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 |
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| For the quarterly period ended September 30, 2004 | ||
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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 |
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| 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 o No þ.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o.
As of October 31, 2004 the number of outstanding shares of the Registrant’s common stock, $.01 par value, was 83,630,087 shares.
WEBSITE ACCESS TO COMPANY’S REPORTS:
Collins and Aikman’s internet website address is www.collinsaikman.com. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the Company’s website and as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the Securities and Exchange Commission.
The Company’s Code of Business Conduct is available free of charge through the Company’s internet website. Any amendments to the Company’s Code of Business Conduct and any waivers of the Code of Business Conduct involving executive officers or directors of the Company will also be made available on the Company’s internet website. Printed copies of the Company’s Code of Business Conduct are also available free of charge to any shareholder upon request to: Corporate Secretary, Collins & Aikman Corporation, 250 Stephenson Highway, Troy, MI 48083.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT INDEX
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Quarter Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | ||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||||
| (Unaudited) | |||||||||||||||||
| (in millions, except for per share data) | |||||||||||||||||
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Net sales
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$ | 864.8 | $ | 902.2 | $ | 2,967.5 | $ | 2,970.8 | |||||||||
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Cost of goods sold
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800.8 | 812.1 | 2,687.7 | 2,658.3 | |||||||||||||
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Gross profit
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64.0 | 90.1 | 279.8 | 312.5 | |||||||||||||
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Selling, general and administrative expenses
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35.2 | 57.7 | 144.7 | 193.0 | |||||||||||||
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Restructuring charge
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9.0 | 21.9 | 28.9 | 26.8 | |||||||||||||
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Impairment of long-lived assets
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10.3 | 2.2 | 40.7 | 21.1 | |||||||||||||
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Operating income
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9.5 | 8.3 | 65.5 | 71.6 | |||||||||||||
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Interest expense
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46.9 | 37.8 | 127.4 | 111.3 | |||||||||||||
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Interest expense from subsidiary preferred stock
dividends
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10.5 | 9.2 | 30.5 | 22.4 | |||||||||||||
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Interest expense from subsidiary preferred stock
accretion
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0.6 | 0.4 | 1.6 | 4.8 | |||||||||||||
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Loss on sale of receivables
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2.4 | 1.8 | 7.2 | 4.5 | |||||||||||||
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Loss on early extinguishment of debt
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18.8 | — | 20.3 | — | |||||||||||||
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Other expense (income), net
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(0.7 | ) | (0.2 | ) | 4.1 | (23.9 | ) | ||||||||||
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Loss from continuing operations before income
taxes
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(69.0 | ) | (40.7 | ) | (125.6 | ) | (47.5 | ) | |||||||||
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Income tax expense (benefit)
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(13.4 | ) | (8.6 | ) | (17.0 | ) | 0.1 | ||||||||||
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Net loss
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$ | (55.6 | ) | $ | (32.1 | ) | $ | (108.6 | ) | $ | (47.6 | ) | |||||
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Net loss per basic and diluted common share
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$ | (0.67 | ) | $ | (0.38 | ) | $ | (1.30 | ) | $ | (0.57 | ) | |||||
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Average common shares outstanding:
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Basic and diluted
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83.6 | 83.6 | 83.6 | 83.6 | |||||||||||||
The Notes to Consolidated Financial Statements are an integral part
1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| (in millions) | ||||||||||
| ASSETS | ||||||||||
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Current Assets:
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Cash and cash equivalents
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$ | 3.5 | $ | 13.2 | ||||||
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Accounts and other receivables, net of allowances
of $6.4 and $9.2
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255.1 | 257.3 | ||||||||
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Inventories
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178.8 | 169.4 | ||||||||
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Other
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217.1 | 212.2 | ||||||||
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Total current assets
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654.5 | 652.1 | ||||||||
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Property, plant and equipment, net
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806.0 | 834.1 | ||||||||
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Deferred tax assets
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206.0 | 178.1 | ||||||||
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Goodwill
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1,378.5 | 1,363.1 | ||||||||
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Intangible assets, net
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45.7 | 66.9 | ||||||||
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Other assets
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106.0 | 96.9 | ||||||||
| $ | 3,196.7 | $ | 3,191.2 | |||||||
| LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY | ||||||||||
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Current Liabilities:
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Short-term borrowings
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$ | 25.3 | $ | 16.0 | ||||||
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Current maturities of long-term debt and capital
lease obligations
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8.5 | 31.5 | ||||||||
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Accounts payable
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636.3 | 638.9 | ||||||||
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Accrued expenses
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225.1 | 238.9 | ||||||||
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Total current liabilities
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895.2 | 925.3 | ||||||||
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Long-term debt and capital lease obligations
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1,361.2 | 1,237.7 | ||||||||
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Mandatorily redeemable preferred stock of
subsidiary
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193.3 | 161.2 | ||||||||
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Other, including pensions and postretirement
benefit obligation
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404.6 | 423.4 | ||||||||
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Commitments and contingencies (Note 15)
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Minority interest in consolidated subsidiary
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2.3 | 3.3 | ||||||||
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Total liabilities
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2,856.6 | 2,750.9 | ||||||||
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Common stock ($0.01 par value, 300.0 shares
authorized, 83.6 shares issued and outstanding at
September 30, 2004 and December 31, 2003)
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0.8 | 0.8 | ||||||||
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Other paid-in capital
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1,282.3 | 1,282.3 | ||||||||
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Accumulated deficit
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(938.7 | ) | (830.1 | ) | ||||||
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Accumulated other comprehensive loss
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(4.3 | ) | (12.7 | ) | ||||||
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Total common stockholders’ equity
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340.1 | 440.3 | ||||||||
| $ | 3,196.7 | $ | 3,191.2 | |||||||
The Notes to Consolidated Financial Statements are an integral part
2
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
| Nine Months Ended | |||||||||
| September 30, | |||||||||
| 2004 | 2003 | ||||||||
| (Unaudited) | |||||||||
| (in millions) | |||||||||
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OPERATING ACTIVITIES
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Net loss
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$ | (108.6 | ) | $ | (47.6 | ) | |||
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Adjustments to derive cash flow provided by (used
in) operating activities:
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Impairment of long lived assets
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40.7 | 21.1 | |||||||
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Deferred income tax benefit
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(24.1 | ) | (4.9 | ) | |||||
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Subsidiary preferred stock requirements
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32.1 | 27.2 | |||||||
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Depreciation
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101.6 | 83.7 | |||||||
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Amortization of other assets
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11.1 | 17.5 | |||||||
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Gain on curtailment of postretirement benefit
plans other than pensions
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(9.4 | ) | — | ||||||
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Loss on early extinguishment of debt
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20.3 | — | |||||||
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Loss (gain) on sale of property, plant and
equipment
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2.5 | (2.6 | ) | ||||||
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Changes in assets and liabilities:
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Increase (decrease) in postretirement benefit
obligations
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(4.6 | ) | 6.6 | ||||||
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Decrease (increase) in net customer funded tooling
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(9.0 | ) | 7.5 | ||||||
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Decrease (increase) in accounts and other
receivables
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(49.0 | ) | 22.1 | ||||||
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Proceeds from (reduction of) participating
interests in accounts receivable, net of redemptions
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86.9 | (30.8 | ) | ||||||
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Increase (decrease) in accounts receivable
factored
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(35.7 | ) | 43.0 | ||||||
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Increase in inventories
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(9.4 | ) | (15.4 | ) | |||||
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Increase (decrease) in accounts payable
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(2.6 | ) | 9.5 | ||||||
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Increase in interest payable
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9.4 | 28.6 | |||||||
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Other, net
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(61.1 | ) | (121.5 | ) | |||||
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Net cash provided by (used in) operating
activities
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(8.9 | ) | 44.0 | ||||||
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INVESTING ACTIVITIES
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Additions to property, plant and equipment and
other non-current assets
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(151.3 | ) | (119.9 | ) | |||||
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Sales of property, plant and equipment
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60.4 | 15.2 | |||||||
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Payments for acquisitions and related costs, net
of cash acquired
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(3.2 | ) | (37.8 | ) | |||||
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Net cash used in investing activities
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(94.1 | ) | (142.5 | ) | |||||
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FINANCING ACTIVITIES
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Issuance of long-term debt
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848.9 | — | |||||||
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Repayment of long-term debt and capital lease
obligations
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(802.6 | ) | (22.4 | ) | |||||
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Payments for debt issuance costs
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(15.6 | ) | — | ||||||
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Net borrowings on revolving credit facilities
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53.1 | 58.5 | |||||||
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Increase in short-term borrowings
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8.9 | 2.1 | |||||||
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Net cash provided by financing activities
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92.7 | 38.2 | |||||||
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Effect of exchange rate changes on cash
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0.6 | 1.5 | |||||||
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Net decrease in cash and cash equivalents
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(9.7 | ) | (58.8 | ) | |||||
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Cash and cash equivalents at beginning of period
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13.2 | 81.3 | |||||||
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Cash and cash equivalents at end of period
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$ | 3.5 | $ | 22.5 | |||||
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Supplementary information:
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Taxes paid
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$ | 7.6 | $ | 18.2 | |||||
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Interest paid
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$ | 106.6 | $ | 73.1 | |||||
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Capital lease obligations incurred
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$ | 1.1 | $ | 1.9 | |||||
The Notes to Consolidated Financial Statements are an integral part
3
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 changed the composition of its reportable segments beginning January 1, 2003 and further redefined the segments July 1, 2003 to reflect organizational changes and restated prior period segment data to be comparable. The Company operates through three segments: U.S. and Mexico Plastics, International Plastics and Global Soft Trim.
| 2. | Summary of Significant Accounting Policies |
| a. Basis of Presentation |
The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and in the opinion of management, contain all adjustments necessary for a fair presentation of financial position and results of operations. All significant intercompany items have been eliminated in the preparation of the consolidated financial statements. Certain prior quarter and prior year items have been reclassified to conform to the current quarter and fiscal 2004 presentation. Specifically, for the third quarter and nine months ending 2004, the Company reclassified $4.2 million from cost of goods sold to selling, general and administrative expense. In addition, for the third quarter and nine months ending 2003, the Company reclassified $5.4 million and $17.1 million, respectively, in facility lease costs from selling, general, and administrative expenses to cost of goods sold. 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 2003 Annual Report on Form 10-K.
| b. Stock-Based Compensation |
Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” amended SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation and amends the required disclosures. SFAS No. 123 encourages companies to adopt the fair value method for compensation expense recognition related to employee stock options. The accounting requirements of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” 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.
In June 2004, the Compensation Committee of the Board of Directors approved a Voluntary Stock Option Exchange Program (“Program”). The Company offered option holders of grants under the 2002 Employee Stock Option Plan (“Plan”) the opportunity to participate in the Program and exchange all of their existing $8.00 options for a combination of restricted stock units and stock options. The Program provided one restricted stock unit for every 50 stock options exchanged. Additionally, participants will be provided 98 options for every 100 options exchanged to be priced at the then market closing price no earlier than December 31, 2004. On June 29, 2004, 3.4 million options were exchanged, and the Company awarded 68,218 shares of restricted stock units. The restricted stock units vest in three equal annual installments on June 29, 2005, June 29, 2006 and June 29, 2007. The fair value of the restricted shares is amortized ratably over the vesting period. Compensation expense of $0.03 million was recognized in the restricted stock for the quarter ended September 30, 2004.
4
If we accounted for all stock-based compensation using the fair value recognition of SFAS No. 123 and related amendments, our net loss and basic and diluted earnings per share would have been as follows (in millions, except per share amounts):
| Quarter Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||||
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Net loss attributable to common shareholders:
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As reported
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$ | (55.6 | ) | $ | (32.1 | ) | $ | (108.6 | ) | $ | (47.6 | ) | ||||||
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Total employee stock based compensation expense
determined under fair value based method for all awards, net of
tax
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(0.7 | ) | (1.5 | ) | (2.5 | ) | (4.4 | ) | ||||||||||
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Pro forma, net loss
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$ | (56.3 | ) | $ | (33.6 | ) | $ | (111.1 | ) | $ | (52.0 | ) | ||||||
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Basic and diluted EPS:
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As reported
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$ | (0.67 | ) | $ | (0.38 | ) | $ | (1.30 | ) | $ | (0.57 | ) | ||||||
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Pro forma
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$ | (0.67 | ) | $ | (0.40 | ) | $ | (1.33 | ) | $ | (0.62 | ) | ||||||
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:
| September 30, | September 30, | |||||||
| 2004 | 2003 | |||||||
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Weighted average expected volatility
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81.29 | % | 77.50 | % | ||||
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Expected lives
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7 years | 7 years | ||||||
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Weighted average risk free interest rate
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4.02 | % | 3.72 | % | ||||
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Expected dividend rate
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