note 2) ..... 22,600 --
Operating income ............................. 40,055 4,451
Total assets ................................. 740,463 183,378
Capital expenditures ......................... 35,327 3,488
Fiscal Year Ended December 26, 1998
-------------------------------------------
Specialty
Automotive
Products Other (a) Total
-------------- ------------- --------------
External revenues ............................ $ 421,978 $ -- $ 1,825,469
Inter-segment revenues ....................... 29,516 -- 219,235
Depreciation and amortization ................ 14,871 1,023 67,074
Operating income ............................. 14,206 545 98,478
Total assets ................................. 267,129 67,005 1,382,211
Capital expenditures ......................... 20,537 12,464 98,991
Specialty
Automotive
Products Other (a) Total
------------ ------------- -----------
External revenues ............................ $ 455,330 $ -- $ 1,629,332
Inter-segment revenues ....................... 23,798 -- 92,605
Depreciation and amortization ................ 14,628 952 58,840
Impairment of long-lived assets (Note 2) ..... -- -- 22,600
Operating income ............................. 38,074 1,930 84,510
Total assets ................................. 271,396 107,155 1,302,392
Capital expenditures ......................... 15,733 17,227 71,775
F-27
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. INFORMATION ABOUT THE COMPANY'S OPERATIONS -- (Continued)
Fiscal Year Ended December 28, 1996
---------------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
------------------ ------------------ ----------- ----------- -------------
External revenues ................. $ 635,648 $ 29,490 $388,683 $ -- $1,053,821
Inter-segment revenues ............ 38,404 -- 25,729 -- 64,133
Depreciation and amortization ..... 18,933 1,124 11,893 445 32,395
Operating income .................. 60,998 1,069 39,531 306 101,904
Total assets ...................... 747,261 98,722 236,832 447,474 1,530,289
Capital expenditures .............. 21,197 2,526 10,354 44,377 78,454
- - ---------
(a) Other includes the Company's discontinued operations (see Note 15) and
non-operating units.
Sales for the Company's primary product groups are as follows (in
thousands):
Fiscal Year Ended
-------------------------------------------
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Molded floor carpet ......................... $ 416,971 $ 384,714 $ 234,666
Luggage compartment trim .................... 95,897 101,034 56,820
Acoustical products ......................... 225,130 167,758 5,033
Accessory floormats ......................... 157,209 139,292 114,524
Plastic-based interior trim systems ......... 417,534 294,555 176,345
Automotive fabrics .......................... 267,185 318,979 246,114
Convertible top systems ..................... 104,348 88,801 105,051
Other ....................................... 141,195 134,199 115,268
---------- ----------- -----------
Total ....................................... $1,825,469 $ 1,629,332 $ 1,053,821
========== =========== ===========
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:
1998 1997 1996
---------- ---------- ----------
General Motors Corporation ......... 31.2% 37.1% 34.0%
Ford Motor Company ................. 19.9% 14.2% 15.4%
DaimlerChrysler A.G. ............... 18.3% 17.4% 21.1%
F-28
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. INFORMATION ABOUT THE COMPANY'S OPERATIONS -- (Continued)
Information about the Company's continuing operations in different
geographic areas for fiscal 1998, 1997 and 1996 is presented below (in
thousands).
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
December 26, 1998 December 27, 1997 December 26, 1996
------------------------- --------------------------- ------------------------
Long-Lived Long-Lived Long-Lived
Net Sales Assets Net Sales Assets Net Sales Assets
------------ ------------ -------------- ------------ ------------ -----------
(52 Weeks) (52 Weeks) (48 Weeks)
United States .......... $1,047,862 $ 452,281 $ 1,089,114 $ 436,466 $ 716,710 $ 457,382
Canada ................. 356,361 186,711 348,056 182,649 233,334 170,643
Mexico ................. 83,216 17,234 71,706 16,044 74,287 21,804
United Kingdom ......... 143,716 61,449 84,956 34,063 19,849 34,249
Other (a) .............. 194,314 83,508 35,500 64,586 9,641 25,188
---------- --------- ----------- --------- ---------- ---------
Consolidated ........... $1,825,469 $ 801,183 $ 1,629,332 $ 733,808 $1,053,821 $ 709,266
========== ========= =========== ========= ========== =========
- - ---------
(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and the
Netherlands and, for long-lived assets, the Company's discontinued
operations (See Note 15).
Intersegment sales between geographic areas are not material. For fiscal
years 1998, 1997 and 1996, export sales from the United States to foreign
countries were $104.9 million, $136.7 million and $69.9 million, respectively.
As of December 26, 1998, the Company's continuing operations employed
approximately 15,900 persons on a full-time or full-time equivalent basis.
Approximately 5,400 of such employees are represented by labor unions.
Approximately 2,200 employees are represented by collective bargaining
agreements that expire during fiscal 1999.
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 26, 1998, 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 24 sites where
the Company is participating in the investigation or remediation of the site
either directly or through financial contribution, and 8 additional sites where
the Company is alleged to be responsible for
F-29
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
22. COMMITMENTS AND CONTINGENCIES -- (Continued)
costs of investigation or remediation. As of December 26, 1998, the Company's
estimate of its liability for these 32 sites is approximately $24.6 million. As
of December 26, 1998, the Company has established reserves of approximately
$41.8 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 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 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.
Other Commitments
As of December 26, 1998, the Company's continuing operations had
approximately $19.1 million in outstanding capital expenditure 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.
23. QUARTERLY FINANCIAL DATA (UNAUDITED): (in thousands, except per share
amounts)
The quarterly data below is based on the Company's fiscal periods.
Fiscal 1998
-----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- ------------ ------------ ------------
Net sales ............................... $ 478,140 $ 463,335 $ 377,928 $ 506,066
Gross margin ............................ 78,732 63,815 38,577 67,101
Income (loss) from continuing operations 8,678 (482) (8,354) 67
Income (loss) before extraordinary loss . 8,678 (482) (8,354) 67
Net income (loss) ....................... 8,678 (4,161) (8,354) 22
Basic and diluted earnings per share .... 0.13 (0.06) (0.13) --
Common stock prices
High .................................. 9 11/16 9 1/2 7 1/2 7 7/16
Low ................................... 7 11/16 6 13/16 6 3/16 4 15/16
F-30
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
23. QUARTERLY FINANCIAL DATA (UNAUDITED): (in thousands, except per share
amounts) -- (Continued)
Fiscal 1997
----------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- ------------------ --------------
Net sales .................................... $ 415,560 $ 416,018 $ 368,008 $ 429,746
Gross margin ................................. 70,367 72,237 17,226(a) 73,330
Income (loss) from continuing operations ..... 11,265 11,600 (42,002)(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
- - ---------
(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.
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 (in
thousands):
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
Current assets ............................... $ 510,303 $ 508,864 $ 728,586
Noncurrent assets ............................ 871,815 792,199 800,594
Current liabilities .......................... 343,807 315,268 339,519
Noncurrent liabilities ....................... 1,115,394 1,051,376 1,382,754
Net sales .................................... 1,825,469 1,629,332 1,053,821
Gross margin ................................. 248,225 233,160 188,475
Income (loss) from continuing operations ..... 300 (10,338) 32,768
Income before extraordinary item ............. 300 155,709 47,236
Net income (loss) ............................ (3,424) 154,988 40,626
Separate financial statements of C&A Products are not presented because
they would not be material to the holders of any debt securities of C&A
Products that may be issued, there being no material differences between the
financial statements of C&A Products and the Company. The absence of separate
financial statements of C&A Products is also based upon the fact that any debt
of C&A Products issued, and the assumption that any debt to be issued, under
the Registration Statement on Form S-3 filed by the Company and C&A Products
(Registration No. 33-62665) is or will be fully and unconditionally guaranteed
by the Company.
25. EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," in December 1997.
Basic earnings per common share were computed by dividing net income (loss) 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
calculation of basic and diluted earnings per share from continuing operations
(in thousands, except per share amounts):
F-31
COLLINS & AIKMAN CORPORATON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. EARNINGS PER SHARE -- (Continued)
Fiscal Year Ended Fiscal Year Ended
December 26, 1998 December 27, 1997
------------------------------- -----------------------------------
(52 weeks) (52 weeks)
Per-Share Per-Share
Loss Shares Amount Loss Shares Amount
---------- -------- ----------- -------------- -------- -----------
Basic earnings per share ...... $ (91) 63,348 $ -- $ (10,091) 66,337 $ (0.15)
Effect of stock option plans .. -- -- -- -- -- --
------ ------ ---- ---------- ------ ---------
Diluted earnings per share .... $ (91) 63,348 $ -- $ (10,091) 66,337 $ (0.15)
====== ====== ==== ========== ====== =========
Fiscal Year Ended
December 28, 1996
-------------------------------
(48 weeks)
Per-Share
Income Shares Amount
----------- -------- ----------
Basic earnings per share ...... $ 32,966 68,997 $ 0.48
Effect of stock option plans .. -- 890 ( 0.01)
-------- ------ --------
Diluted earnings per share .... $ 32,966 69,887 $ 0.47
======== ====== ========
The Company has restated earnings per share for fiscal year 1996 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 28, 1996
------------------
Per share amounts:
Primary earnings per share as previously reported . $ 0.47
Effect of SFAS No. 128 ............................ 0.01
--------
Basic earnings per share .......................... $ 0.48
========
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 22, 1999 (except with respect to the matters discussed in Note
11 to those financial statements, as to which the date is March 19, 1999). 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 22, 1999.
S-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(in thousands)
December 26, December 27,
1998 1997
-------------- -------------
ASSETS
Current Assets:
Cash ............................................................... $ 81 $ 415
Other .............................................................. 12 12
--------- ---------
Total current assets ............................................. 93 427
Other assets ........................................................ -- 902
--------- ---------
$ 93 $ 1,329
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities ................................................. $ 199 $ 16
Share of accumulated losses in excess of investments in subsidiaries 77,083 65,581
Other noncurrent liabilities ........................................ 2,582 2,582
Common stock ........................................................ 705 705
Other stockholders' deficit ......................................... (80,476) (67,555)
--------- ---------
Total stockholders' deficit ...................................... (79,771) (66,850)
--------- ---------
$ 93 $ 1,329
========= =========
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 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
Other expenses ............................................................... $ (608) $ (589) $ (592)
Interest income .............................................................. 217 836 790
-------- -------- -------
Income (loss) from operations before equity in income (loss) of subsidiary ... (391) 247 198
Equity in income (loss) of subsidiary ........................................ (3,424) 154,988 40,626
-------- -------- -------
Net income (loss) ............................................................ $ (3,815) $155,235 $40,824
======== ======== =======
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 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
(52 Weeks) (52 Weeks) (48 Weeks)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities ..... $ (334) $ (332) $ 122
--------- --------- --------
FINANCING ACTIVITIES
Purchases of treasury stock ............................. (25,013) (19,715) (9,594)
Proceeds from exercise of stock options ................. -- 385 138
Intercompany transfers (to) from subsidiary ............. (5,987) (2,094) 6,104
Dividends received from subsidiary ...................... 31,000 21,424 3,000
--------- --------- --------
Net cash used in financing activities ................... -- -- (352)
--------- --------- --------
Net decrease in cash .................................... (334) (332) (230)
Cash at beginning of year ............................... 415 747 977
--------- --------- --------
Cash at end of year ..................................... $ 81 $ 415 $ 747
========= ========= ========
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 13, 15 and 22 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 26, 1998, December 27, 1997 and December
28, 1996
(in thousands)
Additions
Balance at Resulting Charge to
Beginning from Costs and Charged to Balance at
Description of Year Acquisitions Expenses Other Accounts Deductions End of Year
- - --------------------------------------- ------------ -------------- ----------- ---------------- ------------------ ------------
Fiscal Year Ended December 26, 1998
Allowance for doubtful accounts ....... $ 9,275 $ 247 $3,751 $ 482(a) $ (6,527)(c) $ 7,228
Restructuring reserves ................ $ 7,676 $ -- $ -- $ -- $ (5,736)(d) $ 1,940
Fiscal Year Ended December 27, 1997
Allowance for doubtful accounts ....... $10,380 $ -- $ 604 $ 96(a) $ (1,805)(b) $ 9,275
Restructuring reserves ................ $ 9,694 $ -- $ -- $1,200 $ (3,218)(d) $ 7,676
Fiscal Year Ended December 28, 1996
Allowance for doubtful accounts ....... $ 3,381 $6,461 $ 899 $ 37(a) $ (398)(b) $10,380
Restructuring reserves ................ $ 919 $ -- $ -- $9,200 $ (425)(d) $ 9,694
- - ---------
(a) Reclassifications and collection of accounts previously written off.
(b) Reclassifications to discontinued operations and other accounts and
uncollectible amounts written off.
(c) Reclassifications to other accounts, uncollectible amounts written off, and
the elimination of amounts included in the allowance due from Enjema which
was considered as a component of the Company's purchase cost for the
remaining 50% interest in Enjema.
(d) Spending against the established reserves. See Note 16 to the Consolidated
Financial Statements.
S-5