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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10218
------------------------------
COLLINS & AIKMAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3489233
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $98,171,752 as of March 25, 1998.
As of March 25, 1998, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 65,611,864 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for 1998 Annual Meeting of Stockholders to be filed
within 120 days of December 27, 1997 - Items 10, 11, 12 and 13.*
* Only the portions of this document expressly described in the items
listed are incorporated by reference herein.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT INDEX
Item 1. Business, page 1.
Item 2. Properties, page 4.
Item 3. Legal Proceedings, page 4.
Item 4. Submission of Matters to a Vote of Security Holders, page 5.
Executive Officers of the Registrant, page 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters, page 6.
Item 6. Selected Financial Data, page 7.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 8.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk,
page 21.
Item 8. Financial Statements and Supplementary Data, page 21.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure, page 21.
Item 10. Directors and Executive Officers of the Registrant, page 22.
Item 11. Executive Compensation, page 22.
Item 12. Security Ownership of Certain Beneficial Owners and Management,
page 22.
Item 13. Certain Relationships and Related Transactions, page 22.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K,
page 23.
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PART I
ITEM 1. BUSINESS
DEVELOPMENT
Collins & Aikman Corporation (the "Company") is a global supplier of
automotive interior systems, including textile and plastic trim, acoustics and
convertible top systems. The Company (formerly Collins & Aikman Holdings
Corporation) is a Delaware corporation which was formed on September 21, 1988.
As of December 27, 1997, Blackstone Capital Partners, L.P. ("Blackstone
Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their
respective affiliates collectively own approximately 82% of the Common Stock of
the Company. The Company conducts all of its operating activities through its
wholly-owned Collins & Aikman Products Co. ("C&A Products") subsidiary.
Predecessors of C&A Products have been in operation for more than a century.
During 1997, the Company continued to execute its automotive growth
strategy. This strategy focuses 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, in 1997 and early 1998 the Company
completed several strategic corporate development projects and divested the
remainder of its significant non-automotive operations, all as discussed below.
On December 16, 1997, the Company acquired from Perstorp A.B.
("Perstorp") the remaining interest in the Collins & Aikman/Perstorp automotive
acoustics joint venture with operations in Sweden, Belgium and France. The
Company received the interest in settlement of certain disputed claims by the
Company against Perstorp arising from the Company's December 1996, and August
1997 purchases from Perstorp of certain of its automotive supply operations in
North America, the United Kingdom, Spain and Germany.
On December 4, 1997, the Company entered into a joint venture with
Courtaulds Textiles (Holdings) Limited ("Courtaulds"), a publicly-owned,
international textiles and clothing manufacturer located in the United Kingdom,
to manufacture automotive interior fabrics for European customers. The Company
and Courtaulds each have a 50% ownership interest in the joint venture. The
joint venture allows the Company to expand its automotive fabrics operations in
Europe and to further serve the European automotive market. Customers served by
the joint venture include the Rover Group, Toyota and the Opel division of
General Motors.
On November 5, 1997, the Company announced that it entered into an
agreement to sell its Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings")
to a company sponsored by an affiliate of Blackstone Partners. In connection
with the sale, the Company recorded a loss of approximately $21.1 million, net
of income taxes in the third quarter of 1997. The sale closed on March 13, 1998
for a purchase price of $71.2 million in cash, subject to adjustment, and an
option to acquire 6.7% of the common stock of the purchaser outstanding as of
closing. The purchaser includes both Wallcoverings and the wallcovering and
vinyl units of Borden Inc., which the purchaser also acquired.
On October 29, 1997, the Company entered into a joint venture with
Kigass Automotive Group ("Kigass") to manufacture plastic trim products in the
United Kingdom. The Company and Kigass each owned 50% of the joint venture. On
February 2, 1998, the Company acquired Kigass for approximately $24.2 million,
subject to post-closing adjustment.
On August 31, 1997, the Company purchased certain automotive acoustics
assets and assumed certain liabilities in Germany from Perstorp for
approximately $13.6 million.
On July 24, 1997, JPS Automotive L. P. ("JPS Automotive"), a subsidiary
of the Company acquired in December 1996, completed the sale of its Air
Restraint and Technical Products Division, an airbag and industrial fabric
business ("Airbag"), to Safety Components International, Inc. for a purchase
price of approximately $56 million. No gain or loss was recorded on the sale
since the sales price approximated the acquisition fair value of Airbag.
Pursuant to the indenture governing the JPS Automotive 11-1/8% Senior Notes due
2001 (the "JPS Automotive Senior Notes"), in connection with the sale of Airbag,
the Company caused JPS Automotive to make an offer to purchase (up to the amount
of the net proceeds from the sale) the JPS Automotive Senior Notes at 100% of
their principal amount. Pursuant to such offer, which expired September 16,
1997, JPS Automotive repurchased and retired $23 thousand principal amount of
JPS Automotive Senior Notes. During October 1997, the Company caused JPS
Automotive to use a portion of the proceeds remaining from the sale of Airbag to
make a distribution of $35.0 million to C&A Products, as permitted under the
restricted payments provisions of the JPS Automotive Senior Notes Indenture.
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On July 16, 1997, the Company completed its sale of the Mastercraft
Group, a manufacturer of flat woven upholstery fabric, to Joan Fabrics
Corporation, for a purchase price of approximately $310 million, subject to
adjustment. A portion of the net proceeds was used to reduce the Company's
long-term debt.
On February 6, 1997, the Company completed the sale of its
Floorcoverings subsidiary ("Floorcoverings") for net proceeds of approximately
$195.6 million. The proceeds were used to pay down debt incurred to finance the
Company's automotive acquisition strategy.
The Company has accounted for the financial results and net assets of
Floorcoverings, the Mastercraft Group (which were formerly reported in the
Interior Furnishings segment), Airbag, and Wallcoverings as discontinued
operations. Accordingly, previously reported financial results for all periods
have been restated to reflect those four businesses as discontinued operations.
GENERAL
The Company is a global supplier of automotive interior systems,
including textile and plastic trim, acoustics and convertible top systems with
1997 net sales of approximately $1.6 billion. The Company competes in five
principal automotive product groups--carpet and acoustics, automotive fabrics,
accessory floor mats, convertible top systems, and plastic-based interior
systems. The Company's acquisitions in 1996 of Collins & Aikman Plastics, Inc.
("C&A Plastics"), a subsidiary of the Company formerly known as Manchester
Plastics, JPS Automotive and Perstorp's automotive supply operations (primarily
acoustical products) in North America, the United Kingdom and Spain ("Perstorp
Components"), as well as the acquisitions and joint ventures in 1997 which are
discussed above, significantly increased the Company's content per build through
growth in existing product lines and the addition of complementary product
offerings.
The Company's sales are dependent on certain significant customers. In
1997, 1996, and 1995, 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 five years, North American light vehicle sales have
averaged 14.9 million units.
PRODUCTS
The Company operates in five principal automotive product groups:
carpet and acoustics, automotive fabrics, accessory floor mats, convertible top
systems and plastic-based interior systems. The Company also produces certain
other automotive and non-automotive products.
CARPET AND ACOUSTICS. The Company's Carpet and Acoustics group has three
primary product lines: molded floor carpets, luggage compartment trim and
acoustical products. Molded floor carpets include polyethylene, barrier-backed
and molded urethane underlay carpet. In 1997, 1996 and 1995, net sales of molded
floor carpets were $350.2 million, $234.1 million and $231.8 million,
respectively. Luggage compartment trim includes one-piece molded trunk systems
and assemblies, wheelhouse covers and center pan mats, seatbacks, tireboard
covers and other trunk trim products. In 1997, 1996 and 1995, net sales of
luggage compartment trim were $94.6 million, $51.4 million and $52.4 million,
respectively.
The Company entered the acoustical product market with its December 1996
acquisition of Perstorp's North American, United Kingdom and Spanish automotive
supply operations and a joint venture interest in Perstorp's operations in
Sweden, Belgium and France. The Company acquired certain of Perstorp's German
automotive supply operations in August 1997 and acquired full ownership of the
operations in Sweden, Belgium and France in December 1997. These operations
supply acoustical products to both domestic and international automotive
manufacturers. Products manufactured include interior dash insulators, damping
materials and engine compartment NVH (noise, vibration and harshness) systems.
These products can be combined with molded floor carpets to provide complete
interior floor systems to the automotive industry. In 1997, the Company's net
sales of acoustical products were $188.8 million.
2
AUTOMOTIVE FABRICS. The Company manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. The Company also laminates
foam to bodycloth. In 1997, 1996 and 1995, the Company had net sales of
bodycloth of $283.7 million, $243.9 million and $327.5 million, respectively.
The Company's automotive fabrics group also manufactures small volumes of
certain other products, such as headliner fabrics, velvet furniture fabrics,
casket liners and woven fabrics for various commercial and industrial markets.
ACCESSORY FLOOR MATS. The Company produces carpeted automotive accessory
floor mats for North American produced and imported vehicles and for export
to Europe. In 1997, 1996 and 1995, net sales of accessory floor mats were $134.6
million, $83.7 million, and $80.3 million, respectively. This group also
produces residential floor mats.
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. Net sales of
convertible top systems in 1997, 1996, and 1995 were $86.6 million, $100.2
million and $58.2 million, respectively.
PLASTIC-BASED INTERIOR SYSTEMS. In January 1996, the Company acquired
C&A Plastics, a manufacturer of automotive door panels, headrests, floor console
systems and instrument panel components. The acquisition of C&A Plastics added a
broad range of molded plastic components to the Company's textile-based
automotive interior trim products. Net sales of plastic interior trim components
in 1997 and 1996 were $294.3 million and $176.4 million, respectively.
COMPETITION
The automotive supply business is highly competitive. The Company has
competitors in respect of 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
At December 27, 1997, the Company had 58 manufacturing, warehouse and
other facilities located in the U.S., Canada, Mexico, the United Kingdom, Spain,
Austria, Germany, Sweden, Belgium, France and Japan 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. The
increasing demand for accessory floormats posed capacity issues during 1997.
However, the addition of capacity in Tennessee in early 1998 is beginning to
alleviate the situation. Except for the foregoing constraints, which the Company
believes are 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.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company's revenues, operating profit and identifiable assets for
the last three fiscal years attributable to the Company's geographic areas and
export sales from the United States to foreign countries are disclosed in Note
21 to the Consolidated Financial Statements.
3
RAW MATERIALS
Raw materials and other supplies used in the Company's continuing
operations are normally available from a variety of competing suppliers. With
respect to most materials, the loss of a single or even a few suppliers would
not have a material adverse effect on the Company. For a discussion of raw
material price trends, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources".
ENVIRONMENTAL MATTERS
See "ITEM 3. LEGAL PROCEEDINGS - Environmental Matters" and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Environmental Matters".
EMPLOYEES
As of December 27, 1997, the Company's continuing operations employed
approximately 15,100 persons on a full-time or full-time equivalent basis.
Approximately 4,600 of such employees are represented 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.
YEAR 2000 ISSUES
For a discussion of the impact of Year 2000 compliance issues, see
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANLYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Impact of Year 2000 Compliance."
ITEM 2. PROPERTIES
For information concerning the principal physical properties of the
Company and its 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 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 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
4
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 27,
1997, the Company has established reserves of approximately $46.5 million for
the estimated future costs related to all its known environmental sites. In the
opinion of management, based on the facts presently known to it, the
environmental costs and contingencies will not have a material adverse effect on
the Company's consolidated financial condition or future results of operations.
However, there can be no assurance that the Company has identified or properly
assessed all potential environmental liability arising from the activities or
properties of the Company, its present and former subsidiaries and their
corporate predecessors.
The Company is 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.
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, 1998) 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
---- --- --------
Thomas E. Hannah 59 Chief Executive Officer
Dennis E. Hiller 43 President of Automotive Carpet and Acoustics Group
John D. Moose 61 President of Automotive Fabrics Division
Elizabeth R. Philipp 41 Executive Vice President, General Counsel and Secretary
J. Michael Stepp 53 Executive Vice President and Chief Financial Officer
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 prior to that date was President and Chief Executive Officer of
the Collins & Aikman Textile Group. Mr. Hannah was named an executive officer of
the Company for purposes hereof in April 1993.
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 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.
5
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, Chief
Financial Officer and a Director of Purolator Products Company from December
1992 to January 1995.
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 23, 1998, there
were 145 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 1997 FISCAL 1996
-------------------- ------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 10-1/2 6 8-1/4 6-1/8
Second Quarter 12-1/8 8-5/8 7-1/8 5-1/2
Third Quarter 11-11/16 10 7 5-7/8
Fourth Quarter 11-3/16 7-15/16 6-5/8 5-3/4
No dividend or similar 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. 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.
6
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
FISCAL YEAR ENDED
------------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29,
1997 1996 (1) 1996 1995 1994
---- -------- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 1,629,332 $ 1,053,821 $ 902,017 $ 906,997 $ 689,286
Gross margin.............................. 232,211 188,475 161,925 172,487 120,250
Selling, general and administrative
expenses............................... 118,432 82,699 65,996 68,304 71,397
Management equity plan expense............ - - - - 26,736
Goodwill amortization..................... 6,669 3,872 270 - 1,657
Impairment of long-lived assets(2)........ 22,600 - - - 77,559
Operating income (loss)................... 84,510 101,904 95,659 104,183 (57,099)
Interest expense, net(3).................. 77,581 39,850 22,150 44,440 70,449
Loss on sale of receivables(4)............ 4,700 4,533 6,246 6,124 -
Income (loss) from continuing
operations before income taxes......... 2,907 57,408 67,263 51,361 (132,081)
Income tax expense (benefit).............. 12,998 24,442 (139,959) 10,031 9,580
Income (loss) from continuing
operations............................. (10,091) 32,966 207,222 41,330 (141,661)
Income (loss) from discontinued
operations, including disposals, net of
income taxes........................... 166,047 14,468 (781) 34,416 (136,003)
Income (loss) before extraordinary
items.................................. 155,956 47,434 206,441 75,746 (277,664)
Net income (loss)......................... 155,235 40,824 206,441 (30,782) (277,664)
Income (loss) from continuing operations:(5)
Per basic share........................ (0.15) 0.48 2.96 (1.06) (5.87)
Per diluted share...................... (0.15) 0.47 2.91 (1.06) (5.87)
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................. $ 1,302,392 $ 1,530,289 $ 991,361 $ 578,900 $ 819,819
Long-term debt, including current
portion................................ 782,677 1,175,594 759,966 557,039 914,938
Redeemable preferred stock................ - - - - 122,368
Common stockholders' deficit.............. (66,850) (194,578) (227,852) (412,622) (702,220)
OTHER DATA (FROM CONTINUING
OPERATIONS):
Capital expenditures...................... $ 56,521 $ 35,000 $ 53,156 $ 56,193 $ 29,266
Depreciation and leasehold
amortization........................... 42,712 24,457 24,146 24,648 23,259
EBITDA (6)................................ 165,950 134,299 124,086 128,831 72,559
(1) 1996 was a 48-week year.
(2) In 1997, C&A Plastics wrote down fixed assets by $5.1 million and reduced
goodwill by $17.5 million to reflect impairments in the carrying values
of certain assets and goodwill associated with two of its manufacturing
facilities. See Notes to Consolidated Financial Statements.
7
(3) Excludes amounts related to discontinued operations as follows:
DECEMBER 27, DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29,
1997 1996 1996 1995 1994
--------- --------- --------- --------- ----------
The Mastercraft Group, Floorcoverings,
Airbag and Wallcoverings................ $ 12,539 $ 26,734 $ 26,454 $ 31,243 $ 40,842
Operations discontinued prior to fiscal
1995.................................... - - - - 18,871
--------- --------- --------- --------- ----------
$ 12,539 $ 26,734 $ 26,454 $ 31,243 $ 59,713
========= ========= ========= ========= ==========
(4) Excludes amounts allocated to discontinued operations totaling $0.6
million, $2.2 million, $2.4 million and $1.5 million in 1997, 1996, 1995
and 1994, respectively.
(5) The earnings per share amounts have been restated to comply with
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). For further discussion of earnings per share and
the impact of SFAS 128, see the Notes to Consolidated Financial
Statements.
(6) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income taxes, depreciation, amortization,
other income and expense, and the non-cash portion of non-recurring
charges. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
generally accepted accounting principles.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
ACQUISITIONS AND JOINT VENTURES
On August 31, 1997, the Company purchased certain automotive acoustic
assets and assumed certain liabilities in Germany from Perstorp for
approximately $13.6 million.
On October 29, 1997, the Company entered into a joint venture
agreement with Kigass to manufacture plastic trim products in the United
Kingdom. The Company and Kigass each owned 50% of the joint venture. On
February 2, 1998, the Company acquired Kigass for approximately $24.2 million,
subject to post-closing adjustment.
On December 4, 1997, the Company entered into a joint venture with
Courtaulds, a publicly-owned, international textiles and clothing manufacturer
located in the United Kingdom, to manufacture automotive interior fabrics for
European customers. The Company and Courtaulds each have a 50% ownership in the
joint venture.
On December 16, 1997, the Company acquired Perstorp's remaining
interest in the Collins & Aikman/Perstorp automotive acoustics joint venture
with operations in Sweden, Belgium and France. The Company received the
ownership interest in settlement of certain disputed claims by the Company
against Perstorp arising from the Company's December 1996 and August 1997
purchases from Perstorp. The resulting goodwill is being amortized on a straight
line basis over 40 years.
DISCONTINUED OPERATIONS
On November 5, 1997, the Company announced that it entered into an
agreement to sell Wallcoverings to a company sponsored by Blackstone Capital
Partners III Merchant Banking Fund LP, an affiliate of Blackstone Partners. The
purchaser entered into a separate agreement to purchase the wallcovering and
vinyl units of Borden Inc. (the "Borden Business") and stated that it intended
to combine Wallcoverings with the Borden Business. The sale closed on March 13,
1998. The purchase price for Wallcoverings included $71.2 million in cash,
subject to adjustment, and an option to acquire 6.7% of the common stock of the
purchaser (which includes Wallcoverings and the Borden Business) outstanding on
the date of closing. In connection with the transaction, the Company recorded a
loss of approximately $21.1 million, net of income taxes, in the third quarter
of 1997 to adjust the recorded value to the expected proceeds. Accordingly, no
gain or loss was recognized at the sale date. Wallcoverings has been a
discontinued operation since April, 1996.
8
On July 24, 1997, JPS Automotive completed the sale of Airbag, its
airbag and industrial fabric business, to Safety Components International, Inc.
for a purchase price of approximately $56 million. No gain or loss was recorded
on the sale since the sales price approximated the acquisition fair value of
Airbag. Pursuant to the indenture governing the JPS Automotive Senior Notes, in
connection with such sale, the Company caused JPS Automotive to make an offer to
purchase (up to the amount of the net proceeds from the sale) the JPS Automotive
Senior Notes. During October 1997, the Company caused JPS Automotive to use a
portion of the proceeds remaining from the sale of Airbag to make a distribution
of $35 million to C&A Products, as permitted under the restricted payment
provisions of the JPS Automotive Senior Notes indenture. See "- Liquidity and
Capital Resources". The Company used the proceeds of this distribution to reduce
its long-term debt.
On July 16, 1997, the Company completed its sale of the Mastercraft
Group, a manufacturer of flat woven upholstery fabric, to Joan Fabrics
Corporation, for a purchase price of approximately $310 million, subject to
adjustment. A portion of the net proceeds was used to reduce the Company's
long-term debt. The sale resulted in a net after-tax gain of $97.5 million.
On February 6, 1997, the Company completed the sale of its
Floorcoverings subsidiary for net proceeds of $195.6 million. The net proceeds
were used to pay down debt incurred to finance the Company's automotive
strategy. The sale resulted in a net after-tax gain of $85.3 million.
The Company has accounted for the financial results and net assets of
Wallcoverings, Floorcoverings, the Mastercraft Group and Airbag 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 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.
GENERAL
The Company is a global supplier of automotive interior systems,
including textile and plastic trim, acoustics and convertible top systems. The
Company's net sales in fiscal 1997 were $1,629.3 million compared to $1,053.8
million in fiscal 1996. 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 1997 and
1995 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.
The automotive supply industry in which the Company competes is
cyclical and is influenced by the level of North American vehicle production.
Management believes the long term trends in the design and manufacture of
automotive products include the increased use of plastic components, the
increased sourcing of interior systems and U.S. automotive manufacturers'
movement to fewer suppliers and to suppliers with engineering and design
capabilities. The Company anticipates the reduction in the supply chain will
result in integration whereby the complete interior of an automobile will be
co-designed and developed with fewer suppliers who will manufacture and deliver
required components. The Company anticipates these capabilities will be
essential to its long term stategic positioning as a key supplier within the
automotive industry and with its customers.
9
RESULTS OF OPERATIONS
FISCAL YEAR ENDED
--------------------------------------------------------
DECEMBER 27, DECEMBER 28, JANUARY 27,
1997 1996 1996
--------------- --------------- ---------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
(IN MILLIONS)
Net sales.......................................................... $ 1,629.3 $ 1,053.8 $ 902.0
Cost of goods sold................................................. 1,397.1 865.3 740.1
Gross margin....................................................... 232.2 188.5 161.9
Selling, general and administrative expenses....................... 118.4 82.7 66.0
Goodwill amortization.............................................. 6.7 3.9 0.3
Impairment of long-lived assets.................................... 22.6 - -
Operating income................................................... 84.5 101.9 95.7
Gross margin percentages........................................... 14.3% 17.9% 18.0%
Operating margin percentages....................................... 5.2% 9.7% 10.6%
EBITDA (1)......................................................... $ 166.0 $ 134.3 $ 124.1
(1) EBITDA represents earnings before deductions for net interest expense,
loss on sale of receivables, income taxes, depreciation, amortization,
other income and expense and the non-cash portion of non-recurring
charges. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
generally accepted accounting principles.
1997 COMPARED TO 1996
As a result of the Company's decision to change its year-end, fiscal
1996 was a 48-week period as compared to fiscal 1997, which was a 52-week
period. Therefore, sales in all product lines and the associated costs and
expenses were impacted by reporting a longer period in 1997. Additional
significant increases in sales and associated costs and expenses resulted from
the Company's 1996 acquisitions. A discussion of the results of operations for
the Company follows:
NET SALES: The Company's net sales increased 54.6% to $1,629.3 million
in 1997, up $575.5 million from 1996. The majority of this increase resulted
from the December 1996 acquisitions of JPS Automotive and Perstorp Components,
which together generated revenues of $422.5 million in fiscal 1997. Sales to
General Motors and Chrysler during 1997 were negatively impacted by United Auto
Workers' strikes in the second quarter. The decrease in net sales attributable
to these strikes is estimated at $17.4 million. 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
attributed to these strikes is estimated at $33.5 million. Sales in the
Company's five principal product groups are discussed below.
CARPET AND ACOUSTICS: Molded carpet sales increased 49.6% to $350.2
million in 1997, up $116.1 million from 1996 sales, primarily as a result of the
JPS Automotive acquisition and increased sales to the European automotive
market. Overall, average sales prices declined due to the acquisition of JPS
Automotive and the impact of currency rates on sales in Canada. Sales were also
positively impacted by increased sales to the Dodge Dakota and Durango and
Toyota T100. These increases were partially offset by decreased sales to the
Buick Century/Oldsmobile Ciera, Chrysler Minivan and Ford Mustang.
Luggage compartment trim sales increased 84.0% to $94.6 million, up
$43.2 million from 1996 primarily due to the acquisition of JPS Automotive.
Overall, average sales prices increased due to the acquisition of JPS
Automotive. Sales increases also resulted from higher Toyota Camry volumes and
the full year impact of the Buick Park Avenue and Subaru Legacy Wagon both of
which started production in mid-1996. Sales also increased to the Dodge Dakota
and Durango.
Acoustical products, which was acquired in December 1996 and August
1997, contributed $188.8 million in net sales to the North American and European
automotive markets during 1997.
AUTOMOTIVE FABRICS: Automotive bodycloth sales increased 16.3% to
$283.7 million in 1997, up $39.8 million from 1996. Average sales prices were
relatively unchanged from 1996. An increase in sales resulting from the
acquisition of JPS Automotive was offset by reduced sales for the Chrysler LH,
Minivans and the Ford Contour/Mercury Mystique and Ford Explorer.
10
ACCESSORY FLOOR MATS: Accessory floor mat sales increased 60.8% to
$134.6 million, up $50.9 million over 1996. The overall increase is attributable
to increased sales to General Motors' minivans, the Oldsmobile Cutlass, Buick
Regal, Pontiac Grand Prix, Toyota Camry, Nissan Maxima and Sentra and new export
programs, offset by decreased sales to the Honda Accord and Civic and Mitsubishi
Galant.
CONVERTIBLE TOP SYSTEMS: Convertible top systems sales decreased 13.5%
to $86.6 million, down $13.6 million from 1996, principally due to decreased
production of the Chrysler Sebring and the Ford Mustang convertibles.
PLASTIC-BASED INTERIOR TRIM SYSTEMS: Plastic interior trim component
sales increased 66.9% to $294.3 million, up $117.9 million from 1996. This
increase in sales relates primarily to the launch during the latter part of 1996
of new programs for which C&A Plastics is the supplier as well as the negative
impact of a General Motors strike on C&A Plastics' sales for the first quarter
of 1996. New programs increasing 1997 sales included the Cadillac
Concours/Deville, Buick Century and Regal, Chevrolet Malibu and the Ford
Econoline. These increases were partially offset by decreases to the Chevrolet
Corsica/Beretta.
OTHER: In addition, the Company had $196.5 million and $158.6 million in
sales of non-automotive products in fiscal 1997 and 1996, respectively, which
are spread among four of the Company's five principal product groups discussed
above.
Approximately 35% of the Company's sales were attributable to products
utilized in vehicles built outside of North America.
The above factors resulted in an increase in the Company's average
revenue per North American-produced vehicle to approximately $89 for 1997 up
from approximately $68 for 1996. The Company's content per build in Europe was
approximately $17 in 1997 including the operations in Sweden, Belgium and France
which were jointly owned in 1997.
GROSS MARGIN: For 1997, gross margin was 14.3%, down from 17.9% in
1996. During the third quarter of 1997, the Company incurred charges of
approximately $57.9 million principally related to C&A Plastics. These charges,
which primarily related to manufacturing inefficiencies experienced by C&A
Plastics related to product launches and record volume for its products,
included asset impairments, reductions in goodwill, provisions for certain
programs operating at a loss, inventory adjustments, certain previously deferred
costs and other provisions. Of the $57.9 million of charges, $34.0 million is
included in cost of goods sold, $22.6 million is discussed below as impairment
of long lived assets and $1.3 million relates to selling costs. Adjusted for
certain of the charges taken by C&A Plastics, gross margin was 15.2%. The
decrease in gross margin is attributable primarily to lower margins in products
sold by JPS Automotive and Perstorp Components, the decrease in sales of higher
margin convertible top systems and manufacturing inefficiencies and product
launch costs at C&A Plastics and Akro.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased 44.5% to $125.1 million, up $38.5 million from
1996. This increase is primarily due to the acquisitions of JPS Automotive and
Perstorp Components in December 1996. As a percentage of sales, selling, general
and administrative expenses decreased to 7.7% in 1997 from 8.2% in 1996.
IMPAIRMENT OF LONG LIVED ASSETS: During the third quarter of 1997, C&A
Plastics wrote down fixed assets by $5.1 million to realizable value and reduced
its goodwill by $17.5 million, as a result of an evaluation of the
recoverability of the long lived assets of C&A Plastics that was conducted in
connection with the determination of the charges discussed above.
INTEREST EXPENSE: Interest expense allocated to continuing operations,
net of interest income of $5.7 million in 1997 and $4.0 million in 1996,
increased $37.7 million to $77.6 million in 1997 from $39.9 million in 1996. The
overall increase in interest expense was due to a higher amount of overall
outstanding indebtedness, primarily related to the JPS Automotive and Perstorp
Components acquisitions, as well as higher interest rates associated with the
$400 million principal amount of the Subordinated Notes issued by C&A Products
in June 1996. The Subordinated Notes are guaranteed by the Company. Total net
interest expense, including amounts allocated to discontinued operations, was
$90.1 million in 1997 and $66.6 million in 1996.
LOSS ON SALE OF RECEIVABLES: The Company sells on a continuous basis,
though its Carcorp subsidiary, interests in a pool of accounts receivable. In
connection with the receivable sales, a loss of $4.7 million, net of amounts
allocated to discontinued operations, was incurred in 1997 compared to a loss of
$4.5 million, net of amounts allocated to discontinued operations, in 1996.
Total loss on sale of receivables, including amounts allocated to discontinued
operations, was $5.3 million in 1997 and $6.7 million in 1996.
11
OTHER (INCOME) EXPENSE: In 1997, the Company recognized a gain of $1.7
million related to the sale of the Borg Textiles Division of its principal
Canadian subsidiary, and income of $0.9 million related to its investment in the
Collins & Aikman/Perstorp joint venture. These gains were offset by a $1.9
million loss on foreign currency transactions. The Company recognized a $0.1
million loss on foreign currency transactions in 1996. The loss in 1997 is
primarily due to fluctuations in the Canadian dollar.
INCOME TAXES: In 1997, the Company recognized a $13.0 million tax
provision compared to a $24.4 million provision in 1996. The Company's effective
tax rate in 1997 was 447%, compared to 42% in 1996. The higher tax rate in 1997
is primarily due to the inclusion in the income tax calculation of nondeductible
goodwill including the $17.5 million of goodwill written off by C&A Plastics.
DISCONTINUED OPERATIONS: The Company's income from discontinued
operations was $4.3 million in 1997 compared to $14.5 million in 1996. The
decrease results primarily from the sale of Floorcoverings in February 1997 and
the sale of the Mastercraft Group in July 1997.
The sale of Floorcoverings for approximately $195.6 million was
completed in February 1997 and resulted in a gain of $85.3 million net of income
taxes of $53.4 million. The sale of the Mastercraft Group was completed in July
1997 for approximately $310.0 million, resulting in a gain on the sale of
discontinued operations of $97.5 million, net of taxes of $65.0 million. In
connection with the agreement to sell Wallcoverings, the Company recorded a loss
of $21.2 million, net of an income tax benefit of $33.0 million, during the
third quarter of 1997 to adjust the recorded value to the expected proceeds.
EXTRAORDINARY LOSS: In 1997, the Company recognized a loss of $0.7
million, net of income taxes of $0.4 million, in connection with the purchase by
JPS Automotive of $19.4 million principal amount of JPS Automotive Senior Notes
on the open market at prices in excess of carrying values. In 1996, the Company
recognized a non-cash extraordinary charge of $6.6 million, net of income taxes
of $4.7 million, related to the refinancing of its bank facilities. The
refinancing was done in conjunction with the Company's offering of the
Subordinated Notes.
NET INCOME: The combined effect of the foregoing resulted in net income
of $155.2 million in 1997 compared to net income of $40.8 million in 1996.
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 16.8% to $1,053.8 million
in 1996, up $151.8 million over 1995. The majority of this increase resulted
from the January 1996 acquisition of C&A 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 $11.9 million from
December 11, 1996 through year end. Sales in 1996 were also negatively impacted
by the March 1996 and October 1996 strikes at General Motors discussed above.
CARPET AND ACOUSTICS: 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.
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.
The acoustics operations acquired on December 11, 1996 contributed $5.6
million in sales.
12
AUTOMOTIVE FABRICS: 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.
ACCESSORY FLOOR MATS: Accessory floor 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.
CONVERTIBLE TOP SYSTEMS: 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.
PLASTIC-BASED INTERIOR TRIM SYSTEMS: C&A 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. C&A
Plastics' 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.
OTHER: In addition, the Company had $158.6 million and $141.0 million
in sales of non-automotive products in fiscal 1996 and 1995, respectively, which
are spread among four of the Company's five principal product groups discussed
above.
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, C&A 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.
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 C&A 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, net
interest expense, including amounts allocated to discontinued operations
increased to $66.6 million from $48.5 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 C&A 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 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.
13
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 $0.8 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$24.0 million and $14.3 million at December 27, 1997 and December 28, 1996,
respectively. The Company had a total of $232.0 million of borrowing
availability under its credit arrangements as of December 27, 1997. The total
was comprised of $217.8 million under the Revolving Facility, approximately
$11.2 million under bank demand lines of credit in Canada and Austria, and $3.0
million available under the Receivables Facility.
As part of a recapitalization in 1994, 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, which was terminated and replaced with the
Receivables Facility described below. On December 22, 1995, the Company and C&A
Products entered into a $197 million credit facility (the "Term Loan B
Facility") to finance the January 1996 purchase of C&A 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 consisted 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.
On February 6, 1997, the Company sold its Floorcoverings subsidiary for
$195.6 million. The net proceeds were used to pay down the outstanding portion
of the Revolving Facility and a portion of the Receivables Facility. The Company
completed the sale of the Mastercraft Group in July 1997 for a purchase price of
approximately $310 million, subject to adjustment. The Company utilized a
portion of the net proceeds from the sale to further reduce long-term debt. In
addition, effective July 16, 1997, receivables generated by members of the
Mastercraft Group ceased to be sold in connection with the Receivables Facility,
as discussed below. Also, the Company completed the sale of Airbag in July 1997
for a purchase price of approximately $56 million. Pursuant to the indenture
governing the JPS Automotive Senior Notes, in connection with such sale, the
Company caused JPS Automotive to make an offer to purchase (up to the amount of
the net proceeds from the sale) the JPS Automotive Senior Notes at 100% of their
principal amount. Pursuant to such offer (which expired September 16, 1997), JPS
Automotive repurchased and retired $23 thousand principal amount of JPS
Automotive Senior Notes. In December 1997, the Company repaid $88.5 million
under the Term Loan Facility (including $27 million under the Canadian facility)
and $13.5 million under the Term Loan B Facility. At December 27, 1997, the
Company had $10.0 million outstanding on the Revolving Credit Facility, $17.6
million on the Term Loan Facility and $167.4 million on the Term Loan B
Facility.
14
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. Certain of these tests and covenants
were waived for the second, third and fourth quarters of 1997 and the first
quarter of 1998 in connection with the charges incurred at C&A Plastics and the
sales of the Mastercraft Group and Floorcoverings. The Company requires a
modification of these tests and covenants for the remainder of 1998 and beyond
due to these sales and its increasing international presence and expects to
renegotiate them in connection with a broader modification of its existing
credit facilities to conform to the Company's current corporate and financing
structure. The Company expects this modification to occur in the first half of
1998. 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) pay permitted dividends. 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 (which amount was increased to $24 million for fiscal 1997) 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 in amounts representing certain net proceeds from the sale of
Wallcoverings. 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.
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 and increasing to 2.25 to 1.0 after June 30, 1998) 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, dividends to
stockholders of the Company of the net available proceeds from the sale or other
disposition of Wallcoverings and dividends to the Company to permit it to pay
its operating and administrative expenses. The Subordinated Notes indenture also
contains other restrictive covenants (including, among others, limitations on
the incurrence of indebtedness, asset dispositions and transactions with
affiliates) which are customary for such securities. These covenants are also
subject to a number of significant exceptions.
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 Senior Notes and to allow the Company to use the proceeds from the
sale of Floorcoverings to pay down the Revolving Facility and a portion of the
Receivables Facility. 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. 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 purchased by JPS Automotive in the first
quarter of 1997. During the second quarter of 1997, an additional $19.4 million
principal amount of JPS Automotive Notes were purchased by JPS Automotive on the
open market and retired. No open market purchases were made during the third and
fourth quarters of 1997, although $23 thousand principal amount of JPS
Automotive Senior Notes were repurchased and retired pursuant to an offer to
purchase due to the sale of Airbag. After giving effect to the above, JPS
Automotive had as of December 27, 1997 approximately $91.8 million of
indebtedness outstanding (including a premium of $3.2 million) related to the
JPS Automotive Senior Notes. The Company is operating 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;
15
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 27, 1997. 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 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 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 Company was entitled to draw upon the Delayed Draw Term Loan until
December 11, 1997. Prior to the JPS Automotive Acquisition, the Company had
purchased in the open market $68.0 million principal amount of JPS Automotive
Senior Notes, which were subsequently retired by JPS Automotive. As of December
27, 1997, $23.8 million had been drawn under the Delayed Draw Term Loan and
there was no further availability. The Delayed Draw Term Loan's security and
restrictive covenants are identical to those in the Bank Credit Facilities.
Certain of these tests and covenants were waived for the second, third and
fourth quarters of 1997 and the first quarter of 1998 in connection with the
charges incurred at C&A Plastics and the sales of the Mastercraft Group and
Floorcoverings. The Company requires a modification of these tests and covenants
for the remainder of 1998 and beyond due to these sales and its increasing
international presence and expects to renegotiate them in connection with a
broader modification of its existing credit facilities to conform to the
Company's current corporate and financing structure. The Company expects this
modification to occur in the first half of 1998.
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 automotive industry, the rate of collection on those receivables
and other characteristics of those receivables which affect their eligibility
(such as the bankruptcy or downgrading below investment grade of the obligor,
delinquency and excessive concentration). Based on these criteria, at December
27, 1997 approximately $3.0 million was available under the variable funding
certificates, none of which was utilized.
In connection with the proposed disposition of Wallcoverings,
Wallcoverings was terminated as a Seller of receivables under the Receivables
Facility on September 21, 1996. 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. In connection with the sale of the
Mastercraft Group, effective July 16, 1997 receivables generated by the
Mastercraft Group ceased to be sold to Carcorp and transferred to the Trust, and
the Company terminated Ack-Ti-Lining, Inc., a member of the Mastercraft Group,
as a Seller of receivables under the Receivables Facility. The collections of
these Mastercraft Group receivables resulted in the redemption of $30 million
face value of term certificates on November 25, 1997. The reduction in the term
certificates was offset by increases in the variable funding certificates
through the addition of C&A Plastics and its subsidiaries as Sellers under the
facility.
16
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 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 also has outstanding indebtedness totaling approximately
$49.8 million at its subsidiaries operating in Sweden, Belgium and France
constituting the former operations of the Collins & Aikman/Perstorp Joint
Venture. This debt consists of: (i) a 120 million Swedish krona loan ($15.5
million at December 27, 1997), which bears interest at the Stockholm interbank
offered rate for Krona denominated deposits ("STIBOR") plus 0.75% and is secured
by a pledge of the operating assets of the Swedish operating subsidiary; (ii) a
108 million Swedish krona loan ($13.9 million at December 27, 1997), which bears
interest at STIBOR plus 0.75% and is due in June 1998; (iii) a 100 million
Swedish krona loan ($12.9 million at December 27, 1997), which bears interest at
STIBOR plus 1.0% and was repaid in February 1998; and (iv) a 200 million Belgium
franc loan ($5.5 million at December 27, 1997), which bears interest at the
Brussels interbank offered rate for deposits denominated in Belgian francs
("BIBOR") plus 1% and is secured by a pledge of the operating assets of the
Belgian operating subsidiary. In addition, Perstorp has provided a loan in the
amount of 75 million Belgian francs ($2.0 million at December 27, 1997), to the
Belgian subsidiary, which bears interest at BIBOR plus 1% and is due on August
1, 1998.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At December 27, 1997, 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. In
the year ended December 27, 1997, the Company made lease payments relating to
continuing operations of approximately $5.6 million for machinery and equipment
sold and leased back under this master lease. The Company expects lease payments
for continuing operations under this master lease to be $5.8 million during
fiscal 1998.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Bank Credit Facilities and
the sale of receivables under the Receivables Facility. Net cash provided by the
operating activities of the Company's continuing operations was $98.9 million
for 1997.
The Company's principal uses of funds from operating activities and
borrowings for the next several years are expected to be to fund interest and
principal payments on its indebtedness, net working capital increases and
capital expenditures. At December 27, 1997, the Company had total outstanding
indebtedness of $782.7 million (excluding approximately $22.1 million of
outstanding letters of credit and $.4 million of indebtedness of the
discontinued operations) at an average interest rate of 9.9% per annum. Of the
total outstanding indebtedness, $618.8 million relates to the Bank Credit
Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to
$10 million in 1998 to repurchase shares of the Company's Common Stock at
management's discretion. The Company believes it has sufficient liquidity under
its existing credit arrangements to effect the repurchase program. The Company
spent $19.7 million to repurchase shares during fiscal 1997 and $9.6 million to
repurchase shares during fiscal 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 ("Chase's") Alternate Base Rate
(which is the highest of Chase's announced prime rate, the Federal Funds Rate
plus .5% and Chase's base certificate of deposit rate plus 1%) plus a margin
(the "ABR 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
27, 1997. 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'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 27, 1997 was 8.0%. The weighted average interest rate on the
sold interests under the Receivables Facility at December 27, 1997 was 6.75%.
Under the Receivables Facility, the term certificates bear interest at an
average rate equal to one month LIBOR plus .34% per
17
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 was $93.0 million
and $60.0 million for the fiscal years ended December 27, 1997 and December 28,
1996, 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%. In addition, during April 1997, the Company entered into a
two year interest rate swap agreement in which the Company effectively exchanged
$27.0 million of 11-1/2% fixed rate debt for floating rate debt at six month
LIBOR plus a 4.72% margin. In connection with this swap agreement, the Company
also limited its interest rate exposure by entering into an 8.50% cap on LIBOR
on $27.0 million of notional principal amount. Based upon amounts outstanding at
December 27, 1997, a .5% increase in LIBOR (6.0% at December 27, 1997) would
impact interest costs by approximately $1.1 million annually on the Bank Credit
Facilities and the Delayed Draw Term Loan and $1.0 million annually on the
Receivables Facility. During April 1997, the Company entered into an agreement
to limit its foreign currency exposure related to $45.0 million of US dollar
denominated borrowings of a Canadian subsidiary. The agreement swaps LIBOR based
interest rates for the Canadian equivalent as well as fixes the exchange rate
for the principal balance when the amount comes due in 2002. At December 27,
1997, the remaining $18.0 million of U.S. dollar denominated borrowings of the
Canadian subsidiary were hedged under this agreement.
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
for 1998, 1999, 2000, 2001 and 2002 are $30.3 million, $28.2 million, $59.9
million, $128.9 million and $80.9 million, respectively. The JPS Automotive
Senior Notes 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 or Wallcoverings, 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 will require quarterly installments of approximately $2.2 million
beginning in July 1999 and ending January 2002. 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. As discussed
above, the Company caused JPS Automotive to make such an offer to purchase JPS
Automotive Senior Notes in connection with the sale of Airbag.
The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of December 27, 1997, the Company's continuing
operations had approximately $28.6 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations including its outstanding commitments in fiscal 1998 will
aggregate approximately $85 million, a portion of which may be financed through
leasing. The Company's capital expenditures in future years will depend upon
demand for the Company's products and changes in technology.
The Company is sensitive to price movements in its raw material supply
base. During fiscal 1997, prices for most of the Company's primary raw materials
remained constant with price levels at December 28, 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.
18
Since Wallcoverings was classified as a discontinued operation in April
1996, Wallcoverings has continued to experience sales declines. From April 1996
through October 1997, the Company has expended approximately $67.1 million to
fund operations, working capital and capital expenditures and to replace
receivables previously sold to Carcorp. Of these amounts, $21.0 million
represents repayments of intercompany amounts owed to Wallcoverings. From
November 1, 1997 through its disposition, the Company expended approximately
$19.2 million prior to the disposition of Wallcoverings principally to fund
Wallcoverings' operations, working capital and capital expenditure requirements.
Of this amount, $13.2 million was the responsibility of the purchaser of
Wallcoverings under the sales agreement and an estimate, which is subject to
adjustment, was included in the purchase price paid at closing.
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, will be approximately $19 million in fiscal 1998. However,
because the requirements of the Company's discontinued operations are largely a
function of contingencies, it is possible that the actual net cash requirements
of the Company's discontinued operations could differ materially from
management's estimates. Management believes that the Company's cash needs
relating to discontinued operations can be provided by operating activities from
continuing operations and by borrowings under the Bank Credit Facilities.
TAX MATTERS
At December 27, 1997, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $119.4 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2011. The Company also has unused Federal tax credits of approximately $14.9
million, $2.2 million of which expire during the period 1998 to 2006.
Approximately $17.1 million of the Company's NOLs and $2.2 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. 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 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 disposition 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 businesses in
concluding that it was more likely than not that previously unrecognized net
deferred tax assets totaling approximately $150 million would be realized.
Similarly, management concluded that it was more likely than not that net
deferred tax assets of $74.6 million and $148.4 million at December 27, 1997 and
December 28, 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 27, 1997 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 $19.6 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
19
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 27, 1997, including sites
relating to the acquisition of C&A 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 25 sites where
the Company is participating in the 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 27, 1997, the Company's estimate of its liability
for these 34 sites, which exclude sites related to Wallcoverings, is
approximately $33.8 million. As of December 27, 1997, the Company has
established reserves of approximately $46.5 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.
IMPACT OF YEAR 2000 COMPLIANCE
In order to improve operating performance, the Company has undertaken,
or will undertake in the near future, a number of significant information
systems initiatives. One goal of such systems initiatives is to make the
Company's systems Year 2000 compliant. Based upon a recent assessment, the
Company expects at this time that the cost of the overall information systems
initiatives (which includes the cost of ensuring that its remaining computer
systems are Year 2000 compliant) should not have a material adverse effect on
the Company. The Company has completed a preliminary assessment of each of its
operations and their Year 2000 readiness and believes that appropriate actions
are being taken. The Company currently expects to complete its overall Year 2000
remediation prior to any anticipated impact on its operations. The Company
believes that, with modifications to existing software and conversions to new
systems, the Year 2000 issue should not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
adverse impact on the operations of the Company. Whether such modifications and
conversions are timely completed may to some extent depend on the availability
of outside consultants as well as establishing reliable telecommunication links
with the Company's operations in Europe and Mexico. Further, while the Company
has initiated communications with a number of its significant suppliers to
determine the extent to which the Company's interface systems are
20
vulnerable to those third parties' failure to remediate their own Year 2000
issues, and plans to initiate similar communications with the balance of its
major suppliers and major customers in 1998, there is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
CURRENCY RATE EXPOSURE
The primary purpose of the Company's foreign currency hedging
activities is to protect against the volatility associated with foreign currency
purchase transactions. Corporate policy prescribes the range of allowable
hedging activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months.
Gains and losses related to qualifying hedges of foreign currency firm
commitments or anticipated transactions are included in the basis of the
underlying transactions. To the extent that a qualifying hedge is terminated or
ceases to be effective as a hedge, any deferred gains and losses up to that
point continue to be deferred and are included in the basis of the underlying
transaction. All other foreign exchange contracts are marked-to-market on a
current basis and are generally charged to other income (expense). To the extent
that the anticipated transactions are no longer likely to occur, the related
hedges are closed with gains or losses charged to earnings on a current basis.
Based on the Company's overall currency rate exposure at December 27,
1997, including derivative and other foreign currency sensitive instruments, a
near-term change in currency rates in amounts indicated by historical currency
rate movements would not materially affect the consolidated financial position,
results of operations, or cash flows of the Company.
SAFE HARBOR STATEMENT
This Form 10-K contains statements which, to the extent they are not
historical fact, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements
involve risks and uncertainties. The forward-looking statements in this Form
10-K are intended to be subject to the safe harbor protection provided by the
Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this Form 10-K include industry-based factors such as possible declines in the
North American automobile and light truck build, labor strikes at the Company's
major customers, changes in consumer preferences, dependence on significant
automotive customers, the level of competition in the automotive supply industry
and Year 2000 compliance issues, as well as factors more specific to the Company
such as the substantial leverage of the Company and its subsidiaries,
limitations imposed by the Company's debt facilities and changes made in
connection with the integration of operations acquired by the Company. 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 also see the Company's other filings
with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosures are not required at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of Collins & Aikman
Corporation and subsidiaries included herein and listed on the Index to
Financial Statements set forth in Item 14 (a) of this Form 10-K report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K regarding
executive officers 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 1998 Annual Meeting of Stockholders, which will be filed in final form
with the Commission not later than 120 days after December 27, 1997 (the "Proxy
Statement"), captioned "Election of Directors--Information as to Nominees and
Other Directors". 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 Company's knowledge, in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to that portion of the Proxy Statement captioned "Executive
Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to those portions of the Proxy Statement captioned "Voting Securities
and Principal Stockholders", "Security Ownership of Management" and "Election of
Directors--Information as to Nominees and Other Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to that portion of the Proxy Statement captioned "Compensation
Committee Interlocks and Insider Participation".
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
PAGE
NUMBER
Report of Independent Public Accountants F-1
Consolidated Statements of Operations for the fiscal years ended December 27, 1997,
December 28, 1996, and January 27, 1996 F-2
Consolidated Balance Sheets at December 27, 1997 and December 28, 1996 F-3
Consolidated Statements of Cash Flows for the fiscal years ended December 27, 1997,
December 28, 1996, and January 27, 1996 F-4
Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended
December 27, 1997, December 28, 1996, and January 27, 1996 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 27, 1997, December 28, 1996, and
January 27, 1996 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.
23
Exhibit
Number Description
- ------ -----------
2.1 - Mastercraft Group Acquisition Agreement dated as of April 25, 1997 among Collins & Aikman Products Co., Joan
Fabrics Corporation and MC Group Acquisition Company L.L.C., is hereby incorporated by reference to Exhibit 2.1
of Collins & Aikman Corporation's Report on Form 10-Q for this fiscal quarter ended March 29, 1997.
2.2 - Asset Purchase Agreement dated as of June 30, 1997 by and between JPS Automotive L.P. and Safety Components
International, Inc. is hereby incorporated by reference to Exhibit 2.1 of JPS Automotive L.P.'s and JPS
Automotive Products Corp.'s Current Report on Form 8-K dated July 24, 1997.
2.3 - Closing Agreement dated July 24, 1997 between JPS Automotive L.P., Safety Components International, Inc. and
Safety Components Fabric Technologies, Inc. is hereby incorporated by reference to Exhibit 2.2 of JPS Automotive
L.P.'s and JPS Automotive Products Corp.'s Current Report on Form 8-K dated July 24, 1997.
2.4 - Amended and Restated Acquisition Agreement dated as of November 4, 1997 and amended and restated as of March 9,
1998, among Collins & Aikman Products Co., Imperial Wallcoverings Inc. and BDPI Holdings Corporation.
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 here