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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 28, 1996 to December 28, 1996
Commission file number 1-10218
COLLINS & AIKMAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3489233
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
701 MCCULLOUGH DRIVE
CHARLOTTE, NORTH CAROLINA 28262
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 547-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $112,838,317 as of March 25, 1997.
As of March 25, 1997, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 66,377,523 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for 1997 Annual Meeting of Stockholders to be filed
within 120 days of December 28, 1996 - 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 5.
Item 3. Legal Proceedings, page 5.
Item 4. Submission of Matters to a Vote of Security Holders, page 7.
Executive Officers of the Registrant, page 7.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters, page 9.
Item 6. Selected Financial Data, page 10.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 12.
Item 8. Financial Statements and Supplementary Data, page 26.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure, page 26.
Item 10. Directors and Executive Officers of the Registrant, page 27.
Item 11. Executive Compensation, page 27.
Item 12. Security Ownership of Certain Beneficial Owners and
Management, page 27.
Item 13. Certain Relationships and Related Transactions, page 27.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K, page 28.
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PART I
ITEM 1. BUSINESS
DEVELOPMENT
Collins & Aikman Corporation (the "Company") is a major supplier of
automotive interior systems - textile and plastic trim, acoustics and
convertible tops - to the global automotive industry. The Company (formerly
Collins & Aikman Holdings Corporation) is a Delaware corporation which was
formed on September 21, 1988. Prior to July 13, 1994, the Company was a
wholly-owned subsidiary of Collins & Aikman Holdings II Corporation ("Holdings
II"). In connection with an initial public offering of Common Stock and a
recapitalization (the "Recapitalization"), Holdings II was merged into the
Company. Concurrently, Collins & Aikman Group, Inc., a wholly-owned subsidiary
of the Company ("Group"), was merged into its wholly-owned subsidiary, Collins &
Aikman Corporation, which changed its name to Collins & Aikman Products Co.
("C&A Products"). On July 7, 1994, the Company changed its name from Collins &
Aikman Holdings Corporation to Collins & Aikman Corporation. Prior to the
Recapitalization, the Company was jointly owned by Blackstone Capital Partners
L.P. ("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP
Partners") and their respective affiliates. As of December 28, 1996, Blackstone
Partners and WP Partners and their respective affiliates collectively own
approximately 80% of the Common Stock of the Company. The Company conducts all
of its operating activities through its wholly-owned C&A Products subsidiary.
During 1996, the Company took major steps to implement its automotive
growth strategy which will focus the Company's resources on expanding its core
automotive business in North America and globally as well as adding
complementary product offerings. To that end, the Company made several strategic
automotive acquisitions and discontinued its Interior Furnishings and
Wallcoverings segments, all as discussed below.
On January 3, 1996, the Company acquired Manchester Plastics for a
purchase price of approximately $184 million, which includes approximately $40.4
million of debt extinguished in connection with the acquisition. Manchester
Plastics is a designer and manufacturer of high quality plastic-based automotive
door panels, headrests, floor console systems and instrument panel components
used in the interior of automobiles, light trucks, sport utility vehicles and
minivans. The Manchester Plastics product line adds a broad range of molded
plastic products to the Company's extensive textile-based automotive trim
products.
On April 9, 1996, the Company announced a plan to spin off the
Company's Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings") to the
stockholders of the Company in the form of a stock dividend. The proposed
spin-off requires, among other things, the declaration of the dividend by the
Company's Board of Directors. The Company had originally anticipated the
proposed spin-off to occur during 1996. However, as a result of management
changes at Wallcoverings and other factors, the Company currently expects the
proposed spin-off to occur during the second half of 1997.
On May 1, 1996, the Company acquired the business of BTR Fatati Limited
("Fatati"), a manufacturer and supplier of molded floor carpets and luggage
compartment trim for the European automotive market. The acquisition increases
the Company's carpet molding capacity and gives it a European base from which to
supply its new carpet molding plant in Austria. Fatati's customers include
General Motors, Saab and Toyota.
On December 4, 1996, the Company announced it is considering the sale
of the Mastercraft Group to further pursue its automotive growth strategy. Based
on determinations of value from potential purchasers, the Company has decided to
pursue the sale of the Mastercraft Group and anticipates the sale to be
completed by the summer of 1997. The Mastercraft Group is the leading
manufacturer of flat woven upholstery fabric.
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On December 10, 1996, the Company announced that it entered into an
agreement to sell its Floorcoverings subsidiary ("Floorcoverings") for
approximately $197 million, subject to adjustment. Management believes that this
sale, which occurred in February 1997, better positions the Company to focus on
its automotive growth strategy.
On December 11, 1996, the Company acquired JPS Automotive L. P. ("JPS
Automotive") for $220 million, subject to post-closing adjustment, 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. This acquisition further strengthened the
Company's position in automotive molded floor carpet and bodycloth as well as
expanding the Company's interior product offerings to include headliner fabric.
On December 11, 1996, the Company acquired Perstorp AB's automotive
supply operations (primarily acoustical products) in North America, the United
Kingdom and Spain for $108 million, subject to adjustment. The acquisition
positions the Company to source floor carpet and acoustical products as a
package both domestically and internationally. In addition, the Company and
Perstorp AB ("Perstorp") entered into a joint venture agreement relating to
Perstorp's automotive supply operations (primarily acoustical and plastic
components) in Sweden, Belgium and France. Each of the Company and Perstorp has
a 49.9% interest in the joint venture.
The Company has accounted for the financial results and net assets of
Floorcoverings and the Mastercraft Group (which were formerly reported in the
Interior Furnishings segment), and Wallcoverings as discontinued operations.
Accordingly, previously reported financial results for all periods have been
restated to reflect those three businesses as discontinued operations.
In addition to the acquisitions and divestitures (or planned
divestitures) discussed above, on June 10, 1996, the Company's wholly-owned
subsidiary, C&A Products, issued $400 million principal amount of 11-1/2% Senior
Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by
the Company. The Subordinated Notes were sold at a price equal to 100% of their
principal amount. The Company used approximately $356.8 million of the total net
proceeds of $387.0 million to repay $348.2 million principal amount of the
outstanding bank borrowings plus accrued interest on such borrowings and related
fees and expenses, and used the remainder for general corporate purposes.
During November 1996, the Company decided to change its fiscal year end
to the last Saturday of December. Fiscal 1996 ended on December 28, 1996 and was
an 11-month period. All previous fiscal years ended on the last Saturday of
January of the following year.
With respect to competitive information, references to the Company as
"a leader", "a leading" or "one of the leading" manufacturers in a product
category mean that the Company is one of the principal manufacturers in that
product category and references to the Company as "the leader", "the largest" or
"the leading" manufacturer in a product category mean that the Company has the
largest product share based on dollar sales volume in that product category.
GENERAL
The Company is a leading designer and manufacturer of automotive
products with 1996 net sales of $1,055.9 million. The Company supplies eight
principal automotive products--automotive seat fabric ("bodycloth"), molded
floor carpets, acoustical products, accessory floor mats, luggage compartment
trim, convertible top systems, headliner fabric and plastic-based interior
systems. The Company's 1996 acquisitions, which are discussed above,
significantly increased the Company's content per build through growth in
existing product lines as well as by adding complementary product offerings.
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The Company's sales are dependent on certain significant customers. In
1996, 1995 and 1994 direct and indirect sales to each of General Motors
Corporation, Ford Motor Company and Chrysler Corporation 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 growth trends in the driving age population and
real per capita income.
Annual new car and light truck sales historically have been cyclical.
In the most recent cycle, North American light vehicle sales declined from an
average of 15.4 million units per year in 1986-1988 to a low of 12.3 million
units in 1991. For the last three years, North American light vehicle sales have
averaged 15.1 million units.
PRODUCTS
The Company manufactures eight principal automotive products:
automotive bodycloth, molded floor carpets, acoustical products, accessory floor
mats, luggage compartment trim, convertible top systems, headliner fabric and
plastic-based interior systems. The Company also produces certain other
automotive and nonautomotive products.
AUTOMOTIVE BODYCLOTH. The Company manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. The Company also laminates
foam to bodycloth. In 1996, 1995 and 1994, the Company had net sales of
bodycloth of $243.9 million, $327.5 million and $340.3 million, respectively.
MOLDED FLOOR CARPETS. Molded floor carpets include polyethylene,
barrier-backed and molded urethane underlay carpet. In 1996, 1995 and 1994, net
sales of molded floor carpets were $234.1 million, $231.8 million, $213.2
million, respectively.
ACOUSTICAL PRODUCTS. In December 1996, the Company acquired from
Perstorp its North American, United Kingdom and Spanish automotive supply
operations. These operations supply acoustical products to both domestic and
international automotive manufacturers. These products can be combined with
molded floor carpets to provide complete interior floor systems to the
automotive industry.
ACCESSORY FLOOR MATS. The Company produces carpeted automotive
accessory floor mats for both North American produced vehicles and imported
vehicles.
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.
CONVERTIBLE TOP SYSTEMS. The Company designs and manufactures
convertible top systems through its Dura Convertible Systems subsidiary
("Dura"). In October 1993, Dura began shipping its "Top-in-a-Box" system, in
which it designs and manufactures all aspects of a convertible top, including
the framework, trim set, backlight and power actuating system.
HEADLINER FABRIC. With the December 1996 acquisition of JPS
Automotive, the Company expanded its interior product offerings to include
headliner fabric.
PLASTIC-BASED INTERIOR SYSTEMS. In January 1996, the Company acquired
Manchester Plastics, a manufacturer of automotive door panels, headrests, floor
console systems and instrument panel components. The acquisition of Manchester
Plastics added a broad range of molded plastic components to the Company's
textile-based automotive interior trim products.
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OTHER. The Company also produces certain other automotive products,
including carpet die cuts for automotive interior trim applications,
convertible power actuating units, airbag fabric and carpet roll goods
for export and domestic consumption. In addition, the Company manufactures
small volumes of certain other products, such as velvet furniture fabrics,
residential floor mats, casket liners, sliver knits and woven
fabrics, for various commercial and industrial markets.
COMPETITION
The automotive supply business is highly competitive. The Company has
competitors in respect to each of its automotive products, some of which may
have substantially greater financial and other resources than the Company. The
Company's competitors in molded plastic components include subsidiaries of
certain U.S. automotive and light vehicle manufacturers.
The Company principally competes for new business at the design stage
of new models and upon the redesign of existing models. The Company is
vulnerable to a decrease in demand for the models that generate the most sales
for the Company, a failure to obtain purchase orders for new or redesigned
models and pricing pressure from the major automotive companies.
FACILITIES
The Company has 65 manufacturing, warehouse and other facilities
located in the U.S., Canada, Mexico, the United Kingdom, Spain and Austria
aggregating approximately 10.0 million square feet. The majority of these
facilities are located in North Carolina, South Carolina, Ohio and Michigan and
in Ontario, and Quebec, Canada. Approximately 90% of the total square footage of
these facilities is owned and the remainder is leased. Many facilities are
strategically located to provide just-in-time ("JIT") inventory delivery to the
Company's customers. Capacity at any plant depends, among other things, on the
product being produced, the processes and equipment used and tooling. This
varies periodically, depending on demand and shifts in production between
plants. The Company currently estimates that its plants generally operate at
between 50% and 100% of capacity. During the second half of 1994 the Company
experienced capacity constraints with respect to certain automotive seat fabrics
due to the unanticipated popularity of certain vehicles for which the Company
supplies seat fabric. To meet customer expectations, the Company utilized
outside commission weaving and redeployed certain manufacturing capacity from
its velvet furniture fabrics. The Company terminated commission weaving during
the second quarter of 1995. Except for the foregoing constraints, which the
Company believes were short term, the Company's capacity utilization is
generally in line with its past experience in similar economic situations, and
the Company believes that its facilities are sufficient to meet existing needs.
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
increasing 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 Proceedings" and "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Environmental Matters".
EMPLOYEES
As of December 28, 1996, the Company's continuing operations employed
approximately 12,800 persons on a full-time or full-time equivalent basis.
Approximately 3,400 of such employees are represented
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by labor unions. Management believes that the Company's relations with its
employees and with the unions that represent certain of them are generally good.
ITEM 2. PROPERTIES
For information concerning the principal physical properties of the
Company and its various 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.
ENVIRONMENTAL PROCEEDINGS
DOUGLAS, MICHIGAN. On January 4, 1991, a complaint was filed in the
Circuit Court for Allegan County, Michigan, captioned HAWORTH, INC. V. WICKES
MANUFACTURING COMPANY (the "Haworth action"), in which Haworth, Inc. ("Haworth")
alleged that predecessors of Wickes Manufacturing Company ("Wickes
Manufacturing"), an indirect wholly owned subsidiary of the Company, released
environmental contaminants on property, now owned by Haworth, located in the
Village of Douglas, Michigan. On October 22, 1993, Haworth filed a complaint in
the United States District Court for the Western District of Michigan, captioned
HAWORTH, INC. V. WICKES MANUFACTURING COMPANY AND PARAMOUNT COMMUNICATIONS, INC.
(the "Second HAWORTH action"). In the Second HAWORTH action, Haworth alleged
federal claims with respect to Wickes Manufacturing that were factually similar
to the state law claims alleged in the HAWORTH action, and Haworth sought a
declaratory judgment that Wickes Manufacturing and Paramount Communications,
Inc. were liable for the alleged contamination at the site, an order requiring
Wickes Manufacturing and Paramount Communications, Inc. to implement response
actions at the site, and damages, interest and costs, all in unspecified
amounts. On January 29, 1997, the parties entered into a settlement agreement
settling both the HAWORTH action and the Second HAWORTH action without payment
by any party. On February 5, 1997, the Second HAWORTH action and on February 10,
1997, the HAWORTH action were dismissed with prejudice.
OTHER ENVIRONMENTAL MATTERS. The Company is legally or contractually
responsible or alleged to be responsible for the investigation and remediation
of contamination, or has received notices that it is a potentially responsible
party (a "PRP"), at various other sites. These sites include, among others, the
following: a site formerly operated by Stamina Mills, Inc., a former subsidiary
of a former indirect subsidiary of the Company, in North Smithfield, Rhode
Island; a site adjacent to a facility formerly operated by Wickes
Manufacturing's former Bohn Heat Transfer division located at Beardstown,
Illinois; a site formerly owned and operated by Wickes Manufacturing's alleged
former Daybrook Ottawa division located at Bowling Green, Ohio; a site owned and
formerly operated by a Company subsidiary located at Elmira, California; the
Reliable Equipment Superfund Site located at Grand Rapids, Michigan; the
Butterworth Landfill Superfund Site located at Grand Rapids, Michigan; a site
owned and formerly operated by Wickes Manufacturing's former Mechanical
Components division located at Mancelona, Michigan; the former Albert Van Luit
plant site owned by a Company subsidiary located at North Hollywood, California;
the Stringfellow Superfund Site located at Riverside County, California; and
certain sites associated with the former Wickes Engineering business. In
addition to the environmental sites and proceedings listed above, the Company is
and has been a party or PRP at other sites and involved in other proceedings
from time to time. The majority of environmental site costs have been incurred
in connection with the North Smithfield, Rhode Island; Elmira, California; and
North Hollywood, California sites.
In estimating the total future 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
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the likelihood that other parties which have been named as PRPs will have the
financial resources to fulfill their obligations at sites where they and the
Company may be jointly and severally liable. Under the theory of joint and
several liability, the Company could be liable for the full costs of
investigation and remediation even if additional parties are found to be
responsible under the applicable laws. It is difficult to estimate the total
cost of investigation and remediation due to various factors including
incomplete information regarding particular sites and other PRPs, uncertainty
regarding the extent of environmental problems and the Company's share, if any,
of liability for such problems, the selection of alternative compliance
approaches, the complexity of environmental laws and regulations and changes in
cleanup standards and techniques. When it has been possible to provide
reasonable estimates of the Company's liability with respect to environmental
sites, provisions have been made in accordance with generally accepted
accounting principles. The Company records its best estimate when it believes it
is probable that an environmental liability has been incurred and the amount of
loss can be reasonably estimated. The Company also considers estimates of
certain reasonably possible environmental liabilities in determining the
aggregate amount of environmental reserves. As of December 28, 1996, the Company
has established reserves of approximately $46.1 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 seeking insurance coverage for a portion of the defense
costs and liability it has incurred and may incur in connection with the
environmental proceedings described above. Coverage issues have not been
resolved. While the Company has received some payments from certain insurance
carriers, there can be no assurance that additional payments will be received.
LITIGATION PROCEEDINGS
PREFERRED STOCK REDEMPTION LITIGATION. On August 2, 1991, a Fifth
Consolidated Amended Complaint was filed in IN RE IVAN F. BOESKY SECURITIES
LITIGATION in the United States District Court for the Southern District of New
York against a variety of defendants including Group alleging, among other
things, a conspiracy to manipulate the price of Group's common stock in 1986 for
the purpose of triggering a redemption of certain outstanding preferred stock of
Group. On November 20, 1996, plaintiffs and C&A Products agreed to a settlement
whereby plaintiffs released all claims relating to the litigation against Group
and the individual Group-related defendants in exchange for payment by C&A
Products of $4.25 million. On May 12, 1995, C&A Products paid $4.25 million into
an escrow account with the Court pursuant to the terms of the settlement in
principal. On December 18, 1996, the Court preliminarily approved the final
settlement. On March 18, 1997, the Court ratified the settlement. The settlement
was within previously established accruals.
In the opinion of the Company's management based on the facts presently
known to it, the ultimate outcome of any of these legal proceedings will not
have a material adverse effect on the Company's consolidated financial condition
or future results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
(Pursuant to Instruction G(3) of the General Instructions to Form 10-K, the
following information is included herein as an unnumbered item in lieu of being
included in the Company's definitive Proxy Statement).
The following is a list of the names and ages (as of March 25, 1997) of all the
executive officers of the Company and a description of all positions and offices
with the Company held by each such person and each such person's principal
occupations and employment during the past five years. All executive officers
hold office at the pleasure of the Company's Board of Directors.
NAME AGE POSITION
----------------------------------- --- ---------------------------
David A. Stockman 50 Co-Chairman of the Board
Randall J. Weisenburger 38 Co-Chairman of the Board
Thomas E. Hannah 58 Chief Executive Officer
Dennis E. Hiller 42 President of Automotive
Carpet and Acoustics Group
John D. Moose 60 President of Automotive
Fabrics Division
Harry F. Schoen III 61 President of Mastercraft
Division
Elizabeth R. Philipp 40 Executive Vice President,
General Counsel and
Secretary
J. Michael Stepp 52 Executive Vice President
and Chief Financial Officer
DAVID A. STOCKMAN has been a director of the Company since October 1988
and Co-Chairman of the Board of the Company since July 1993. Mr. Stockman has
been a member of Blackstone Group Holdings L.L.C. ("BGH"), which is under common
control with Blackstone Partners, a principal stockholder of the Company, since
March 1996 pursuant to a reorganization of Blackstone Group Holdings L.P.
("Blackstone Group") and has been a Senior Managing Director of The Blackstone
Group L. P. (or has served in this capacity) since 1988. Mr. Stockman was a
General Partner of Blackstone Group from 1988 to February 1996. Prior to joining
Blackstone Group, Mr. Stockman was a Managing Director of Salomon Brothers Inc.
Mr. Stockman served as the Director of the Office of Management and Budget in
the Reagan Administration from 1981 to 1985. Prior to that, Mr. Stockman
represented Southern Michigan in the U. S. House of Representatives. Mr.
Stockman is also a director of LaSalle Re Holdings Ltd. and Bar Technologies
Inc.
RANDALL J. WEISENBURGER has been a director of the Company since August
1989 and Co-Chairman of the Board since June 1995. Mr. Weisenburger was Vice
Chairman of the Company from April 1994 to June 1995, Deputy Chairman of the
Company from July 1992 to April 1994 and Vice President from August 1989 to July
1992. Mr. Weisenburger has been Managing Director of Wasserstein Perella & Co.,
Inc. ("WP & Co."), an affiliate of WP Partners, a principal stockholder of the
Company, since December 1993. Mr. Weisenburger was a Director of WP & Co. from
December 1992 to December 1993 and Vice President of WP & Co. from December 1989
to December 1992. Mr. Weisenburger is also Chairman of Yardley of London, Ltd.
and Co-Chairman of Alliance Entertainment Corp.
THOMAS E. HANNAH has been a director of the Company and Chief Executive
Officer of the Company since July 1994. Mr. Hannah was President and Chief
Executive Officer of Collins & Aikman Textile and Wallcoverings Group, a
division of a wholly owned subsidiary of the Company, from November 1991 until
July 1994 and was named an executive officer of the Company for purposes hereof
in April 1993. Mr. Hannah was President and Chief Executive Officer of the
Collins & Aikman Textile Group from February 1989 to November 1991 and President
of Milliken & Company's Finished Apparel Division prior to that.
DENNIS E. HILLER has been President of the Automotive Carpet and
Acoustics Group since December 1996 and was President of the Automotive Carpet
division from November 1994 to December 1996. Mr. Hiller was President of The
Akro Corporation, an indirect subsidiary of the Company, from 1992 until
November 1994
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and Manager, Fabricated Products for the Company prior to that. Mr. Hiller was
named an executive officer of the Company for purposes hereof in April 1996.
JOHN D. MOOSE has been President of the Automotive Fabrics division
since October 1994 and was President of the North American Auto Group from June
1989 until October 1994. Mr. Moose was named an executive officer of the Company
for purposes hereof in April 1994. Mr. Moose joined a wholly owned subsidiary of
the Company in 1960.
HARRY F. SCHOEN III has been President of the Mastercraft division
since January 1993 and was named an executive officer of the Company for
purposes hereof in April 1994. Mr. Schoen was Executive Vice President and Chief
Operating Officer of the Mastercraft division from April 1992 to December 1992.
Mr. Schoen was General Manager of Milliken & Company's Greige Fine Goods Group
prior to that.
ELIZABETH R. PHILIPP has been Executive Vice President, General Counsel
and Secretary of the Company since April 1994. Ms. Philipp was Vice President,
General Counsel and Secretary of the Company from April 1993 to April 1994 and
Vice President and General Counsel from September 1990 to April 1993.
J. MICHAEL STEPP has been Executive Vice President and Chief Financial
Officer since April 1995. Mr. Stepp was Executive Vice President and Chief
Financial Officer of Purolator Products Company from December 1992 to January
1995. Prior to that, Mr. Stepp was President of American Corporate Finance
Group, Inc.
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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 25, 1997, there
were 161 holders of record. The following table lists the high and low sales
prices for the Common Stock for the full quarterly periods during the two most
recent fiscal years.
FISCAL 1996 FISCAL 1995
------------------- ------------------
HIGH LOW HIGH LOW
-------- -------- ------------------
First Quarter 8-1/4 6-1/8 8-3/8 7-1/2
Second Quarter 7-1/8 5-1/2 9 6-3/8
Third Quarter 7 5-7/8 9-1/4 7-1/2
Fourth Quarter 6-5/8 5-3/4 8-3/8 6-1/8
No dividend or other distribution with respect to the Common Stock has
been paid by the Company since its incorporation in 1988. Any payment of future
dividends and the amounts thereof will be dependent upon the Company's earnings,
financial requirements and other factors deemed relevant by the Company's Board
of Directors. The Company currently does not intend to pay any cash dividends in
the foreseeable future; rather, the Company intends to retain earnings to
provide for the operation and expansion of its business and to reduce debt. On
April 9, 1996, the Company announced a plan to spin off its Wallcoverings
subsidiary to the stockholders of the Company in the form of a stock dividend.
The proposed spin-off is subject to, among other things, the declaration of the
dividend by the Company's Board of Directors. The Company currently expects the
proposed spin-off to occur during the second half of 1997. See "ITEM 1. BUSINESS
- - Development" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Recent Developments". Certain restrictive
covenants contained in the agreements governing the Company's credit facilities
and subordinated notes limit the Company's ability to make dividend and other
payments. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources" and Note
11 to the Consolidated Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
FISCAL YEAR ENDED
DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1996 (1) 1996 1995 1994 1993 (2)
----------------- ---------------- ---------------- --------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 1,055,931 $ 902,017 $ 906,997 $ 689,286 $ 656,625
Gross margin.............................. 188,674 161,925 172,487 120,250 110,358
Selling, general and administrative
expenses............................... 82,727 65,996 68,304 71,397 86,624
Management equity plan expense............ - - - 26,736 -
Goodwill amortization and write-off....... 3,898 270 - 79,216 2,212
Operating income (loss)................... 102,049 95,659 104,183 (57,099) 21,522
Interest expense, net (3)................. 39,850 22,150 44,440 70,449 80,759
Loss on sale of receivables(4)............ 4,533 6,246 6,124 - -
Income (loss) from continuing
operations before income taxes......... 57,553 67,263 51,361 (132,081) (63,751)
Income tax expense (benefit).............. 24,442 (139,959) 10,031 9,580 (5,096)
Income (loss) from continuing
operations............................. 33,111 207,222 41,330 (141,661) (58,655)
Income (loss) from discontinued operations,
including disposals, net of income
taxes.................................. 14,323 (781) 34,416 (136,003) (205,003)
Income (loss) before extraordinary
items.................................. 47,434 206,441 75,746 (277,664) (263,658)
Net income (loss)......................... 40,824 206,441 (30,782) (277,664) (263,658)
Income (loss) from continuing
operations per primary and fully
diluted common share................... .47 2.91 (1.04) (6.07) (2.84)
BALANCE SHEET DATA:
Total Assets $ 1,536,480 $ 991,361 $ 578,900 $ 819,819 $ 1,037,956
Long-term debt, including current
portion................................ 1,176,219 759,966 557,039 914,938 974,884
Redeemable preferred stock................ - - - 122,368 98,602
Common stockholders' deficit.............. (194,578) (227,852) (412,622) (702,220) (421,460)
OTHER DATA (FROM CONTINUING
OPERATIONS):
Capital expenditures...................... $ 35,000 $ 53,156 $ 56,193 $ 29,266 $ 20,493
Depreciation and leasehold
amortization........................... 24,568 24,146 24,648 23,259 25,946
EBITDA (5)................................ 134,581 124,086 128,831 72,559 50,164
(1) 1996 was a 48-week year.
(2) 1992 was a 53-week year.
10
(3) Excludes amounts related to discontinued operations as follows:
DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1996 1996 1995 1994 1993
----------------- ---------------- ---------------- --------------- ---------------
The Mastercraft Group, Floorcoverings,
and Wallcoverings........................ $ 26,734 $ 26,454 $ 31,243 $ 40,842 $ 30,108
Operations discontinued prior to fiscal
1995................................... - - - 18,871 23,010
----------------- ---------------- ---------------- --------------- ---------------
$ 26,734 $ 26,454 $ 31,243 $ 59,713 $ 53,118
================= ================ ================ =============== ===============
(4) Excludes amounts allocated to discontinued operations totaling $2.2
million, $2.4 million and $1.5 million in 1996, 1995 and 1994,
respectively.
(5) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income tax, depreciation, amortization 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.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INITIAL PUBLIC OFFERING AND RECAPITALIZATION
On July 13, 1994, the Company completed an initial public offering (the
"Offering") of shares of Common Stock. In connection with the Offering, the
Company effected the Recapitalization which reduced the Company's indebtedness,
lowered interest expense and provided liquidity for operations and other general
corporate purposes. After the Offering and Recapitalization, approximately 70.5
million shares of Common Stock were outstanding. Since that time, the Company
has repurchased, net of shares reissued, approximately 2.8 million shares of
Common Stock and, as of December 28, 1996, approximately 67.7 million shares
were outstanding.
RECENT DEVELOPMENTS
ACQUISITIONS
On May 1, 1996 the Company acquired the business of Fatati, a
manufacturer and supplier of molded floor carpets and luggage compartment trim
for the European automotive market. The acquisition increases the Company's
carpet molding capacity and gives it a European base from which to supply its
new carpet molding plant in Austria. Fatati's customers include General Motors,
Saab and Toyota.
On December 11, 1996, the Company completed the acquisition of JPS
Automotive, a subsidiary of Foamex International, Inc. The purchase price of
$220 million, subject to post closing adjustment, consists of approximately $195
million of indebtedness of JPS Automotive and approximately $25 million in cash.
The Company also acquired the minority interest in a JPS Automotive subsidiary
for $10 million. The cash portion of the purchase price of the JPS Automotive
acquisition, the minority interest purchase and the approximately $15 million of
indebtedness of JPS Automotive that was repaid at the time of closing were
funded through the Company's existing revolving credit facility. See "Liquidity
and Capital Resources".
JPS Automotive, which reported fiscal 1995 revenues of $312.1 million,
provides automotive carpet systems to both domestic and non-U.S. automotive
manufacturers in North America. The Company believes the JPS Automotive
acquisition expands its leading positions in North America in automotive
bodycloth and carpet. The Company believes the acquisition of JPS Automotive's
headliner fabrics business will also provide important synergies with existing
product lines.
The Company has accounted for the acquisition of JPS Automotive as a
purchase, and it is therefore included in fiscal 1996 for a period of
approximately two and one half weeks. The purchase price and related expenses
exceeded the fair value of the net assets acquired by approximately $132
million. The resulting goodwill is being amortized on a straight line basis over
40 years. See Notes 3 and 5 to the Consolidated Financial Statements for further
discussion and pro forma information.
On December 11, 1996, the Company also acquired Perstorp's automotive
supply operations (primarily acoustical products) in North America, the United
Kingdom and Spain ("Perstorp Components") for a purchase price of $108 million,
subject to adjustment. The purchase price was financed with funds from the
Company's existing revolving credit facility. See "Liquidity and Capital
Resources". In addition, on December 17, 1996, the Company and Perstorp entered
into a joint venture relating to Perstorp's automotive supply operations
(primarily acoustical and plastic components) in Sweden, Belgium and France.
Pursuant to the joint venture, the Company and Perstorp each contributed $7.4
million in cash and have a 49.9% interest in the joint venture, which is managed
by the Company. The joint venture purchased from Perstorp its automotive supply
operations in Sweden, Belgium and France for approximately $67
million, comprised of approximately $15 million equity investment and
approximately $52 million of indebtedness. The indebtedness was initially held
by Perstorp but has been refinanced with new bank debt. The Company has no
liability for the new bank financing. The Company has an option to purchase
Perstorp's equity interest in
12
the joint venture at a predetermined multiple of future cashflow for a period of
three years, after which Perstorp will have a two-year purchase right if the
Company has not exercised its purchase right.
Perstorp Components' ten facilities in North America, the United
Kingdom and Spain had estimated combined sales of $170 million for its fiscal
year ended August 31, 1996. The joint venture's facilities had estimated annual
sales of $140 million for the same period. Perstorp Components' and the joint
venture's main customers include Chrysler, Ford, General Motors, Mercedes,
Nissan, Rover, and Volvo.
The acoustical products manufactured by Perstorp Components' facilities
complement the Company's existing molded floor carpet products. The Company
believes that automotive manufacturers are increasingly sourcing floor carpet
and acoustical products as a package as well as requiring suppliers to provide
parts and render engineering support on a global basis. The Company believes its
leading position in North America and growing presence in Europe coupled with
the acoustical product lines acquired through the Perstorp Components
acquisition will enable the Company to capitalize on this sourcing trend, both
domestically and internationally.
The Company has accounted for the acquisition of Perstorp Components as
a purchase, and it is therefore included in fiscal 1996 for a period of
approximately two and one half weeks. The purchase price and related expenses
exceeded the fair value of the net assets acquired by approximately $10 million.
The resulting goodwill is being amortized on a straight line basis over 40
years. See Notes 3 and 5 to the Consolidated Financial Statements for further
discussion and pro forma information.
DISCONTINUED OPERATIONS
On April 9, 1996, the Company announced a plan to spin off
Wallcoverings to the Company's stockholders in the form of a stock dividend. The
proposed spin-off requires, among other things, the declaration of the
dividend by the Company's Board of Directors. The Company had
originally anticipated the proposed spin-off to occur during 1996.
However, as a result of management changes at Wallcoverings and
other factors, the Company currently expects the proposed spin-off
to occur during the second half of 1997.
On December 4, 1996, the Company announced that it is considering the
sale of the Mastercraft Group, a leading manufacturer of upholstery fabric.
Based on determinations of value from potential purchasers, the Company has
decided to pursue the sale of the Mastercraft Group and anticipates the sale to
be completed by the summer of 1997.
On December 10, 1996, the Company announced that it entered into an
agreement to sell Floorcoverings for $197 million, subject to adjustment. This
sale occurred during February 1997 and the net proceeds of $195.6 million
(subject to post-closing purchase price adjustment) were used to pay down debt
incurred to finance the Company's automotive strategy.
The Company has accounted for the financial results and net assets of
Wallcoverings, Floorcoverings and the Mastercraft Group as discontinued
operations. Accordingly, previously reported financial results for all periods
have been restated to reflect these businesses as discontinued operations. See
Note 15 to the Consolidated Financial Statements for information regarding
discontinued operations.
$400 MILLION SUBORDINATED NOTE OFFERING
On June 10, 1996, the Company's wholly-owned subsidiary, C&A Products,
issued $400 million principal amount of the Subordinated Notes, which are
guaranteed by the Company. The Subordinated Notes were sold at a price equal to
100% of their principal amount. The Company used approximately $356.8 million of
the total net proceeds of $387.0 million to repay $348.2 million principal
amount of the outstanding bank borrowings plus accrued interest on such
borrowings and related fees and expenses, and used the remainder for general
corporate purposes.
13
GENERAL
The Company is a major supplier of automotive interior systems -
textile and plastic trim, acoustics and convertible tops - to the global
automotive industry. The Company's net sales in fiscal 1996 were $1,055.9
million compared to $902.0 million in fiscal 1995. During 1996, the Company
changed it fiscal year end to the last Saturday in December. Fiscal 1996 was a
48-week period which ended on December 28, 1996. All prior years refer to the
fiscal year of the Company which ended on the last Saturday of January of the
following year. Fiscal 1995 and 1994 were 52-week periods. Capitalized terms
that are used in this discussion and not defined herein have the meanings
assigned to such terms in the Notes to Consolidated Financial Statements.
During 1996, the Company took major steps in implementing its
automotive growth strategy, which is to expand the Company's core automotive
businesses in North America and globally as well as to add complementary product
offerings.
The automotive supply industry in which the Company competes is
cyclical and is influenced by the level of North American vehicle production.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED
------------------------------------------------------
DECEMBER 28, JANUARY 27, JANUARY 28,
1996 1996 1995
------------------- --------------- ----------------
(48 WEEKS) (52 WEEKS) (52 WEEKS)
(IN MILLIONS)
Net sales.....................................$ 1,055.9 $ 902.0 $ 907.0
Cost of goods sold............................ 867.2 740.1 734.5
Gross margin.................................. 188.7 161.9 172.5
Selling, general and administrative expenses.. 82.7 65.9 68.3
Goodwill amortization and write-off........... 4.0 .3 -
Operating income..............................$ 102.0 $ 95.7 $ 104.2
Gross margin percentages...................... 17.9% 18.0% 19.0%
Operating margin percentages.................. 9.7% 10.6% 11.5%
EBITDA (1)....................................$ 134.6 $ 124.1 $ 128.8
(1) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income tax, depreciation, amortization 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.
1996 COMPARED TO 1995
As a result of the Company's decision to change its year-end, fiscal 1996 was a
48-week period as compared to fiscal 1995 which was a 52-week period. Therefore,
sales in all product lines and the associated costs and expenses were impacted
by reporting a shorter period. A discussion of the results of operations for the
Company follows:
NET SALES: The Company's net sales increased 17.1% to $1,055.9 million in 1996,
up $153.9 million over 1995. The majority of this increase resulted from the
January 1996 acquisition of Manchester Plastics, which had sales for 1996 of
$176.3 million compared with $10.8 million in fiscal 1995. Increased sales in
three of the Company's products (molded carpet, convertible top systems and
accessory mats) were offset by a decrease in sales of automotive bodycloth. In
addition, sales also increased as a result of the JPS Automotive and Perstorp
Components acquisitions, which generated combined sales of $14.0 million from
December 11, 1996 through year end.
14
Sales to General Motors during 1996 were negatively impacted by the United Auto
Workers' strike in March 1996 and the Canadian Auto Workers' strike in October
1996. The decrease in net sales to General Motors in 1996 attributable to these
strikes is estimated at $33.5 million.
Automotive bodycloth sales decreased 25.5% to $243.9 million in 1996, down $83.6
million from 1995. The decline in sales was due to a decrease in unit shipments
on a comparable basis, which was partially mitigated by a 3.8% increase in
average selling price due primarily to a shift in product mix. Automotive
bodycloth sales were negatively impacted by an estimated $12.6 million as a
result of the General Motors strikes. The overall decrease in automotive
bodycloth for the year was principally related to decreased sales to the Ford
Thunderbird, Mustang, Escort, and F-Series Truck and the Chevrolet Cavalier.
These decreases were partially offset by increased sales to the Mercury Sable
and the Chrysler Grand Cherokee and Breeze.
Molded carpet sales increased 1.0% to $234.1 million, up $2.3 million over 1995.
The increase in sales was due to a 1.5% increase in average selling price as
well as increased sales in Europe as a result of the Company's expansion into
that market. The increase in average selling price is partially attributable to
a shift in automotive original equipment manufacturer ("OEM") production to
higher content vehicles, such as the Chrysler Voyager. For the year, the overall
increase in molded carpet sales was principally related to increased sales to
the Chrysler Voyager and T300 Truck and the Chevrolet C/K Truck line. These
increases were partially offset by decreased sales to the Ford Explorer, the
Chevrolet Camaro and Lumina and the Pontiac Grand Prix.
Convertible top systems sales increased 72.2% to $100.2 million, up $42.0
million from 1995. The increase in net sales resulted from the increased
shipments of the Chrysler Sebring partially offset by reduced OEM production of
the Ford Mustang convertible and the scheduled discontinuance of the Chrysler
LeBaron convertible.
Accessory mat sales increased 4.3% to $83.7 million, up $3.4 million over 1995.
The increase in sales was primarily due to increased unit volume. For the year
the overall increase in accessory mat sales was principally related to increased
sales to the Subaru Legacy, the Chrysler Caravan/Voyager, the Toyota Camry and
the Honda Civic and Accord. These increases were partially offset by decreased
sales to the Chrysler Cirrus and Chevrolet Camaro.
Luggage compartment trim sales decreased 1.9% to $51.4 million, from $52.4
million in 1995. This decrease in sales was primarily due to the shorter fiscal
year partially offset by a 9.3% increase in average selling price. The increase
in average selling price reflects the OEMs' continued move to one-piece luggage
compartments. During the year, luggage compartment trim sales increased to the
Honda Civic, Pontiac Grand Prix and Toyota Camry. These increases were offset by
decreased sales to the Honda Accord and Ford Explorer.
Manchester Plastics, which was acquired in January 1996, contributed $176.3
million in sales of plastic interior trim components during fiscal 1996 compared
to $10.8 million in fiscal 1995. Manchester's sales in 1996 were negatively
impacted by the General Motors strikes in the amount of $9.4 million and delays
in the launch of certain new programs.
These factors resulted in an increase in the Company's average revenue per North
American-produced vehicle to approximately $68 for 1996 from approximately $54
for 1995.
GROSS MARGIN: For 1996, gross margin was 17.9% of sales, down from 18.0% in
1995. The decrease in gross margin was attributable primarily to the lower sales
to General Motors and lower margins in plastic components partially offset by
the increase in the higher margin convertible top systems sales. In addition,
Manchester Plastics reduced its gross profit by $3 million for a one-time
special charge in December 1996 related to a disagreement with a customer over
goods supplied. During 1995, the Company recorded a $2.4 million charge related
to a plant closing and the write-off of certain assets in its molded carpet
operations.
15
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $82.7 million in 1996 were $16.8 million higher than
in 1995. The increase resulted primarily from the acquisitions of Manchester
Plastics in January 1996 and Amco Convertible Fabrics in October 1995 and
increased general and administrative costs due to expansion in Mexico and
Europe. Selling, general and administrative expenses as a percentage of sales
increased to 7.8% in 1996 from 7.3% in 1995.
INTEREST EXPENSE: Interest expense, allocated to continuing operations, net of
interest income of $4.0 million in 1996 and $1.6 million in 1995, increased to
$39.9 million in 1996 from $22.2 million in 1995. In 1996, interest expense,
including amounts allocated to discontinued operations and excluding interest
income, increased to $70.6 million from $50.2 million in 1995. The overall
increase in interest expense was due to the higher amount of overall outstanding
indebtedness primarily related to the $197 million credit facility that was
entered into in connection with the acquisition of Manchester Plastics in
January 1996 (the "Term Loan B Facility") as well as the higher interest rates
associated with the Subordinated Notes issued in June 1996.
LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July
1994, the Company has sold on a continuous basis, through its Carcorp
subsidiary, interests in a pool of accounts receivable. In connection with the
receivables sales, a loss of $4.5 million, net of amounts allocated to
discontinued operations, was incurred in 1996 compared to a loss of $6.2
million, net of amounts allocated to discontinued operations, in 1995. Total
loss on sale of receivables, including amounts allocated to discontinued
operations, decreased to $6.7 million in 1996 from $8.7 million in 1995. This
decrease resulted from the shorter fiscal year in 1996 as well as an overall
decrease in the outstanding interest sold under the variable portion of the
accounts receivable facility during 1996. The decrease in the outstanding
interest sold resulted primarily from the use of proceeds from the Subordinated
Notes offering to satisfy a portion of the Company's liquidity needs.
OTHER EXPENSE: In 1996, the Company recognized $.1 million in net foreign
currency transaction losses related to obligations to be settled in currencies
other than the functional currency of its foreign operations.
INCOME TAXES: In 1996, the Company recognized a $24.4 million tax provision
compared with a $140.0 million benefit in 1995. The increase in the Company's
tax expense and reported rate results from the Company's recognition of certain
deferred tax assets in 1995. In 1995, the benefit principally resulted from a
reduction of valuation allowances against the Company's Federal net operating
loss carryforwards and other deferred tax assets, offset by $9.9 million in
current foreign, state, franchise and Federal alternative minimum taxes.
DISCONTINUED OPERATIONS: The Company's income from discontinued operations was
$14.3 million in 1996 compared to a loss of $.8 million in 1995. The increase
relates primarily to Wallcoverings' results subsequent to April 29, 1996 being
charged to the Company's existing discontinued operations reserves.
Additionally, in 1995, Wallcoverings reported a $23.3 million loss which
resulted from certain charges for the write-down of inventory, the consolidation
of operations and the closing of facilities. Excluding the impact of
Wallcoverings, income from discontinued operations declined due to the increase
in reported tax rates which was partially offset by improved operating results
for both the Mastercraft Group and Floorcoverings.
EXTRAORDINARY LOSS: During 1996, the Company recognized a non-cash charge of
$6.6 million, net of income taxes of $4.7 million, related to the refinancing of
its bank credit facilities. The refinancing was done in conjunction with C&A
Products' issuance of the Subordinated Notes.
NET INCOME: The combined effect of the foregoing resulted in net income of
$40.8 million in 1996 compared to net income of $206.4 million in 1995.
16
1995 COMPARED TO 1994
A discussion of the results of operations for the Company follows:
NET SALES: Net sales decreased 0.6% to $902.0 million in 1995, from $907.0
million in 1994. Increased sales in three of the Company's products (molded
carpet, luggage compartment trim and accessory mats), as well as the addition of
Manchester Plastics on January 3, 1996, were substantially offset by a decrease
in sales of convertible top systems and automotive bodycloth. Sales also
declined 29.1% in velvet furniture fabrics as a result of the Company's decision
to temporarily redeploy manufacturing capacity to automotive bodycloth. The
North American automobile and light truck build declined 1.3% in 1995 from 1994.
Automotive bodycloth sales decreased 3.8% to $327.5 million in 1995, down $12.8
million from 1994. The decline in sales was primarily due to an 8.2% decrease in
unit shipments, which was partially mitigated by a 4.9% increase in average
selling price due primarily to a shift in product mix. The unit shipment decline
resulted from reduced automotive build in certain high content platforms which
the Company supplies. The overall decrease in automotive bodycloth for the year
was principally related to decreased sales to the Chrysler minivan platforms,
the Ford Thunderbird, Windstar, Ranger and F-Series Truck and the Chevrolet
Caprice and S-10 Truck. These decreases were partially offset by increased sales
to the Chevrolet C/K Truck, Cavalier and Blazer, the Toyota Avalon and pickup
truck, the Ford Contour and Escort, the Mercury Sable and the Chrysler Concorde.
Molded floor carpet sales increased 8.7% to $231.8 million, up $18.6 million
over 1994. The increase in sales was due to a 3.0% increase in unit shipments
and a 5.6% increase in average selling price. The increase in average selling
price is partially attributable to a shift in OEM production to higher content
vehicles, such as the Chevrolet C/K truck line and the Ford Explorer. For the
year, the overall increase in molded carpet sales was principally related to
increased sales to the Chrysler Cirrus/Stratus, T300 Truck and Caravan minivan,
the Ford Explorer and the Chevrolet C/K Truck. These increases were partially
offset by decreased sales to the Chrysler Voyager minivan, the Ford Mustang and
Probe, the Cadillac DeVille and the Toyota Camry.
Convertible top systems sales decreased 27.5% to $58.2 million, down $22.0
million from 1994. The net decrease in sales resulted from a 46.2% decline in
OEM production of the Ford Mustang convertible and the scheduled discontinuance
of the Chrysler LeBaron convertible, which were partially offset by the
introduction of the new Chrysler Sebring convertible in the latter part of
October 1995 and the new Alfa Romeo Spider convertible, which began volume
production in February 1995.
Accessory mat sales increased 7.4% to $80.3 million, up $5.5 million over 1994.
The increase in sales was primarily due to increased unit volume. For the year
the overall increase in accessory mat sales was principally related to increased
sales to the Ford Explorer, the Chrysler Cirrus/Stratus, the Toyota Avalon and
the Honda Civic. These increases were partially offset by decreased sales to the
Ford Mustang, Probe and Thunderbird, the Mazda 626 and the Mercury Cougar.
Luggage compartment trim sales increased 15.8% to $52.4 million, up $7.2 million
over 1994. The increase in sales was primarily due to a 7.1% increase in unit
shipments and an 8.1% increase in average selling price. The increase in unit
shipments and average selling price reflects the OEMs' continued move to
finished luggage compartments. For the year, the overall increase in luggage
compartment trim sales was principally related to increased sales to the Ford
Explorer, the Chrysler Cirrus/Stratus and the Honda Civic. These increases were
partially offset by decreased sales to the Nissan Sentra, the Chrysler Neon and
the Pontiac Bonneville.
These factors resulted in the Company's average revenue per North
American-produced vehicle of approximately $54 for 1995 compared to
approximately $53 for 1994.
GROSS MARGIN: For 1995, gross margin was 18.0% of sales, down from 19.0% in
1994. The decrease in gross margin was attributable primarily to the decline in
convertible top systems sales, which carry higher contribution margins than the
segment's average. In addition, gross margin was impacted by certain
17
manufacturing inefficiencies, commission weaving costs incurred due to capacity
constraints in the production of automotive bodycloth during the first half of
1995 and charges totaling $2.4 million related to a plant closing and the
write-off of certain assets discussed previously.
During the fourth quarter of 1995, the Company incurred charges of $2.4 million
related to the anticipated closure of a molded carpet plant in Clinton,
Oklahoma, the write-down of spinning equipment previously utilized in the
production of molded carpet for Chrysler in Canada and the decision to
discontinue the Company's automotive aftermarket accessory mat product line. The
closure of the Clinton facility, which impacted 93 employees, and the write-down
of the Canadian molded carpet equipment, resulted from changes in the supply
requirements of certain of the Company's OEM customers.
The Company terminated commission weaving during the second quarter of 1995.
Manufacturing inefficiencies which impacted the first and second quarters
resulted from the in-house startup of fabric lines which had previously been
woven outside on a commission basis. Manufacturing inefficiencies also resulted
to a lesser extent from the reengineering of fabric lines to meet customers'
specifications. For the year, the impact of raw material price increases was
offset by the Company's cost improvement programs and to a lesser extent by
price increases to customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $65.9 million in 1995 were $2.4 million lower than in
1994. The decrease resulted primarily from a reduction in certain advisory fees
partially offset by increased product development, the acquisition of Manchester
Plastics and increased general and administrative costs due to expansion in
Mexico and Austria. Selling, general and administrative expenses as a percentage
of sales decreased to 7.3% in 1995 from 7.5% in 1994.
INTEREST EXPENSE: Interest expense, allocated to continuing operations, net of
interest income of $1.6 million in 1995 and $6.4 million in 1994, decreased to
$22.2 million in 1995 from $44.4 million in 1994. In 1995, interest expense,
including amounts allocated to discontinued operations and excluding interest
income, decreased to $50.2 million from $82.1 million in 1994. The overall
decrease in interest expense was due to the Recapitalization, which reduced the
amount of overall outstanding indebtedness and replaced higher fixed rate
indebtedness with variable rate borrowings.
LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July
1994, the Company has sold on a continuous basis, through its Carcorp
subsidiary, interests in a pool of accounts receivable. In connection with the
receivables sales, a loss of $6.2 million, net of amounts allocated to
discontinued operations, was incurred in 1995 compared to a loss of $6.1
million, net of amounts allocated to discontinued operations, in 1994. Total
loss on sale of receivables, including amounts allocated to discontinued
operations, increased to $8.7 million in 1995 from $7.6 million in 1994. In
1994, the total loss of $7.6 million included $1.3 million related to one time
fees and expenses related to the Bridge Receivables Facility (as defined below).
INCOME TAXES: In 1995, the Company recognized a $140.0 million tax benefit
compared with a $10.0 million provision in 1994. In 1995, the benefit
principally resulted from a reduction of valuation allowances against the
Company's Federal net operating loss carryforwards and other deferred tax
assets, offset by $9.9 million in current foreign, state, franchise and Federal
alternative minimum taxes. In 1994, income taxes consisted of foreign, state and
franchise taxes and, to a small extent, Federal alternative minimum tax.
DISCONTINUED OPERATIONS: The Company's loss from discontinued operations was $.8
million in 1995 compared with income of $34.4 million in 1994. A $23.3 million
loss at Wallcoverings in 1995 resulted from charges for a write-down of
inventory, the consolidation of all distribution activities to a new state of
the art distribution center in Knoxville, Tennessee, the closure of
Wallcoverings' Hammond, Indiana facility and the reengineering of Wallcoverings'
production processes. The discontinued operations' loss was also impacted by
reduced earnings from the Mastercraft Group due to market softness, which was
partially offset by increased income from Floorcoverings.
18
EXTRAORDINARY LOSS: During 1994, the Company, as part of the Recapitalization,
recognized a loss on the extinguishment of debt of $106.5 million, consisting of
$9.6 million of premiums paid to redeem indebtedness and $96.9 million of
unamortized discounts, deferred financing charges and defeasance costs.
NET INCOME: The combined effect of the foregoing resulted in a net income
of $206.4 million in 1995 compared to a net loss of $30.8 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$14.3 million and $1.0 million at December 28, 1996 and January 27, 1996,
respectively. The Company had a total of $69.4 million of borrowing availability
under its credit arrangements as of December 28, 1996. The total was comprised
of $20.1 million under the Revolving Facility, $35.0 million under the Delayed
Draw Term Loan, $3.3 million under the Receivables Facility and approximately
$11.0 million under bank demand lines of credit in Canada and Austria. In
addition, $112 million was available at that date under the Delayed Draw Term
Loan for specified purposes as discussed below. During February 1997, the
Company sold its Floorcoverings subsidiary for net proceeds of $195.6 million
(subject to post-closing adjustment), which were used to pay down the
outstanding portion of the Revolving Facility and a portion of the Receivables
Facility.
As part of the Recapitalization, the Company entered into credit
facilities consisting of (i) a Term Loan Facility, (ii) a Revolving Facility
(together with the Term Loan Facility, the "Credit Agreement Facilities") and
(iii) a bridge receivables facility, (the "Bridge Receivables Facility"), which
was terminated and replaced with the Receivables Facility described below. On
December 22, 1995, the Company and C&A Products entered into the Term Loan B
Facility to finance the January 1996 purchase of Manchester Plastics.
On June 3, 1996, the Company and C&A Products entered into an amendment
and restatement (the "Amendment") of the Credit Agreement Facilities and the
Term Loan B Facility (collectively, the "Bank Credit Facilities"). The Amendment
was effected in connection with the sale of the Subordinated Notes described
below and the use of proceeds from such sale to repay various outstanding loans
under the Credit Agreement Facilities. As a result of the Amendment and the
repayment of a portion of the Credit Agreement Facilities with a portion of the
proceeds from the Subordinated Notes, the Bank Credit Facilities consist of (i)
the Term Loan Facility, in an aggregate principal amount of $195 million
(including a $45 million facility in Canada), payable in installments until
final maturity on July 13, 2002, (ii) the Term Loan B Facility, in the principal
amount of $195.8 million, payable in installments until final maturity on
December 31, 2002, and (iii) the Revolving Facility, having an aggregate
principal amount of up to $250 million and terminating on July 13, 2001. The
Bank Credit Facilities, which are guaranteed by the Company and its U.S.
subsidiaries (subject to certain exceptions), contain restrictive covenants
including maintenance of EBITDA (i.e. earnings before interest, taxes,
depreciation, amortization and other non-cash charges) and interest coverage
ratios, leverage and liquidity tests and various other restrictive covenants
which are customary for such facilities. In addition, 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)
effect the proposed spin-off of Wallcoverings or the distribution of certain net
proceeds of a sale of Wallcoverings if the proposed spin-off is not affected. In
addition, the Company is permitted to pay dividends and repurchase shares of the
Company in any fiscal year in an aggregate amount equal to the greater of (i)
$12 million and (ii) if certain financial ratios are satisfied, 25% of the
Company's consolidated net income for the previous fiscal year, and is permitted
to pay additional dividends to effect the proposed spin-off of Wallcoverings or
in amounts representing certain net proceeds from any sale of Wallcoverings in
the event the proposed spin-off is not effected. The Company's obligations under
the Bank Credit Facilities are secured by a pledge of the stock of C&A Products
and its significant subsidiaries.
19
On June 10, 1996 C&A Products issued $400 million principal amount of
Subordinated Notes, which mature in 2006. The Subordinated Notes are guaranteed
by the Company. The indenture governing the Subordinated Notes generally
prohibits the Company, C&A Products and any Restricted Subsidiary (as defined)
from making certain payments and investments (generally, dividends and
distributions on their capital stock; repurchases or redemptions of their
capital stock; repayment prior to maturity of debt subordinated to the
Subordinated Notes; and investments (other than permitted investments))
("Restricted Payments") if (i) there is a default under the Subordinated Notes
or (ii) after giving pro forma effect to the Restricted Payment, C&A Products
could not incur at least $1.00 of additional indebtedness under the indenture's
general test for the incurrence of indebtedness, which is a specified ratio
(currently 2.0 to 1.0) of cash flow to interest expense or (iii) the aggregate
of all such Restricted Payments from the issue date exceeds a specified
threshold (based, generally, on 50% of cumulative consolidated net income since
the quarter in which the issue date occurred plus 100% of the net proceeds of
capital contributions to C&A Products from stock issuances by the Company).
These prohibitions are subject to a number of significant exceptions, including
dividends to stockholders of the Company or stock repurchases not exceeding $10
million in any fiscal year or $20 million in the aggregate until the maturity of
the Subordinated Notes 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.
In connection with the closing of the acquisition of JPS Automotive
(the "JPS Automotive Acquisition"), in early December 1996 the Company amended
the Bank Credit Facilities primarily to allow for the existence of the JPS
Automotive 11-1/8% Senior Notes due 2001 (the "JPS Automotive Senior Notes") and
to allow the Company to retain the proceeds from the sale of Floorcoverings. As
part of the JPS Automotive Acquisition, the Company paid off approximately $15
million of outstanding bank indebtedness of JPS Automotive. The cash portion of
the purchase price of the JPS Automotive Acquisition, the purchase price for the
acquisition of a minority interest in a JPS Automotive subsidiary and the bank
indebtedness at JPS Automotive that was repaid at the time of closing were
funded through the Company's Revolving Facility. After giving effect to the
above, JPS Automotive had as of December 28, 1996 approximately $118 million of
indebtedness outstanding, which includes approximately $117 million (including a
$5 million premium recorded to reflect market value at the time of the
acquisition) of indebtedness related to the JPS Automotive Senior Notes. In
addition, as a result of the JPS Automotive Acquisition, holders of the JPS
Automotive Senior Notes had the right to put their notes to JPS Automotive at a
price of 101% of their principal amount plus accrued interest. Approximately
$3.9 million principal amount of JPS Automotive Senior Notes were so put to JPS
Automotive and then repurchased by JPS Automotive on March 10, 1997. The Company
will operate JPS Automotive as a restricted subsidiary under the Bank Credit
Facilities and the indenture governing the Subordinated Notes.
The indenture governing the JPS Automotive Senior Notes generally
prohibits JPS Automotive from making certain restricted payments and investments
(generally, dividends and distributions on its equity interests; purchases or
redemptions of its equity interests; purchases of any indebtedness subordinated
to the JPS Automotive Senior Notes; and investments other than as permitted)
("JPS Automotive Restricted Payments") unless (i) there is no default under the
JPS Automotive Senior Notes indenture; (ii) after giving pro forma effect to the
JPS Automotive Restricted Payment, JPS Automotive would be permitted to incur at
least $1.00 of additional indebtedness under the indenture's general test for
the incurrence of indebtedness which is a specified ratio (currently 2.5 to 1.0)
of cashflow to interest expense, and (iii) the aggregate of all JPS Automotive
Restricted Payments from the issue date is less than a specified threshold
(based, generally, on 50% of JPS Automotive's cumulative consolidated
net income since the issue date plus 100% of the aggregate net
cash proceeds of the issuance by JPS Automotive of certain equity and
convertible debt securities and cash contributions to JPS Automotive)
(the "JPS Automotive Restricted Payments Tests"). These conditions
were satisfied immediately following the closing of
the JPS Automotive Acquisition and as of December 28, 1996. The JPS Automotive
Restricted Payments Tests are subject to a number of significant exceptions. The
indenture governing the JPS Automotive Senior Notes also contains other
restrictive covenants (including, among others, limitations on the incurrence of
indebtedness and issuance of preferred stock, asset
20
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.
Additionally, in early December 1996, in connection with the JPS
Automotive Acquisition, the Company entered into a $200 million delayed draw
term loan (the "Delayed Draw Term Loan"). The Delayed Draw Term Loan is a 5.25
year term loan which was entered into to finance or refinance the purchase of
any JPS Automotive Senior Notes put by the holders to JPS Automotive as a result
of the change in control resulting from the JPS Automotive Acquisition or
otherwise acquired. The Delayed Draw Term Loan is available until December 11,
1997. Up to $20 million of the Delayed Draw Term Loan can be utilized for
general corporate purposes, including premium and accrued interest on the JPS
Automotive Senior Notes. Prior to the JPS Automotive Acquisition, the Company
had purchased in the open market $68 million principal amount of JPS Automotive
Senior Notes, which were subsequently retired by JPS Automotive. As of December
28, 1996, $53 million had been drawn under the Delayed Draw Term Loan and $147
million was available, consisting of $15 million available to refinance
previously acquired JPS Automotive Senior Notes, $20 million available for
general corporate purposes and $112 million available for future purchases of
JPS Automotive Senior Notes. The Board of Directors of the general partner of
JPS Automotive has authorized JPS Automotive to expend for the repurchase of JPS
Automotive Senior Notes up to the amount of funds that may be drawn for such
purpose under the Delayed Draw Term Loan. The Delayed Draw Term Loan's security
and restrictive covenants are identical to those in the Bank Credit Facilities.
On March 31, 1995, C&A Products entered, through the Trust formed by
Carcorp, into the Receivables Facility, comprised of (i) term certificates,
which were issued on March 31, 1995, in an aggregate face amount of $110 million
and have a term of five years and (ii) variable funding certificates, which
represent revolving commitments of up to an aggregate of $75 million and have a
term of five years. Carcorp purchases on a revolving basis and transfers to the
Trust virtually all trade receivables generated by C&A Products and certain of
its subsidiaries (the "Sellers"). The certificates represent the right to
receive payments generated by the receivables held by the Trust.
Availability under the variable funding certificates at any time
depends primarily on the amount of receivables generated by the Sellers from
sales to the auto 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
28, 1996 approximately $28.3 million was available under the variable funding
certificates, $25.0 million of which was utilized.
In connection with the proposed spin-off of Wallcoverings,
Wallcoverings was terminated as a seller of receivables under the Receivables
Facility on September 21, 1996. Receivables sold by Wallcoverings prior to the
termination will remain in the Trust until their collection. As of December 28,
1996, the Trust had not been required to redeem the term certificates resulting
from the Trust's collection of Wallcoverings receivables. The Company also
terminated Floorcoverings as of February 6, 1997 as a seller of receivables
under the Receivables Facility in connection with the Company's sale of
Floorcoverings. On March 25, 1997, the Trust redeemed $30 million face value of
term certificates primarily as a result of the Trust collecting Wallcoverings
and Floorcoverings receivables which were not replaced by eligible receivables.
The proceeds received by Carcorp from collections on receivables, after
the payment of expenses and amounts due on the certificates, are used to
purchase new receivables from the Sellers. Collections on receivables are
required to remain in the Trust if at any time the Trust does not contain
sufficient eligible receivables to support the outstanding certificates. The
Receivables Facility contains certain other restrictions on Carcorp (including
maintenance of $25 million net worth) and on the Sellers (including limitations
on liens on receivables, modifications of the terms of receivables, and changes
in credit and collection practices) customary for facilities of this type. The
commitments under the Receivables Facility are subject to termination prior to
their term upon the occurrence of certain events, including payment defaults,
breach of covenants, bankruptcy, insufficient eligible receivables to support
the outstanding certificates, default by
21
C&A Products in servicing the receivables and, in the case of the variable
funding certificates, failure of the receivables to satisfy certain performance
criteria.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At December 28, 1996, the Company had $20.0
million of potential availability under this master lease for future machinery
and equipment requirements of the Company subject to the lessor's approval. The
Company has made lease payments relating to continuing operations of
approximately $4.0 million in fiscal 1996 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 $5.6 million during 1997.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Bank Credit Facilities,
the sale of receivables under the Receivables Facility and the sale of
Floorcoverings and the Mastercraft Group. Net cash provided by the operating
activities of the Company's continuing operations was $55.8 million for 1996.
The Company's principal uses of funds for the next several years will
be to fund interest and principal payments on its indebtedness, net working
capital increases, capital expenditures, and acquisitions. At December 28, 1996,
the Company had total outstanding indebtedness of $1,176.2 million (excluding
approximately $25.9 million of outstanding letters of credit and $3.4 million of
indebtedness of the discontinued operations) at an average interest rate of 9.1%
per annum. Of the total outstanding indebtedness, $1,040.6 million relates to
the Bank Credit Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to
$12 million in 1997 to repurchase shares of the Company's Common Stock. The
Company believes it has sufficient liquidity under its existing credit
arrangements to effect the repurchase program. The Company spent an aggregate of
$9.6 million to repurchase shares during 1996.
Indebtedness under the Term Loan Facility, the Revolving Facility and
the Delayed Draw Term Loan bears interest at a per annum rate equal to the
Company's choice of (i) Chase Manhattan Bank'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
Margin") ranging from 0% to .75% 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 ranging from 1% to 1.75%. Margins, which are
subject to adjustment based on changes in the Company's ratios of senior funded
debt to EBITDA and cash interest expense to EBITDA, were 1.75% in the case of
the "LIBOR Margin" and .75% in the case of the ABR Margin on December 28, 1996.
Such margins will increase by .25% over the margins then in effect on July 13,
1999. Indebtedness under the Term Loan B Facility bears interest at a per annum
rate equal to the Company's choice of (i) Chase Bank's Alternate Base Rate (as
described above) plus a margin of 1.25% or (ii) LIBOR of one, two, three or six
months, as selected by the Company, plus a margin of 2.25%. The weighted average
rate of interest on the Bank Credit Facilities and the Delayed Draw Term Loan at
December 28, 1996 was 7.54%. The weighted average interest rate on the sold
interests under the Receivables Facility at December 28, 1996 was 6.28%. Under
the Receivables Facility, the term certificates bear interest at an average rate
equal to one month LIBOR plus .34% per annum and the variable funding
certificates bear interest, at Carcorp's option, at LIBOR plus .40% per annum or
a prime rate. The Subordinated Notes bear interest at a rate of 11.5% per annum.
The JPS Automotive Senior Notes bear interest at a rate of 11.125% per annum.
Cash interest paid during fiscal 1996 and 1995 was $60.0 million and $45.8
million, respectively.
Due to the variable interest rates under the Bank Credit Facilities,
the Delayed Draw Term Loan and the Receivables Facility, the Company is
sensitive to increases in interest rates. Accordingly, during April 1996, the
Company limited its exposure through April 2, 1998 on $80 million of notional
principal amount utilizing zero cost collars with 4.75% floors and a weighted
average cap of 7.86%. Based upon amounts outstanding at December 28, 1996, a .5%
increase in LIBOR (5.5% at December 28, 1996) would impact interest costs by
22
approximately $3.2 million annually on the Bank Credit Facilities and $.7
million annually on the Receivables Facility.
The current maturities of long-term debt primarily consist of the
current portion of the Bank Credit Facilities, vendor financing, industrial
revenue bonds and other miscellaneous debt.
The maturities of long-term debt of the Company's continuing operations
during 1997, 1998, 1999, 2000 and 2001 are $38.2 million, $53.2 million, $62.1
million $67.5 million and $187.9 million, respectively. The JPS Automotive
Senior Notes, to the extent not previously put to JPS Automotive or otherwise
acquired by the Company or JPS Automotive, will mature in 2001. In addition, the
Bank Credit Facilities and the Delayed Draw Term Loan provide for mandatory
prepayments of the Term Loan and Term Loan B Facilities and the Delayed Draw
Term Loan with certain excess cash flow of the Company, net cash proceeds of
certain asset sales or other dispositions by the Company other than proceeds
generated from the sale of Floorcoverings, 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 Bank Credit Facilities and the Delayed Draw Term
Loan) 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 Delayed
Draw Term Loan, if fully drawn, will require a payment of $27 million on
December 11, 1997 (the anniversary date of the initial draw) and equal quarterly
payments in annual amounts equal to $38 million in 1998, $41 million in 1999,
$42 million in 2000, $41 million in 2001 and $11 million at termination. 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 makes capital expenditures on a recurring basis for
replacements and improvements. As of December 28, 1996, the Company's continuing
operations had approximately $18.6 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations in fiscal 1997 will aggregate approximately $90 million, a
portion of which may be financed through leasing. The Company's capital
expenditures in future years will depend upon demand for the Company's products
and changes in technology. As of December 28, 1996, Wallcoverings and the
Mastercraft Group had approximately $1.6 million and $1.0 million, respectively,
in outstanding capital expenditure commitments.
The Company is sensitive to price movements in its raw material supply
base. During 1996, prices for most of the Company's primary raw materials
remained constant with price levels at January 27, 1996. While the Company may
not be able to pass on future raw material price increases to its customers, it
believes that a significant portion of the increased cost can be offset by
continued results of its value engineering/value analysis and cost improvement
programs and by continued reductions in the cost of nonconformance.
Since the Company announced in April 1996 its plan to spin off
Wallcoverings the Company has repaid $21 million of intercompany amounts owed
to Wallcoverings and expended approximately $19 million to fund operations,
working capital and capital expenditures and to replace receivables previously
sold to Carcorp. In 1997, the Company currently expects to expend (subject to
the discretion of the Company's Board of Directors) approximately $40 million
prior to the anticipated spin-off of Wallcoverings principally to fund
Wallcoverings' future operations, working capital and capital expenditure
requirements. Amounts actually required for these purposes could differ
materially from expected amounts due to, among other things, changes in
Wallcoverings' operating results and the availability of outside financing
for Wallcoverings.
23
The Company has significant obligations relating to postretirement,
casualty, environmental, lease and other liabilities of discontinued operations.
In connection with the sale and acquisition of certain businesses, the Company
has indemnified the purchasers and sellers for certain environmental
liabilities, lease obligations and other matters. In addition, the Company is
contingently liable with respect to certain lease and other obligations assumed
by certain purchasers and may be required to honor such obligations if such
purchasers are unable or unwilling to do so. Management currently anticipates
that the net cash requirements of its discontinued operations, excluding
Wallcoverings, Floorcoverings, and the Mastercraft Group, will be approximately
$23 million in fiscal 1997. 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, including
Wallcoverings and the Mastercraft Group, can be provided by operating activities
from continuing operations and by borrowings under the Bank Credit Facilities.
TAX MATTERS
At December 28, 1996, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $284.2 million for Federal income tax
purposes, which excludes $10.4 million related to the Company's discontinued
Wallcoverings business. Substantially all of these NOLs expire over the period
from 2000 to 2008. The Company also has unused Federal tax credits of
approximately $12.7 million, $4.2 million of which expire during the period 1997
to 2007.
Approximately $85.9 million of the Company's NOLs and $4.2 million of
the Company's unused Federal tax credits may be used only against the income and
apportioned tax liability of the specific corporate entity that generated such
losses or credits or its successors. The Company believes that a substantial
portion of these tax benefits will be realized in the future. 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.
In fiscal 1993 and prior years, the Company incurred significant
financial reporting and tax losses principally as a result of a capital
structure that contained a substantial amount of high interest rate debt. In
addition, losses were incurred as the Company exited businesses which it did not
consider to be consistent with its long-term strategy. Although substantial net
deferred tax assets were generated during these periods, a valuation allowance
was established because in management's assessment the historical operating
trends made it uncertain whether the net deferred tax assets would be realized.
During July 1994, the Company completed the Offering and
Recapitalization, which reduced the Company's indebtedness, lowered interest
expense and provided liquidity for operations and other general corporate
purposes. As a result of the Recapitalization, the Company's annual financing
costs were reduced from $115 million in fiscal 1993 to $57 million in fiscal
1995. In fiscal 1994, the Company reported taxable income and had net income
before an extraordinary loss on the Recapitalization for financial reporting
purposes; however, management determined, largely because of the Company's prior
losses, that it remained uncertain whether the net deferred tax assets would be
realized.
In fiscal 1995, the Company's continuing business segments generated
substantial operating income, consistent with historical trends, that, when
combined with the post-Recapitalization capital structure, resulted in income
for both tax and financial reporting purposes. The proposed spin-off of
Wallcoverings that was announced in April 1996 further clarified management's
assessment of the Company's likely future performance. Management considered
these factors as well as the future outlook for its continuing
24
businesses in concluding that it is more likely than not that net deferred tax
assets of $148.9 million and $161.9 million at December 28, 1996 and January 27,
1996, respectively, will be realized. While continued operating performance at
current levels is sufficient to realize these assets, 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 28, 1996 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.
In fiscal 1995, the California Franchise Tax Board issued a notice of
tax assessment for approximately $11.8 million related to the treatment of the
sale of certain foreign subsidiaries during 1987. The Company disputes the
assessment and has filed a protest with the Franchise Tax Board. If the
Franchise Tax Board were to maintain its position and such position were to be
upheld in litigation, the Company would also become liable for the payment of
interest which is currently estimated to be $16.5 million. In the opinion of
management, the final determination of any additional tax and interest liability
related to this matter will not have a material adverse effect on the Company's
consolidated financial condition or future results of operations.
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 soil
and groundwater contamination. The Company's management believes that it has
obtained, and is in material compliance with, all material environmental permits
and approvals necessary to conduct its various businesses. Environmental
compliance costs for continuing businesses currently are accounted for as normal
operating expenses or capital expenditures of such business units. In the
opinion of management, based on the facts presently known to it, such
environmental compliance costs will not have a material adverse effect on the
Company's consolidated financial condition or future results of operations.
The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating contaminated sites, remediation efforts by other parties, data
released by the United States Environmental Protection Agency, the professional
judgment of the Company's environmental experts, outside environmental
specialists and other experts, and the likelihood that other parties which have
been named as PRPs will have the financial resources to fulfill their
obligations at sites where they and the Company may be jointly and severally
liable. Under the theory of joint and several liability, the Company could be
liable for the full costs of investigation and remediation even if additional
parties are found to be responsible under the applicable laws. It is difficult
to estimate the total cost of investigation and remediation due to various
factors including incomplete information regarding particular sites and other
PRPs, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. As of December 28, 1996, including sites
relating to the acquisition of Manchester Plastics, JPS Automotive and Perstorp
Components and 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 22 sites where
the Company is participating in the
25
investigation or remediation of the site, either directly or through financial
contribution, and 9 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of December 28, 1996,
the Company's estimate of its liability for these 31 sites, which exclude sites
related to Wallcoverings, is approximately $33.8 million. As of December 28,
1996, the Company has established reserves of approximately $46.1 million for
the estimated future costs related to all its known environmental sites,
excluding sites related to Wallcoverings. 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.
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 on Form 10-K include industry-based factors such as possible declines in
the North American automobile and light truck build, labor strikes at the
Company's major customers and changes in consumer taste as well as factors more
specific to the Company such as its dependence on significant automotive
customers, the level of competition in the automotive supply industry, the
substantial leverage of the Company and its subsidiaries, limitations imposed by
the Company's debt facilities and organizational, managerial and financial
changes made in connection with the integration of the operations acquired by
the Company. The Company's divisions may also be affected by changes in the
popularity of particular car models or the loss of programs on particular car
models. For a discussion of certain of these and other important factors which
may affect the Company's operations, products and markets, see "ITEM 1.
BUSINESS" and the above discussion in this "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and see also the
Company's other filings with the Securities and Exchange Commission.
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.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K regarding
executive officers is set forth in Part I hereof under the caption "Executive
Officers of the Registrant" and the information required by Item 401 of
Regulation S-K regarding directors is incorporated herein by reference to that
portion of the Registrant's definitive Proxy Statement to be used in connection
with its 1997 Annual Meeting of Stockholders, which will be filed in final form
with the Commission not later than 120 days after December 28, 1996 (the "Proxy
Statement"), captioned "Election of Directors--Information as to Nominees and
Other Directors". The information required by Item 405 of Regulation S-K 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" and "Election of Directors--Information as to
Nominees and Other Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to that portion of the Proxy Statement captioned "Compensation
Committee Interlocks and Insider Participation".
27
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 28, 1996,
January 27, 1996, and January 28, 1995 F-2
Consolidated Balance Sheets at December 28, 1996 and January 27, 1996 F-3
Consolidated Statements of Cash Flows for the fiscal years ended December 28, 1996,
January 27, 1996, and January 28, 1995 F-4
Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended
December 28, 1996, January 27, 1996, and January 28, 1995 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 28, 1996, January 27, 1996 and
January 28, 1995 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.
28
EXHIBIT
NUMBER DESCRIPTION
2.1 - 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.
2.2 - 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.
2.3 - 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, 19996, is hereby incorporated by reference to
Exhibit 2.3 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996.
2.4 - 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.
2.5 - 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.
2.6 - Shareholders Agreement among Collins & Aikman Products Co., Collins & Aikman Europe, Inc., Perstorp GmbH,
Perstorp A.B., Perstorp Biotec A.B., Perstorp Components N.V. and Perstorp Components A.B., dated December 11,
1996 is hereby incorporated by reference to Exhibit 2.6 of Collins & Aikman Corporation's Current Report on Form
8-K dated December 10, 1996.
2.7 - 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.
3.1 - Restated Certificate of Incorporation of Collins & Aikman Corporation is hereby incorporated by reference to
Exhibit 4.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 30, 1994.
3.2 - By-laws of Collins & Aikman Corporation, as amended, are hereby incorporated by reference to Exhibit 3.2 of
Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 27, 1996.
3.3 - Certificate of Elimination of Cumulative Exchangeable Redeemable Preferred Stock of Collins & Aikman Corporation
is hereby incorporated by reference to Exhibit 3.3 of Collins & Aikman Corporation's Report on Form 10-Q for the
fiscal quarter ended October 28, 1995.
4.1 - Specimen Stock Certificate for the Common Stock is hereby incorporated by reference to Exhibit 4.3 of Amendment
No. 3 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179)
filed June 21, 1994.
4.2 - Indenture, dated as of June 1, 1996, between Collins & Aikman Products Co., Collins & Aikman Corporation and
First Union National Bank of North Carolina, as Trustee, is hereby incorporated
29
EXHIBIT
NUMBER DESCRIPTION
by reference to Exhibit 4.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended
April 27, 1996.
4.3 - First Supplemental Indenture dated as of June 1, 1996, betwee