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 June 30, 2003 | ||
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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 þ No o.
The interim financial statements included in this quarterly report were prepared by the Company and have not been reviewed by an independent public accountant as required by Rule 10-01(d) of Regulation S-X.
As of July 31, 2003 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 was recently advised of assertions concerning certain related party transactions and other matters described below. The Audit Committee was promptly advised of these assertions and determined to thoroughly investigate them. The Audit Committee has retained an independent counsel for that purpose, and the Audit Committee investigation is underway. The Company has been advised by its independent auditors, KPMG LLP, that they will be unable to complete their SAS 100 review of the Company’s second quarter results prior to completion of the Audit Committee’s independent investigation. Accordingly, the Company’s independent accountants, KPMG LLP, have not reviewed the accompanying unaudited consolidated financial statements as June 30, 2003 and for the three month period then ended in accordance with Rule 10-01(d) of Regulation S-X promulgated by the SEC.
The assertions were made by two former executives of the Company. Based on the initial work of the Audit Committee, the Company believes that the principal assertions relate to (1) a concern with certain terms of previously disclosed transactions between the Company and affiliates of Elkin McCallum, a director of the Company, and a related potential accounting implication for one of these transactions and (2) non-accounting related issues concerning the original acquisition of Becker Group by the Company from certain persons, including Charles E. Becker, presently a director of the Company. In addition, based on the former employees’ communications, the Audit Committee is expected to review the management environment, including that of the finance staff.
While senior management of the Company believes all of the assertions to be without merit, the Company cannot predict the outcome of the Audit Committee’s investigation and whether or not it will impact its financial reporting. In addition, there can be no assurance that additional assertions will not be made in the future and that the scope of the investigation will not expand.
| Item 1. | Financial Statements |
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| Quarter Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | June 30, | June 30, | ||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| (Unaudited) | |||||||||||||||||
| (in millions, except for per share data) | |||||||||||||||||
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Net sales
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$ | 1,033.5 | $ | 1,085.3 | $ | 2,068.6 | $ | 2,000.1 | |||||||||
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Cost of goods sold
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908.8 | 926.8 | 1,834.5 | 1,710.5 | |||||||||||||
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Gross profit
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124.7 | 158.5 | 234.1 | 289.6 | |||||||||||||
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Selling, general and administrative expenses
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75.5 | 77.0 | 147.0 | 144.6 | |||||||||||||
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Restructuring charges
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4.9 | — | 4.9 | 9.1 | |||||||||||||
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Impairment of long-lived assets
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0.8 | — | 18.9 | — | |||||||||||||
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Operating income
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43.5 | 81.5 | 63.3 | 135.9 | |||||||||||||
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Interest expense, net
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37.5 | 38.3 | 73.5 | 75.6 | |||||||||||||
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Loss on sale of receivables
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1.3 | 1.1 | 2.7 | 2.2 | |||||||||||||
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Subsidiary preferred stock dividends
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6.7 | 8.8 | 13.2 | 18.1 | |||||||||||||
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Subsidiary preferred stock accretion
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2.3 | 2.0 | 4.4 | 3.9 | |||||||||||||
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Other expense (income), net
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(22.8 | ) | 6.8 | (23.7 | ) | 11.4 | |||||||||||
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Income (loss) from continuing operations
before income taxes
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18.5 | 24.5 | (6.8 | ) | 24.7 | ||||||||||||
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Income tax expense
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7.8 | 20.8 | 8.7 | 27.7 | |||||||||||||
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Income (loss) from continuing operations
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10.7 | 3.7 | (15.5 | ) | (3.0 | ) | |||||||||||
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Income from discontinued operations, net of
income taxes of $6.3 in 2002
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— | 9.5 | — | 9.5 | |||||||||||||
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Cumulative effect of change in accounting
principle, net of income taxes of $0 in 2002
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— | — | — | (11.7 | ) | ||||||||||||
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Net income (loss)
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$ | 10.7 | $ | 13.2 | $ | (15.5 | ) | $ | (5.2 | ) | |||||||
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Earnings per share data:
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Net income (loss)
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$ | 10.7 | $ | 13.2 | $ | (15.5 | ) | $ | (5.2 | ) | |||||||
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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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$ | 10.7 | $ | (23.1 | ) | $ | (15.5 | ) | $ | (41.5 | ) | ||||||
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Net income (loss) per basic common share:
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Continuing operations
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$ | 0.13 | $ | (0.46 | ) | $ | (0.19 | ) | $ | (0.57 | ) | ||||||
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Discontinued operations
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— | 0.13 | — | 0.14 | |||||||||||||
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Cumulative effect of change in accounting
principle
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— | — | — | (0.17 | ) | ||||||||||||
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Net income (loss) available to common shareholders
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$ | 0.13 | $ | (0.33 | ) | $ | (0.19 | ) | $ | (0.60 | ) | ||||||
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Average common shares outstanding:
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Basic
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83.6 | 70.4 | 83.6 | 68.8 | |||||||||||||
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Diluted
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83.6 | 70.4 | 83.6 | 68.8 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
1
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| June 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (in millions) | ||||||||||
| ASSETS | ||||||||||
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Current Assets:
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Cash and cash equivalents
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$ | 40.1 | $ | 81.3 | ||||||
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Accounts and other receivables, net
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406.5 | 373.0 | ||||||||
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Inventories
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172.0 | 171.6 | ||||||||
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Other
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180.5 | 177.4 | ||||||||
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Total current assets
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799.1 | 803.3 | ||||||||
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Property, plant and equipment, net
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784.1 | 737.8 | ||||||||
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Deferred tax assets
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160.3 | 165.0 | ||||||||
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Goodwill
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1,325.7 | 1,265.5 | ||||||||
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Intangible assets, net
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67.4 | 85.3 | ||||||||
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Other assets
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105.6 | 100.2 | ||||||||
| $ | 3,242.2 | $ | 3,157.1 | |||||||
| LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY | ||||||||||
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Current Liabilities:
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Short-term borrowings
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$ | 5.8 | $ | 10.5 | ||||||
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Current maturities of long-term debt and capital
lease obligations
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25.7 | 23.5 | ||||||||
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Accounts payable
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650.9 | 580.5 | ||||||||
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Accrued expenses
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279.9 | 314.9 | ||||||||
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Total current liabilities
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962.3 | 929.4 | ||||||||
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Long-term debt and capital lease obligations
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1,259.9 | 1,255.2 | ||||||||
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Other, including post-retirement benefit
obligation
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430.4 | 438.4 | ||||||||
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Commitments and contingencies
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Minority interest in consolidated subsidiary
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6.6 | 12.7 | ||||||||
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Mandatorily redeemable preferred stock of
subsidiary
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141.5 | 123.9 | ||||||||
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Common stock ($0.01 par value, 300.0 shares
authorized, 83.6 shares issued and outstanding at June 30,
2003 and December 31, 2002)
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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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(788.1 | ) | (772.6 | ) | ||||||
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Accumulated other comprehensive loss
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(53.5 | ) | (113.0 | ) | ||||||
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Total common stockholders’ equity
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441.5 | 397.5 | ||||||||
| $ | 3,242.2 | $ | 3,157.1 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
2
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
| Six Months Ended | |||||||||
| June 30, | |||||||||
| 2003 | 2002 | ||||||||
| (Unaudited) | |||||||||
| (in millions) | |||||||||
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OPERATING ACTIVITIES
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Net loss
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$ | (15.5 | ) | $ | (5.2 | ) | |||
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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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18.9 | 11.7 | |||||||
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Deferred income tax expense (benefit)
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5.5 | (13.1 | ) | ||||||
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Subsidiary preferred stock requirements
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17.6 | 22.0 | |||||||
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Depreciation
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56.0 | 48.4 | |||||||
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Amortization of other assets
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11.6 | 10.3 | |||||||
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Loss (gain) on sale of property, plant and
equipment
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(0.4 | ) | 0.4 | ||||||
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Decrease (increase) in accounts and other
receivables
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45.5 | (49.2 | ) | ||||||
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Reduction of participating interests in accounts
receivable, net of redemptions
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(66.0 | ) | (79.9 | ) | |||||
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Decrease (increase) in inventories
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2.0 | (25.5 | ) | ||||||
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Increase in accounts payable
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59.2 | 82.7 | |||||||
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Increase in interest payable
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3.5 | 35.6 | |||||||
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Changes in other assets
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(88.5 | ) | 19.1 | ||||||
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Changes in other liabilities
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13.0 | 54.3 | |||||||
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Net cash provided by operating activities
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62.4 | 111.6 | |||||||
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INVESTING ACTIVITIES
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Additions to property, plant and equipment
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(75.1 | ) | (65.8 | ) | |||||
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Sales of property, plant and equipment
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3.3 | 0.2 | |||||||
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Acquisitions, net of cash acquired
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(33.1 | ) | (2.6 | ) | |||||
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Payments of acquisitions and related costs
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— | (39.1 | ) | ||||||
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Net cash used in investing activities
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(104.9 | ) | (107.3 | ) | |||||
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FINANCING ACTIVITIES
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Issuance of long-term debt and capital lease
obligations
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1.1 | 1.3 | |||||||
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Repayment of long-term debt and capital lease
obligations
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(12.3 | ) | (6.9 | ) | |||||
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Repurchase of preferred stock
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— | (100.0 | ) | ||||||
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Net borrowings on revolving credit facilities
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18.0 | — | |||||||
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Decrease in short-term borrowings
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(5.5 | ) | (6.1 | ) | |||||
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Proceeds from issuance of stock
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— | 153.1 | |||||||
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Repayment of debt assumed in acquisition
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— | (6.7 | ) | ||||||
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Net cash provided by financing activities
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1.3 | 34.7 | |||||||
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Net increase (decrease) in cash and cash
equivalents
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(41.2 | ) | 39.0 | ||||||
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Cash and cash equivalents at beginning of period
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81.3 | 73.9 | |||||||
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Cash and cash equivalents at end of period
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$ | 40.1 | $ | 112.9 | |||||
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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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$ | 16.2 | $ | 10.1 | |||||
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Interest paid
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$ | 63.4 | $ | 38.3 | |||||
The accompanying notes are an integral part of the consolidated financial statements.
3
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 changed the composition of its reportable segments beginning January 1, 2003 and restated prior period segment data to be comparable. The Company operates through four segments: Trim and Cockpit Systems, Flooring and Acoustics Systems, Automotive Fabrics and Specialty Systems.
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, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Certain prior year items have been reclassified to conform to the 2003 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 2002 Annual Report on Form 10-K.
| b. Employee Stock Options |
Employee Stock Options: Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure an amendment of FASB Statement No. 123” provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation and amended the required disclosures. 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. 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.
The following tabular information is presented as if the Company had adopted SFAS No. 123 and restated its results: (in millions, except per share amounts).
| Quarter Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
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Net income (loss):
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As reported
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$ | 10.7 | $ | (23.1 | ) | $ | (15.5 | ) | $ | (41.5 | ) | |||||||
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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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1.4 | 0.8 | 2.9 | 1.7 | ||||||||||||||
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Pro forma, net income (loss)
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$ | 9.3 | $ | (23.9 | ) | $ | (18.4 | ) | $ | (43.2 | ) | |||||||
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Basic and diluted income (loss) per share:
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As reported
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$ | 0.13 | $ | (0.33 | ) | $ | 0.19 | $ | (0.60 | |||||||||