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UNITED STATES
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 25, 1999
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)
5755 New King Court
Troy, Michigan 48098
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (248) 824-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $39,860,060 as of March 15, 2000.
As of March 15, 2000, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 61,879,272 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for 2000 Annual Meeting of Stockholders to be filed within
120 days of December 25, 1999--Part III, Items 10, 11, 12 and 13.*
* Only the portions of this document expressly described in the items listed
are incorporated by reference herein.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT INDEX
Item 1. Business, page 1.
Item 2. Properties, page 4.
Item 3. Legal Proceedings, page 4.
Item 4. Submission of Matters to a Vote of Security Holders, page 5.
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 20.
Item 8. Financial Statements and Supplementary Data, page 21.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure, page 21.
Item 10. Directors and Executive Officers of the Registrant, page 22.
Item 11. Executive Compensation, page 22.
Item 12. Security Ownership of Certain Beneficial Owners and Management, page
22.
Item 13. Certain Relationships and Related Transactions, page 22.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, page
23.
PART I
Item 1. Business
Development
Collins & Aikman Corporation (the "Company") is the global leader in
automotive floor and acoustic systems, and is a leading supplier of automotive
fabric, interior trim 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 25, 1999, 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 American
Automotive Interior Systems, headquartered in the Detroit metropolitan area,
and European Automotive Interior Systems, headquartered in Wiesbaden, Germany.
The Company subsequently implemented a global account manager structure for
each of its automotive original equipment manufacturer ("OEM") customers. The
Company undertook the Reorganization to reduce costs and improve operating
efficiencies throughout operations and to more effectively respond to the
OEMs' demand for complete interior trim systems and more sophisticated
components, based on increased levels of design and styling support and
quieter automobile interiors. The Reorganization and global account manager
structure has enabled 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 modules, 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. Although these products have not
historically been sold in conjunction with the Company's other interior trim
offerings, the Company's new strategy of leveraging its acoustic capabilities
with its design and styling expertise is anticipated to change the marketing
approach for most of the Company's products.
Thomas E. Evans joined the Company as Chief Executive Officer on April 22,
1999. Mr. Evans replaced Thomas E. Hannah, who retired from the Company on
June 30, 1999. Mr. Evans also serves as a director and Chairman of the
Company's Board of Directors. Mr. Evans, 48 years old, was formerly President
of Tenneco Automotive, a subsidiary of Tenneco, Inc. Prior to that, Mr. Evans
held several management positions, the last being Senior Vice President of
Operations, at Case Corporation, a subsidiary of Tenneco, Inc.
The Company announced on February 10, 1999 that it anticipated incurring a
restructuring charge related to the Reorganization of approximately $8 million
to $9 million. However, in connection with the change in the Company's Chief
Executive Officer and the Company's operating results in the first quarter,
the Company delayed certain aspects of the Reorganization while the Company's
new Chief Executive Officer, Thomas E. Evans, reviewed the plan. Upon final
completion of the Reorganization plan, the Company recognized a pre-tax
restructuring charge of $33.4 million in 1999. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Developments" for additional discussion of the restructuring charge.
On July 26, 1999, the Company announced that Rajesh K. Shah had been named
Executive Vice President and Chief Financial Officer. Mr. Shah replaced J.
Michael Stepp. Mr. Shah, 48 years old, was formerly Vice President and Chief
Financial Officer of UT Automotive. Prior to that, Mr. Shah held several
management positions with Varity Corporation.
1
General
The Company is the global leader in automotive floor and acoustic systems,
and is a leading supplier of automotive fabric, interior trim and convertible
top systems, with 1999 net sales of approximately $1.9 billion. The Company
operates through three divisions: North American Automotive Interior Systems,
European Automotive Interior Systems and Specialty Automotive Products. The
Company's North American Automotive Interior Systems and European 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 modules, systems and components.
The Company's Specialty Automotive Products division competes in automotive
fabrics and convertible top systems.
The Company's North American Automotive Interior Systems and European
Automotive Interior Systems divisions sell principally to automotive 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 18% of the Company's sales for 1999 were attributable to
products utilized in vehicles built outside of North America, compared to
approximately 20% in 1998. The Company is dependent on certain significant
customers. In 1999, 1998 and 1997, direct and indirect sales to each of
General Motors Corporation, Ford Motor Company and DaimlerChrysler AG
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. 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.
Products
The Company's North American Automotive Interior Systems and European
Automotive Interior Systems divisions include the following product groups:
molded floor carpet, acoustical products, luggage compartment trim, accessory
floormats and plastic-based interior trim modules, systems and components. The
Specialty Automotive Products division produces automotive fabrics and
convertible top systems. The Company's automotive products are used primarily
in automobiles and light trucks. The Company also produces other automotive
and non-automotive products. In 1999, approximately 96% of the Company's sales
were automotive-related, compared to approximately 63% in 1996.
Molded Floor Carpet. Molded floor carpets primarily include polyethylene,
barrier-backed and molded urethane underlay carpet. In 1999, 1998 and 1997,
the Company's net sales of molded floor carpets were $468.0 million, $417.0
million and $384.7 million, respectively.
Acoustical Products. Acoustical products primarily 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 1999, 1998 and 1997,
the Company's net sales of acoustical products were $209.8 million, $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 1999, 1998 and
1997, the Company's net sales of luggage compartment trim were $90.6 million,
$95.9 million and $101.0 million, respectively.
Accessory Floormats. Accessory automotive floormats include rubber-backed,
carpeted floormats typically installed to preserve the quality of original
floor carpets. In 1999, 1998 and 1997, the Company's net sales of accessory
floormats were $165.9 million, $157.2 million and $139.3 million,
respectively. The Company did not have floormat operations in Europe prior to
its acquisition of Collins & Aikman Automotive Floormats Europe, B.V. ("C&A
Floormats Europe") (previously named Pepers Beheer B.V.) in June 1998. The
Company also produces residential and commercial floormats.
2
Plastic-based Interior Trim Modules, Systems and Components. The Company
manufactures automotive door panels, headrests, pillar trim, floor console
systems and instrument panel components. At the beginning of 1998, the Company
acquired Collins & Aikman Plastics (UK) Limited ("C&A Plastics UK")
(previously named Kigass Automotive Group), 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 modules, systems and components, in
1999, 1998 and 1997 were $435.4 million, $417.5 million and $294.6 million,
respectively.
Automotive Fabrics. The Company's automotive fabrics operations produce a
wide variety of automotive fabric, including flat-wovens, velvets and knits,
and headliner fabric. The Company also laminates foam to bodycloth. In 1999,
1998 and 1997, the Company had net sales of automotive fabrics of $269.5
million, $267.2 million and $319.0 million, respectively. The Company also
manufactures other non-automotive products, which accounted for approximately
four percent of the Company's sales in 1999.
Convertible Top Systems. The Company designs and manufactures convertible
top systems for vehicles built in North America and Europe. The Company
markets and sells to OEMs 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 1999, 1998 and 1997 were $118.9 million, $104.3
million and $88.8 million, respectively.
For additional discussion on the Company's operating segments, including
each segment's revenues from external customers, operating income and total
assets, see Note 20 to the Consolidated Financial Statements.
Competition
The automotive supply business is highly competitive. The Company has
competitors in each of its automotive product lines, some of which have
substantially greater financial and other resources than the Company. The
Company's competitors in molded plastic components also include subsidiaries
of certain automotive and light vehicle manufacturers. The automotive supply
business for interior surfaces is highly concentrated in North America due
mostly to substantial capital requirements and required sophistication in
design and styling capability. For the majority of the Company's product lines
in North America, the Company normally competes for new business against only
a few other automotive suppliers.
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, a
shift in consumer taste away from products that the Company manufactures and
pricing pressure from its major customers. The Company believes the principal
competitive factors in its industry are quality, price, customer service,
design and engineering capability and reputation with the customer.
Working Capital
The Company's working capital consists of accounts receivable, inventory
and accounts payable, which are typical for automotive suppliers. Accounts
receivable are primarily concentrated with large companies such as General
Motors, Ford, DaimlerChrysler and Toyota, which have historically paid within
terms. Inventories are maintained for specific automobile and light truck
models and quantities are based on demand forecasts provided by the customer.
Inventories are mostly required to be delivered on a just-in-time ("JIT")
basis. The Company maintains normal terms and conditions with its vendors.
In 1999, the Company implemented a new compensation program, based in part
upon maximizing cash flow and increasing asset utilization. This new focus
resulted in a 24% reduction in its investment in working capital (including
accounts receivable, inventory and accounts payable) to $168 million in 1999,
compared to $221 million in 1998.
3
Facilities
At December 25, 1999, the Company had 63 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 9.6 million square feet. Approximately 79% 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 and the processes, tooling and equipment used.
Capacity is also impacted by product demand and shifts in production between
plants. The Company currently estimates that the majority of its plants
generally operate at between 80% and 100% of capacity. The Company does have
certain isolated plants that operate at capacity levels around 50% due to
production demands at the specific facilities. The Company's capacity
utilization is consistent with 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
20 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 25, 1999, the Company's continuing operations employed
approximately 15,600 persons on a full-time or full-time equivalent basis.
Approximately 5,800 of such employees are represented by labor unions.
Approximately 1,400 employees are represented by collective bargaining
agreements that expire during 2000. Management believes that the Company's
relations with its employees represented by labor unions and its other
employees are generally good. When completed, the Reorganization will affect
approximately 1,100 employees.
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, except for certain
costs incurred at acquired locations. Environmental compliance costs relating
to conditions existing at the time the locations were purchased are generally
charged to reserves established in purchase accounting. 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 25, 1999, 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 23 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 25, 1999, the Company's estimate
of its liability for the 31 sites is approximately $22.9 million. As of
December 25, 1999, the Company has established reserves of approximately $30.5
million for the estimated future costs related to all its known environmental
sites. In the opinion of management, based on the facts presently known to it,
the environmental costs and contingencies will not have a material adverse
effect on the Company's consolidated financial condition or future results of
operations. However, there can be no assurance that the Company has identified
or properly assessed all potential environmental liability arising from the
activities or properties of the Company, its present and former subsidiaries
and their corporate predecessors.
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 15, 2000, there were
approximately 1,900 beneficial holders. 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 1999 Fiscal 1998
------------- ---------------
High Low High Low
------ ------ ------- -------
First Quarter......... 6 1/4 4 1/8 9 11/16 7 11/16
Second Quarter........ 7 7/16 4 9 1/2 6 13/16
Third Quarter......... 7 5/8 4 9/16 7 1/2 6 3/16
Fourth Quarter........ 7 4 7/8 7 7/16 4 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. On May 28, 1999, the Company paid a special dividend related to the
distribution of proceeds from the sale of the Company's Imperial
Wallcoverings, Inc. subsidiary ("Wallcoverings") of approximately $44.0
million, representing $0.71 per share on all outstanding shares of Common
Stock held by stockholders of record as of the close of business on May 20,
1999. No other dividends or similar distributions with respect to the Common
Stock have 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 10 to the
Consolidated Financial Statements.
6
Item 6. Selected Financial Data
Fiscal Year Ended
---------------------------------------------------------------
December 25, December 26, December 27, December 28, January 27,
1999 1998 1997 1996 (1) 1996
------------ ------------ ------------ ------------ -----------
(in thousands, except per share data)
Statement of Operations
Data:
Net sales............... $1,898,597 $1,825,469 $1,629,332 $1,053,821 $ 902,017
Gross margin............ 284,717 248,225 233,160 188,475 164,325
Selling, general and
administrative
expenses............... 145,784 142,724 119,381 82,699 65,996
Restructuring charge and
impairment of long-
lived assets (2)...... 33,391 -- 22,600 -- 2,400
Goodwill amortization... 7,023 7,023 6,669 3,872 270
Operating income........ 98,519 98,478 84,510 101,904 95,659
Interest expense, net
(3).................... 92,045 82,004 77,581 39,850 22,150
Loss on sale of
receivables (4)........ 5,356 6,066 4,700 4,533 6,246
Income (loss) from
continuing operations
before income taxes.... (1,119) 5,193 2,907 57,408 67,263
Income tax expense
(benefit).............. 246 5,284 12,998 24,442 (139,959)
Income (loss) from
continuing operations.. (1,365) (91) (10,091) 32,966 207,222
Income (loss) from
discontinued
operations, including
disposals, net of
income taxes........... -- -- 166,047 14,468 (781)
Income (loss) before
extraordinary items and
cumulative effect of a
change in accounting
principle.............. (1,365) (91) 155,956 47,434 206,441
Net income (loss) (5)... (10,215) (3,815) 155,235 40,824 206,441
Per Share Data:
Income (loss) from
continuing operations
per basic share........ (0.16) -- (0.15) 0.48 2.96
Income (loss) from
continuing operations
per diluted share...... (0.16) -- (0.15) 0.47 2.91
Dividends per share..... 0.81 -- -- -- --
Balance Sheet Data (at
period end):
Total assets............ $1,348,890 $1,382,211 $1,302,392 $1,530,289 $ 991,361
Long-term debt,
including current
portion................ 912,542 866,049 772,934 1,175,594 759,966
Common stockholders'
deficit................ (151,121) (79,771) (66,850) (194,578) (227,852)
Other Data (from
continuing operations):
Capital expenditures.... $ 86,430 $ 95,847 $ 56,521 $ 35,000 $ 53,156
Depreciation and
amortization........... 71,474 67,074 58,840 32,395 28,427
EBITDA (6).............. 183,354 167,547 165,950 134,299 124,086
- --------
(1) 1996 was a 48-week year.
(2) In 1999, the Company recorded a restructuring charge for the
Reorganization consisting of $13.4 million of asset impairment and $20.0
million primarily related to severance accruals. In 1997, the Company
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. In
fiscal 1995, the Company incurred a charge of $2.4 million related
primarily to the closure of a carpet plant and the write down of fixed
assets at another carpet plant. See Notes to Consolidated Financial
Statements.
(3) Excludes amounts allocated to discontinued operations totaling $12.5
million, $26.7 million, and $26.5 million in 1997, 1996 and 1995,
respectively. No amounts were allocated to discontinued operations in 1999
and 1998.
7
(4) Excludes amounts allocated to discontinued operations totaling $0.6
million, $2.2 million, and $2.4 million in 1997, 1996, and 1995,
respectively. No amounts were allocated to discontinued operations in 1999
and 1998.
(5) In 1999, the Company recorded an $8.9 million charge for the cumulative
effect of a change in accounting principle related to start-up costs.
(6) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income taxes, depreciation, amortization,
other income and expense, and the non-cash portion of non-recurring
charges. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
generally accepted accounting principles.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Developments
Dividends
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. On May 28, 1999, the Company paid a special dividend relating to the
distribution of the proceeds from the sale of Wallcoverings of approximately
$44.0 million, representing $0.71 per share on all outstanding shares of
Common Stock held by stockholders of record as of the close of business on May
20, 1999.
Reorganization
On February 10, 1999, the Company announced the Reorganization, a
comprehensive plan to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North American
Automotive Interior Systems, headquartered in the Detroit metropolitan area,
and European Automotive Interior Systems, headquartered in Wiesbaden, Germany.
In addition, the Company implemented a global account manager structure for
each of the Company's automotive original equipment manufacturer ("OEM")
customers. The Company undertook the Reorganization to reduce costs and
improve operating efficiencies throughout the Company's operations and to more
effectively respond to the OEMs' demand for complete interior trim systems and
more sophisticated components. The Reorganization and global account manager
structure has allowed 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 module 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. Although these products have not
historically been sold in conjunction with the Company's other interior trim
offerings, the Company's new strategy of leveraging its acoustic capabilities
with its design and styling expertise is anticipated to change the marketing
approach for most of the Company's products.
The Company announced on February 10, 1999 that it anticipated incurring a
restructuring charge related to the Reorganization of approximately $8 million
to $9 million. However, in connection with the change in the Company's Chief
Executive Officer and the Company's operating results in the first quarter,
the Company delayed certain aspects of the Reorganization while the Company's
new Chief Executive Officer, Thomas E. Evans, reviewed the plan. Upon final
completion of the Reorganization plan, the Company recognized a pre-tax
restructuring charge of $33.4 million, including $13.4 million of asset
impairments, $15.0 million of severance costs and $5.0 million related to the
termination of sales commission contracts at the Company's North American
plastics operations.
The Reorganization includes the closure of three facilities. The Homer,
Michigan plastics facility was closed in August, 1999 and its operations were
relocated to an existing plastics facility. The Cramerton, North Carolina
fabrics facility was sold in September, 1999, for $6.0 million. The facility's
operations are in the process of being located to another fabrics facility.
The acoustics facility in Vastra Frolunda, Sweden, is scheduled to be closed
in September, 2000. Approximately $4.7 million in severance costs have been
provided for employees at these facilities.
8
The remaining severance costs for operating personnel primarily relate to
employee reductions at C&A Plastics UK and in a number of the Company's North
American operations. Severance costs for management and administrative
personnel primarily relate to employee reductions at the Company's former
North Carolina corporate headquarters and at the North American Automotive
Interior Systems division. When completed, the Reorganization will affect
approximately 1,100 employees.
The Company currently expects the Reorganization plan to be substantially
completed by December, 2000. In addition to the restructuring charge, the
Company expensed certain costs for relocation and start up of operations
related to the closed facilities. These expenses amounted to approximately $4
million during 1999. The Company currently estimates that the total cost of
the Reorganization, including the restructuring charge, will be approximately
$43 million, of which approximately $10 million represents other one-time
costs, which are expensed as incurred.
General
The Company is the global leader in automotive floor and acoustic systems,
and is a leading supplier of automotive fabrics, interior trim and convertible
top systems. The Company's net sales in fiscal 1999 were $1,898.6 million
compared to $1,825.5 million in fiscal 1998. 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. Years prior to 1996 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 interiors include an increased emphasis on
acoustics. Management further believes that changes to vehicle interiors,
including voice-activated internet access, e-mail capabilities and
navigational systems will require enhanced acoustical properties relative to
today's light vehicles. Additionally, the Company believes that by utilizing
its design and styling capabilities across all of its product lines, it will
be able to provide customers with interiors with better color matching, lower
costs and more harmonious interior environments. Management believes that
these interior surface products can serve as "carriers" for the Company's
acoustic products, and by selling these products together, the Company can
differentiate its products from those of its competitors, provide greater
value to its customers and enhance its product potential.
Results of Operations
1999 Compared to 1998
The Divisions
The Company operates three divisions, with seven primary product lines. For
additional information regarding the Company's divisions, see Note 20 to the
Consolidated Financial Statements.
North American Automotive Interior Systems
Net Sales: Net sales for the North American Automotive Interior Systems
division increased 8.1% to $1,151.7 million, up $86.3 million from 1998. The
increase in sales was driven by a stronger automobile and light truck build in
North America in 1999. A strike at General Motors, the Company's largest
customer, negatively impacted sales in 1998 by approximately $37.1 million.
Operating Income: Operating income for the division increased 20.0% to $89.4
million, up $14.9 million from 1998. The increase is primarily due to
increased sales volume, partially offset by unfavorable changes in sales mix
and price discounts at several of the division's operations and the incurrence
of significant start-up costs related to starting production of various
interior modules for the General Motors GMX-270 at the Company's Manchester,
Michigan facility. In addition, the division incurred certain costs related to
the closure and relocation of the Homer, Michigan, plastics facility into
another plastic facility and relocation expenses associated with the
establishment of the division's headquarters in the Detroit metropolitan area.
9
European Automotive Interior Systems
Net Sales: Net sales for the European Automotive Interior Systems division
decreased 9.4% to $306.4 million, down $31.7 million from 1998. The decrease
is primarily due to weak demand for acoustical products from Rover, Ford and
Volvo.
Operating Income: Operating income decreased 75.2% to $2.3 million, down $6.9
million from 1998. The decrease is primarily related to operational
inefficiencies at the division's plastics operations in the United Kingdom.
These inefficiencies derived from system implementation difficulties, which
caused temporary delays and inaccuracies in scheduling, shipping and materials
management information. In addition, the division experienced manufacturing
inefficiences associated with volume declines on Rover, Ford and Volvo
products. Operating losses were also incurred at a manufacturing facility at
Vastra Frolunda, Sweden, principally due to volume declines. The Vastra
Frolunda facility is being closed as part of the Reorganization discussed
above. The division also incurred a high level of relocation expenses
associated with the establishment of its headquarters in Wiesbaden, Germany,
and consulting expenses associated with system upgrades and Year 2000
compliance efforts.
Specialty Automotive Products
Net Sales: Net sales for the Specialty Automotive Products division increased
4.4% to $440.5 million, up $18.5 million from 1998. Excluding the impact of
the General Motors strike, sales increased $11.5 million, primarily due to
strong demand for the Ford Mustang at the division's convertible top systems
operations.
Operating Income: Operating income for the division increased 178.7% to $39.6
million, up $25.4 million from 1998. The increase is primarily due to
increased volume at the convertible top systems operations and cost-cutting
efforts at the automotive fabrics operations. In 1998, the automotive fabrics
operations experienced unfavorable manufacturing variances related to a
decline in volume. The volume decline resulted from increased demand for
leather seating, program run-outs, and unfavorable product mix factors. In
addition, the fabrics operations incurred charges related to idle equipment.
The increase in operating income in 1999 was partially offset by the impact of
certain costs related to the closure and relocation of the Cramerton, North
Carolina, fabrics facility into another fabrics facility.
The Company as a Whole
Net Sales: The Company's net sales increased 4.0% to $1,898.6 million, up
$73.1 million from 1998, resulting primarily from the factors discussed above.
Gross Margin: Gross margin for the Company was 15.0% in 1999, up from 13.6% in
1998. The increase in gross margin is primarily due to increased volume and
improved manufacturing efficiencies at the Company's North American Automotive
Interior Systems division. In addition, gross margin at the Company's
Specialty Automotive Products division improved over prior year results, which
were impacted by lower sales volumes and manufacturing inefficiencies caused
by increased demand for leather seating applications and charges for idle
equipment. These increases were partially offset by the manufacturing
inefficiencies experienced at the Company's European Automotive Interior
Systems resulting from volume declines and system implementation difficulties
at the division's plastics operations.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased 2.0% to $152.8 million, up $3.1 million from
1998. The increase is primarily due to costs associated with system upgrades,
the establishment of the Company's new headquarters in the Detroit
metropolitan area and Wiesbaden, Germany and Year 2000 compliance efforts,
partially offset by cost-cutting measures at the Specialty Automotive Products
division and lower personnel costs at the Company's former North Carolina
headquarters due to employee reductions. As a percentage of sales, selling,
general and administrative expenses declined to 8.0% in 1999, compared to 8.2%
in 1998.
10
Restructuring Charge: The Company recognized a $33.4 million charge in 1999
relating to the Reorganization plan discussed above.
Interest Expense: Interest expense, net of interest income of $2.4 million and
$3.7 million in 1999 and 1998, respectively, increased $10.0 million to $92.0
million in 1999. The increase is primarily due to higher levels of outstanding
debt in 1999. The weighted average interest rates were 9.6% and 9.7% in 1999
and 1998, respectively.
Loss on the Sale of Receivables: The Company sells on a continuous basis,
through its Carcorp, Inc. subsidiary ("Carcorp"), interests in a pool of
accounts receivable. In connection with the receivable sales, a loss of $5.4
million was recognized in 1999, compared to a loss of $6.1 million in 1998.
The decrease in the loss on sale of receivables is primarily due to a lower
interest rate and decreased borrowings on the receivables facility during
1999.
Other Expense: The Company recognized other expense of $2.2 million, compared
to other expense of $5.3 million in 1998. The decrease is primarily due to
higher foreign currency transaction losses associated with the Canadian dollar
in 1998.
Income Taxes: The Company recognized income tax expense of $0.2 million in
1999, compared to income tax expense of $5.3 million in 1998. The Company's
effective tax rate was (22%) in 1999, compared to 102% in 1998. The decrease
in the Company's effective tax rate is primarily due to lower foreign taxes
and non-recurring tax credits.
Extraordinary Charge: In 1998, the Company recognized 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") at market prices in excess of
carrying values.
Cumulative Effect of a Change in Accounting Principle: The Company adopted the
provisions of Statement of Position No. 98-5, "Reporting on the Cost of Start-
Up Activities" ("SOP 98-5") at the beginning of 1999. 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. The cumulative effect of adopting SOP 98-5 resulted in a charge of
$8.9 million, net of income taxes of $5.1 million.
Net Loss: The combined effect of the foregoing resulted in a net loss of $10.2
million in 1999, compared to a net loss of $3.8 million in 1998.
1998 Compared to 1997
The Divisions
North American Automotive Interior Systems
Net Sales: Net sales for the North American 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 August 1998 acquisition of
Industrias Enjema, S.A. de C.V. ("Enjema"), which generated sales of $8.3
million. In addition, the division generated sales increases in four of its
five product lines. These sales increases were partially offset by the effect
of the General Motors strike in the second and third quarters of 1998, which
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.
11
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.
European Automotive Interior Systems
Net Sales: Net sales for the European 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 several acquisitions in 1997 and 1998, including
certain operations of Perstorp A.B. ("Perstorp") located in Germany (the
"German Operations") in August 1997, the remaining interest in the Collins &
Aikman/Perstorp joint venture in Sweden, Belgium and France (the "Collins &
Aikman/Perstorp Joint Venture") in December 1997, C&A Plastics UK in February
1998, and C&A Floormats Europe in June 1998. These entities generated combined
incremental sales of $213.1 million in 1998.
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/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 caused by an
increased demand for leather seating applications, an unfavorable mix on
several models and a decrease in build on several key vehicles. The decrease
in automotive fabric sales was partially offset by an increase in convertible
top systems due to sales to the Ford Mustang, General Motors Corvette and
Chrysler Sebring. The General Motors strike in the second and third quarters
of 1998 negatively impacted the division's sales by $7.0 million. The strikes
at DaimlerChrysler and General Motors during the second quarter of 1997
impacted the division's sales by $6.7 million.
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.
12
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 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.
13
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 were 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 the Company's Imperial Wallcoverings
Inc. subsidiary ("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.
Wallcoverings was sold on March 13, 1998 to Imperial Home Decor Group, Inc, an
affiliate of Blackstone Partners, for $71.9 million and an option for 6.7% of
the common stock of Imperial Home Decor Group, Inc. 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 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.
Liquidity and Capital Resources
The Company and its subsidiaries had cash and cash equivalents totaling
$14.0 million and $23.8 million at December 25, 1999 and December 26, 1998,
respectively. The Company had $144.2 million of borrowing availability under
its credit arrangements as of December 25, 1999. The total was comprised of
$119.2 million under the Company's revolving credit facility (including $16.4
million available to the Canadian Borrowers, as hereinafter defined),
approximately $24.9 million under bank demand lines of credit in Canada and
Austria, a line of credit for certain other European locations, and $0.1
million available under the Receivables Facility. Availability as of December
25, 1999 under the revolving credit facility was reduced by outstanding
letters of credit of $19.2 million.
14
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 and the Term Loan C Facility, as hereinafter defined, 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"). On May 13, 1999, the Company
closed on a senior secured term loan facility in the principal amount of $100
million, payable in quarterly installments beginning December 1999 through
final maturity in December 2005 (the "Term Loan C Facility"). The proceeds
from the Term Loan C Facility were used to pay the $44.0 million special
dividend previously discussed, repay amounts outstanding under the Company's
Revolving Credit Facility and for general corporate purposes.
At December 25, 1999, the Company had outstanding $85.0 million under the
Term Loan A Facility, $122.0 million under the Term Loan B Facility, $100.0
million under the Term Loan C Facility, and $111.6 million under the Revolving
Credit Facility (including $43.6 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.
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 throughout the existing
terms of the Credit Agreement Facilities. The amendment resulted generally in
an increase in the interest rates charged under the Credit Agreement
Facilities. For additional discussion of the Credit Agreement Facilities and
related restrictive covenants, see Note 10 to the Consolidated Financial
Statements.
On June 10, 1996, C&A Products issued at face value $400 million principal
amount of 11 1/2% Senior Subordinated Notes due 2006 (the "Subordinated
Notes"). The Subordinated Notes indenture contains 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 2000. However, the Company expects all its
borrowing needs for the foreseeable future to be allowed under exceptions for
permitted indebtedness in the indenture. For additional discussion of the
Subordinated Notes, see Note 10 to the Consolidated Financial Statements.
At December 25, 1999, JPS Automotive had approximately $87.4 million of
indebtedness outstanding (including a premium of $1.3 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. For additional discussion of the JPS
Automotive Senior Notes, see Note 10 to the Consolidated Financial Statements.
C&A Products utilized a receivable facility (the "Receivables Facility"),
entered into through the Trust formed by Carcorp, comprised of (i) term
certificates in an aggregate face amount of $50 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 purchased on a revolving basis and transferred 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
represented the right to receive payments generated by the receivables held by
the Trust.
15
Availability under the variable funding certificates at any time depended
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
25, 1999 the maximum amount available under the variable funding certificates
was $66.5 million, of which $0.1 million was not utilized.
On December 27, 1999, the Company entered into a new receivables facility
(the "New Receivables Facility"), replacing the Receivables Facility. The New
Receivables Facility utilizes funding provided by commercial paper conduits
sponsored by three of the Company's lenders under its Credit Agreement
Facilities. Carcorp remains the purchaser of the Sellers' trade receivables,
transferring rights to collections on those receivables to the conduits. The
conduits in turn issue commercial paper which is collateralized by those
rights. The liquidity facilities backing the New Receivables Facility have
terms of 364 days, renewable annually for up to five years.
The total funding available to the Company on a revolving basis under the
New Receivables Facility is up to $171.6 million, depending upon criteria
similar to those in the Receivables Facility. On December 27, 1999, the
Company funded $120 million through the New Receivables Facility, leaving
approximately $12 million available, but unutilized. The interest rate on sold
interests is equal to the rate paid by the conduits to the holders of the
commercial paper plus a margin of .70% and dealer fees of .05% (6.66% at
inception). In addition, the Company pays .25% on the unused committed portion
of the facility. See Note 11 to the Consolidated Financial Statements for
further information regarding the New Receivables Facility.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At December 25, 1999, the Company had
approximately $20 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 25, 1999, the Company made lease
payments relating to continuing operations of approximately $5.8 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 $6.1 million during fiscal 2000.
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 New Receivables Facility. Net cash provided by
the continuing operating activities of the Company was $95.1 million for 1999.
In 1999, the Company implemented a new compensation program, based in part
upon maximizing cash flow and increasing asset utilization. This new focus
resulted in a 24% reduction in working capital (including accounts receivable,
inventory and accounts payable) to $168 million in 1999, compared to $221
million in 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 25, 1999, the Company had total outstanding
indebtedness of $912.5 million (excluding approximately $19.2 million of
outstanding letters of credit) at a weighted average interest rate of 9.95%
per annum. Of the total outstanding indebtedness, $818.6 million relates to
the Credit Agreement Facilities and the Subordinated Notes.
See Notes 10 and 11 to the Consolidated Financial Statements for
information regarding the interest rates on the Credit Agreement Facilities,
Subordinated Notes, JPS Automotive Senior Notes, Receivables Facility and New
Receivables Facility. Cash interest paid was $91.9 million and $86.6 million
for the fiscal years ended December 25, 1999 and December 26, 1998,
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. Based upon amounts outstanding at December 25, 1999, a .5% increase in
each of LIBOR and Canadian bankers' acceptance rates (6.5% and 5.2%,
respectively, at December 25, 1999) would impact interest costs by
approximately $2.1 million annually on the Credit Agreement Facilities and
$0.6 million annually on the Receivables Facility.
16
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 2000, 2001, 2002, 2003, and 2004,
are $28.0 million, $116.4 million, $32.9 million, $28.3 million and $165.4
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 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'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 to approximately $2 million
by the approximately $6.2 million special dividend paid on March 1, 1999 and
the approximately $44.0 million special dividend paid on May 28, 1999. The
Company believes it has sufficient liquidity under its existing credit
arrangements to effect the repurchase program. The Company spent approximately
$1.8 million and $25.0 million to repurchase shares during fiscal 1999 and
1998, respectively.
The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of December 25, 1999, the Company's
continuing operations had approximately $10.9 million in outstanding capital
expenditure commitments. The Company currently anticipates that its capital
expenditures for continuing operations for fiscal 2000 will be in the range of
$70 to $80 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 1999, prices for most of the Company's primary raw
materials remained constant with price levels at December 26, 1998. While the
Company may not be able to pass on future raw material price increases to its
customers, it believes that a portion of the increased cost can be offset
through value engineering/value analysis in conjunction with its major
customers and by continued reductions in the cost of off-quality products and
processes.
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. On January 5,
2000, Imperial Home Decor Group, Inc., which purchased Wallcoverings in March,
1998, filed voluntary petitions for protection under chapter 11 of the U.S.
Bankruptcy Code. The Company is currently assessing the impact of that
bankruptcy filing. Management currently anticipates that the net cash
requirements of its discontinued operations will be approximately $22 million
in fiscal 2000. 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.
17
Tax Matters
At December 25, 1999, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $268.1 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2019. The Company also has unused Federal tax credits of approximately $18.9
million, $6.7 million of which expire during the period 2000 to 2019.
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 $91.9 million at December
25, 1999 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 25, 1999 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
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
18
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 25, 1999, 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 23 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 25, 1999, the Company's estimate of its liability for these 31 sites,
is approximately $22.9 million. As of December 25, 1999, the Company has
established reserves of approximately $30.5 million for the estimated future
costs related to all its known environmental sites. In the opinion of
management, based on the facts presently known to it, the environmental costs
and contingencies will not have a material adverse effect on the Company's
consolidated financial condition or future results of operations. However,
there can be no assurance that the Company has identified or properly assessed
all potential environmental liability arising from the activities or
properties of the Company, its present and former subsidiaries and their
corporate predecessors.
Impact of Year 2000 Compliance
The Company has currently not experienced any significant systems or other
Year 2000 problems. The Company's comprehensive plan to address Year 2000
issues (the "Year 2000 Plan") included the acceleration of the Company's
Business Systems Integration Plan (the "BSIP Plan"). The BSIP Plan was
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 total cost of the Company's Year 2000
Plan, including $29 million of costs associated with the BSIP Plan, was $33
million. Included in this amount is $7 million of salaries and other payroll
costs of Company employees to the extent that they devoted a portion of their
time to the project. Approximately $21 million of the total costs were
incurred during 1999. The Company expensed and capitalized these costs in
accordance with appropriate accounting policies.
Safe Harbor Statement
This Form 10-K contains statements which, to the extent they are not
historical fact, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements
involve risks and uncertainties. The forward-looking statements in this Form
10-K are intended to be subject to the safe harbor protection provided by the
Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary materially
from those anticipated in the forward-looking statements included in this Form
10-K include general economic conditions in the market in which the Company
operates and industry-based factors such as possible declines in the North
American and European automobile and light truck builds, 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, risks associated
with conducting business in foreign countries and Year 2000 readiness 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 and the implementation of the global
reorganization program. The Company's divisions may also be affected by
changes in the popularity of particular vehicle models, particular interior
trim packages or the loss of programs on particular vehicle models and risks
associated with conducting business in foreign countries. 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.
19
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. While the Company has used interest rate swaps and other
interest rate protection agreements to modify its exposure to interest rate
movements and to reduce borrowing rates, no such agreements were in place at
December 25, 1999.
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. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for the Company's debt obligations. 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 ($CAD), as indicated in parentheses (dollar
amounts in thousands).
Expected Maturity Date Fair Value
-------------------------------------------------------- December 25,
2000 2001 2002 2003 2004 Thereafter Total 1999
------- ------- ------- ------- -------- ---------- -------- ------------
Debt:
Fixed rate ($US)....... $86,043 $400,000 $486,043 $481,915
Average interest
rate................. 11.1% 11.5%
Variable rate ($US).... $26,750 $28,000 $31,750 $27,375 $121,125 $140,000 $375,000 $375,000
Average interest
rate................. 9.6% 9.7% 9.7% 9.3% 9.5% 10.1%
Variable rate ($CAD)... $ 43,622 $ 43,622 $ 43,622
Average interest
rate................. 9.2%
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 25, 1999, the Company had the following foreign currency
forward contracts outstanding: (i) British pounds for Euros with a U.S. dollar
equivalent notional amount of $5.0 million, a weighted average contract rate
of 1.495 Euros and an unrealized loss of $0.3 million and (ii) Euros for
Swedish krona with a U.S. dollar equivalent notional amount of $0.1 million
and a weighted average contract rate of 0.054 krona. These contracts mature in
2000. The information presented 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 discussed above.
20
The Company also had option contracts with a U.S. dollar equivalent
notional amount of $45 million outstanding at December 25, 1999 with a
weighted average strike price of Canadian $1.53. These contracts allow the
Company's Canadian operations to buy U.S. dollars for Canadian dollars. These
contracts expire periodically in 2000.
Item 8. Financial Statements and Supplementary Data
See the Consolidated Financial Statements of Collins & Aikman Corporation
and subsidiaries included herein and listed on the Index to Financial
Statements set forth in Item 14 (a) of this Form 10-K report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 401 of Regulation S-K regarding executive
officers and directors is incorporated herein by reference to that portion of
the Registrant's definitive Proxy Statement to be used in connection with its
2000 Annual Meeting of Stockholders, which will be filed in final form with
the Commission not later than 120 days after December 25, 1999 (the "Proxy
Statement"), captioned "Executive Officers of the Company" and "Election of
Directors -- Information as to Nominees and Other Directors". The information
required by Item 405 of Regulation S-K regarding disclosure of delinquent
filers is incorporated herein by reference to that portion of the proxy
statement captioned "Section 16(a) Beneficial Ownership Reporting Compliance".
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference
to that portion of the Proxy Statement captioned "Executive Compensation".
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference
to those portions of the Proxy Statement captioned "Voting Securities and
Principal Stockholders", "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 those portions of the Proxy Statement captioned "Compensation Committee
Interlocks and Insider Participation", and "Information as to Nominees and
Other Directors -- Certain Relationships".
22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
Page
Number
------
Report of Independent Public Accountants............................... F-1
Consolidated Statements of Operations for the fiscal years ended
December 25, 1999, December 26, 1998 and December 27, 1997............ F-2
Consolidated Balance Sheets at December 25, 1999 and December 26,
1998.................................................................. F-3
Consolidated Statements of Cash Flows for the fiscal years ended
December 25, 1999, December 26, 1998 and December 27, 1997............ F-4
Consolidated Statements of Common Stockholders' Deficit for the fiscal
years ended December 25, 1999, December 26, 1998 and December 27,
1997.................................................................. 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 25, 1999, December 26, 1998, and December
27, 1997 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 3.1 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended June
26, 1999.
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.
23
Exhibit
Number Description
4.2 Indenture, dated as of June 1,1996, between Collins & Aikman Product
Co., Collins & Aikman Corporation and First Union National Bank of
North Carolina, as Trustee, is hereby incorporated by reference to
Exhibit 4.1 of Collins & Aikman Corporation's Report on Form 10-Q for
the fiscal quarter ended April 27, 1996.
4.3 First Supplemental Indenture dated as of June 1, 1996, between Collins
& Aikman Products Co., Collins & Aikman Corporation and First Union
National Bank of North Carolina, as Trustee, is hereby incorporated by
reference to Exhibit 4.3 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended April 27, 1996.
4.4 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 is hereby incorporated by reference to Exhibit
4.6 of Collins & Aikman Corporation's Report on Form 10-K for the year
ended December 26, 1998.
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 is hereby incorporated by
reference to Exhibit 4.7 of Collins & Aikman Corporation's Report on
Form 10-K for the year ended December 26, 1998.
4.8 Tranche C Term Loan Supplement dated as of May 12, 1999 to the Credit
Agreement dated as of May 28, 1998 among Collins & Aikman Products
Co., Collins & Aikman Canada, Inc., Collins & Aikman Plastics, Ltd.,
Collins & Aikman Corporation, the Financial Institutions 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 4.1 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended June 26, 1999.
4.9 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.
4.10 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.
24
Exhibit
Number Description
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 is
hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended December
26, 1998.*
10.8 Amended and Restated Employment Agreement dated as of January 20, 1999
between Collins & Aikman Products Co. and an executive officer is
hereby incorporated by reference to Collins & Aikman Corporation's
Report on Form 10-K for the fiscal year ended December 26, 1998.*
10.9 Employment Agreement dated as of January 20, 1999 between Collins &
Aikman Products Co. and an executive officer is hereby incorporated by
reference to Exhibit 10.9 of Collins & Aikman Corporation's Form 10-K
for the fiscal year ended December 26, 1998.*
10.10 Employment Agreement dated as of April 22, 1999 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.10 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended March 27, 1999.*
10.11 Letter agreement dated as of May 12, 1999 with an executive officer is
hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended June
26, 1999.*
10.12 Collins & Aikman Corporation 1998 Executive Incentive Compensation
Plan is hereby incorporated by reference to Exhibit 10.10 of Collins &
Aikman Corporation's Report on Form 10-K for the fiscal year ended
December 26, 1998.*
- --------
* 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.
25
Exhibit
Number Description
10.13 Collins & Aikman Corporation Supplemental Retirement Income Plan is
hereby incorporated by reference to Exhibit 10.23 of Amendment No. 5
to Collins & Aikman Holdings Corporation's Registration Statement on
Form S-2 (Registration No. 33-53179) filed July 6, 1994.*
10.13 Amendment to Collins & Aikman Corporation Supplemental Retirement
Income Plan is hereby incorporated by reference to Exhibit 10.12 of
the Collins & Aikman Corporation's Report on Form 10-K for the fiscal
year ended December 26, 1998.*
10.15 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.*
10.16 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.*
10.17 1994 Directors Stock Option Plan as amended and restated is hereby
incorporated by reference to Exhibit 10.15 to Collins & Aikman
Corporation's Report on Form 10-K for the year ended December 26,
1998.*
10.18 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.*
10.19 1994 Employee Stock Option Plan, as amended and restated through June
3, 1999 is hereby incorporated by reference to Exhibit 10.2 of
Collins & Aikman Corporation's Report on Form 10-Q for the fiscal
quarter ended June 26, 1999
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 10.17 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 10.18 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended December 27, 1997.*
10.22 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.*
10.23 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.*
10.24 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.*
10.25 Change in control agreement dated August 9, 1999 between Collins &
Aikman Corporation and an executive officer.*
10.26 Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer.*
10.27 Change in control agreement dated March 17 ,1998 between Collins &
Aikman Corporation and an executive officer.*
10.28 Change in control agreement dated July 26, 1999 between Collins &
Aikman Corporation 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.
26
Exhibit
Number Description
10.29 Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer.*
10.30 Employment Agreement dated October 1, 1999 between Collins & Aikman
Products Co. and an executive officer.*
10.31 Severance Benefit Agreement dated July 26, 1999 between Collins &
Aikman Corporation and an executive officer.*
10.32 Severance Benefit Agreement dated August 9, 1999 between Collins &
Aikman Corporation and an executive officer.*
10.33 Letter agreement dated December 17, 1999 between Collins & Aikman
Corporation and an executive officer.*
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 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.
10.39 Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp,
Inc., Collins & Aikman Products Co., as Master Servicer, the Initial
Purchasers parties thereto, Societe Generale, as Agent for the
Purchasers and Chemical Bank, as Trustee is hereby incorporated by
reference to Exhibit 10.22 of Collins & Aikman Corporation's Report on
Form 10-K to the fiscal year ended January 28, 1995.
10.40 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.
10.41 Amendment No. 2, dated October 25, 1995, among Carcorp, Inc., as
Company, Collins & Aikman Products Co., as Master Servicer, and
Chemical Bank, as Trustee, to the Pooling Agreement, dated as of March
30, 1995, among the Company, the Master Servicer and the Trustee is
hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended October
28, 1995.
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14 (c) of this report.
27
Exhibit
Number Description
10.42 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.
10.43 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.
10.44 Receivables Transfer Agreement dated December 27, 1999, among Carcorp,
Inc. as Transferor, Collins & Aikman Products Co. as Guarantor and as
Collection Agent, Park Avenue Receivables Corporation and Redwood
Receivables Corporation,, as Initial Purchasers, The Several Financial
Institutions Party Hereto from time to time, as Liquidity Banks, The
Several Agent Banks Party Hereto from time to time, as Funding Agents
and The Chase Manhattan Bank, as Administrative Agent.
10.45 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.
10.46 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.
10.47 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.
10.48 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.
10.49 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.
10.50 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.
10.51 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.
10.52 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.
10.53 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.
28
Exhibit
Number Description
10.54 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.
10.55 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.
10.56 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.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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 22nd day of
March, 2000.
COLLINS & AIKMAN CORPORATION
By: /s/ Thomas E. Evans
-------------------------------
Thomas E. Evans
Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas E. Evans Chairman of the Board of March 22, 2000
______________________________________ Directors and Chief
Thomas E. Evans Executive Officer
(Principal Executive
Officer)
/s/ Rajesh K. Shah Executive Vice President March 22, 2000
______________________________________ and Chief Financial
Rajesh K. Shah Officer (Principal
Financial and Accounting
Officer)
/s/ Bruce R. Barnes Director March 22, 2000
______________________________________
Bruce R. Barnes
/s/ Robert C. Clark Director March 22, 2000
______________________________________
Robert C. Clark
/s/ Marc S. Goldberg Director March 22, 2000
______________________________________
Marc S. Goldberg
/s/ Richard C. Lappin Director March 22, 2000
______________________________________
Richard C. Lappin
/s/ George L. Majoros, Jr. Director March 22, 2000
______________________________________
George L. Majoros, Jr.
______________________________________ Director March 22, 2000
James J. Mossman
/s/ Warren B. Rudman Director March 22, 2000
______________________________________
Warren B. Rudman
/s/ Neil P. Simpkins Director March 22, 2000
______________________________________
Neil P. Simpkins
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Collins & Aikman Corporation:
We have audited the accompanying consolidated balance sheets of Collins &
Aikman Corporation (a Delaware Corporation) and subsidiaries as of December
25, 1999 and December 26, 1998, 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 25, 1999. 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 auditing standards generally
accepted in the United States. 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 25, 1999, and December 26, 1998,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended December 25, 1999, in conformity with
generally accepted accounting principles in the United States.
As explained in Note 4 to the consolidated financial statements, effective
December 27, 1998, the Company changed its method of accounting for start-up
costs and organization costs in accordance with SOP 98-5, "Reporting on the
Costs of Start-up Activities."
Arthur Andersen LLP
Charlotte, North Carolina,
March 1, 2000
F-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fiscal Year Ended
--------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Net sales.............................. $1,898,597 $1,825,469 $1,629,332
Cost of goods sold..................... 1,613,880 1,577,244 1,396,172
---------- ---------- ----------
Gross profit........................... 284,717 248,225 233,160
Selling, general and administrative
expenses.............................. 152,807 149,747 126,050
Restructuring charge and impairment of
long-lived assets..................... 33,391 -- 22,600
---------- ---------- ----------
Operating income....................... 98,519 98,478 84,510
Interest expense, net of interest
income of $2,452, $3,725 and $5,685... 92,045 82,004 77,581
Loss on sale of receivables............ 5,356 6,066 4,700
Other expense (income)................. 2,237 5,215 (678)
---------- ---------- ----------
Income (loss) from continuing
operations before income taxes........ (1,119) 5,193 2,907
Income tax expense..................... 246 5,284 12,998
---------- ---------- ----------
Loss from continuing operations........ (1,365) (91) (10,091)
Income from discontinued operations,
net of income
taxes of $2,835....................... -- -- 4,306
Gain on sale of discontinued
operations, net of income
taxes of $85,358...................... -- -- 161,741
---------- ---------- ----------
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principle.................. (1,365) (91) 155,956
Extraordinary loss from debt
extinguishment, net of income taxes
of $2,482 and $443.................... -- (3,724) (721)
Cumulative effect of a change in
accounting principle, net
of income taxes of $5,083............. (8,850) -- --
---------- ---------- ----------
Net income (loss)...................... $ (10,215) $ (3,815) $ 155,235
========== ========== ==========
Net income (loss) per basic and diluted
common share:
Continuing operations................. $ (0.02) $ -- $ (0.15)
Discontinued operations............... -- -- 0.06
Gain on sale of discontinued
operations........................... -- -- 2.44
Extraordinary loss.................... -- (0.06) (0.01)
Cumulative effect of a change in
accounting principle................. (0.14) -- --
---------- ---------- ----------
Net income (loss)..................... $ (0.16) $ (0.06) $ 2.34
========== ========== ==========
Average common shares outstanding:
Basic and diluted..................... 61,952 64,348 66,337
========== ========== ==========
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 25, December 26,
1999 1998
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 13,980 $ 23,755
Accounts and other receivables, net of allowances
of $8,557 and $7,228.............................. 233,819 237,645
Inventories........................................ 132,625 152,840
Other.............................................. 84,942 86,445
---------- ----------
Total current assets.............................. 465,366 500,685
Property, plant and equipment, net.................. 443,526 447,121
Deferred tax assets................................. 86,235 70,632
Goodwill, net....................................... 256,362 264,138
Other assets........................................ 97,401 99,635
---------- ----------
$1,348,890 $1,382,211
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings.............................. $ 3,088 $ 10,954
Current maturities of long-term debt............... 27,992 19,942
Accounts payable................................... 198,466 169,808
Accrued expenses................................... 132,709 143,302
---------- ----------
Total current liabilities......................... 362,255 344,006
Long-term debt...................................... 884,550 846,107
Other, including post-retirement benefit
obligation......................................... 253,206 271,869
Commitments and contingencies.......................
Common stock (150,000 shares authorized, 70,521
shares issued and 61,904 shares outstanding at
December 25, 1999 and 150,000 shares authorized,
70,521 shares
issued and 62,182 shares outstanding at December
26, 1998).......................................... 705 705
Other paid-in capital............................... 585,484 585,401
Accumulated deficit................................. (641,117) (580,666)
Accumulated other comprehensive loss................ (33,260) (23,427)
Treasury stock, at cost (8,617 shares at December
25, 1999 and 8,339 shares at December 26, 1998).... (62,933) (61,784)
---------- ----------
Total common stockholders' deficit................ (151,121) (79,771)
---------- ----------
$1,348,890 $1,382,211
========== ==========
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 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
OPERATING ACTIVITIES
Loss from continuing operations.......... $ (1,365) $ (91) $ (10,091)
Adjustments to derive cash flow from
continuing operating activities:
Impairment of long lived assets......... 13,361 -- 22,600
Deferred income tax expense (benefit)... (6,800) (7,233) 4,252
Depreciation and leasehold
amortization........................... 58,230 52,608 42,712
Goodwill amortization................... 7,023 7,023 6,669
Amortization of other assets............ 6,221 7,443 9,459
Decrease (increase) in accounts and
other receivables...................... 1,826 (5,980) 35,819
Decrease (increase) in inventories...... 20,215 (4,841) (8,078)
Increase (decrease) in interest
payable................................ 946 (2,629) (520)
Increase (decrease) in accounts
payable................................ 28,658 10,031 (4,126)
Other, net.............................. (33,252) (42,466) 5,713
-------- -------- ---------
Net cash provided by continuing
operating activities.................. 95,063 13,865 104,409
-------- -------- ---------
Cash used in Wallcoverings,
Floorcoverings, Airbag and the
Mastercraft Group discontinued
operations.............................. -- (15,052) (4,719)
Cash used in other discontinued
operations.............................. (16,770) (14,043) (12,252)
-------- -------- ---------
Net cash used in discontinued
operations............................ (16,770) (29,095) (16,971)
-------- -------- ---------
INVESTING ACTIVITIES
Additions to property, plant and
equipment............................... (86,430) (98,991) (71,775)
Sales of property, plant and equipment... 10,126 7,953 5,879
Acquisitions of businesses, net of cash
acquired................................ (425) (25,257) 3,447
Net proceeds from disposition of
discontinued operations................. -- 71,200 562,100
Other, net............................... 3,997 (1,239) (99,102)
-------- -------- ---------
Net cash provided by (used in)
investing activities.................. (72,732) (46,334) 400,549
-------- -------- ---------
FINANCING ACTIVITIES
Issuance of long-term debt............... 100,000 225,000 109
Proceeds from (reduction of)
participating interests in accounts
receivable, net of redemptions.......... 2,000 (7,500) (13,000)
Repayment of long-term debt.............. (20,607) (264,480) (256,379)
Increase (decrease) on short-term
borrowings.............................. (7,405) (1,358) 7,089
Net borrowings (repayments) on revolving
credit facilities....................... (35,293) 136,717 (194,000)
Purchases of treasury stock.............. (2,097) (25,013) (19,715)
Dividends paid........................... (50,198) -- --
Other, net............................... (1,736) (2,051) (2,401)
-------- -------- ---------
Net cash provided by (used in)
financing activities.................. (15,336) 61,315 (478,297)
-------- -------- ---------
Increase (decrease) in cash and cash
equivalents............................. (9,775) (249) 9,690
Cash and cash equivalents at beginning of
year.................................... 23,755 24,004 14,314
-------- -------- ---------
Cash and cash equivalents at end of
year.................................... $ 13,980 $ 23,755 $ 24,004
======== ======== =========
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)
Accumulated
Current Year Other Other
Comprehensive Accumulated Comprehensive Common Paid-in Treasury
Income (Loss) Total Deficit Loss Stock Capital Stock
------------- --------- ----------- ------------- ------ -------- --------
Balance at December 28, 1996.. $(194,578) $(729,315) $(30,963) $705 $585,207 $(20,212)
Comprehensive income:
Net income................... $ 155,235 155,235 155,235 -- -- -- --
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments................ (8,325) (8,325) -- (8,325) -- -- --
Pension equity adjustment... (535) (535) -- (535) -- -- --
---------
$ 146,375
=========
Compensation expense.......... 683 -- -- -- 683 --
Purchase of treasury stock
(2,245 shares)............... (19,715) -- -- -- -- (19,715)
Exercise of stock options
(373 shares)................. 385 (2,771) -- -- -- 3,156
--------- --------- -------- ---- -------- --------
Balance at December 27, 1997.. (66,850) (576,851) (39,823) 705 585,890 (36,771)
Comprehensive income:
Net loss..................... $ (3,815) (3,815) (3,815) -- -- -- --
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments................ 7,569 7,569 -- 7,569 -- -- --
Pension equity adjustment... 8,827 8,827 -- 8,827 -- -- --
---------
$ 12,581
=========
Compensation expense.......... (489) -- -- -- (489) --
Purchase of treasury stock
(3,669 shares)............... (25,013) -- -- -- -- (25,013)
--------- --------- -------- ---- -------- --------
Balance at December 26, 1998.. (79,771) (580,666) (23,427) 705 585,401 (61,784)
Comprehensive income:
Net loss..................... $ (10,215) (10,215) (10,215) -- -- -- --
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments................ (10,649) (10,649) -- (10,649) -- -- --
Pension equity adjustment... 816 816 -- 816 -- -- --
---------
$ (20,048)
=========
Compensation expense.......... 545 -- -- -- 545 --
Dividends..................... (50,198) (50,198)
Purchase of treasury stock
(385 shares)................. (2,097) -- -- -- -- (2,097)
Exercise of stock options
(107 shares)................. 448 (38) -- -- (462) 948
--------- --------- -------- ---- -------- --------
Balance at December 25, 1999.. $(151,121) $(641,117) $(33,260) $705 $585,484 $(62,933)
========= ========= ======== ==== ======== ========
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-5
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman
Holdings Corporation) is a Delaware corporation. As of December 25, 1999,
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 1999 presentation.
Use of Estimates -- 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 1999, 1998 and 1997 were 52-week years which ended on
December 25, 1999, December 26, 1998 and December 27, 1997.
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 which may be 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 24.
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 11. The Company has provided an allowance
against uncollectible accounts.
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 25,
1999 and December 26, 1998 included $1.2 million, which was on deposit with an
insurer to cover a portion of the Company's self-insured workers'
compensation, automotive and general liability insurance. The Company's
reserves for these claims were determined based upon actuarial analyses and
aggregated $20.4 million and $18.4 million at December 25, 1999 and December
26, 1998, respectively. Of these reserves, $5.4 million and $6.3 million were
classified in accrued expenses at December 25, 1999 and December 26, 1998,
respectively.
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.
F-6
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Long-Lived Assets -- Statement of Financial Accounting Standards ("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 fiscal 1999, the Company incurred a charge of $13.4
million relating to asset impairments recognized in the Reorganization (See
Note 15). 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 demand 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 40 years. Amortization of goodwill
applicable to continuing operations was $7.0 million for fiscal 1999 and 1998
and $6.7 million for fiscal 1997. Accumulated amortization at December 25,
1999 and December 26, 1998 was $24.9 million and $17.9 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 25, 1999, the
Company believes the recorded value of goodwill in the amount of $256.4
million is fully recoverable. See Note 3.
Revenue Recognition -- The Company recognizes revenue from product sales
when it has shipped the goods to the customer. The Company generally allows
its customers the right of return only in the case of defective products. The
Company provides a reserve for estimated defective product costs at the time
of the sale of the products.
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 the assets or
liabilities are liquidated. 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 5.
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.
F-7
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies -- (Continued)
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 a gain from
foreign currency transactions of $0.5 million in fiscal 1999, and losses of
$4.8 million and $1.9 million in fiscal 1998 and 1997, respectively. Recorded
balances that are denominated in a currency other than the functional currency
are adjusted to the functional currency using the exchange rate at the balance
sheet date.
Environmental -- The Company records an estimated loss when it is probable
that an environmental liability has been incurred and the amount of the loss
can be reasonably estimated. The Company also considers estimates of certain
reasonably possible environmental liabilities in determining the aggregate
amount of environmental reserves. The Company reviews all environmental claims
from time to time and adjusts the reserves accordingly. 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.
Newly Issued Accounting Standards -- In September 1999, the Financial
Accounting Standards Board's ("FASB") Emerging Issues Task Force ("EITF")
reached a consensus regarding EITF Issue No. 99-5, "Accounting for Pre-
Production Costs Related to Long-Term Supply Arrangements". EITF No. 99-5
requires that design and development costs for products to be sold under long-
term supply arrangements be expensed as incurred, and costs incurred for
molds, dies and other tools that will be used in producing the products under
long-term supply arrangements be capitalized and amortized over the shorter of
the expected useful life of the assets or the term of the supply arrangement.
The consensus can be applied prospectively to costs incurred after December
31, 1999 or as a cumulative effect of a change in accounting principle as of
the beginning of a company's fiscal year. The Company is currently analyzing
the impact of EITF No. 99-5.
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. In July 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133". Under SFAS No. 137, SFAS No. 133 is now
effective for fiscal years beginning after June 15, 2000. 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 adoption of SFAS No. 133. The adoption of
SFAS No. 133 could increase volatility in earnings and other comprehensive
income.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-up Activities". See Note 4.
F-8
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies -- (Continued)
In March 1998, the 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 was adopted by the Company on December 27,
1998 and was applied to internal-use computer software costs incurred in
fiscal 1999. The adoption of this standard did not have a material impact on
its consolidated financial position or results of operations.
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. Enjema's operating assets were transferred to an
existing facility in Mexico during 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 paid into escrow approximately $0.4 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. The
Company currently estimates that it will pay into escrow approximately $0.7
million during 2000 for operating goals met in fiscal 1999.
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 $5.6 million at December 25, 1999 and $5.8 million at December 26,
1998 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,
F-9
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Acquisitions and Joint Ventures -- (Continued)
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. If the Company had
acquired the Collins & Aikman/Perstorp Joint Venture at the beginning of
fiscal 1997, pro forma sales, operating income and loss from continuing
operations would have been $1,768.9 million, $89.5 million and $(8.2) million,
respectively, in 1997.
On December 11, 1996, the Company also acquired JPS Automotive L.P. 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 included
goodwill of approximately $105.9 million and certain reserves related to
management's plans to rationalize certain acquired manufacturing facilities.
See Note 15.
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 40 years on a straight line
basis. In determining the amortization period of goodwill assigned to these
acquisitions, management assessed the impact 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
include, but are not limited to, 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 may result in
integration whereby the complete interior of an automobile will be co-designed
and developed with fewer suppliers who will manufacture and deliver required
components. The Company anticipates these capabilities will be essential to
its long term strategic positioning as a key supplier within the automotive
industry and with its customers.
4. Change in Accounting Principle
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 non-governmental
entities expense the costs of start-up activities as these costs are incurred
instead of being capitalized and amortized. The Company adopted SOP 98-5 on
December 27, 1998. The initial impact of adopting SOP 98-5 resulted in a
charge of approximately $8.9 million, net of income taxes of $5.1 million,
which has been reflected as a cumulative effect of a change in accounting
principle in the accompanying consolidated statement of operations for the
fiscal year ended December 25, 1999.
5. 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 $0.2 million, $0.3 million and
$0.1 million in fiscal 1999, 1998 and 1997, respectively.
F-10
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Interest Rate And Foreign Currency Protection Programs -- (Continued)
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 2000. These contracts, which aggregated a U.S.
dollar equivalent of $95.6 million at December 25, 1999, are to manage the
currency volatility associated with purchase transactions. The fair value of
these contracts approximated the contract value at December 25, 1999.
During 1999 and 1998, the Company purchased option contracts giving the
Company the right to purchase U.S. dollars for use by its Canadian operations.
The premiums associated with these contracts are amortized over the contracts'
terms which are one year or less. The total notional amount purchased was
$130.4 million with associated premiums of $2.2 million. The total notional
amount outstanding at December 25, 1999 was $45.0 million.
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 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.
6. Inventories
Inventory balances are summarized below (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Raw materials................................... $ 69,182 $ 79,285
Work in process................................. 27,073 32,408
Finished goods.................................. 36,370 41,147
-------- --------
$132,625 $152,840
======== ========
7. Other Current Assets
Other current asset balances are summarized below (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Deferred tax assets............................. $23,868 $30,027
Prepaid tooling and molds....................... 27,361 27,011
Other........................................... 33,713 29,407
------- -------
$84,942 $86,445
======= =======
F-11
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Property, Plant and Equipment, Net
Property, plant and equipment, net, are summarized below (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Land and improvements......................... $ 19,827 $ 25,260
Buildings..................................... 156,261 146,577
Machinery and equipment....................... 551,288 481,532
Leasehold improvements........................ 5,749 1,171
Construction in progress...................... 29,340 53,673
-------- --------
762,465 708,213
Less accumulated depreciation and
amortization................................. (318,939) (261,092)
-------- --------
$443,526 $447,121
======== ========
Depreciation and leasehold amortization of property, plant and equipment
applicable to continuing operations was $58.2 million, $52.6 million, and $42.7
million for fiscal 1999, 1998 and 1997, respectively.
9. Accrued Expenses
Accrued expenses are summarized below (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Payroll and employee benefits................... $ 41,362 $ 46,733
Interest........................................ 13,582 12,636
Insurance....................................... 18,246 13,351
Restructuring reserves.......................... 13,518 1,940
Other........................................... 46,001 68,642
-------- --------
$132,709 $143,302
======== ========
10. Long-Term Debt
Long-term debt is summarized below (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Bank Credit Facilities:
Revolving Credit Facility, including $43.6 million
by the Canadian Borrowers at December 25, 1999 and
$57.4 million at December 26, 1998................. $ 111,621 $143,878
Term Loan A Facility................................ 85,000 100,000
Term Loan B Facility................................ 122,000 125,000
Term Loan C Facility................................ 100,000 --
Public Indebtedness:
11 1/2% Senior Subordinated Notes................... 400,000 400,000
JPS Automotive 11 1/8% Senior Notes, including
premiums of $1.3 million
and $2.2 million, respectively..................... 87,370 88,247
Other................................................ 6,551 8,924
--------- --------
Total debt........................................... 912,542 866,049
Less current maturities.............................. (27,992) (19,942)
--------- --------
$ 884,550 $846,107
========= ========
F-12
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Long-Term Debt -- (Continued)
Bank Credit Facilities
On May 28, 1998, the Company entered, through C&A Products, 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 and Term Loan C Facility, as
hereinafter defined, 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 Term Loan C credit facility (the "Term Loan C Facility") of up to $150
million. On May 13, 1999, the Company closed on the Term Loan C Facility in
the principal amount of $100 million. The Term Loan C Facility is payable in
quarterly installments beginning in December 1999 through final maturity in
December 2005. The Company used approximately $44 million of the proceeds from
the Term Loan C Facility to pay a special dividend to shareholders on May 28,
1999. See Note 16. The remaining proceeds were used to repay amounts
outstanding on the Revolving Credit Facility and for general corporate
purposes.
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.
Effective March 8, 1999, the Company, in view of the decreased sales of
automotive fabrics and the General Motors strike in 1998, obtained an
amendment to the Credit Agreement Facilities primarily 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. 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 ability to pay
dividends is also restricted by the indenture governing the Subordinated Notes
discussed below. The Company's obligations under the Credit Agreement
Facilities are secured by a pledge of stock of C&A Products and its
significant subsidiaries and certain intercompany indebtedness.
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 2.25% in
the case of the LIBOR/BA Margin and 1.25% in the case of the ABR/Canadian
Prime Rate Margin on December 25, 1999. Canadian-dollar
F-13
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Long-Term Debt -- (Continued)
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 (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 1.75% and 2.75%,
respectively, at December 25, 1999. Indebtness under the Term Loan C Facility
bears interest at a per annum rate equal to LIBOR plus 3.25% or Chase's
Alternate Base Rate plus 2.25%. The weighted average rate of interest on the
Credit Agreement Facilities at December 25, 1999 was 8.67%.
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. 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 2000. However, the
Company expects all of its borrowing needs for the foreseeable future to be
allowed under exceptions for permitted indebtedness in the indenture.
As of 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. Through retirements of the JPS Automotive Senior
Notes primarily during 1997 and 1998, the Company reduced the outstanding face
value to $86.1 million at December 25, 1999. 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 25, 1999. The JPS Automotive
Restricted Payments Tests
F-14
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Long-Term Debt -- (Continued)
are subject to a number of significant exceptions. The indenture governing the
JPS Automotive Senior Notes also contains other restrictive covenants
(including, among others, limitations on the incurrence of indebtedness and
preferred stock, asset dispositions and transactions with affiliates including
the Company and C&A Products) which are customary for such securities. These
covenants are also subject to a number of significant exceptions.
At December 25, 1999, the scheduled annual maturities of long-term debt are
as follows (in thousands):
Fiscal Year Ending
------------------
December 2000.................................................. $ 27,992
December 2001.................................................. 116,435
December 2002.................................................. 32,860
December 2003.................................................. 28,278
December 2004.................................................. 165,446
Later Years.................................................... 541,531
---------
$ 912,542
=========
Total interest paid by the Company on all indebtedness was $91.9 million,
$86.6 million and $93.0 million for fiscal 1999, 1998 and 1997, respectively.
11. 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 represented revolving commitments of up to an
aggregate of $75 million having a term of five years. Carcorp purchased on a
revolving basis and transferred 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 represented the right to
receive payments generated by the receivables held by the Trust.
Availability under the variable funding certificates at any time depended
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
25, 1999 the maximum amount available under the variable funding certificates
was $66.5 million, of which $0.1 million was not utilized.
The proceeds received by Carcorp from collections on receivables, after the
payment of expenses and amounts due on the certificates, were used to purchase
new receivables from the Sellers. Collections on receivables were deemed to
remain in trust if at any time the facility does not contain sufficient
eligible receivables to support the outstanding certificates.
The weighted average interest rate on the sold interests under the
Receivables Facility at December 25, 1999 was 6.4%. Under the Receivables
Facility, the term certificates bore interest at an average rate equal to one
month LIBOR plus .34% annum and the variable funding certificates bore
interest, at Carcorp's option, at LIBOR plus .40% per annum or a prime rate.
F-15
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Receivables Facility -- (Continued)
In connection with the receivables sales, losses of $5.4 million, $6.1
million, and $4.7 million were incurred for continuing operations in fiscal
1999, 1998, and 1997 respectively.
As of December 25, 1999 and December 26, 1998, Carcorp's total receivables
pool was $214.8 million and $202.4 million, respectively. As of December 25,
1999 and December 26, 1998, the holders of term certificates and variable
funding certificates collectively had invested $116.5 million and $114.5
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.
On December 27, 1999, the Company entered into a new receivables facility
(the "New Receivables Facility"), replacing the Receivables Facility. The New
Receivables Facility utilizes funding provided by commercial paper conduits
sponsored by three of the Company's lenders under its Credit Agreement
Facilities. Carcorp remains the purchaser of the Sellers' trade receivables,
transferring rights to collections on those receivables to the conduits. The
conduits in turn issue commercial paper which is collateralized by those
rights. Availability under the New Receivables Facility at any time depends
primarily on the amount of receivables generated by the Sellers and 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). The liquidity facilities backing the New Receivables Facility
have terms of 364 days, renewable annually for up to five years.
The total funding available to the Company on a revolving basis under the
New Receivables Facility is up to $171.6 million, depending upon criteria
similar to those in the Receivables Facility. On December 27, 1999, the
Company funded $120 million through the New Receivables Facility, leaving
approximately $12 million available, but unutilized. The interest rate on sold
interests is equal to the rate paid by the conduits to the holders of the
commercial paper plus a margin of .70% and dealer fees of .05% (6.66% at
inception). In addition, the Company pays .25% on the unused committed portion
of the facility. The New Receivables Facility contains certain other
restrictions on Carcorp (including maintenance of $40 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 New
Receivables Facility are subject to termination prior to their term upon the
occurrence of certain events, including payment defaults, breach of covenants,
including defined interest coverage and leverage ratios, bankruptcy,
insufficient eligible receivables to support the outstanding certificates,
default by C&A Products in servicing the receivables and failure of the
receivables to satisfy certain performance criteria.
12. 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 $5.8 million, $5.4 million and $5.6 million for
fiscal 1999, 1998 and 1997, 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.
F-16
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Lease Commitments -- (Continued)
At December 25, 1999, future minimum lease payments under operating leases
for continuing operations are as follows (in thousands):
Fiscal Year Ending
------------------
December 2000.................................... $18,243
December 2001.................................... 14,714
December 2002.................................... 11,935
December 2003.................................... 8,787
December 2004.................................... 6,694
Later Years...................................... 8,107
-------
$68,480
=======
Rental expense of continuing operations under operating leases was $21.5
million, $17.3 million, and $15.4 million for fiscal 1999, 1998 and 1997,
respectively. Obligations under capital leases are not significant.
13. 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 CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. 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 25, 1999 and December 26, 1998 (in thousands):
Pension Benefits Postretirement Benefits
------------------------- -------------------------
Fiscal Year Ended Fiscal Year Ended
December 25, December 26, December 25, December 26,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Change in benefit
obligation:
Benefit obligation at
beginning of year........ $166,153 $158,605 $ 65,955 $ 77,500
Service cost.............. 9,084 8,713 1,552 1,611
Interest cost............. 10,946 10,709 4,262 4,589
Amendments................ 1,059 1,719 -- (60)
Actuarial loss (gain)..... (5,617) 12,592 (10,844) (3,925)
Employee contributions.... -- -- 865 995
Discontinued operations,
including effect of
disposition.............. -- (7,960) -- (9,729)
Benefits paid............. (11,603) (16,175) (4,911) (5,026)
Currency adjustment....... 518 (2,050) 592 --
-------- -------- -------- --------
Benefit obligation at end
of year.................. $170,540 $166,153 $ 57,471 $ 65,955
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets
at beginning of year..... $144,221 $136,126 $ -- $ --
Actual return on plan
assets................... 21,202 17,504 -- --
Employer contributions.... 4,740 16,368 4,046 4,031
Employee contributions.... -- -- 865 995
Discontinued operations,
including effect of
disposition.............. -- (8,073) -- --
Benefits paid............. (11,603) (16,175) (4,911) (5,026)
Currency adjustment....... 696 (1,529) -- --
-------- -------- -------- --------
Fair value of plan assets
at end of year........... $159,256 $144,221 $ -- $ --
======== ======== ======== ========
Reconciliation of funded
status to net amount
recognized:
Funded status............. $(11,284) $(21,932) $(57,471) $(65,955)
Unrecognized net loss
(gain)................... 7,934 22,995 (20,548) (10,306)
Unrecognized prior service
cost (gain).............. 2,478 1,324 (9,251) (11,066)
-------- -------- -------- --------
Net amount recognized..... $ (872) $ 2,387 $(87,270) $(87,327)
======== ======== ======== ========
Amounts recognized in the
consolidated balance
sheet consist of:
Prepaid benefit cost...... $ 13,884 $ 18,666 $ -- $ --
Accrued benefit
liability................ (19,448) (21,473) (87,270) (87,327)
Intangible asset.......... 3,045 2,146 -- --
Accumulated other
comprehensive loss....... 1,647 3,048 -- --
-------- -------- -------- --------
Net amount recognized..... $ (872) $ 2,387 $(87,270) $(87,327)
======== ======== ======== ========
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 $37.6 million, $35.5 million, and $17.5 million,
respectively, as of December 25, 1999 and $34.7 million, $32.5 million and
$12.1 million respectively, as of December 26, 1998.
F-18
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Employee Benefit Plans -- (Continued)
The net periodic benefit cost of continuing operations for fiscal 1999,
1998, and 1997 includes the following components (in thousands):
Pension Benefits
--------------------------------------
Fiscal Year Ended
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Components of net periodic benefit cost:
Service cost........................... $ 9,084 $ 8,713 $7,295
Interest cost.......................... 10,946 10,709 9,640
Expected return on plan assets......... (12,392) (11,805) (9,701)
Amortization of prior service cost
(gain)................................ 38 426 (377)
Recognized net actuarial loss.......... 690 699 525
------- ------- ------
Net periodic benefit cost.............. $ 8,366 $ 8,742 $7,382
======= ======= ======
Postretirement Benefits
--------------------------------------
Fiscal Year Ended
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Components of net periodic benefit cost:
Service cost........................... $ 1,552 $ 1,611 $1,328
Interest cost.......................... 4,262 4,589 4,428
Amortization of prior service cost..... (1,443) (1,511) (1,492)
Recognized net actuarial gain (927) (775) (854)
------- ------- ------
Net periodic benefit cost.............. $ 3,444 $ 3,914 $3,410
======= ======= ======
Weighted average assumptions are summarized as follows.
Pension Postretirement
Benefits Benefits
---------- -----------------
1999 1998 1999 1998
---- ---- ------- -------
Discount rate............................ 7.3% 6.6% 7.6% 6.7%
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 7% in 2000 grading down by 1% per year to a constant level of 6%
annual increase. Health care costs for Canadian plans were assumed to increase
approximately 9.5% during 2000 grading down by 0.5% per year to a constant
level of approximately 5.0% 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....... $ 293 $ (251)
Effect on postretirement benefit
obligation..................... $2,117 $(1,750)
F-19
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Employee Benefit Plans -- (Continued)
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 $3.0 million,
$3.5 million, and $3.5 million in fiscal 1999, 1998, and 1997, respectively.
14. Discontinued Operations
On March 13, 1998, the Company completed the sale of Wallcoverings to
Imperial Home Decor Group, Inc., ("Imperial Home Decor") an affiliate of
Blackstone Partners, for a sales price of $71.9 million and an option for 6.7%
of the common stock of Imperial Home Decor (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. On January 5, 2000, Imperial Home Decor filed voluntary
petitions for protection under chapter 11 of the U.S. Bankruptcy Code. The
Company is currently assessing the impact of that bankruptcy filing.
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,
1998 1997
------------ ------------
Net sales(a).................................... $ -- $200,350
Net income...................................... -- 4,306
Identifiable assets............................. -- 53,004
Capital expenditures............................ 3,144 15,254
(a) Amount is not included in consolidated totals.
F-20
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Discontinued Operations -- (Continued)
Net interest expense of discontinued operations (including amounts
attributable to discontinued operations) was $12.5 million in fiscal 1997.
Interest expense of $12.6 million during fiscal 1997 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
fiscal 1999 and 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, amounts allocated to discontinued operations for the
loss on sale of receivables totaled $0.6 million. No allocation of loss on
sale of receivables was made to discontinued operations in fiscal 1999 and
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 25, 1999 as follows (in thousands):
Minimum Lease Sublease Rental
Fiscal Years Ending Payments Receipts
------------------- ------------- ---------------
December 2000............................. $ 2,562 $ 2,120
December 2001............................. 2,141 2,239
December 2002............................. 1,918 2,117
December 2003............................. 1,767 1,876
December 2004............................. 1,650 1,600
Later years............................... 7,175 8,806
------- -------
$17,213 $18,758
======= =======
15. Restructuring
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 American
Automotive Interior Systems, headquartered in the Detroit metropolitan area,
and European Automotive Interior Systems, headquartered in Wiesbaden, Germany.
In addition, the Company subsequently implemented a global account manager
structure for each of the Company's automotive original equipment manufacturer
("OEM") customers. The Company undertook the Reorganization to reduce costs
and improve operating efficiencies through the Company's operations and to
more effectively respond to the OEMs' demand for complete interior trim
systems and more sophisticated 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. Although these products have not historically been sold in
conjunction with the Company's other interior trim offerings, the Company's
new strategy of leveraging its acoustic capabilities with its design and
styling expertise is anticipated to change the marketing approach for all of
the Company's products.
The Company announced on February 10, 1999 that it anticipated incurring a
restructuring charge related to the Reorganization of approximately $8 million
to $9 million. However, in connection with the change in the Company's Chief
Executive Officer and the Company's operating results in the first quarter,
the Company delayed certain aspects of the Reorganization while the Company's
new Chief Executive Officer reviewed the plan. Upon final completion of the
Reorganization plan, the Company recognized a pre-tax restructuring charge of
$33.4 million, including $13.4 million of asset impairments, $15.0 million of
severance costs and $5.0 million related to the termination of sales
commission contracts at the Company's North American plastics operations.
F-21
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Restructuring -- (Continued)
The Reorganization includes the closure of three facilities. The Homer,
Michigan plastics facility was closed in August 1999 and its operations were
relocated to an existing plastics facility. The Cramerton, North Carolina
fabrics facility was sold in September 1999, for $6.0 million. The facility's
operations are in the process of being located to another fabrics facility.
The acoustics facility in Vastra Frolunda, Sweden, is scheduled to be closed
in September, 2000. The Company recognized $13.4 million in asset impairments,
primarily relating to buildings, machinery and equipment located at these
three sites. The impairment amounts were determined based upon management's
estimates of the values to be realized upon disposition of these assets.
The remaining severance costs for operating personnel primarily relate to
employees at C&A Plastics UK and the Company's fabrics, convertibles and
accessory floormats operations. The severance costs for management and
administrative personnel primarily relate to employees at the Company's former
North Carolina headquarters and North American Automotive Interior Systems
division. At December 25, 1999 approximately 600 employees had been
terminated. When completed, the Reorganization will affect approximately 1,100
employees. The Company currently expects the Reorganization plan to be
substantially completed by December 2000.
The components of the reserves for the restructuring charges are as follows
(in thousands):
Changes
Original in Remaining
Reserve Reserve Reserve
-------- ------- ---------
Anticipated severance benefits.................... $15,061 $(4,843) $10,218
Anticipated payments related to the termination of
sales commission arrangements.................... 4,969 (1,669) 3,300
------- ------- -------
$20,030 $(6,512) $13,518
======= ======= =======
In connection with the acquisition of JPS Automotive in 1996, 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 and completed the relocation of certain manufacturing
processes from a JPS Automotive facility to an existing C&A Products facility
during 1999. 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. These reserves were utilized
by the end of 1999.
16. Common Stockholders' Deficit
Dividends
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. On May
13, 1999, the Company declared another special dividend relating to the
distribution of the proceeds from the sale of Wallcoverings of approximately
$44.0 million, representing $0.71 per share on all outstanding shares of
common stock held by stockholders of record as of the close of business on May
20, 1999. The dividend was paid on May 28, 1999. In connection with these
dividends, the amount authorized by the Company's Board of Directors for the
Company's 1999 share repurchase program was reduced from $25 million to
approximately $2 million.
F-22
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Common Stockholders' Deficit -- (Continued)
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 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)
Change in balance......................... (10,649) 816 (9,833)
-------- -------- --------
Balance at December 25, 1999............... $(32,203) $ (1,057) $(33,260)
======== ======== ========
The income tax benefit (expense) for the pension equity adjustment was
($0.5) million and $1.2 million for fiscal 1999 and 1998, respectively. 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 consultants. The Plan was amended on June 3, 1999
primarily to increase the number of shares available for issuance under the
Plan from 2,980,534 to 3,980,534, subject to approval by the common
stockholders. The 1994 Plan 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 25, 1999, options representing 822,537 shares of
common stock were available for grants.
Effective February 23, 1995, the Company adopted the 1994 Directors Stock
Option Plan which provides for the issuance of options to acquire a maximum of
600,000 shares of common stock to directors who are not part of management and
are not affiliated with a major stockholder. As of December 25, 1999, 120,000
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 25, 1999, 29,974 options had been granted.
F-23
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Common Stockholders' Deficit -- (Continued)
Stock option activity under the plans is as follows:
December 25, 1999 December 26, 1998 December 27, 1997
------------------- ------------------- -------------------
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................... 3,141,195 $6.23 2,732,195 $5.86 3,287,106 $5.25
Awarded................. 2,024,000 5.19 480,000 8.65 584,000 8.33
Cancelled............... (337,000) 8.10 (71,000) 8.56 (83,127) 6.46
Exercised............... (107,240) 3.99 -- -- (373,570) 4.70
Surrendered............. -- -- -- -- (682,214) 5.57
--------- --------- ---------
Outstanding at end of
year................... 4,720,955 $5.70 3,141,195 $6.23 2,732,195 $5.86
========= ========= =========
At December 25, 1999, December 26, 1998 and December 27, 1997, 2,098,555,
2,129,095, and 1,858,685, respectively, of the outstanding options were
exercisable at a weighted average price of $5.40, $5.22, and $4.78,
respectively.
Of the total options outstanding at December 25, 1999, 1,447,084 have an
exercise price in the range of $3.99 and $4.43 with a weighted average
exercise price of $4.01 and a weighted average contractual life of 5 years;
1,397,084 of these options are currently exercisable at a weighted average
price of $4.00. The remaining 3,273,871 of total options outstanding at
December 25, 1999 have an exercise price in the range of $5.00 and $11.75 with
a weighted average exercise price of $6.44 and a weighted average contractual
life of 8 years; 701,471 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 net income and earnings per share 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 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Net income (loss):
As reported.............................. $(10,215) $(3,815) $155,235
Pro forma................................ (12,355) (5,017) 154,525
Basic EPS:
As reported.............................. $ (0.16) $ (0.06) $ 2.34
Pro forma................................ (0.20) (0.07) 2.33
Diluted EPS:
As reported.............................. $ (0.16) $ (0.06) $ 2.34
Pro forma................................ (0.20) (0.07) 2.33
F-24
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. 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 1999, 1998 and 1997:
expected volatility was 84% in 1999 and 40% in 1998 and 1997, expected lives
of 10 years which equals the lives of the grants, the risk free interest rate
ranged from 5.16% to 7.10% and a zero expected dividend rate. The weighted
average grant-date fair value of an option granted during fiscal 1999, 1998
and 1997 was $4.50, $5.43 and $5.41, 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.
17. Income Taxes
The provisions for income taxes applicable to continuing operations for
fiscal 1999, 1998 and 1997 are summarized as follows (in thousands):
Fiscal Year Ended
--------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Current
Federal................................ $ -- $ -- $ --
State.................................. 2,100 2,900 2,600
Foreign................................ 4,946 9,617 6,146
-------- ------- -------
7,046 12,517 8,746
Deferred
Federal................................ (6,289) (7,097) 4,833
State.................................. (523) (1,075) 882
Foreign................................ 12 939 (1,463)
-------- ------- -------
(6,800) (7,233) 4,252
-------- ------- -------
Income tax expense....................... $ 246 $ 5,284 $12,998
======== ======= =======
Domestic and foreign components of income (loss) from continuing operations
before income taxes are summarized as follows (in thousands):
Fiscal Year Ended
--------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Domestic................................. $ (16,638) $(26,900) $(4,545)
Foreign.................................. 15,519 32,093 7,452
--------- -------- -------
$ (1,119) $ 5,193 $ 2,907
========= ======== =======
F-25
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. 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 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Amount at statutory Federal rate.. $ (391) $1,818 $ 1,017
State taxes, net of Federal income
tax.............................. 1,025 1,187 2,263
Tax differential on foreign
earnings......................... (792) 134 123
Foreign losses with no tax
benefit.......................... 318 379 1,436
Amortization and write-down of
goodwill......................... 1,513 1,470 7,770
General business tax credits, net
................................. (2,011) (124) (60)
Other............................. 584 420 449
------- ------ -------
Income tax expense................ $ 246 $5,284 $12,998
======= ====== =======
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 25, 1999 and
December 26, 1998 were as follows (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Deferred tax assets:
Employee benefits, including postretirement
benefits.................................... $ 38,105 $ 31,695
Net operating loss carryforwards............. 99,955 79,902
General business tax credits................. 8,202 1,130
Alternative minimum tax credit
carryforwards............................... 12,189 12,190
Other liabilities and reserves............... 51,039 74,386
Valuation allowance.......................... (52,115) (44,320)
-------- --------
Total deferred tax assets.................. 157,375 154,983
-------- --------
Deferred tax liabilities:
Property, plant and equipment................ (58,266) (66,153)
Undistributed earnings of foreign
subsidiaries................................ (7,226) (7,226)
-------- --------
Total deferred tax liabilities............. (65,492) (73,379)
-------- --------
Net deferred tax asset......................... $ 91,883 $ 81,604
======== ========
The valuation allowance at December 25, 1999 and 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. During fiscal 1999, the valuation allowance increased $7.8
million from fiscal 1998. This increase resulted primarily from the increase
in tax credit and loss carryforwards that may not be utilized in future
periods, offset by a decrease in preacquisition NOLs due to a change in the
tax regulations. During fiscal 1998, the valuation allowance decreased $1.3
million from fiscal 1997 primarily due to the expiration of tax credits.
F-26
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued)
17. Income Taxes -- (Continued)
The above amounts have been classified in the consolidated balance sheets
as follows (in thousands):
December 25, December 26,
1999 1998
------------ ------------
Deferred tax assets (liabilities):
Current domestic and foreign, included in
other current assets........................ $ 23,868 $ 30,027
Current foreign, included in accrued
expenses.................................... (351) --
Noncurrent domestic and foreign.............. 86,235 70,632
Noncurrent foreign, included in other
noncurrent liabilities...................... (17,869) (19,055)
-------- --------
$ 91,883 $ 81,604
======== ========
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 $91.9 million at
December 25, 1999 will be realized. The Company announced a reorganization on
February 10, 1999 (see Note 16) 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 25, 1999, the Company had the following tax attribute
carryforwards available for U.S. Federal income tax purposes (in thousands):
Expiration
Amount Dates
-------- ----------
Net operating losses -- regular tax:
Preacquisition, subject to limitations............ $ 8,894 2002-2009
Postacquisition, unrestricted..................... 10,280 2000-2006
Postacquisition, unrestricted..................... 248,910 2008-2019
--------
$268,084
========
Net operating losses -- alternative minimum tax:
Preacquisition, subject to limitations............ $ 6,604 2002-2009
Postacquisition, unrestricted..................... 9,644 2000-2006
Postacquisition, unrestricted..................... 222,040 2008-2019
--------
$238,288
========
General business tax credits:
Preacquisition, subject to limitations............ $ 710 2000-2003
Postacquisition unrestricted...................... 6,004 2004-2019
--------
$ 6,714
========
Alternative minimum tax credits................... $ 12,189
========
F-27
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Income Taxes -- (Continued)
Future sales of common stock by the Company or its principal stockholders,
or changes in the composition of its principal stockholders, could constitute
a "change in control" that would result in annual limitations on the Company's
use of its NOLs and unused tax credits. Management cannot predict whether such
a "change in control" will occur. If such a "change in control" were to occur,
the resulting annual limitations on the use of NOLs and tax credits would
depend on the value of the equity of the Company and the amount of "built-in
gain" or "built-in loss" in the Company's assets at the time of the "change in
control", which cannot be known at this time.
Income taxes paid (refunds received) were $3.0 million, $(6.0) million, and
$40.4 million for fiscal 1999, 1998 and 1997, respectively.
18. 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 25, 1999 December 26, 1998
------------------ ------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Long-term investments............... $ 2,891 $ 2,891 $ 3,332 $ 3,332
Long-term debt...................... $912,542 $907,087 $866,049 $885,386
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.
19. Related Party Transactions
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners. See Note 14.
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.
F-28
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. Related Party Transaction --- (Continued)
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.
20. 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
On February 10, 1999, the Company announced the Reorganization, a
comprehensive plan to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North American
Automotive Interior Systems, headquartered in the Detroit metropolitan area,
and European Automotive Interior Systems, headquartered in Wiesbaden, 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 American Automotive Interior Systems and
European Automotive Interior Systems include the following product groups:
molded floor carpet, luggage compartment trim, acoustical products, accessory
floormats and plastic-based interior modules, systems and components. 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 25, 1999
------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
External revenues....... $1,151,751 $306,374 $440,472 $ -- $1,898,597
Inter-segment revenues.. 85,233 27,422 16,649 (129,304) --
Depreciation and
amortization........... 38,614 17,127 14,849 884 71,474
Operating income
(loss)................. 89,374 2,292 39,596 (32,743) 98,519
Total assets............ 798,959 241,631 234,723 73,577 1,348,890
Capital expenditures.... 45,758 23,472 12,687 4,513 86,430
F-29
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Information About the Company's Operations -- (Continued)
Fiscal Year Ended December 26, 1998
------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
External revenues....... $1,065,461 $338,030 $421,978 $ -- $1,825,469
Inter-segment revenues.. 163,432 26,287 29,516 (219,235) --
Depreciation and
amortization........... 34,348 16,832 14,871 1,023 67,074
Operating income........ 74,485 9,242 14,206 545 98,478
Total assets............ 788,054 260,023 267,129 67,005 1,382,211
Capital expenditures.... 53,550 12,440 20,537 12,464 98,991
Fiscal Year Ended December 27, 1997
------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- --------- ----------
External revenues....... $1,053,546 $120,456 $455,330 $ -- $1,629,332
Inter-segment revenues.. 65,869 2,938 $ 23,798 (92,605) --
Depreciation and
amortization........... 37,260 6,000 14,628 952 58,840
Operating income........ 40,055(b) 4,451 38,074 1,930 84,510
Total assets............ 740,463 183,378 271,396 107,155 1,302,392
Capital expenditures.... 35,327 3,488 15,733 17,227 71,775
- --------
(a) Other includes the Company's discontinued operations (see Note 14), non-
operating units, the effect of eliminating entries and in 1999,
restructuring charges and impairment of long-lived assets of $33.4 million
(See Note 15).
(b) Includes impairment of long-lived assets of $22.6 million.
Sales for the Company's primary product groups are as follows (in
thousands):
Fiscal Year Ended
--------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Molded floor carpet.................... $ 468,008 $ 416,971 $ 384,714
Luggage compartment trim............... 90,582 95,897 101,034
Acoustical products.................... 209,772 225,130 167,758
Accessory floormats.................... 165,931 157,209 139,292
Plastic-based interior trim modules,
systems and components................ 435,366 417,534 294,555
Automotive fabrics..................... 269,475 267,185 318,979
Convertible top systems................ 118,916 104,348 88,801
Other.................................. 140,547 141,195 134,199
---------- ---------- ----------
Total.................................. $1,898,597 $1,825,469 $1,629,332
========== ========== ==========
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.
F-30
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Information About the Company's Operations -- (Continued)
Direct and indirect sales to significant customers in excess of ten percent
of consolidated net sales from continuing operations are as follows:
1999 1998 1997
---- ---- ----
General Motors Corporation............................. 31.5% 31.2% 37.1%
Ford Motor Company..................................... 20.4% 19.9% 14.2%
DaimlerChrysler AG..................................... 18.9% 18.3% 17.4%
Information about the Company's continuing operations in different
geographic areas for fiscal 1999, 1998 and 1997 is presented below (in
thousands).
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
December 25, 1999 December 26, 1998 December 27, 1997
--------------------- --------------------- ---------------------
Long-Lived Long-Lived Long-Lived
Net Sales Assets Net Sales Assets Net Sales Assets
---------- ---------- ---------- ---------- ---------- ----------
United States........... $1,092,546 $550,760 $1,047,862 $452,281 $1,089,114 $436,466
Canada.................. 398,439 87,729 356,361 186,711 348,056 182,649
Mexico.................. 101,238 20,296 83,216 17,234 71,706 16,044
United Kingdom.......... 121,689 64,277 143,716 61,449 84,956 34,063
Other (a)............... 184,685 74,227 194,314 83,508 35,500 64,586
---------- -------- ---------- -------- ---------- --------
Consolidated............ $1,898,597 $797,289 $1,825,469 $801,183 $1,629,332 $733,808
========== ======== ========== ======== ========== ========
- --------
(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and the
Netherlands and, for long-lived assets, the Company's discontinued
operations (See Note 14).
Intersegment sales between geographic areas are not material. For fiscal
years 1999, 1998 and 1997, export sales from the United States to foreign
countries were $80.5 million, $104.9 million and $136.7 million, respectively.
As of December 25, 1999, the Company's continuing operations employed
approximately 15,600 persons on a full-time or full-time equivalent basis.
Approximately 5,800 of such employees are represented by labor unions.
Approximately 1,400 employees are represented by collective bargaining
agreements that expire during fiscal 2000.
21. 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
F-31
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
21. Commitments and Contingencies -- (Continued)
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
25, 1999, 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 23 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 25, 1999, the Company's estimate of its liability
for these 31 sites is approximately $22.9 million. As of December 25, 1999,
the Company has established reserves of approximately $30.5 million for the
estimated future costs related to all its known environmental sites. In the
opinion of management, based on the facts presently known to it, the
environmental costs and contingencies will not have a material adverse effect
on the Company's consolidated financial condition or future results of
operations. However, there can be no assurance that the Company has identified
or properly assessed all potential environmental liability arising from the
activities or properties of the Company, its present and former subsidiaries
and their corporate predecessors.
The Company is 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 25, 1999, the Company's continuing operations had
approximately $10.9 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.
F-32
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
22. Quarterly Financial Data (unaudited)
The quarterly data below is based on the Company's fiscal periods (in
thousands, except per share amounts).
Fiscal 1999
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Net sales......................... $478,337 $486,821 $427,873 $505,566
Gross margin...................... 70,588 78,262 64,163 71,704
Income (loss) from continuing
operations(a).................... 2,316 5,318 (6,484) (2,515)
Income (loss) before extraordinary
loss and cumulative effect of
change in accounting principle
................................. 2,316 5,318 (6,484) (2,515)
Net income (loss)................. (6,534) 5,318 (6,484) (2,515)
Basic and diluted income (loss)
per share........................ (0.10) 0.09 (0.10) (0.04)
Common stock prices
High............................ 6 1/4 7 7/16 7 5/8 7
Low............................. 4 1/8 4 4 9/16 4 7/8
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 income (loss)
per share........................ 0.13 (0.06) (0.13) --
Common stock prices
High............................ 9 11/16 9 1/12 7 1/2 7 7/16
Low............................. 7 11/16 6 13/16 6 3/16 4 15/16
(a) During 1999, the Company incurred restructuring charges and impairment of
long-lived assets of $4.6 million in the second quarter, $15.3 million in
the third quarter and $13.5 million in the fourth quarter.
The Company's operations are not subject to significant seasonal
influences.
F-33
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
23. 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 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Current assets..................... $ 465,312 $ 510,303 $ 508,864
Noncurrent assets.................. 883,524 871,815 792,199
Current liabilities................ 362,226 343,807 315,268
Noncurrent liabilities............. 1,135,174 1,115,394 1,051,376
Net sales.......................... 1,898,597 1,825,469 1,629,332
Gross margin....................... 284,717 248,225 233,160
Income (loss) from continuing
operations........................ (980) 300 (10,338)
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle ... (980) 300 155,709
Net income (loss).................. (9,830) (3,424) 154,988
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.
24. 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
16). There were no reconciling items between basic earnings per common share
and diluted earnings per common share for 1999, 1998 and 1997 because the
effects of the stock options would have been anti-dilutive. The incremental
dilutive shares (in thousands) would have been 432, 700 and 1,155 in 1999,
1998 and 1997, respectively.
F-34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Collins & Aikman Corporation:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements of Collins &
Aikman Corporation and subsidiaries included in this Form 10-K, and have
issued our report thereon dated March 1, 2000. 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,
March 1, 2000
S-1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(in thousands)
December 25, December 26,
1999 1998
------------ ------------
ASSETS
Current Assets:
Cash.............................................. $ 54 $ 81
Other............................................. -- 12
--------- --------
Total current assets............................ 54 93
Other assets........................................ -- --
--------- --------
$ 54 $ 93
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities................................. $ 29 $ 199
Share of accumulated losses in excess of investments
in subsidiaries.................................... 148,564 77,083
Other noncurrent liabilities........................ 2,582 2,582
Common stock........................................ 705 705
Other stockholders' deficit......................... (151,826) (80,476)
--------- --------
Total stockholders' deficit..................... (151,121) (79,771)
--------- --------
$ 54 $ 93
========= ========
The Notes to the Condensed Financial Statements are an integral part of these
condensed financial statements.
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COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Fiscal Year Ended
--------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Other expenses......................... $ (514) $ (608) $ (589)
Interest income........................ 129 217 836
-------- ------- --------
Income (loss) from operations before
equity in income (loss) of
subsidiary............................ (385) (391) 247
Equity in income (loss) of subsidiary.. (9,830) (3,424) 154,988
-------- ------- --------
Net income (loss)...................... $(10,215) $(3,815) $155,235
======== ======= ========
The Notes to the Condensed Financial Statements are an integral part of these
condensed financial statements.
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COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
OPERATING ACTIVITIES
Net cash used in operating activities.. $ (27) $ (334) $ (332)
-------- -------- --------
FINANCING ACTIVITIES
Purchases of treasury stock............ (2,097) (25,013) (19,715)
Proceeds from exercise of stock
options............................... 448 -- 385
Intercompany transfers (to) from
subsidiary............................ 1,649 (5,987) (2,094)
Dividends paid to shareholders......... (50,198) -- --
Dividends received from subsidiary..... 50,198 31,000 21,424
-------- -------- --------
Net cash used in financing activities.. -- -- --
-------- -------- --------
Net decrease in cash................... (27) (334) (332)
Cash at beginning of year.............. 81 415 747
-------- -------- --------
Cash at end of year.................... $ 54 $ 81 $ 415
======== ======== ========
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 12, 14 and 21 to
Consolidated Financial Statements.
2. See Notes to Consolidated Financial Statements for additional disclosures.
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COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended December 25, 1999, December 26, 1998 and December
27, 1997
(in thousands)
Additions
Balance at Resulting Charge to Charged
Beginning from Costs and to Other Balance at
Description of Year Acquisitions Expenses Accounts Deductions End of Year
- ----------- ---------- ------------ --------- -------- ---------- -----------
Fiscal Year Ended
December 25, 1999
Allowance for doubtful
accounts $ 7,228 $-- $ 2,384 $1,210(a) $(2,265)(c) $ 8,557
Restructuring reserves $ 1,940 $-- $20,030 $ -- $(8,452)(d) $13,518
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
- --------
(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 15 to the Consolidated
Financial Statements.
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