SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
AMENDMENT NO.1 TO
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended October 30, 1993
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-6761
COLLINS & AIKMAN GROUP, INC.
A Delaware Corporation (IRS Employer Identification
No. 38-1954600)
8320 University Executive Park, Suite 102
Charlotte, North Carolina 28262
Telephone (704) 548-2350
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 .
As of December 13, 1993, the number of outstanding shares of the
Registrant's common stock, $0.10 par value, was 47,808,123 shares.
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Index to Amendment No.1 on Form 10-Q/A to the Quarterly Report on
Form 10-Q for the fiscal quarter ended October 30, 1993.
Page No.
Introduction i
Item 1. Financial Statements I-1
Item 2. Management's Discussion and Analysis of Financial I-10
Condition and Results of Operations
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
AMENDMENT NO.1 ON FORM 10-Q/A
to the
Quarterly Report on Form 10-Q for
the Fiscal Quarter Ended October 30, 1993
INTRODUCTION
Amendment No.1 on Form 10-Q/A (this "Amendment") to the Quarterly Report
on Form 10-Q for the fiscal quarter ended October 30, 1993 filed December
14, 1993 (the "October 1993 10-Q") of Collins & Aikman Group Inc. (the
"Company") is being filed by the Company to amend Items 1 and 2 of Part I
of the October 1993 10-Q as set forth below and in the pages attached hereto.
Item 1 of the October 1993 10-Q is hereby amended to restate the
Company's consolidated financial statements at and for the thirteen and
thirty-nine weeks ended October 30, 1993 to exclude a restructuring charge of
$24 million that was previously recorded in error.
Item 2 of the October 1993 10-Q is hereby amended to make certain
revisions to Management's Discussion and Analysis of Financial Condition
and Results of Operations that are required as a result of the exclusion
of the previously recorded restructuring charge.
Except as described above, this Amendment makes no change to Item 1 and 2
of Part I of the October 1993 10-Q.
Pursuant to Rule 12b-15 of the Rules and Regulations under the
Securities Exchange Act of 1934, the complete text of Items 1 and 2,
as amended, are included in this Amendment.
i
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 30, October 24, October 30, October 24,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . $ 334,629 $ 314,873 $ 963,366 $ 954,074
Cost of goods sold . . . . . . . . . 250,184 244,054 738,743 736,610
Selling, general and administrative
expenses . . . . . . . . . . . . . 55,844 56,361 168,851 174,190
Goodwill write-down . . . . . . . . . 144,800 - 144,800 -
450,828 300,415 1,052,394 910,800
Operating income (loss) . . . . . . . (116,199) 14,458 (89,028) 43,274
Interest expense, net . . . . . . . . (21,250) (21,506) (63,308) (64,545)
Loss from continuing operations
before income taxes . . . . . . . . (137,449) (7,048) (152,336) (21,271)
Income taxes . . . . . . . . . . . . 2,745 716 10,376 9,357
Loss from continuing operations . . . (140,194) (7,764) (162,712) (30,628)
Discontinued operations:
Income (loss) from operations,
net of income taxes . . . . . . . 509 (8,314) (4,462) (18,836)
Loss on disposal, net of income
taxes . . . . . . . . . . . . . . - - (111,137) -
Net loss . . . . . . . . . . . . . . $(139,685) $ (16,078) $ (278,311) $ (49,464)
</TABLE>
See accompanying notes.
I-1
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
October 30, January 30,
1993 1993
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . $ 119,875 $ 80,141
Accounts and notes receivable, net . . . . . . . 193,547 207,795
Inventories . . . . . . . . . . . . . . . . . . 170,321 222,512
Net assets of discontinued operations . . . . . 144,451 73,743
Other . . . . . . . . . . . . . . . . . . . . . 24,022 28,694
Total current assets. . . . . . . . . . . . 652,216 612,885
Property, plant and equipment, at cost less
accumulated depreciation and amortization
of $299,194 and $326,659 . . . . . . . . . . . 285,008 330,471
Goodwill, net of accumulated amortization of
$128,980 and $147,909 . . . . . . . . . . . . . 616,707 801,276
Other assets . . . . . . . . . . . . . . . . . . . 66,866 118,794
$1,620,797 $ 1,863,426
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 731 $ 9,067
Current portion of long-term debt . . . . . . . 94,355 61,266
Accounts payable . . . . . . . . . . . . . . . . 65,712 95,363
Accrued expenses. . . . . . . . . . . . . . . . 261,189 217,381
Total current liabilities . . . . . . . . . . 421,987 383,077
Long-term debt . . . . . . . . . . . . . . . . . . 768,513 784,582
Deferred income taxes . . . . . . . . . . . . . . . 4,838 4,823
Other, including postretirement benefit obligation 217,833 201,505
Commitments and contingencies . . . . . . . . . . .
Redeemable preferred stock (aggregate preference in
liquidation $106) . . . . . . . . . . . . . . . 109 165
Preferred stock (aggregate preference in
liquidation $45,250) . . . . . . . . . . . . . . 181 181
Common stock (47,808 shares issued and
outstanding) . . . . . . . . . . . . . . . . . . 4,781 4,781
Other paid-in capital. . . . . . . . . . . . . . . 974,405 974,339
Accumulated deficit . . . . . . . . . . . . . . . . (767,052) (485,355)
Foreign currency translation adjustments . . . . . 1,048 1,174
Pension equity adjustment . . . . . . . . . . . . . (5,846) (5,846)
Total stockholder's equity . . . . . . . . . 207,517 489,274
$1,620,797 $ 1,863,426
</TABLE>
See accompanying notes.
I-2
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
October 30, October 24,
1993 1992
<S> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations . . . . . . . . . . $ (162,712) $ (30,628)
Adjustments to derive cash flow from continuing
operating activities:
Depreciation and amortization . . . . . . . . . 60,704 60,031
Goodwill write-down . . . . . . . . . . . . . . 144,800 -
Increase in accounts receivable . . . . . . . . (28,892) (19,977)
Decrease (increase) in inventories . . . . . . (4,457) 720
Decrease in accounts payable . . . . . . . . . (3,596) (599)
Other, net . . . . . . . . . . . . . . . . . . 14,770 (10,509)
Net cash provided by (used in) continuing
operating activities . . . . . . . . . . 20,617 (962)
Loss from discontinued operations . . . . . . . . . (115,599) (18,836)
Adjustments to derive cash flow from discontinued
operating activities:
Loss on disposals . . . . . . . . . . . . . . . 111,137 -
Depreciation and amortization. . . . . . . . . 15,747 18,593
Net decrease (increase) in accounts receivable,
inventory and accounts payable . . . . . . . 56,473 (14,179)
Other, net . . . . . . . . . . . . . . . . . . (85,049) (859)
Net cash used in discontinued operating
activities . . . . . . . . . . . . . . . (17,291) (15,281)
INVESTING ACTIVITIES
Proceeds from businesses sold . . . . . . . . . . . 48,993 -
Additions to property, plant and equipment . . . . (35,334) (42,240)
Sales of property, plant and equipment . . . . . . 1,173 2,535
Other, net . . . . . . . . . . . . . . . . . . . . 31,463 13,583
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . 46,295 (26,122)
FINANCING ACTIVITIES
Issuance of long-term debt . . . . . . . . . . . . 73,657 18,399
Reduction of long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . (64,183) (10,905)
Net reduction of short-term borrowings . . . . . . (8,336) (4,147)
Dividends paid . . . . . . . . . . . . . . . . . . (3,386) (3,386)
Other, net . . . . . . . . . . . . . . . . . . . . (7,639) (1,087)
Net cash used in financing activities . . (9,887) (1,126)
Increase (decrease) in cash and cash equivalents . 39,734 (43,491)
Cash and cash equivalents at beginning of period . 80,141 98,537
Cash and cash equivalents at end of period . . . . $ 119,875 $ 55,046
</TABLE>
See accompanying notes.
I-3
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT
A. Acquisition by Collins & Aikman Holdings Corporation:
On October 25, 1988, Collins & Aikman Group, Inc. ("Group" or the
"Company"), Collins & Aikman Holdings II Corporation and Collins & Aikman
Holdings Corporation ("Holdings") entered into an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the
Merger Agreement, Holdings, a corporation indirectly jointly owned by
Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. and
their respective affiliates, commenced a cash tender offer for up to
38,324,444 shares of common stock of the Company. On December 8, 1988,
Holdings purchased 38,324,444 shares of common stock of the Company. Pursuant
to the Merger Agreement, on April 13, 1989, each share of common stock
of the Company was reclassified (the "Reclassification") into .45 shares
of 15-1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock of
Group (the "Intermediate Preferred Stock"). Immediately following the
Reclassification, a wholly owned subsidiary of Holdings was merged into
Group (the "Merger"), and each share of Intermediate Preferred Stock
(other than those held by Group, Collins & Aikman Holdings II
Corporation or any subsidiary of either, which were canceled, and any
shares as to which appraisal rights, if any, were validly perfected) was
converted into a share of 15-1/2% Cumulative Exchangeable Redeemable
Preferred Stock of Holdings (the "Merger Preferred Stock") and Group
became a direct wholly owned subsidiary of Holdings.
B. Basis of Presentation:
The condensed consolidated financial statements include the accounts
of the Company and its subsidiaries. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments, except for a
special restructuring charge and the write-down of goodwill related to the
Company's wallcoverings business) necessary for a fair presentation of
financial position and results of operations. Results of operations for
interim periods are not necessarily indicative of results for the
full year. Certain reclassifications have been made to conform to the
current presentation of continuing operations.
C. Discontinued Operations:
During fiscal 1991, the Company discontinued the remaining businesses of
Wickes Manufacturing Company ("Wickes Manufacturing") consisting of its
Dura Convertible ("Dura"), Bumper and H. Koch & Sons ("H. Koch")
divisions. In July 1992, the Company sold Bumper and H. Koch. As of
the end of fiscal 1992, the Company reclassified Builders Emporium and the
Engineering Group as discontinued operations held for sale. In March 1993,
the Company sold the Engineering Group. During the fiscal quarter ended
July 31, 1993, the Company decided to retain Dura, which manufactures
OEM convertible top systems for the automotive industry, because no offers
were received that met management's estimate of value. Subsequent to the end
of such fiscal quarter, the Company began selling or disposing of
Builders Emporium's inventory and other assets after the Company was
unsuccessful in finding a buyer for the entire home improvement chain.
The fiscal quarter ended July 31, 1993 included a loss on disposal of
discontinued operations of $109.3 million, principally to provide
additional reserves for losses and costs in connection with the sale or
disposition of Builders Emporium inventory, real estate and other assets
and to provide for employee severance and other
I-4
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
costs. Subsequent to the end of the current quarter, the Company entered
into a definitive agreement for the sale of Kayser-Roth Corporation
("Kayser-Roth"), which agreement is subject to financing and customary
closing conditions. The results of Kayser-Roth, Builders Emporium, the
Engineering Group, Bumper and H. Koch are classified as discontinued
operations for all periods presented. The results of Dura have been
classified as continuing operations for all periods presented. Sales of
discontinued operations aggregated $704.9 million and $746.2 million
for the thirty-nine week periods ended October 30, 1993 and October 24,
1992, respectively, and $267.6 million and $234.3 million for the quarters
ended October 30, 1993 and October 24, 1992, respectively.
Interest expense has been allocated to discontinued operations based
on the ratio of net book value (including reserves for loss on disposal)
of discontinued operations to consolidated invested capital. Interest
allocated to discontinued operations was $11.1 million and $14.3 million
for the thirty-nine week periods ended October 30, 1993 and October 24,
1992, respectively, and $2.3 million and $4.7 million for the quarters ended
October 30, 1993 and October 24, 1992, respectively.
Holdings has disclosed that it may sell additional assets of the
Company. See "PART I - FINANCIAL INFORMATION, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
elsewhere herein.
D. Inventories:
Inventory balances are summarized as follows (in thousands):
October 30, January 30,
1993 1993
Raw materials . . . . . . . . . . . . . . . $ 69,206 $ 66,829
Work in process . . . . . . . . . . . . . . 22,843 41,187
Finished goods . . . . . . . . . . . . . . . 78,272 114,496
$ 170,321 $ 222,512
E. Goodwill:
At October 30, 1993, before giving effect to the write-down described
below, the Company had $761.5 million of goodwill. A substantial portion
(over 95%) of the goodwill arose from the Company's acquisition of
Collins & Aikman Corporation ("C&A") in December 1986. During fiscal
1987, the Company's goodwill balance related to C&A was allocated to
the individual business units of C&A. The fact that the Company was purchased
by Holdings for significantly less than its historical net book value is one
factor to be considered in assessing the recoverability of the full cost,
including goodwill, of each of its businesses. Other factors to be
considered include the occurrence of other events, such as significant and
permanent downturns in the industries in which the Company operates, loss
of a majority of customers, or introduction of substitute products.
Management's policy is to continually review
I-5
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
these and other factors, including the current and expected future results
of the acquired entities, in assessing the recoverability of the goodwill
related to each of its businesses. When the foregoing considerations
suggest that a deterioration of the financial condition of the Company has
occurred, the methodology used by the Company to determine whether there has
been an impairment of goodwill is to assess whether the forecasted operating
results (including a proportionate share of the Company's projected
consolidated interest expense) of each of its business units will recover
the recorded goodwill balance over the remaining amortization period.
The specific factors and events as of October 30, 1993 considered by
management include the following:
(bullet) Subsequent to the end of the second fiscal quarter, the Company
began selling or disposing of Builders Emporium's inventory and other assets
after management determined that the Company would not be able to find a
buyer for the entire Builders Emporium chain of home improvement stores and
that efforts to restore the chain to profitability were unlikely to succeed.
As a result, at July 31, 1993, the Company was required to provide
additional reserves for the significant reduction in estimated proceeds
from disposition and the other costs to be incurred in its sale or
disposition of the inventory and other assets of Builders Emporium.
(bullet) After actively marketing Dura for more than one year, the
Company did not receive any offers that met management's estimates of
value. As a result, at the end of the second quarter, the Company
reclassified Dura as a continuing operation.
(bullet) As recently announced, the Company has entered into a definitive
agreement for the sale of Kayser-Roth, which agreement is subject to
financing and customary closing conditions. However, the expected gross
proceeds of approximately $233 million (subject to adjustment) are below
management's prior expectations of value, which management believes largely
resulted from downward revisions in Kayser-Roth's expected operating results
for fiscal 1993. This deterioration in outlook is primarily due to a
drop in overall demand in 1993 to date for women's sheer hosiery and
the continuing softness in demand for sock products in department and
specialty stores. In connection with the sale of Kayser-
Roth, the Company will be required to indemnify the purchaser
for certain environmental, lease and other liabilities of Kayser-Roth.
(bullet) During the second fiscal quarter it became apparent that
the operations of the Company were not performing up to the Board's
expectations in light of the cyclical recovery that was occurring in the
economy as a whole. As a result, an Operating Committee of the Board was
established. This Committee undertook a comprehensive strategic review of
Holdings' continuing operations. This review led to the conclusion
that there have been changes in the industries in which the Company
operates. In particular, the automotive industry is in the process of
a major, worldwide realignment that has created significant overcapacity
and disrupted traditional customer/supplier relationships. This has
intensified competitive pressures and has resulted in the prospect of
lower average margins over the auto cycle than has been the case
historically. In addition, the recovery of housing activity has been
weaker than in prior economic upturns and
I-6
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
consumer preferences have shifted away from wallcovering material. Although it
is difficult to measure, management also believes the Company's wallcoverings
business has lost some market share pending introduction of new product lines.
Consequently, management has reduced its expectations regarding the long-term
sales potential for wallcoverings and does not anticipate that margins will
reach levels experienced in prior economic cycles. These constraints on margin
recovery are being intensified by an industry-wide shift in distribution from
small independent dealers to warehouse clubs and national discount chains.
The substantial and continuing losses of Builders Emporium and the inability of
the Company to sell the Builders Emporium chain as an entity has left
the Company with materially higher leverage and interest costs than previously
anticipated. The inability of the Company to sell Dura at an acceptable
price and the anticipated sale of Kayser-Roth on terms that are worse than
management's prior expectations of value are additional adverse factors.
C&A and Dura are now the Company's only continuing operations and must
carry Group's administrative overhead, debt service
and substantial liabilities related to discontinued operations.
In spite of the industry-wide competitive pressures being experienced,
management of the Company, based on the facts presently known to it,
is currently expecting both cyclical and long-term improvement in the
results of operations. However, management's analysis of the above
factors and the long-term industry trends suggested that, given the
Company's current capital structure, a deterioration of the financial
condition of the Company has occurred. As a result, the Company forecasted
the operating results for each of the Company's business units forward
for 33 years, which approximates the remaining amortization period of the
Company's goodwill at October 30, 1993, to determine whether net income would
be sufficient to recover the remaining goodwill of each business unit.
The Company's forecast assumes that sales growth through 1998 will result
from a continuation of the recovery in the automotive and home furnishings
markets. After the business cycle peaks in 1998, the forecast reflects
a moderate cyclical downturn and a contraction of margins. Over the
long term, sales growth will be limited by capacity constraints and
inflationary growth will be partially offset by competitive pricing pressures.
Capital spending over the next five years will be increased from
levels of the previous five years, principally to support the cyclical
growth in the forecast. In general though, capital spending is limited to
repair and replacement of existing capacity. The existing debt of the
Company (after applying the expected proceeds from the sale of Kayser-Roth) is
assumed to be amortized in accordance with its terms. Existing debt
amortization, as well as other cash requirements, are assumed to
be funded by new borrowings at an interest rate of 11%, which
approximates the current average cost of borrowing of the Company.
Management believes that the projected future results, based on
these assumptions, are the most likely scenario given the Company's
current capital structure. In spite of the fact that the operating
results reflected in the forecasts show improvement over the historical
results achieved during the past few years, management concluded, based on
the forecast, that the net income allocable to
the Company's wallcoverings business ("Wallcoverings") over the forecast
period (including a proportionate share of the Company's projected
consolidated interest expense) would not be sufficient to recover its
entire goodwill balance. Accordingly, the Company recorded a write-down
of $144.8
I-7
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
million during the current quarter to reflect the portion of Wallcoverings'
goodwill balance which is not forecasted to be recovered over the
projection period. For the other business units of the Company, net
income over the forecast period was sufficient to recover their respective
goodwill balances. Management will continue to evaluate in the future
whether there has been a further impairment in the ability of Wallcoverings
to recover its remaining goodwill of $84.7 million or whether
impairment
has occurred with respect to the other operations of the Company.
Changes in the Company's goodwill balance are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 30, 1993 $ 801,276
Amortization (18,162)
Reclassification to discontinued operations (21,607)
Goodwill write-down (144,800)
Balance at October 30, 1993 $ 616,707
</TABLE>
For additional information, See "PART I - FINANCIAL INFORMATION,
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" elsewhere herein.
F. Restructuring Costs:
The third quarter ended October 30, 1993, as previously reported
included a restructuring charge of $24 million that was recorded in error.
As a result of this
correction, the Company's operating loss, loss from continuing
operations and net loss for the thirteen and thirty-nine weeks
ended October 30, 1993, were reduced by
$24 million as compared to the amounts previously reported.
G. Interest Expense, Net:
Interest expense for the thirty-nine week periods ended
October 30, 1993 and October 24, 1992 is net of interest income of
$3,666,000 and $3,043,000, respectively. Interest expense for the
quarters ended October 30, 1993 and October 24, 1992 is net of
interest income of $1,147,000 and $613,000, respectively.
H. Long-Term Debt:
For information regarding financing activity, see "PART I -
FINANCIAL INFORMATION, Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" elsewhere herein.
I. Commitments and Contingencies:
See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings" elsewhere herein.
The ultimate outcome of any legal proceedings to which the Company is a party
will not, in the opinion of the Company's management based on the
facts presently known to
I-8
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Concluded)
it, have a material effect on the Company's consolidated financial
condition or future results of operations.
J. Subsequent Event:
On November 22, 1993, the Company entered into a definitive agreement
for the sale of Kayser-Roth, which agreement is subject to financing
and customary closing conditions. The Company intends to utilize expected
proceeds from the disposition to repay outstanding bank debt of
Kayser-Roth and to redeem a portion of the Company's outstanding 15%
Subordinated Notes Due 1995. The balance of the expected proceeds will be
used to increase the cash reserves of the Company. In connection
with the sale of Kayser-Roth, Group will be required to indemnify the
purchaser for certain environmental, lease and other liabilities of
Kayser-Roth.
I-9
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
As previously announced, on November 22, 1993, the Company
entered into a definitive agreement for the sale of Kayser-Roth for
gross proceeds of $233 million (subject to adjustment), which
agreement is subject to financing and customary closing conditions.
Approximately $70.5 million of the expected proceeds will be
utilized to repay outstanding borrowings under the Kayser-Roth
Credit Agreement described below. A portion of the remaining expected
proceeds is intended to be utilized to redeem a portion of the Company's
15% Subordinated Notes Due 1995 and the balance is to be used to
increase the cash reserves of the Company. In connection with the sale of
Kayser-Roth, the Company will be required to indemnify the purchaser for
certain environmental, lease and other liabilities of Kayser-Roth.
During the current quarter, the Company recorded a noncash charge
of $144.8 million to write-down a portion of the Company's goodwill balance
which related to the Company's wallcoverings business. The write-down
does not impact the Company's liquidity or future cash flows.
As of October 30, 1993, the Company had total outstanding indebtedness of
$863.6 million. Cash interest expense on that indebtedness for the remainder of
fiscal 1993 and for fiscal 1994 will be approximately $25 million and $90
million, respectively. At the end of fiscal 1992, the Company had total
outstanding indebtedness of $860.8 million. Cash interest paid during the
thirty-nine week periods ended October 30, 1993 and October 24, 1992 was
approximately $64.0 million and $71.0 million, respectively.
The maturities of long-term debt of the Company (excluding borrowings under
the Kayser-Roth Credit Agreement described below, which the Company expects to
prepay with the expected proceeds from the sale of Kayser-Roth) during the
fourth quarter of fiscal 1993 are $6.0 million and for the 1994 and 1995
fiscal years are $24.4 million and $169.5 million, respectively. The
maturities due in 1995 include $137.4 million of 15% Subordinated Notes, a
portion of which the Company intends to call for early redemption out of
the expected proceeds from the sale of Kayser-Roth. During the thirty-nine
week periods ended October 30, 1993 and October 24, 1992, the Company expended
$72.5 million and $15.1 million, respectively, for the reduction of
indebtedness.
The Company makes capital expenditures on a recurring basis primarily for
repairs and replacement of existing capacity. During the thirty-nine week
periods ended October 30, 1993 and October 24, 1992, the Company's capital
expenditures were $35.3 million and $42.2 million, respectively. The Company
anticipates that capital expenditures for the full fiscal year will
approximate the fiscal 1992 level of $54.2 million. The Company expects
capital spending over the next five years to be increased from levels of
the previous five years principally to support cyclical growth.
The Company has significant obligations relating to postretirement,
casualty, environmental and other liabilities of divested businesses and
will have additional such obligations after the sale of Kayser-Roth.
The Company currently expects that most of these liabilities will be paid
over the next 15 years and a substantial amount of these liabilities will
be paid in each of the next five years.
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<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
The Company will require substantial amounts of cash to fund cash interest
payments on its outstanding indebtedness, current maturities of long-term debt,
capital expenditure requirements, liabilities relating to divested businesses
and seasonal increases in working capital. The Company presently anticipates
that its present cash balances, cash generated from operations, proceeds from
the sale of Kayser-Roth, and borrowings under existing credit agreements will
provide for the Company's cash requirements through the end of fiscal 1994
and into fiscal 1995. Beyond that, the Company expects that it will require
alternative financings or asset sales to meet its cash requirements.
There can be no assurance as to the timing of any such financings or asset
sales or the proceeds the Company could realize therefrom. In addition,
restrictions in existing debt agreements of the Company could limit the
ability of the Company to effect future financings or asset sales.
As reflected in the accompanying Consolidated Balance Sheets, the Company had
$119.9 million in cash and cash equivalents at October 30, 1993, as compared to
$80.1 million at the beginning of the fiscal year. Cash and cash equivalents
at October 30, 1993 include the cash balance of $.3 million held by C&A and
$4.9 million held by Kayser-Roth, each a wholly owned subsidiary of the
Company, and $21.6 million of cash on deposit with an insurer to cover
future self-insured losses.
Net cash provided by continuing and discontinued operating activities for the
thirty-nine week period ended October 30, 1993 was $3.3 million compared to
cash used of $16.2 million for the thirty-nine week period ended
October 24, 1992.
On March 25, 1993, the Company sold the Engineering Group for total proceeds,
before transaction expenses and including cash generated by the Engineering
business, of $51.0 million. On October 22, 1993, the Company received $35.1
million from Wickes Lumber Company in exchange for a Wickes Lumber Company
promissory note and warrant that the Company had received in partial
consideration for the sale of Wickes Lumber Company in 1988.
In connection with the acquisition of the Company by Holdings in 1988, the
Company and Holdings entered into a credit agreement with certain banks,
which, as amended through fiscal 1992, made available $30 million in
revolving loans to the Company and certain subsidiaries (the "Working Capital
Facility"). Effective March 12, 1993, the credit agreement was further
amended, among other things, to permit the Kayser-Roth financing described
below to take place, to reduce the maximum size of the Working Capital
Facility to $5 million and to limit its use solely to the issuance of
letters of credit. As a result of the reduced availability of letters
of credit under this facility, the Company was required to increase its cash
deposits with an insurer to cover future self-insured losses, which deposits
were approximately $21.6 million at October 30, 1993. Effective
September 10, 1993, certain financial covenants of the Working Capital
Facility were amended and waived and the expiration date was extended
to September 30, 1994. At October 30, 1993, accounts receivable aggregating
approximately $1.6 million, including approximately $1.2 million of Dura
accounts receivable, were pledged as collateral under the Working Capital
Facility. At October
I-11
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
30, 1993, $.9 million of letters of credit were outstanding under the Working
Capital Facility. As a result of the write-down of goodwill described above,
the Company was in default of the net worth and maximum leverage ratio
covenants of the Working Capital Facility as of the last day of the fiscal
quarter ended October 30, 1993. On December 13, 1993, the Working Capital
Facility was amended to waive the default and to reduce the maximum size
of the Working Capital Facility to $1 million.
The Company's C&A subsidiary consummated a $225 million credit agreement
with a syndicate of banks on May 22, 1991 that expires on May 15, 1998
(the "C&A Credit Agreement"). During the thirty-nine week period ended
October 30, 1993, C&A made net principal repayments under the C&A Credit
Agreement of $16.5 million and paid Group dividends aggregating $30 million.
Availability under the C&A Credit Agreement is determined monthly based upon
C&A's receivables balance. The C&A Credit Agreement permits C&A to pay
additional dividends to Group only if C&A satisfies a minimum liquidity
requirement of $25 million and then limits the amount of total dividends
to $175 million plus 90% (or 100% if certain specified ratios are met) of
C&A's net income (excluding the impact of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions") subsequent to April 27, 1991. As of October 30, 1993, an
additional $19.6 million was available to C&A under the C&A Credit Agreement.
Although, as of that date, approximately $46.1 million of additional dividends
could be paid to Group under the dividend restriction in the C&A Credit
Agreement, other financial covenants in the C&A Credit Agreement would limit
the amount of dividends to approximately $3.5 million. C&A and its
subsidiaries are separate corporate entities and the assets of C&A and its
subsidiaries are available first and foremost to satisfy the claims of the
creditors of C&A and such subsidiaries. At October 30, 1993, receivables and
fixed assets pledged as collateral under the C&A Credit Agreement aggregated
approximately $173 million and $110 million, respectively.
On March 12, 1993, Kayser-Roth and a bank consummated a $40 million credit
agreement. Kayser-Roth initially borrowed $35 million under the credit
agreement of which $26 million was paid to Group as a dividend. On May 27,
1993, Kayser-Roth completed a $75 million credit facility (the "Kayser-Roth
Credit Agreement") with a group of banks to replace the $40 million credit
agreement and, on July 6, 1993, Kayser-Roth paid an additional dividend of
$26 million to Group. The maximum size of the Kayser-Roth Credit Agreement
reduces by $7 million per year and expires on May 31, 1998. The Kayser-Roth
Credit Agreement permits Kayser-Roth to pay additional dividends to Group
in the amount of $9 million, then after May 1994, if Kayser-Roth satisfies
a minimum liquidity requirement of $7.5 million and certain financial ratios,
$5 million plus 50% (or 75% if certain financial ratios are met) of
Kayser-Roth's net income subsequent to January 30, 1993. Kayser-Roth and its
subsidiaries are separate corporate entities and the assets of Kayser-Roth
and its subsidiaries are available first and foremost to satisfy the claims
of the creditors of Kayser-Roth and such subsidiaries. At October 30, 1993,
receivables and fixed assets pledged as collateral under the Kayser-Roth
Credit Agreement aggregated approximately $40 million and $28 million,
respectively. The Company used approximately $41 million of the proceeds
from the original and the replacement Kayser-Roth credit facilities to
redeem all of its
I-12
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
outstanding 12% Sinking Fund Debentures due January 31, 1994 on July 7, 1993.
As indicated above, the Company expects to prepay the outstanding borrowings
under the Kayser-Roth Credit Agreement of $70.5 million with the expected
proceeds from the sale of Kayser-Roth.
The Company's Canadian subsidiaries have a bank demand line of credit that
made available to them approximately $15.2 million at October 30, 1993, of
which approximately $6.7 million was outstanding as of that date.
The Company is continually exploring borrowing opportunities and evaluating
financing and strategic alternatives. In the latter part of fiscal 1992, the
Company discussed with its financial advisors the possible issuance of new
indebtedness for the purpose of refinancing existing debt. In order to enhance
its ability to pursue the proposed refinancing and generally provide the
Company with greater flexibility to position itself for potential debt
refinancings and an eventual initial public equity offering, the Company
obtained consents of registered holders of the 11-7/8% Senior Subordinated
Debentures due 2001 (the "11-7/8% Securities") to certain amendments of the
indenture governing the 11-7/8% Securities (the "11-7/8% Indenture").
During the current quarter, management was informed by its financial advisors
that a refinancing, if accomplished, would not significantly reduce the
Company's consolidated interest expense. In addition, the Company has been
advised that it would not be feasible to raise new equity capital
at this time in order to deleverage the Company.
In 1989 and 1990, the Company's Board of Directors authorized expenditures
for the voluntary repurchase from time to time of the Company's outstanding
publicly traded debt securities. There were no repurchases of publicly traded
debt during the thirty-nine week periods ended October 30, 1993 and October
24, 1992. Repurchases may be made from time to time through open market or
privately negotiated transactions. The Company expects to fund any additional
repurchases out of cash from operating activities or borrowings under
existing or new lines of credit. The timing of any such repurchases will
depend on market conditions, available cash and other factors that the
Board of Directors in its sole discretion deems relevant to the
advisability of repurchasing publicly traded debt.
Since January 26, 1991, no additional cash dividends to Holdings have been
permitted under the most restrictive provisions in the existing debt
agreements of the Company. Under those provisions, which are contained in
the 11-7/8% Indenture, as of October 30, 1993, the Company would have needed
to earn approximately an additional $872 million of consolidated net income
(as defined in the 11-7/8% Indenture, as amended) in order to eliminate the
deficit in its dividend capacity (assuming no change in the other factors
used to determine the Company's dividend capacity).
Holdings continually evaluates the strategic fit of its various businesses.
As previously announced, the Company began selling or disposing of Builders
Emporium's inventory and other assets after the Company was unsuccessful in
finding a buyer for the entire home improvement chain. The Company
does not expect the disposition of Builders Emporium to have a significant
impact on the liquidity of the Company. As
I-13
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
described above, the Company entered into a definitive agreement for the sale of
Kayser-Roth on November 22, 1993, which agreement is subject to financing and
customary closing conditions. The expected proceeds from the sale of
Kayser-Roth will be used to repay debt and for general corporate purposes.
In addition, from time to time the Company has evaluated, and continues to
evaluate, acquisitions of other businesses.
For information regarding commitments and contingencies, see Note I to
Condensed Consolidated Financial Report.
Results of Operations
As described below, management determined that at the end of the current
quarter, a portion of the Company's goodwill balance allocated to the Company's
wallcoverings business, was not recoverable. Accordingly, the Company wrote
off $144.8 million of goodwill as of the end of the current quarter. Except
as noted otherwise, the following discussion of operating results excludes
the impact of this write-down.
During fiscal 1993 and 1992, the Company has had significant changes in the
composition of its continuing operations which are important to understanding
the financial statements. During fiscal 1991, the Company discontinued the
remaining businesses of Wickes Manufacturing consisting of its Dura, Bumper
and H. Koch divisions. In July 1992, the Company sold the Bumper and H. Koch
divisions. As of the end of fiscal 1992, the Company reclassified Builders
Emporium and the Engineering Group as discontinued operations held for sale.
In March 1993, the Company sold the Engineering Group. At the end of the
Company's second fiscal quarter ended July 31, 1993, the Company decided to
retain Dura, which manufactures OEM convertible top systems for the
automotive industry, because no offers were received that met management's
estimates of value. As previously announced, on November 22, 1993, the
Company entered into a definitive agreement for the sale of Kayser-Roth,
which agreement is subject to financing and customary closing conditions.
The results of Kayser-Roth, Builders Emporium, the Engineering Group,
Bumper and H. Koch are classified as discontinued operations for all periods
presented. The results of Dura are now classified in the specialty textiles
segment and prior reporting periods have been restated to reflect Dura as a
continuing operation.
For the quarter and thirty-nine weeks ended October 30, 1993, net sales
increased 6.3% to $334.6 million and 1.0% to $963.4 million, respectively, as
compared to the same periods of the prior year. Including the goodwill
write-down, operating loss for the quarter and thirty-nine weeks ended October
30, 1993 was $116.2 million and $89.0 million, respectively, compared to
operating income of $14.5 million and $43.3 million in the same periods of
the prior year. Excluding the write-down of goodwill of $144.8 million,
operating income increased to $28.6 million and $55.8 million for the quarter
and thirty-nine weeks ended October 30, 1993. Operating income is determined
by deducting all operating expenses, amortization of goodwill and the
write-down of goodwill from revenues. Operating expenses do not include
interest expense.
I-14
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
The Company's specialty textiles segment had operating income of $17.8
million in the current quarter compared to operating income of $12.3 million
in the third quarter last year, principally due to an 8.8% increase in sales
from $181.9 million to $197.9 million. For the thirty-nine week period ended
October 30, 1993, sales increased 2.8% to $562.8 million and operating income
increased 15.4% to $40.7 million as compared to the same period of the prior
year. This segment continues to experience intense customer pricing pressures
as a result of excess capacity at both the automotive assembly plant and
supplier levels. The improvement in sales and operating income during the
quarter resulted from strong demand generated by a cyclical recovery in the
industry as well as a rebound in sales of certain car models for which the
Company is a principal supplier.
Operating income for the home furnishings segment increased from $4.6 million
in the third quarter last year to $12.6 million this year on a sales increase
from $132.9 million to $136.7 million. For the thirty-nine weeks ended
October 30, 1993, sales declined 1.5% to $400.5 million and operating income
increased to $21.3 million from $15.2 million in the same period of the prior
year. The increase in sales during the quarter is principally due to strong
sales by the Company's decorative fabrics business offset by the continued
sales decline in the wallcoverings business. Although housing activity shows
signs of a cyclical recovery, the Company has not experienced increased sales
of wallcovering products. Management attributes this to the shift in
consumer demand away from wallcoverings and the adverse changes in consumer
buying patterns described in Note E of Notes to Condensed Consolidated
Financial Statements elsewhere herein. Although it is difficult to measure,
management also believes the Company has lost some market share pending
introduction of new product lines. This segment's increase in operating
income resulted from the strong decorative fabric sales, the benefits of
previous restructuring programs in the wallcoverings business and the
reversal of unneeded inventory reserves of approximately $4.0 million.
At October 30, 1993, before giving effect to the write-down described below,
the Company had $761.5 million of remaining purchase price in excess of net
assets acquired (goodwill). A substantial portion (over 95%) of the goodwill
arose from the Company's acquisition of C&A in December 1986. The fact that
the Company was purchased by Holdings for significantly less than its
historical net book value is one factor to be considered in assessing the
recoverability of the full cost of such businesses. Other factors to be
considered include the occurrence of other events, such as significant and
permanent downturns in the industries in which the Company operates, loss of
a majority of customers, or introduction of substitute products.
The substantial and continuing losses of Builders Emporium and the
inability of Group to sell the Builders Emporium chain as an entity has left
the Company with materially higher leverage and interest costs than
previously anticipated. The inability of the Company to sell Dura at an
acceptable price along with the anticipated sale of Kayser-Roth at a price
and on terms that are worse than management's prior expectations of value are
additional adverse factors. This situation, along with the adverse
industry developments discussed in detail in Note E to Condensed Consolidated
I-15
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
Financial Report elsewhere herein, were considered by management in its
continuing evaluations of the recoverability of the full cost of its
continuing operations.
In spite of the industry-wide competitive pressures being experienced, the
Company, based on the facts presently known to it, currently expects both
cyclical and long-term improvement in the results of operations. However,
management's analysis of the above factors and the long-term industry trends
suggested that, given the Company's current capital structure, a
deterioration of the financial condition of the Company has occurred. As
a result, the Company forecast the operating results for each of the
Company's business units forward 33 years, which approximates the remaining
amortization period at October 30, 1993, to determine whether net income
would be sufficient to recover the remaining goodwill at each business unit.
The Company's forecast assumes that sales growth through 1998 will result from
a continuation of the recovery in the automotive and home furnishings
markets. After the business cycle peaks in 1998, the forecast reflects a
moderate cyclical downturn and a contraction of margins. Over the long term,
sales growth will be limited by capacity constraints and inflationary growth
will be partially offset by competitive pricing pressures. Capital spending
over the next five years will be increased from levels of the previous five
years principally to support the cyclical growth in the forecast. In general
though, capital spending is limited to repair and replacement of existing
capacity. The existing debt of the Company (after applying the expected
proceeds from the sale of Kayser-Roth) is assumed to be amortized in
accordance with its terms. Existing debt amortization, as well as
other cash requirements, are assumed to be funded by new borrowings at an
interest rate of 11%, which approximates the current average cost of
borrowing of the Company.
Management believes that the projected future results, based on these
assumptions, are the most likely scenario given the Company's current capital
structure. In spite of the fact that the operating results reflected in the
forecasts show improvement over the historical results achieved during the
past few years, management concluded, based on the forecast, that the net
income allocable to Wallcoverings over the forecast period (including a
proportionate share of the Company's projected consolidated interest expense)
would not be sufficient to recover its entire goodwill balance. Accordingly,
the Company recorded a write-down of $144.8 million during the current
quarter to reflect the portion of Wallcoverings' goodwill balance which is
not forecasted to be recovered over the projection period. For the other
business units of the Company, net income over the forecast period was
sufficient to recover their respective goodwill balances. Management will
continue to evaluate in the future whether there has been a further
impairment in the ability of Wallcoverings to recover its remaining goodwill of
$84.7 million or whether impairment has occurred with respect to the other
operations of the Company.
Interest expense, including amounts allocated to discontinued operations and
excluding interest income, decreased to $82.4 million for the thirty-nine week
period ended October 30, 1993 compared to $84.5 million for the same period of
the prior year. Loss from continuing operations, net of tax, was $140.2
million and $162.7 million for
I-16
<PAGE>
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Concluded)
the quarter and thirty-nine week periods ended October 30, 1993 as compared to
$7.8 million and $30.6 million in the comparable periods of the prior year.
The thirty-nine weeks ended October 30, 1993 includes a loss on disposal of
discontinued operations of $111.1 million, principally to provide additional
reserves for losses and costs in connection with the sale or disposition of
Builders Emporium inventory, real estate and other assets and to provide for
employee severance and other costs. Results for the quarter and thirty-nine
week periods ended October 30, 1993 included income (losses) from discontinued
operations, net of tax, of $.5 million and ($4.5) million, respectively,
resulting in net losses of $139.7 million and $278.3 million, respectively.
Environmental Matters
The Company's operations are subject to increasingly stringent Federal, state
and local laws and regulations concerning the environment. These laws and
regulations govern ongoing operations and require the remediation of sites
associated with former operations. The Company has, over time, received
notices that it is a potentially responsible party in a number of
administrative proceedings at various sites. It is difficult to estimate
the total cost of remediation due to the complexity of the environmental laws
and regulations, the uncertainty regarding the extent of the environmental
risks and the Company's responsibility and the selection of alternative
compliance approaches. When it has been possible to reasonably estimate
the Company's liability with respect to environmental matters, provisions
have been made in accordance with generally accepted accounting principles.
In the opinion of the Company's management based on the facts presently
known to it, the ultimate outcome of any of these environmental matters will
not have a material effect on the Company's consolidated financial condition
or future results of operations.
For additional information regarding the foregoing, see "PART II - OTHER
INFORMATION Item 1. Legal Proceedings" elsewhere herein.
I-17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized on the 20th day of June 1994.
COLLINS & AIKMAN GROUP, INC.
(Registrant)
By: /s/ DAVID J. MCKITTRICK
David J. McKittrick
(on behalf of the Registrant
and as Principal Financial
and Accounting Officer)
