UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended June 30, 2002 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . | ||
Commission file number 1-10218
Collins & Aikman Corporation
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DELAWARE
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13-3489233 | |
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
250 Stephenson Highway
(248) 824-2500
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 þ No o.
As of July 31, 2002, the number of outstanding shares of the Registrant’s common stock, $.01 par value, was 83,630,087 shares.
Item 1. Financial Statements.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| Quarter Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | June 30, | June 30, | ||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (Unaudited) | |||||||||||||||||
| (in millions, except for per share data) | |||||||||||||||||
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Net sales
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$ | 1,085.3 | $ | 457.6 | $ | 2,000.1 | $ | 910.7 | |||||||||
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Cost of goods sold
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926.8 | 393.3 | 1,710.5 | 787.6 | |||||||||||||
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Gross profit
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158.5 | 64.3 | 289.6 | 123.1 | |||||||||||||
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Selling, general and administrative expenses
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77.0 | 38.2 | 144.6 | 76.4 | |||||||||||||
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Restructuring charges
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— | — | 9.1 | 9.2 | |||||||||||||
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Operating income
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81.5 | 26.1 | 135.9 | 37.5 | |||||||||||||
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Interest expense, net
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38.3 | 20.6 | 75.6 | 43.9 | |||||||||||||
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Loss on sale of receivables
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1.1 | 2.3 | 2.2 | 3.7 | |||||||||||||
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Subsidiary preferred stock dividend
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8.8 | — | 18.1 | — | |||||||||||||
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Subsidiary preferred stock accretion
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2.0 | — | 3.9 | — | |||||||||||||
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Other (income)
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(13.6 | ) | (.1 | ) | (16.4 | ) | (4.8 | ) | |||||||||
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Other expense
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15.2 | 4.2 | 24.3 | 10.6 | |||||||||||||
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Income (loss) from continuing operations
before income taxes
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29.7 | (.9 | ) | 28.2 | (15.9 | ) | |||||||||||
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Income tax expense (benefit)
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23.2 | (2.7 | ) | 29.1 | (10.6 | ) | |||||||||||
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Income (loss) from continuing operations
before extraordinary items
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6.5 | 1.8 | (0.9 | ) | (5.3 | ) | |||||||||||
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Income from discontinued operations, net of
income taxes of $6.3 in 2002 and $4.8 in 2001
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9.5 | 7.4 | 9.5 | 7.4 | |||||||||||||
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Cumulative effect of change in accounting
principle, Net of income taxes of $0 in 2002
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— | — | (11.7 | ) | — | ||||||||||||
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Income (loss) before extraordinary charge
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16.0 | 9.2 | (3.1 | ) | 2.1 | ||||||||||||
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Extraordinary charge, net of income taxes of $0.2
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— | — | — | (.3 | ) | ||||||||||||
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Net income (loss)
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$ | 16.0 | $ | 9.2 | $ | (3.1 | ) | $ | 1.8 | ||||||||
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Earnings per share data:
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Net income (loss)
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$ | 16.0 | $ | 9.2 | $ | (3.1 | ) | $ | 1.8 | ||||||||
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Loss on redemption of subsidiary preferred stock
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(36.3 | ) | — | (36.3 | ) | — | |||||||||||
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Net income (loss) available to common
shareholders
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$ | (20.3 | ) | $ | 9.2 | $ | (39.4 | ) | $ | 1.8 | |||||||
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Net income (loss) per basic common share:
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Continuing operations
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$ | (0.42 | ) | $ | 0.05 | $ | (0.54 | ) | $ | (0.17 | ) | ||||||
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Discontinued operations
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0.13 | 0.21 | 0.14 | 0.23 | |||||||||||||
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Cumulative effect of change in accounting
principle
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— | — | (0.17 | ) | — | ||||||||||||
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Extraordinary charge
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— | — | — | (0.01 | ) | ||||||||||||
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Net income (loss) available to common shareholders
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$ | (0.29 | ) | $ | 0.26 | $ | (0.57 | ) | $ | 0.05 | |||||||
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Average common shares outstanding:
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Basic
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70.4 | 34.9 | 68.8 | 31.7 | |||||||||||||
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Diluted
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70.4 | 35.0 | 68.8 | 31.8 | |||||||||||||
The accompanying notes are an integral part of the financial statements.
2
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| June 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
| (in millions) | ||||||||||
| ASSETS | ||||||||||
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Current Assets:
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Cash and cash equivalents
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$ | 112.9 | $ | 73.9 | ||||||
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Accounts and other receivables, net
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535.2 | 406.1 | ||||||||
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Inventories
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162.4 | 132.6 | ||||||||
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Other
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159.4 | 131.9 | ||||||||
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Total current assets
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969.9 | 744.5 | ||||||||
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Property, plant and equipment, net
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664.8 | 612.6 | ||||||||
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Deferred tax assets
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149.7 | 136.5 | ||||||||
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Goodwill
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1,158.9 | 1,253.8 | ||||||||
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Intangible assets, net
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84.9 | 16.4 | ||||||||
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Other assets
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180.0 | 224.1 | ||||||||
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Total Assets
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$ | 3,208.2 | $ | 2,987.9 | ||||||
| LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY | ||||||||||
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Current Liabilities:
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Short-term borrowings
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$ | 29.6 | $ | 35.7 | ||||||
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Current maturities of long-term debt
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25.8 | 19.5 | ||||||||
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Accounts payable
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534.3 | 468.7 | ||||||||
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Accrued expenses
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315.7 | 239.7 | ||||||||
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Total current liabilities
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905.4 | 763.6 | ||||||||
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Other, including post-retirement benefit
obligation
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412.7 | 402.7 | ||||||||
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Long-term debt
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1,270.5 | 1,282.4 | ||||||||
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Mandatorily redeemable preferred stock of
subsidiary
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107.5 | 149.3 | ||||||||
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Minority interest in consolidated subsidiary
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11.5 | 15.2 | ||||||||
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Contingencies
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Common stock ($0.01 par value, 300.0 shares
authorized, 83.6 shares issued and outstanding at June 30,
2002, and 300.0 shares authorized, 67.2 shares issued and
outstanding at December 31, 2001)
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0.8 | 0.7 | ||||||||
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Other paid-in capital
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1,284.9 | 1,124.1 | ||||||||
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Accumulated deficit
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(722.1 | ) | (682.8 | ) | ||||||
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Accumulated other comprehensive loss
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(63.0 | ) | (67.3 | ) | ||||||
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Total common stockholders’ equity
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$ | 500.6 | $ | 374.7 | ||||||
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Total Liabilities and Common Stockholders’
Equity
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$ | 3,208.2 | $ | 2,987.9 | ||||||
The accompanying notes are an integral part of the financial statements.
3
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| Six Months Ended | ||||||||||
| June 30, | ||||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
| (in millions) | ||||||||||
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OPERATING ACTIVITIES
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Net income (loss)
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(3.1 | ) | 1.8 | |||||||
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Adjustments to derive cash flow from operating
activities:
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Impairment of long lived assets
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11.7 | 0.8 | ||||||||
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Deferred income tax expense (benefit)
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(13.1 | ) | (8.5 | ) | ||||||
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Preferred stock requirements
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22.0 | |||||||||
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Depreciation
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48.4 | 31.7 | ||||||||
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Goodwill amortization
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— | 3.5 | ||||||||
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Amortization of other assets
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10.3 | 4.8 | ||||||||
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Loss on sale of property, plant and equipment
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0.4 | 3.5 | ||||||||
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Increase in accounts and other receivables
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(49.2 | ) | (4.6 | ) | ||||||
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(Increase) reduction of proceeds from
participating interest in accounts receivable
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(79.9 | ) | 48.9 | |||||||
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(Increase) decrease in inventories
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(25.5 | ) | 23.9 | |||||||
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Increase (decrease) in accounts payable
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82.7 | (5.5 | ) | |||||||
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Increase (decrease) in interest payable
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35.6 | (0.5 | ) | |||||||
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Changes in other assets
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19.1 | 24.2 | ||||||||
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Changes in other liabilities
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52.2 | (4.7 | ) | |||||||
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Net cash provided by operating activities
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111.6 | 119.3 | ||||||||
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INVESTING ACTIVITIES
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Additions to property, plant and equipment
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(65.8 | ) | (24.4 | ) | ||||||
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Sales of property, plant and equipment
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0.2 | 16.0 | ||||||||
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Acquisitions, net of cash acquired
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(2.6 | ) | (7.3 | ) | ||||||
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Payments of acquisition costs
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(39.1 | ) | — | |||||||
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Disposition of business
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— | 3.5 | ||||||||
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Net cash used in investing activities
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(107.3 | ) | (12.2 | ) | ||||||
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FINANCING ACTIVITIES
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Issuance of long-term debt
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— | 50.0 | ||||||||
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Debt issuance costs
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— | (10.7 | ) | |||||||
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Repayment of long-term debt
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(5.6 | ) | (71.9 | ) | ||||||
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Repurchase of preferred stock
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(100.0 | ) | — | |||||||
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Repayments on revolving credit facilities
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— | (147.7 | ) | |||||||
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Increase short-term borrowings
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(6.1 | ) | 1.4 | |||||||
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Proceeds from issuance of stock
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153.1 | 46.9 | ||||||||
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Reissue of treasury stock
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— | 61.3 | ||||||||
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Repayment of debt assumed in acquisition
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(6.7 | ) | — | |||||||
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Net cash provided by (used in) financing
activities
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34.7 | (70.7 | ) | |||||||
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Net increase in cash and cash equivalents
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39.0 | 36.4 | ||||||||
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Cash and cash equivalents at beginning of period
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73.9 | 20.9 | ||||||||
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Cash and cash equivalents at end of period
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$ | 112.9 | $ | 57.3 | ||||||
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Supplementary information
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Debt assumed in acquisition
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$ | 6.7 | $ | — | ||||||
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Taxes paid
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$ | 10.1 | $ | 11.9 | ||||||
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Interest paid
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$ | 38.3 | $ | 43.8 | ||||||
The accompanying notes are an integral part of the financial statements.
4
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| 1. | Organization |
Collins & Aikman Corporation (the “Company”) is a Delaware corporation, headquartered in Troy, Michigan. The Company conducts all of its operating activities through its wholly owned Collins & Aikman Products Co. (“Products”) subsidiary. The Company is a global leader in design, engineering and manufacturing of automotive interior components, including instrument panels, fully assembled cockpit modules, floor and acoustic systems, automotive fabric, interior trim and convertible top systems. The Company operates through three divisions: North American Automotive Interior Systems, European and Rest of World Automotive Interior Systems and Specialty Automotive Products.
2. Basis of Presentation
a. Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of financial position and results of operations. Certain prior year items have been reclassified to conform to the 2002 presentation. Results of operations for interim periods are not necessarily indicative of results for the full year. The accompanying consolidated financial statements and footnotes should be read in conjunction with the Company’s 2001 Annual Report on Form 10-K/A.
b. Reverse Stock Split
On May 28, 2002, the Company effected a one-for-2.5 reverse stock split of C&A common stock. All shares and per share data have been adjusted retroactively for all periods presented to reflect the stock split.
c. Other Income and Other Expense
For the quarter ended and six months ended June 30, 2002, “other income” related primarily to $12.1 million of foreign currency transaction gains. “Other expense” related primarily to $11.5 million of losses related to derivatives used in the Company’s foreign currency hedging strategy and substantially offset the foreign currency transaction gains included in other income.
For the quarter ended June 30, 2001, “other expense” related primarily to $3.0 million of losses related to a sale-leaseback transaction. For the six months ended June 30, 2001, “other income” related primarily to $4.6 million of gains related to derivatives used in the Company’s foreign currency hedging strategy. “Other expense” related primarily to $6.5 million of foreign currency transaction losses and $3.0 million of losses related to a sale-leaseback transaction.
3. Acquisitions and Goodwill
a. Acquisitions
The Company completed its acquisitions of Textron Automotive Company’s automotive trim division (“TAC-Trim”) in December 2001, the automotive fabric operations of Joan Fabrics and all of the operating assets in Joan Fabric’s affiliated yarn dying operation Western Avenue Dyers (collectively “Joan”) in September 2001, and Becker Group, LLC (“Becker”) a supplier of plastic components to the automotive industry in July 2001. The results of operations of the acquired companies are included in the Company’s consolidated statements of operations from the dates of acquisition.
Appraisals for Becker and Joan were performed during 2001 and the related allocation of purchase price was completed. In the second quarter 2002, the Company’s external consultants completed the valuations of all TAC-Trim acquired intangible and fixed assets. Based upon these valuations: 1) an intangible asset of $51.0 million for customer contracts was recorded based on the value of individual customer contracts — these
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
intangible assets are being amortized over the contract’s performance period, which extends through 2012; 2) the Company revised its first quarter estimate for specifically identifiable intangible assets acquired as part of the Tac-Trim purchase from $40.0 to $24.0 million (the weighted average lives increased from 7 to 10 years; and 3) the valuations also resulted in a $31.7 million increase in fixed assets and adjustment of their useful lives. The allocation of the purchase price for the TAC-Trim acquisition is substantially complete but may be revised based upon the Company’s final review of valuations prepared by external consultants. This review is not expected to result in significant adjustments. The Becker, Joan and TAC-Trim acquisitions are intended to solidify the Company’s position as a premier supplier of interior components and automotive fabrics.
b. Goodwill
During the second quarter of 2002, the Company completed the implementation of SFAS 142, “Goodwill and Other Intangible Assets”. Under SFAS 142, goodwill is no longer amortized. Instead, goodwill and indefinite-lived intangible assets are tested for impairment in accordance with the provisions of SFAS 142. In accordance with its impairment policy, the Company employed a discounted cash flow analysis in conducting its impairment tests. The Company completed its impairment test and recorded an impairment loss of $11.7 million (having no tax impact), or $0.17 per average basic and diluted share relating to the UK Plastics business in the European and Rest of World Automotive Systems segment. The impairment loss was reported as a cumulative effect of a change in accounting principle and, therefore, is accounted for as if it occurred on January 1, 2002.
In accordance with the provisions of SFAS 142, the Company did not amortize goodwill for the quarter and six month periods ended June 30, 2002. If goodwill amortization had not been recorded for the quarter and six months ended June 30, 2001, net income would have increased $1.6 and $3.2 million to an adjusted net income of $10.8 and $5.0 million, respectively. The related earnings per share for the quarter and six months ended June 30, 2001 would have increased $0.05 and $0.11 per share resulting in adjusted income per share of $0.31 and $0.16 for each period, respectively.
The changes in the carrying amounts of goodwill for the six months ended June 30, 2002 were as follows (in millions):
| Six Months Ended June 30, 2002 | ||||||||||||||||||||
| European and | ||||||||||||||||||||
| North American | Rest of World | Specialty | ||||||||||||||||||
| Automotive | ||||||||||||||||||||