SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 26, 1998
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 1-10218
COLLINS & AIKMAN CORPORATION
A Delaware Corporation (IRS Employer Identification
No. 13-3489233)
701 McCullough Drive
Charlotte, North Carolina 28262
Telephone (704) 547-8500
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 November 9, 1998, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 62,584,264 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
--------------------------- -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.............................. $ 377,928 $ 368,008 $1,319,403 $1,199,586
---------- ---------- ---------- ----------
Cost of goods sold..................... 339,351 350,793 1,138,279 1,039,937
Selling, general and administrative
expenses............................. 38,288 34,464 117,661 94,720
Impairment of long lived assets........ - 22,600 - 22,600
---------- --------- ---------- ----------
377,639 407,857 1,255,940 1,157,257
---------- --------- ---------- ----------
Operating income (loss) ............... 289 (39,849) 63,463 42,329
Interest expense, net.................. 20,921 19,807 60,834 57,891
Loss on sale of receivables............ 1,009 532 4,315 3,295
Other (income) expense................. 1,327 (2,269) 5,052 (1,297)
---------- -------- --------- ---------
Loss from continuing operations before
income taxes......................... (22,968) (57,919) (6,738) (17,560)
Income tax expense (benefit)........... (14,614) (15,917) (6,580) 1,577
---------- -------- --------- ---------
Loss from continuing operations........ (8,354) (42,002) (158) (19,137)
Income (loss) from discontinued
operations, net of
income taxes of ($336) and $2,835.... - (496) - 4,306
Gain on sale of discontinued operations,
net of income taxes of $32,000 and
$85,358.............................. - 76,449 - 161,741
---------- ------- --------- --------
Income (loss) before extraordinary loss (8,354) 33,951 (158) 146,910
========== ======= ========= ========
Extraordinary loss, net of income taxes
of $2,452 and $443................... - - (3,679) (721)
Net income (loss)...................... $ (8,354) $ 33,951 $ (3,837) $ 146,189
Net income (loss) per basic and diluted
common share:
Continuing operations................ $ (.13) $ (.64) $ - $ (.29)
Discontinued operations.............. - (.01) - .07
Gain on sale of discontinued operations - 1.16 - 2.43
Extraordinary loss................... - - (.06) (.01)
---------- -------- --------- ---------
Net income (loss).................... $ (.13) $ .51 $ (.06) $ 2.20
========== ======= ========= ========
Average common shares outstanding:
Basic and diluted.................... 63,753 66,072 64,967 66,447
========== ======= ========= ========
</TABLE>
I-2
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
SEPTEMBER 26, DECEMBER 27,
ASSETS 1998 1997
------------- -----------
Current Assets:
Cash and cash equivalents................... $ 26,808 $ 24,004
Accounts and other receivables, net......... 251,408 198,125
Inventories................................. 157,047 142,042
Net assets of discontinued operations....... - 53,004
Other....................................... 99,539 92,116
------------- ------------
Total current assets....................... 534,802 509,291
Property, plant and equipment, net............ 438,666 388,087
Deferred tax assets........................... 77,067 59,293
Goodwill, net................................. 258,425 263,007
Other assets.................................. 88,311 82,714
------------- ------------
$ 1,397,271 $ 1,302,392
============= ============
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings....................... $ 12,493 $ 11,057
Current maturities of long-term debt........ 15,484 20,558
Accounts payable............................ 151,189 135,468
Accrued expenses............................ 171,003 148,201
------------- ------------
Total current liabilities.................. 350,169 315,284
Long-term debt................................ 851,697 752,376
Other, including post retirement benefit
obligation.................................. 281,909 301,582
Commitments and contingencies.................
Common stock (150,000 shares authorized, 70,521
shares issued and 62,584 shares outstanding at
September 26, 1998 and 70,521 shares issued
and 65,851 outstanding at December 27, 1997). 705 705
Other paid-in capital......................... 585,411 585,890
Accumulated deficit........................... (580,688) (576,851)
Accumulated other comprehensive income........ (32,137) (39,823)
Treasury stock, at cost (7,937 shares at
September 26, 1998 and 4,670 shares at
December 27, 1997).......................... (59,795) (36,771)
------------- ------------
Total common stockholders' deficit......... (86,504) (66,850)
------------- -----------
$ 1,397,271 $ 1,302,392
============= ============
I-3
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------- -----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations.............. $ (8,354) $ (42,002) $ (158) $ (19,137)
Adjustments to derive cash flow from continuing
operating activities:
Impairment of long lived assets........... - 22,600 - 22,600
Deferred income tax expense (benefit)..... (17,907) (4,854) (14,477) 1,930
Depreciation and leasehold amortization... 12,803 10,523 39,808 32,004
Amortization of goodwill.................. 1,774 1,682 5,313 5,139
Amortization of other assets.............. 1,702 4,108 4,997 6,793
Decrease (increase) in accounts and other
receivables............................. (15,292) 34,808 766 41,095
Decrease (increase) in inventories........ 2,670 (10,118) (9,383) (14,492)
Decrease (increase) in other current assets 9,046 (19,265) (4,555) (14,618)
Increase in other non-current assets...... (3,754) (3,768) (16,131) (5,761)
Increase (decrease) in accounts payable... 12,032 (7,389) (1,342) 253
Increase in interest payable.............. 14,461 13,909 12,369 13,122
Other, net................................ (4,371) 27,407 (7,428) 18,562
---------- --------- --------- ---------
Net cash provided by continuing operating
activities............................. 4,810 27,641 9,779 87,490
---------- --------- --------- ---------
Cash provided by (used in) Wallcoverings,
Floorcoverings, Airbag and Mastercraft Group
discontinued operations ................... - (4,401) (15,052) 1,485
Cash used in other discontinued operations... (1,422) (2,208) (9,224) (6,936)
---------- --------- --------- ---------
Net cash used in discontinued operations (1,422) (6,609) (24,276) (5,451)
---------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment... (22,382) (16,153) (71,887) (51,003)
Sales of property, plant and equipment....... 1,745 404 5,669 1,176
Proceeds from disposition of discontinued
operations................................. - 366,500 71,200 562,100
Acquisition of businesses, net of cash acquired (4,120) (13,554) (24,359) (13,554)
Other, net................................... (954) (58,688) 2,583 (95,442)
---------- --------- --------- ---------
Net cash provided by (used in) investing
activities............................. (25,711) 278,509 (16,794) 403,277
---------- --------- --------- ---------
FINANCING ACTIVITIES
Issuance of long-term debt................... 565 - 226,372 5,406
Repayment of long-term debt.................. (7,316) (93,224) (272,005) (136,315)
Reduction of participating interest in accounts
receivables, net of redemptions............ (25,500) (67,000) (28,500) (55,000)
Net borrowings (repayments) on revolving credit
facilities.................................. 77,830 (60,000) 135,532 (204,000)
Purchase of treasury stock................... (16,479) (1,673) (23,024) (17,910)
Other, net................................... (292) (696) (4,280) (2,442)
---------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................. 28,808 (222,593) 34,095 (410,261)
---------- --------- --------- ---------
Net increase in cash and cash equivalents.... 6,485 76,948 2,804 75,055
Cash and cash equivalents at beginning of period 20,323 12,421 24,004 14,314
---------- --------- --------- ---------
Cash and cash equivalents at end of period... $ 26,808 $ 89,369 $ 26,808 $ 89,369
========== ========= ========= ========
</TABLE>
I-4
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
A. ORGANIZATION:
Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman
Holdings Corporation) is a Delaware corporation. As of September 26, 1998,
Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella
Partners L.P. ("WP Partners") and their respective affiliates collectively own
approximately 86% of the common stock of the Company (the "Common Stock").
The Company conducts all of its operating activities through its
wholly-owned Collins & Aikman Products Co. ("C&A Products") subsidiary.
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) 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 the condensed consolidated financial
statements for the quarter and nine months ended September 27, 1997 and the
prior 1998 quarters to conform with the 1998 third quarter presentation.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Collins & Aikman Corporation Annual Report
on Form 10-K for the fiscal year ended December 27, 1997.
C. ACQUISITIONS:
The Company entered into a joint venture agreement to manufacture plastic
trim products in the United Kingdom with Kigass Automotive Group ("Kigass") in
October 1997 in which the Company and Kigass each owned 50% of the joint
venture. The Company acquired Kigass on February 2, 1998. The purchase price for
the acquisition was approximately $25.2 million. Initial goodwill resulting from
the purchase was approximately $11.4 million. Kigass has been renamed Collins &
Aikman Plastics (UK) Limited ("C&A Plastics UK"). C&A Plastics UK is an
automotive interior plastic trim products manufacturer located in the United
Kingdom. Under the terms of the purchase agreement, the Company assumed
effective control of C&A Plastics UK on January 1, 1998.
On June 30, 1998, the Company acquired Pepers Beheer B.V. ("Pepers"), an
automotive accessory floormat manufacturer located in the Netherlands for
approximately $4.4 million, subject to adjustment. Under the terms of the
purchase agreement, the Company is required to make additional contingent
payments to the sellers in amounts of up to approximately $3.7 million if Pepers
meets certain operating goals in fiscal 1998 and fiscal 1999. Initial goodwill
resulting from the acquisition was $3.0 million. Pepers is operated as a part of
the Company's accessory floormats subsidiary, The Akro Corporation.
On August 26, 1998, the Company acquired from a third party the remaining
50% interest in Industrias Enjema, S.A. de C.V. ("Enjema"), 50% of which was
already owned by JPS Automotive L.P. ("JPS Automotive"). The total purchase
price for the acquisition was approximately $1.0 million. Enjema, a carpet
systems manufacturer located in Mexico, will be part of the Company's Carpet and
Acoustics Division. In September 1998, JPS Automotive distributed its 50%
ownership interest in Enjema to the Company.
On August 31, 1997, the Company purchased certain automotive acoustics
assets in Germany and assumed certain liabilities from Perstorp AB for
approximately $13.6 million.
D. INTEREST RATE AND FOREIGN CURRENCY PROTECTION PROGRAMS:
During April 1997, the Company entered into a two year interest rate swap
agreement in which the Company effectively exchanged $27 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 on $27 million of notional principal amount by entering into an
8.50% cap on LIBOR. Payments to be received, if any, as a result of these
agreements are accrued as an adjustment to interest expense. During the quarter
and nine months ended September 26, 1998, this agreement resulted in reductions
in interest expense of approximately $62 thousand and $177 thousand,
respectively.
I-5
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
The primary purpose of the Company's foreign currency hedging activities
is to protect against the volatility associated with foreign currency purchase
transactions. The Company's policies prescribe the range of allowable hedging
activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months. The Company
has in place forward exchange contracts denominated in multiple currencies that
will mature during fiscal 1998. These contracts aggregated a U.S. dollar
equivalent of $23.1 million at September 26, 1998. The fair value of these
contracts approximated the contract value at September 26, 1998.
During April 1997, the Company entered into an agreement to limit its
foreign currency exposure related to $45 million of US dollar denominated
borrowings of a Canadian subsidiary. The agreement swapped LIBOR based interest
rates for the Canadian equivalent as well as fixed the exchange rate for the
principal balance upon maturation. This agreement was terminated on June 1, 1998
as a result of the repayment of the Canadian term loan. The term loan balance
was repaid in conjunction with the refinancing and replacement of the Company's
credit facilities. See Note F to Condensed Consolidated Financial Report and
"PART I - FINANCIAL INFORMATION - ITEM 2. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for additional information on the new credit facility.
E. GOODWILL AND IMPAIRMENT OF LONG LIVED ASSETS:
Goodwill, representing the excess of purchase price over the fair value of
net assets of the acquired entities, is being amortized on a straight-line basis
over a period of forty years. Amortization of goodwill applicable to continuing
operations was $1.8 million and $5.3 million for the quarter and nine months
ended September 26, 1998, respectively, and $1.7 million and $5.1 million for
the quarter and nine months ended September 27, 1997, respectively. Accumulated
amortization at September 26, 1998 was $16.2 million. The carrying value of
goodwill at an enterprise level is reviewed periodically based on the
nondiscounted cash flows and pretax income of the entities acquired over the
remaining amortization periods. Should this review indicate that the goodwill
balance will not be recoverable, the Company's carrying value of the goodwill
will be reduced. At September 26, 1998, the Company believes the recorded value
of its goodwill of $258.4 million is fully recoverable.
During the third quarter of 1997, Collins & Aikman Plastics, Inc. ("C&A
Plastics") incurred charges of $31.3 million for provisions for certain programs
operating at a loss, inventory adjustments, certain previously deferred costs
and other provisions. In addition, the recoverability of C&A Plastics' assets
and goodwill was evaluated and the Company determined that the carrying values
of certain assets and goodwill allocated to two of its manufacturing facilities
were impaired. Accordingly, the Company wrote down fixed assets by $5.1 million
and the carrying value of goodwill was reduced by $17.5 million.
F. LONG-TERM DEBT:
On May 28, 1998, the Company entered into new credit facilities consisting
of : (i) a senior secured term loan facility in the principal amount of $100
million payable in quarterly installments until final maturity on December 31,
2003 (the "Term Loan A Facility"); (ii) a senior secured term loan facility in
the principal amount of $125 million payable in quarterly installments until
final maturity on June 30, 2005 (the "Term Loan B Facility" and, together with
the Term Loan A Facility, the "Term Loan Facilities") and (iii) a senior secured
revolving credit facility in an aggregate principal amount up to $250 million
terminating on December 31, 2003, of which $60 million (or the equivalent
thereof in Canadian dollars) is available to two of the Company's Canadian
subsidiaries ("the Canadian Borrowers") and of which up to $50 million is
available as a letter of credit facility (the "Revolving Credit Facility", and
together with the Term Loan Facilities, the "Credit Agreement Facilities"). In
addition, the Credit Agreement Facilities include a provision for a Tranche C
credit facility (the "Tranche C Facility") of up to $150 million in loan
borrowings having amortization and interest rate terms to be agreed upon between
the Company and the applicable lenders who may supply commitments at such time
as the Tranche C Facility may be utilized.
At September 26, 1998, the Company had outstanding $100.0 million on the
Term Loan A Facility, $125.0 million on the Term Loan B Facility and $143.8
million under the Revolving Credit Facility (including $58.8 million borrowed by
the Canadian Borrowers).
I-6
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
The Credit Agreement Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
covenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities and
are generally similar to the covenants and ratios contained in the Company's
previous bank credit facilities. The interest coverage and leverage ratios were
waived for the quarter ended September 26, 1998 due to the General Motors strike
(which occurred in June and July 1998) and decreased sales of automotive
bodycloth. The Company expects to require a modification of these ratios for the
fourth quarter of 1998 and beyond as a result of the General Motors strike and
the decreased sales of automotive bodycloth. The Company expects its lenders to
agree to modify these ratios to the extent required, although such lenders may
request a fee or an increased interest rate in connection with such
modification. In addition, under the Credit Agreement Facilities, 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. The Company is permitted to pay dividends and
repurchase shares of the Company (i) in any fiscal year in an aggregate amount
up to $12 million and (ii) if certain financial ratios are satisfied, for the
period from April 28, 1996 through the last day of the Company's most recently
ended fiscal quarter, in an aggregate amount equal to 50% of the Company's
cumulative consolidated net income for that period and, in addition, is
permitted to pay dividends and repurchase shares in amounts representing net
proceeds from the sale of its Imperial Wallcoverings, Inc. subsidiary
("Wallcoverings"). The Company's obligations under the Credit Agreement
Facilities are secured by a pledge of stock of C&A Products and its significant
subsidiaries.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility bears interest at a per annum
rate equal to the Company's choice of (i) The 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 (the "LIBOR Margin") ranging
from 1% to 1.75%. Margins, which are subject to adjustment based on changes in
the Company's ratio of senior funded debt to EBITDA (i.e., earnings before
interest, taxes, depreciation, amortization and other non-cash charges) were
1.75% in the case of the LIBOR Margin and .75% in the case of the ABR Margin on
September 26, 1998. Canadian-dollar denominated indebtedness incurred by the
Canadian Borrowers under the Revolving Credit Facility bears interest at a per
annum rate equal to the Canadian Borrowers' choice of (i) (x) the greater of (a)
Chase's prime rate for Canadian dollar-denominated loans in Canada and (b) the
rate applicable to Canadian dollar-denominated bankers' acceptances for one
month plus 1%, plus (y) the ABR Margin and (ii) Chase's discount rate for
bankers' acceptances having a term of 30, 60, 90 or 180 days, as applicable,
plus the LIBOR Margin. 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% or (ii) LIBOR of
one, two, three or six months, as selected by the Company, plus a margin of 2%.
The weighted average rate of interest on the Credit Agreement Facilities at
September 26, 1998 was 7.4%.
The Credit Agreement Facilities (including the Tranche C Facility, if
utilized) replace and refinance the Company's previously outstanding bank credit
facilities. In conjunction with the refinancing, the Company wrote off deferred
financing charges relating to the previous bank facilities of $3.6 million, net
of income taxes of $2.4 million.
In addition, JPS Automotive purchased on the open market and retired $2.0
million principal amount of JPS Automotive 11-1/8% Senior Notes due 2001 (the
"JPS Automotive Senior Notes") during the quarter ended June 27, 1998. In
conjunction with the repurchase, JPS Automotive recognized an extraordinary loss
of $86,000, net of income taxes of $58,000. No notes were repurchased by JPS
Automotive during the quarter ended September 26, 1998.
At September 26, 1998, the scheduled maturities of long-term debt are as
follows (in thousands):
Remainder of fiscal year 1998 $ 320
Fiscal year 1999 19,934
Fiscal year 2000 24,106
Fiscal year 2001 114,293
Fiscal year 2002 28,934
Later years 679,594
--------
$867,181
========
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<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
G. Facility Closing Costs:
In connection with the acquisition of JPS Automotive, the Company has
eliminated certain redundant sales and administrative functions and closed one
manufacturing facility in 1997, a second facility in January 1998, and a third
facility in June 1998. The Company is currently in the process of relocating
certain manufacturing processes from a JPS Automotive facility to an existing
C&A Products facility.
These actions affect approximately 640 employees. Total costs accrued for
the shutdown of facilities and severance and other personnel costs were $2.7
million and $7.7 million, respectively.
The components of the reserves for the relocation and facility closures,
which are expected to be completed during the second quarter of fiscal 1999, are
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Original Changes In Remaining
Reserve Reserve Reserve
----------- ----------- ------------
Anticipated expenditures to close and
dispose of idled facilities............... $ 2,746 $ (2,459) $ 287
Anticipated severance benefits............ 7,655 (5,177) 2,478
----------- ----------- ------------
$ 10,401 $ (7,636) $ 2,765
=========== =========== ============
</TABLE>
H. DISCONTINUED OPERATIONS:
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners for a purchase price of $71.9 million and an
option for 6.7% of the common stock of the purchaser (which includes
Wallcoverings and the former wallcovering and vinyl units of Borden, Inc.)
outstanding as of the closing date. The proceeds were used to repay long-term
debt. In connection with the sale, the Company recorded a loss of approximately
$21.1 million, net of an estimated income tax benefit 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.
Losses incurred by Wallcoverings subsequent to April 1996 (the date of
Wallcoverings' discontinuance) were charged to the Company's existing
discontinued operations reserves. The Wallcoverings operating losses were in
excess of management's forecasted expectations as of the date of discontinuance
but within previously established accruals.
On February 6, 1997, the Company completed the sale of its Floorcoverings
subsidiary ("Floorcoverings") for approximately $195.6 million and 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.
In July 1997, the Company completed its sale of Mastercraft Group for a
purchase price of approximately $307.4 million. A portion of the net proceeds
from the sale were used to reduce the Company's long-term debt. The sale
resulted in a net after tax gain of $97.5 million.
In July 1997, JPS Automotive completed the sale of its Air Restraint and
Technical Products Division, an airbag and industrial fabric business ("Airbag")
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.
The Company's discontinued operations include the Company's Mastercraft
Group, Floorcoverings, and Airbag operations. The discontinued operations
reported a loss of $0.5 million, net of an income tax benefit of $0.3 million,
and income of $4.3 million, net of income taxes of $2.8 million, for the quarter
and nine months ended September 27, 1997, respectively.
Net interest expense of discontinued operations was $12.6 million for the
nine months ended September 27, 1997 and was allocated based on the ratio of net
book value of discontinued operations (including reserves for loss on disposal)
to consolidated invested capital. No interest expense was allocated to
discontinued operations for the quarter ended September 27, 1997 and the quarter
and nine months ended September 26, 1998. A portion of the loss on sale of
receivables has been allocated to discontinued operations based on the ratio of
(x) receivables included in the receivable pool of the trust maintained by the
Company's Carcorp, Inc. subsidiary (the "Trust") related to discontinued
operations to (y) the total of the Trust's receivables pool. For the nine months
ended September 27, 1997, $0.6 million of loss on sale
I-8
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
of receivables was allocated to discontinued operations. No allocation of loss
on sale of receivables was made to discontinued operations in the quarter ended
September 27, 1997 and the quarter and nine months ended September 26, 1998.
I. RELATED PARTY TRANSACTIONS:
Under the Amended and Restated Stockholders' Agreement among the Company,
C&A Products, Blackstone Partners and WP Partners, the Company pays Blackstone
Partners and WP Partners, or their respective affiliates, each an annual
monitoring fee of $1.0 million, which is payable quarterly.
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners. See Note H to Condensed Consolidated Financial
Report.
During the first quarter of 1998, the Company incurred fees and expenses
for services performed by WP Partners, or its affiliates, in connection with the
sale of Wallcoverings, totaling approximately $0.8 million. During the third
quarter of 1997, in connection with the sale of the Mastercraft Group, the
Company incurred fees and expenses for services performed by Blackstone Partners
and WP Partners, or their respective affiliates, totaling approximately $4.2
million. During the first quarter of 1997, the Company incurred fees and
expenses for services performed by Blackstone Partners and WP Partners, or their
respective affiliates, in connection with the sale of Floorcoverings, totaling
approximately $2.7 million.
J. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
The Company's continuing operations primarily supply automotive interior
systems - textile and plastic trim, acoustics and convertible top systems - to
the global automotive industry.
The Company performs periodic credit evaluations of its customers'
financial condition and, although the Company does not generally require
collateral, it does require cash payments in advance when the assessment of
credit risk associated with a customer is substantially higher than normal.
Receivables generally are due within 45 days, and credit losses have
consistently been within management's expectations and are provided for in the
consolidated financial statements.
Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:
For the Quarter Ended
-----------------------
September September
26, 1998 27, 1997
--------- ---------
General Motors Corporation....... 26% 41%
Ford Motor Company............... 16% 15%
Chrysler Corporation............. 16% 13%
I-9
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
Information about the Company's operations in different geographic areas
for the quarters and nine months ended September 26, 1998, and September 27,
1997 is presented below (in thousands).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FOR THE QUARTER ENDED UNITED OTHER
SEPTEMBER 26, 1998 STATES CANADA MEXICO COUNTRIES(C) CONSOLIDATED
---------- ----------- -------- ----------- ------------
Net sales ....................... $ 221,375 $ 64,160 $ 14,553 $ 77,840 $ 377,928
Operating income (loss) (a) ..... (5,963) 2,236 2,030 1,986 289
Depreciation and amortization (b) 9,160 2,389 630 4,100 16,279
Identifiable assets ............. 891,411 213,150 32,679 260,031 1,397,271
Capital expenditures ............ 13,801 3,867 1,535 3,179 22,382
FOR THE QUARTER ENDED UNITED OTHER DISCONTINUED
SEPTEMBER 27, 1997 STATES CANADA MEXICO COUNTRIES(C) OPERATIONS CONSOLIDATED
---------- ------------ --------- ----------- ----------- ------------
Net sales ....................... $ 248,890 $ 80,496 $ 13,500 $ 25,122 -- $ 368,008
Operating income (loss) (a) ..... (5,169) (37,580) 3,011 (111) -- (39,849)
Depreciation and amortization (b) 11,733 2,556 782 1,242 -- 16,313
Identifiable assets ............. 1,009,771 208,890 35,224 82,840 49,700 1,386,425
Capital expenditures ............ 9,042 3,446 236 674 2,755 16,153
UNITED OTHER DISCONTINUED
FOR THE NINE MONTHS ENDED STATES CANADA MEXICO COUNTRIES(C) OPERATIONS CONSOLIDATED
SEPTEMBER 26, 1998 ---------- ------------ --------- ----------- ----------- ------------
Net sales ....................... $ 756,230 $ 256,530 $60,747 $245,596 -- $1,319,403
Operating income (a) ............ 20,768 21,288 15,031 6,376 -- 63,463
Depreciation and amortization (b) 28,272 7,347 1,699 12,800 -- 50,118
Identifiable assets ............. 891,411 213,150 32,679 260,031 -- 1,397,271
Capital expenditures ............ 44,307 12,962 2,606 8,868 3,144 71,887
FOR THE NINE MONTHS ENDED UNITED OTHER DISCONTINUED
SEPTEMBER 27, 1997 STATES CANADA MEXICO COUNTRIES(C) OPERATIONS CONSOLIDATED
---------- ------------ --------- ----------- ----------- ------------
Net sales ....................... $ 805,318 $ 256,971 $55,558 $ 81,739 -- $1,199,586
Operating income (loss) (a) ..... 35,910 (11,341) 15,667 2,093 -- 42,329
Depreciation and amortization (b) 30,736 7,388 2,078 3,734 -- 43,936
Identifiable assets ............. 1,009,771 208,890 35,224 82,840 49,700 1,386,425
Capital expenditures ............ 23,898 10,872 841 2,852 12,540 51,003
</TABLE>
(a)Operating income (loss) is determined by deducting all operating expenses,
including goodwill write-off and other costs, from revenues. Operating
expenses do not include interest expense. Corporate services provided by the
Company have been allocated to the business units based on a combination of
estimated use and the relative sales of the business units to the total
consolidated operations of the Company.
(b)Depreciation and amortization includes the amortization of goodwill and
other assets and liabilities.
(c)Other countries include the United Kingdom, Sweden, Spain, Belgium, Germany,
Austria, France and the Netherlands.
K. Commitments and Contingencies:
See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings." The ultimate
outcome of the 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
it, have a material effect on the Company's consolidated financial condition or
results of operations.
See also "PART I - FINANCIAL INFORMATION, Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
C&A Products has assigned leases related to real and personal property of
divested businesses. Although C&A Products has obtained releases from the
lessors of certain of these properties, C&A Products remains contingently liable
under most of the leases. C&A Products' future liability for these leases, in
management's opinion, based on the facts presently known to it, will not have a
material effect on the Company's consolidated financial condition or results of
operations.
I-10
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Continued)
(Unaudited)
L. Common Stockholders' Deficit:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. Comprehensive income includes
net income and other comprehensive income (revenues, expenses, gains and losses)
that, under generally accepted accounting principles, are included in
comprehensive income but excluded from net income. SFAS No.130 requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid in capital in the
equity section of a balance sheet. The Company adopted SFAS No. 130 on December
28, 1997. Total comprehensive income (loss) for the quarters ended September 26,
1998 and September 27, 1997 was ($3.5) million and $32.4 million, respectively.
For the nine months ended September 26, 1998 and September 27, 1997,
comprehensive income was $3.8 million and $141.7 million, respectively. Activity
in the common stockholders' deficit since December 27, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Current Accumulated
Year Other Other
Comprehensive Accumulated Comprehensive Common Paid-in Treasury
Income Total Deficit Income Stock Capital Stock
------------ ------ ---------- ------------- ------ --------- --------
Balance at December 27, 1997. $(66,850) $(57,851) $(39,823) $705 $585,890 $(36,771)
Comprehensive income.........
Net income ................ $ (3,837) (3,837) (3,837) -- -- -- --
Other comprehensive income,
net of tax - Foreign currency
translation adjustments ..... 7,686 7,686 -- 7,686 -- -- --
---------
Total comprehensive income .. $ 3,849
=========
Compensation expense
adjustment .................. (479) -- -- -- (479) --
Purchase of treasury stock
(3,267 shares) .............. (23,024) -- -- -- -- (23,024)
--------- --------- --------- ------ -------- --------
Balance at September 26, 1998 $(86,504) $(580,688) $ (32,137) $ 705 $ 585,411 $(59,795)
========= ========= ========= ====== ======== ========
The accumulated balances and current period activity for each component of
Accumulated Other Comprehensive Income are as follows (in thousands):
<CAPTION>
<S> <C> <C> <C>
Accumulated
Foreign Currency Pension Other
Translation Equity Comprehensive
Adjustments Adjustment Income
---------------- ----------------- ---------------
Balance at December 27, 1997.......... $ (29,123) $ (10,700) $ (39,823)
Current year change................... 7,686 - 7,686
----------- ----------- ----------
Balance at September 26, 1998......... $ (21,437) $ (10,700) $ (32,137)
=========== =========== ==========
</TABLE>
M. Earnings Per Share:
The Company adopted SFAS No. 128, "Earnings Per Share," (SFAS No.128) in
December 1997. Basic earnings per common share are computed by dividing income
by the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per common share are determined assuming the exercise
of the stock options issued under the Company's stock option plans. Due to the
Company's losses from continuing operations for all periods presented, the
effect of the stock options would have an antidilutive effect on earnings per
share and therefore diluted earnings per share equals basic earnings per share.
I-11
<PAGE>
N. Significant Subsidiary:
The Company conducts all of its operating activities through its
wholly-owned subsidiary, C&A Products. The following represents summarized
consolidated financial information of C&A Products and its subsidiaries for the
following periods (in thousands):
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
--------------------- -----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales.......................... $ 377,928 $ 368,008 $1,319,403 $1,199,586
Gross margin....................... 38,577 16,953 181,124 159,387
Income (loss) from continuing
operations......................... (8,366) (42,206) 219 (19,243)
Income (loss) before extraordinary
loss............................... (8,366) 33,747 219 146,804
Net income (loss).................. (8,366) 33,747 (3,460) 146,083
September 26, December 27,
1998 1997
------------- -----------
Current assets..................... $ 534,708 $ 508,864
Noncurrent assets.................. 862,469 792,199
Current liabilities................ 349,057 315,268
Noncurrent liabilities............. 1,131,024 1,051,376
</TABLE>
Separate financial statements of C&A Products are not presented because
they would not be material to the holders of any debt securities of C&A Products
that have been or may be issued, there being no material differences between the
financial statements of C&A Products and the Company. The absence of separate
financial statements of C&A Products is also based upon the fact that any debt
of C&A Products issued, and the assumption that any debt to be issued, under the
Registration Statement on Form S-3 filed by the Company and C&A Products
(Registration No. 33-62665) is or will be fully and unconditionally guaranteed
by the Company.
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL REPORT (Concluded)
(Unaudited)
O. NEWLY ISSUED ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively. The
Company is currently analyzing the impact of adoption of SFAS No. 133 and may
adopt SFAS No. 133 at the beginning of the 1999 fiscal year. The adoption of
SFAS No. 133 could increase volatility in earnings and other comprehensive
income.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs and requires that all
nongovernmental entities expense the costs of start-up activities as these costs
are incurred instead of being capitalized and amortized. SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998, and
the initial application of this pronouncement is to be reported as the
cumulative effect of a change in accounting principle. The Company currently
estimates that the impact of the adoption of SOP 98-5 at the beginning of fiscal
1999 will be in the range of $8 million to $9 million, net of tax.
I-12
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
On June 30, 1998, the Company acquired Pepers, an automotive accessory
floormat manufacturer located in the Netherlands, for $4.4 million, subject to
adjustment. Under the terms of the purchase agreement, the Company is required
to make additional contingent payments to the sellers in amounts of up to
approximately $3.7 million if Pepers meets certain operating goals in fiscal
1998 and fiscal 1999. Pepers is operated as part of the Company's accessory
floormats subsidiary, The Akro Corporation, which had no European operations
prior to the acquisition. The Company believes that the acquisition will allow
Akro to better serve its existing European customers, such as Volvo and Ford, as
well as Pepers' existing customers, including Volkswagen, Audi and Renault.
On August 26, 1998, the Company acquired from a third party the remaining
50% interest in Enjema, 50% of which was already owned by JPS Automotive. The
total purchase price for the acquisition was approximately $1.0 million. Enjema,
a carpet systems manufacturer located in Mexico, is part of the Company's Carpet
and Acoustics Division. In September 1998, JPS Automotive distributed its 50%
ownership interest in Enjema to the Company.
GENERAL
The Company is a global supplier of automotive interior systems, including
textile and plastic trim, acoustics and convertible top systems.
The automotive supply industry in which the Company competes is cyclical
and is influenced by the level of North American and European 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 strategic positioning as a key supplier within the
automotive industry and with its customers.
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
QUARTER ENDED
------------------------------------------
SEPTEMBER 26, 1998 SEPTEMBER 27, 1997
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ ------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.......................... $ 377,928 100.0% $ 368,008 100.0%
Cost of goods sold................. 339,351 89.8% 350,793 95.3%
-------- ------- --------- ------
Gross margin....................... 38,577 10.2% 17,215 4.7%
Selling, general & administrative
expenses 38,288 10.1% 34,464 9.4%
Impairment of long lived assets - - 22,600 6.1%
-------- ------- --------- ------
Operating income (loss) ........... $ 289 0.1% $ (39,849) (10.8%)
========= ======= ========= ======
EBITDA (1)......................... $ 16,568 4.4% $ (936) (0.3%)
========= ======= ========= ======
NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 26, 1998 SEPTEMBER 27, 1997
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales.......................... $1,319,403 100.0% $1,199,586 100.0%
Cost of goods sold................. 1,138,279 86.3% 1,039,937 86.7%
---------- ------- --------- ------
Gross margin....................... 181,124 13.7% 159,649 13.3%
Selling, general & administrative
expenses 117,661 8.9% 94,720 7.9%
Impairment of long lived assets - - 22,600 1.9%
-------- ------- --------- ------
Operating income................... $ 63,463 4.8% $ 42,329 3.5%
========= ======= ========= ======
EBITDA (1)......................... $ 113,581 8.6% $ 108,865 9.1%
========= ======= ========= ======
</TABLE>
(1)EBITDA represents earnings before deductions for net interest expense, loss
on sale of receivables, income tax, other income and expense, depreciation,
amortization and the non-cash portion of non-recurring charges. EBITDA does
not represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles.
I-13
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NET SALES: The Company's net sales increased 2.7% to approximately $377.9
million in the third quarter of 1998, up $9.9 million over the comparable 1997
quarter. For the first nine months of 1998, the Company's net sales were
$1,319.4 million, up $119.8 million from the comparable period in 1997. The
overall increase was primarily due to the acquisition from Perstorp A.B.
("Perstorp") in December 1997 of its remaining interest in the Collins &
Aikman/Perstorp automotive acoustics joint venture operations in Sweden, Belgium
and France (the "Collins & Aikman/Perstorp Joint Venture"), the acquisition of
certain of Perstorp's German operations in August 1997 (the "German
Operations"), the acquisition of C&A Plastics UK on February 2, 1998 (the
Company assumed effective control of C&A Plastics UK, which is located in the
United Kingdom, on January 1, 1998), the acquisition of Pepers, an automotive
floormat manufacturer located in the Netherlands, on June 30, 1998, and the
acquisition of the remaining interest in Enjema, a carpet manufacturer located
in Mexico, on August 26, 1998. The acquired entities generated combined sales of
$55.4 million and $165.1 million during the quarter and nine months ended
September 26, 1998, respectively.
The increase in sales resulting from these acquisitions was offset by a strike
at General Motors which began June 5, 1998 and ended July 29, 1998. The strike's
estimated effect on sales for the third quarter and nine months ended September
26, 1998 was approximately $43.2 million and $60.9 million, respectively.
General Motors has announced market share losses from the strike, some of them
permanent. Because sales to General Motors represent approximately 35 percent of
the Company's revenues on an annual basis, market share losses at General Motors
may adversely affect the Company. Strikes at General Motors and Chrysler also
reduced sales by approximately $17.0 million during the second quarter of 1997.
Translation of foreign revenues negatively affected sales by approximately $2.9
million and $7.0 million, respectively, in the quarter and nine months ended
September 26, 1998 compared to the prior year periods, due to the strengthening
U.S. dollar.
The Company operates five divisions, with seven primary product lines. Certain
products are sold by more than one division. Sales in the Company's product
lines are discussed below. As a result of the Company's acquisition and
expansion activities, certain prior year product line sales data has been
recategorized to provide comparability.
MOLDED FLOOR CARPET: Molded floor carpet sales decreased 2.5% for the quarter
ended September 26, 1998 and increased 5.2% for the nine months ended September
26, 1998 over the comparable periods in 1997. For the third quarter of 1998, the
decrease in molded floor carpet sales is primarily attributable to the General
Motors strike, offset by increased sales to the Dodge Durango and Ford Explorer.
For the nine months ended September 26, 1998, molded floor carpet sales
increased to the Dodge Durango, Toyota Sienna and the Chrysler LH, offset by
decreased sales to General Motors models due to the strike.
LUGGAGE COMPARTMENT TRIM: Luggage compartment trim sales decreased 14.5% and
4.4% for the quarter and nine months ended September 26, 1998 over the
comparable periods in 1997. Sales increases attributable to revenues generated
by the entities constituting the former Collins & Aikman/Perstorp Joint Venture
were offset by decreased sales in the North American market due to the General
Motors strike and reduced sales to the Honda Accord, the Nissan Sentra, Mazda
626 and the discontinued Ford Thunderbird.
ACCESSORY FLOORMATS: Accessory floormat sales increased 12.1% and 11.8% for the
quarter and nine months ended September 26, 1998, respectively, over the
comparable periods in 1997. These increases are due primarily to the acquisition
of Pepers, which occurred on June 30, 1998. Pepers generated sales of $4.5
million in the third quarter. In addition, sales increased to the General Motors
C/K truck series, including the Suburban and Tahoe, and the Ford Explorer.
Overseas sales also increased to the Honda Accord and Toyota Sienna, offset by
decreased sales to the Toyota Corolla and Nissan Maxima. The General Motors
strike negatively impacted accessory floormat sales in the quarter and nine
months ended September 26, 1998 by $2.2 million and $3.4 million, respectively.
AUTOMOTIVE BODYCLOTH: Automotive bodycloth sales decreased 29.0% and 20.4% for
the quarter and nine months ended September 26, 1998, respectively, over the
comparable periods in 1997. The General Motors strike negatively impacted sales
in the quarter and nine months ended September 26, 1998 by approximately $10.6
million and $14.3 million, respectively. In addition, sales increases to the
Ford Windstar, Mitsubishi Galant and Chrysler Minivan were offset by decreased
sales to the Dodge Intrepid, Chrysler Stratus and Pontiac Grand Am. Sales were
also adversely affected by an increased demand for leather seating applications,
which management expects to continue for the forseeable future, program
run-outs, an unfavorable mix on several models and a decrease in build on
several key vehicles.
I-14
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
PLASTIC-BASED INTERIOR TRIM SYSTEMS: Plastic-based interior trim systems sales
increased 19.3% and 38.5% for the quarter and nine months ended September 26,
1998, respectively, over the comparable periods in 1997. This increase is
primarily due to the acquisitions of C&A Plastics UK and Perstorp's remaining
interest in the former Collins & Aikman/Perstorp Joint Venture, which generated
combined sales of plastic components of $27.4 million and $87.5 million for the
quarter and nine months ended September 26, 1998, respectively. These increases
were offset by sales lost at C&A Plastics' North American locations due to the
General Motors strike. The strike negatively impacted plastic-based interior
trim systems sales in the quarter and nine months ended September 26, 1998 by
approximately $15.5 million and $21.8 million, respectively.
CONVERTIBLE TOP SYSTEMS: Convertible top systems sales increased 9.1% and 19.5%
for the quarter and nine months ended September 26, 1998, respectively, over the
comparable periods in 1997. Sales volumes increased substantially on the
Chevrolet Corvette and Ford Mustang, offset by decreased sales to the Chrysler
Sebring.
ACOUSTICAL PRODUCTS: Acoustical products sales increased 38.0% and 42.7% for the
quarter and nine months ended September 26, 1998, respectively, over the
comparable periods in 1997. This increase is attributable to the acquisitions of
the German Operations as well as Perstorp's remaining interest in the operations
which were formerly included in the Collins & Aikman/Perstorp Joint Venture.
These operations generated combined acoustical sales of $14.6 million and $46.1
million for the quarter and nine months ended September 26, 1998, respectively.
In addition, sales at several of the Company's other acoustics operations in the
U.S., Canada and Europe increased.
OTHER: The Company also had sales of other products of $38.8 million and $130.1
million for the quarter and nine months ended September 26, 1998, respectively.
Sales of other products were $37.2 million and $134.6 million for the quarter
and nine months ended September 27, 1997, respectively. These products include
headliner fabric, casket lining, residential floormats and fabric for industrial
uses.
Approximately 21% of the Company's sales for the nine months ended
September 26, 1998 were attributable to products utilized in vehicles built
outside of North America, compared to approximately 10% in the nine months ended
September 27, 1997. Approximately 20% of the Company's sales for the six months
ended June 27, 1998 were attributable to products utilized in vehicles built
outside of North America, compared to approximately 10% in the six months ended
June 28, 1997. The change in sales mix is attributable to the Company's
acquisitions in the United Kingdom, Germany, Sweden, France, Belgium and the
Netherlands.
The above factors resulted in the Company's average revenue per North American
produced vehicle decreasing to approximately $87 for the nine months ended
September 26, 1998, compared to an average of approximately $89 for the 1997
fiscal year. The North American content per build decreased in the third quarter
of 1998 to $82 due to the General Motors strike. The Company's content per build
in Europe was approximately $18 in the nine months ended September 26, 1998,
compared to an average of $17 for the 1997 fiscal year.
GROSS MARGIN: For the third quarter of 1998, gross margin was 10.2%, up from
4.7% in the comparable period in 1997. For the nine months ended September 26,
1998, gross margin was 13.7%, up from 13.3% in the comparable 1997 period. The
increase over the prior year periods is primarily due to charges of
approximately $57.9 million incurred in the third quarter of 1997 principally
related to C&A Plastics. These charges 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 8.9% and 14.6% in the quarter and nine months ended
September 27, 1997. The decrease in gross margin for the nine months ended
September 26, 1998 as compared to the adjusted gross margin for the comparable
1997 period is due in part to the General Motors strike, which impacted
operating income by approximately $15.7 million and $21.7 million in the quarter
and nine months ended September 26, 1998. Not only did the Company lose General
Motors revenues, but the Company experienced a number of other strike-related
problems in the months following the work stoppages. Many of General Motors'
plant start-ups were erratic, causing the Company certain manufacturing
inefficiencies and cost overruns, especially at C&A Plastics. The Company also
experienced delays in achieving planned cost reductions due to these
strike-related factors. Management currently expects that some of these
inefficiencies will continue into the fourth quarter. Inefficiencies associated
with the closure of the Company's Salisbury, North Carolina carpet manufacturing
operations, which were relocated to the Company's Parker plant in Greenville,
South Carolina, and problems relating to automotive bodycloth sales, including
lower volume, program run-outs and unfavorable product mix, also contributed to
the decrease. In addition, the Company recorded an inventory adjustment of $2.0
million at its accessory floormat subsidiary during the second quarter of 1998.
I-15
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the third quarter of 1998 increased $3.8 million, to
$38.3 million, over the comparable period in 1997. For the nine months ended
September 26, 1998, selling, general and administrative expenses increased $22.9
million over the comparable period in 1997. The increase in the quarter and nine
months is primarily attributable to the Company's recent acquisitions of C&A
Plastics UK, the German Operations Perstorp's remaining interest in the
operations constituting the former Collins & Aikman/Perstorp Joint Venture,
Pepers and Enjema. These operations had combined selling, general and
administrative expenses of $5.1 million and $15.0 million for the quarter and
nine months ended September 26, 1998, respectively. The remaining increase for
the nine months ended September 26, 1998 is due to a $1.6 million increase in
accounts receivable reserves due to a customer's financial difficulty in the
second quarter of 1998, costs associated with systems upgrades and increased
expenditures at C&A Plastics in connection with improvement programs. As a
percentage of sales, selling, general and administrative expenses were 10.1% in
the third quarter of 1998, compared to 9.4% for the third quarter of 1997. For
the nine months ended September 26, 1998, selling, general and administrative
expenses were 8.9% of sales, compared to 7.9% for the comparable period in 1997.
These increases in the quarter and nine months are due to lower sale volumes
resulting from the General Motors strike and sales declines in automotive
bodycloth.
IMPAIRMENT OF LONG LIVED ASSETS: As previously discussed, during the third
quarter of 1997, C&A Plastics wrote down fixed assets by $5.1 million to net
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, net of interest income of $0.6 million and
$2.3 million for the third quarter of 1998 and 1997, respectively, increased to
$20.9 million in the third quarter of 1998 from $19.8 million in the third
quarter of 1997. This increase is due in part to higher debt outstanding in the
third quarter of 1998. In addition, interest income decreased due to a lower
cash balance in the third quarter of 1998 in comparison to 1997. Interest
expense, net of interest income of $2.9 million and $3.0 million for the nine
months ended September 26, 1998 and September 27, 1997, respectively, increased
to $60.8 million for the nine months ended September 26, 1998 from $57.9 million
in the comparable 1997 period. This increase is primarily due to interest
expense allocated to discontinued operations in 1997 of $12.6 million, partially
offset by a lower debt balance during the first six months of 1998. Total
interest expense, including amounts allocated to discontinued operations, was
$73.5 million for the nine months ended September 27, 1997. No amounts were
allocated to discontinued operations in the third quarter of 1997 and the
quarter and nine months ended September 26, 1998.
LOSS ON THE SALE OF RECEIVABLES: The Company sells on a continuous basis,
through its Carcorp subsidiary, interests in a pool of accounts receivable. In
connection with the receivables sales, a loss of $1.0 million was recognized
during the third quarter of 1998, compared to a $0.5 million loss in the third
quarter of 1997. Losses of $4.3 million and $3.3 million, net of amounts
allocated to discontinued operations, were recognized in the nine months ended
September 26, 1998 and September 27, 1997, respectively. The increase in the
loss on the sale of receivables is due to an increase in sales. In addition, C&A
Plastics was added as a seller under the Receivables Facility (as hereinafter
defined) during June 1997. Total losses on the sale of receivables, including
amounts allocated to discontinued operations, were $3.9 million in the nine
months ended September 27, 1997. No amounts were allocated to discontinued
operations during the third quarter of 1997 and the quarter and nine months
ended September 26, 1998.
OTHER (INCOME) EXPENSE: The Company recognized a foreign currency transaction
loss of $1.4 million in the third quarter of 1998, compared to a $0.1 million
gain recognized in the third quarter of 1997. For the nine months ended
September 26, 1998 and September 27, 1997, the Company recognized foreign
currency losses of $4.8 million and $1.7 million, respectively. The losses
incurred in 1998 were primarily related to the strengthening of the U.S. dollar
against the Canadian dollar. Also included in other income for the quarter and
nine months ended September 27, 1997 was income from the Collins &
Aikman/Perstorp Joint Venture of $0.4 million and $1.2 million, respectively.
The Company also recognized a $1.7 million gain on the sale of the Borg Textiles
division in the third quarter of 1997.
INCOME TAXES: In the quarter ended September 26, 1998, the Company recognized an
income tax benefit of $14.6 million, compared to an income tax benefit of $15.9
million in the prior year quarter. For the nine months ended September 26, 1998,
the Company recognized a $6.6 million income tax benefit, compared to a
provision of $1.6 million for the nine months ended September 27, 1997. The
Company's effective tax rate for the quarter ended September 26, 1998 was 63.6%,
compared to 27.5% in the prior year quarter. For the nine months ended September
26, 1998, the Company's effective tax rate was 97.7%, compared to (9.0%) for the
comparable period in 1997. The percentage
I-16
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
increase is due to the reduction in the carrying value of goodwill by $17.5
million during the third quarter of 1997 and the impact of certain state taxes
and nondeductible goodwill, which do not fluctuate with income.
DISCONTINUED OPERATIONS: No income from discontinued operations has been
reflected for the nine months ended September 26, 1998, as the operations of
Wallcoverings prior to its sale were charged to the Company's discontinued
operations reserves. The Company's income (loss) from discontinued operations
was ($0.5 million) and $4.3 million for the quarter and nine months ended
September 27, 1997, respectively, and include the operations of the Company's
Mastercraft Group, Floorcoverings and Airbag.
As previously discussed, Wallcoverings was sold on March 13, 1998. The Company
recorded a loss of $21.1 million, net of income tax benefits, in September 1997,
to adjust the recorded value of Wallcoverings to the expected proceeds.
Accordingly, no gain or loss resulted from the sale of Wallcoverings.
The sale of Floorcoverings for approximately $195.6 million was completed in
February 1997, resulting in a gain on the sale of discontinued operations of
$85.3 million, net of income taxes of $53.4 million. During July 1997, the
Company completed the sales of the Mastercraft Group and Airbag. The Mastercraft
Group was sold for approximately $307.4 million, resulting in a gain on the sale
of discontinued operations of $97.5 million, net of income taxes of $65.0
million. The Company sold Airbag for approximately $56 million. No gain or loss
was recorded on the sale since the sales price approximated the acquisition fair
value of Airbag.
EXTRAORDINARY LOSS: For the nine months ended September 26, 1998, the Company
recognized an extraordinary loss consisting of a non-cash extraordinary charge
of $3.6 million, net of income taxes of $2.4 million, relating to the
refinancing of the Company's bank facilities and a $0.1 million charge, net of
taxes of $58 thousand, recognized in connection with the purchase of $2.0
million principal amount of JPS Automotive 11-1/8% Senior Notes due 2001 (the
"JPS Automotive Senior Notes") on the market at prices in excess of the carrying
values. For the nine months ended September 27, 1997, the Company recognized a
loss of $0.7 million, net of income taxes of $0.4 million, in connection with
the purchase of $19.4 million principal amount of JPS Automotive Senior Notes on
the open market at prices in excess of the carrying values.
NET INCOME: The combined effect of the foregoing resulted in a net loss of $8.4
million in the third quarter of 1998, compared to net income of $34.0 million in
the third quarter of 1997. For the nine months ended September 26, 1998, the
Company recognized a net loss of $3.8 million, compared to net income of $146.2
million recognized in the comparable 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$26.8 million and $24.0 million at September 26, 1998 and December 27, 1997,
respectively. The Company had a total of $108.8 million of borrowing
availability under its credit arrangements as of September 26, 1998. The total
was comprised of $84.9 million under a revolving credit facility (including $1.2
million available to the Canadian Borrowers, as hereinafter defined),
approximately $4.3 million under bank demand lines of credit in Austria and
Canada, and $19.6 million available under the Receivables Facility. Availability
as of September 26, 1998 under the revolving credit facility has been reduced by
outstanding letters of credit of $21.3 million.
On May 28, 1998, the Company entered into new credit facilities consisting
of: (i) a senior secured term loan facility in the principal amount of $100
million payable in quarterly installments until final maturity on December 31,
2003 (the "Term Loan A Facility"); (ii) a senior secured term loan facility in
the principal amount of $125 million payable in quarterly installments until
final maturity on June 30, 2005 (the "Term Loan B Facility" and, together with
the Term Loan A Facility, the "Term Loan Facilities"); and (iii) a senior
secured revolving credit facility in an aggregate principal amount of up to $250
million terminating on December 31, 2003, of which $60 million (or the
equivalent thereof in Canadian dollars) is available to two of the Company's
Canadian subsidiaries (the "Canadian Borrowers"), and of which up to $50 million
is available as a letter of credit facility (the "Revolving Credit Facility" and
together with the Term Loan Facilities, the "Credit Agreement Facilities"). In
addition, the Credit Agreement Facilities include a provision for a Tranche C
credit facility (the "Tranche C Facility") of up to $150 million in loan
borrowings having amortization and interest rate terms to be agreed upon between
the Company and the applicable lenders who may supply commitments at such time
as the Tranche C Facility may be utilized. The Credit Agreement Facilities
(including the Tranche C Facility, if utilized) replace and refinance the
Company's previously outstanding bank credit facilities, including the
facilities entered
I-17
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
into in June 1994 and December 1995 and amended and restated in June 1996 and
the Delayed Draw Term Loan facility entered into by the Company in connection
with the acquisition of JPS Automotive in December 1996 (collectively, the
"Replaced Facilities").
On March 13, 1998, the Company sold Wallcoverings for $71.9 million and an
option for 6.7% of the common stock of the purchaser outstanding as of the
closing date. The proceeds were used to repay long-term debt.
At September 26, 1998, the Company had outstanding $100.0 million under
the Term Loan A Facility, $125.0 million under the Term Loan B Facility, and
$143.8 million under the Revolving Credit Facility (including $58.8 million
borrowed by the Canadian Borrowers).
The Credit Agreement Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
convenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities and
are generally similar to the covenants and ratios contained in the Replaced
Facilities. The interest coverage and leverage ratios were waived for the third
quarter of 1998 due to the General Motors strike and decreased sales of
automotive bodycloth. The Company expects to require a modification of these
ratios for the fourth quarter of 1998 and beyond as a result of the General
Motors strike and the decreased sales of automotive bodycloth. The Company
expects its lenders to agree to modify these ratios to the extent required,
although such lenders may request a fee or an increased interest rate in
connection with such modification. In addition, under the Credit Agreement
Facilities, 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. The Company is permitted
to pay dividends and repurchase shares of the Company (i) in any fiscal year in
an aggregate amount up to $12 million and (ii) if certain financial ratios are
satisfied, for the period from April 28, 1996 through the last day of the
Company's most recently ended fiscal quarter, in an aggregate amount equal to
50% of the Company's cumulative consolidated net income for that period and, in
addition, is permitted to pay dividends and repurchase shares in amounts
representing net proceeds from the sale of Wallcoverings. The Company's
obligations under the Credit Agreement Facilities are secured by a pledge of the
stock of C&A Products and its significant subsidiaries. These restrictions on
dividends and distributions are generally similar to those contained in the
Replaced Facilities.
On June 10, 1996, C&A Products issued $400 million principal amount of
11-1/2% Senior Subordinated Notes due 2006 (the "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 2.25 to 1.0) of cash flow to interest expense or
(iii) the aggregate of all such Restricted Payments from the issue date exceeds
a specified threshold (based, generally, on 50% of cumulative consolidated net
income since the quarter in which the issue date occurred plus 100% of the net
proceeds of capital contributions to C&A Products from stock issuances by the
Company). These prohibitions are subject to a number of significant exceptions,
including dividends and other distributions 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 amount of net available proceeds from the
sale 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. The Company does not currently
meet the Subordinated Notes indenture's general test for the incurrence of
indebtedness, and does not expect to meet such test during the remainder of 1998
and the first half of 1999. However, the Company expects all its borrowing needs
for the foreseeable future to be allowed under exceptions for permitted
indebtedness in the indenture.
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<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The indenture governing the JPS Automotive Senior Notes generally
prohibits JPS Automotive from making certain restricted payments and investments
(generally, dividends and distributions on its equity interests; purchases or
redemptions of its equity interests; purchases of any indebtedness subordinated
to the JPS Automotive Senior Notes; and investments other than as permitted)
("JPS Automotive Restricted Payments") unless (i) there is no default under the
JPS Automotive Senior Notes indenture; (ii) after giving pro forma effect to the
JPS Automotive Restricted Payment, JPS Automotive would be permitted to incur at
least $1.00 of additional indebtedness under the indenture's general test for
the incurrence of indebtedness, which is a specified ratio (currently 2.5 to
1.0) of cashflow to interest expense, and (iii) the aggregate of all JPS
Automotive Restricted Payments from the issue date is less than a specified
threshold (based, generally, on 50% of JPS Automotive's cumulative consolidated
net income since the issue date plus 100% of the aggregate net cash proceeds of
the issuance by JPS Automotive of certain equity and convertible debt securities
and cash contributions to JPS Automotive) (the "JPS Automotive Restricted
Payments Tests"). These conditions were satisfied immediately following the
closing of the JPS Automotive Acquisition and as of September 26, 1998. 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. During the second quarter of
1998, $2.0 million principal amount of JPS Automotive Senior Notes were
repurchased by JPS Automotive on the open market and retired. As of September
26, 1998, JPS Automotive had approximately $89.1 million of indebtedness
outstanding (including a premium of $2.4 million) related to the JPS Automotive
Senior Notes. The Company is operating JPS Automotive as a restricted subsidiary
under the Credit Agreement Facilities and the indenture governing the
Subordinated Notes.
On March 31, 1995, C&A Products entered, through the Trust formed by
Carcorp, into a receivables facility (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") in the United States
and Canada. 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 September 26, 1998 the
maximum amount allowable under the variable funding certificates was $75
million, of which $19.6 million was available and unutilized. Availability under
the Receivables Facility has been adversely affected by the General Motors
strike, which reduced the total amount of receivables available to be purchased
by Carcorp and to support the outstanding term certificates and variable funding
certificates. Nevertheless, the Company believes that its other sources of funds
will be adequate to meet its cash flow needs until the amount of General Motors'
receivables sold to Carcorp returns to levels experienced before the strike
began.
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.
During the nine months ended September 26, 1998, the Company repaid
indebtedness totaling approximately $46.9 million at its subsidiaries operating
in Sweden, Belgium and France constituting the former operations of the Collins
& Aikman/Perstorp Joint Venture. The repayments were funded through borrowings
by the Canadian Borrowers under the Revolving Credit Facility and by cash
generated from operations.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At September 26, 1998, the Company had $20.0
million of potential availability under this master lease
I-19
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
for future machinery and equipment requirements of the Company subject to the
lessor's approval. In the quarter ended September 26, 1998, the Company made
lease payments relating to continuing operations of approximately $1.4 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 $1.5 million during the remainder of fiscal 1998.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Credit Agreement
Facilities and the sale of receivables under the Receivables Facility. Net cash
provided by the continuing operating activities of the Company was $4.8 million
for the quarter ended September 26, 1998, compared to $27.6 million for the
quarter ended September 27, 1997. Net cash provided by the continuing operating
activities of the Company's continuing operations was $9.8 million for the nine
months ended September 26, 1998, compared to $87.5 million for the nine months
ended September 27, 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 September 26, 1998, the Company had total outstanding
indebtedness of $867.2 million (excluding approximately $21.3 million of
outstanding letters of credit) at an average interest rate of 9.6% per annum. Of
the total outstanding indebtedness, $768.8 million relates to the Credit
Agreement Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to $25
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 $16.5 million and $23.0 million to repurchase shares during the quarter
and nine months ended September 26, 1998, respectively.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility bears interest at a per annum
rate equal to the Company's choice of (i) The 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 (the "LIBOR Margin") ranging
from 1% to 1.75%. Margins, which are subject to adjustment based on changes in
the Company's ratio of senior funded debt to EBITDA (i.e., earnings before
interest, taxes, depreciation, amortization and other non-cash charges) were
1.75% in the case of the LIBOR Margin and .75% in the case of the ABR Margin on
September 26, 1998. Canadian-dollar denominated indebtedness incurred by the
Canadian Borrowers under the Revolving Credit Facility bears interest at a per
annum rate equal to the Canadian Borrowers' choice of (i) (x) the greater of (a)
Chase's prime rate for Canadian dollar-denominated loans in Canada and (b) the
rate applicable to Canadian dollar-denominated bankers' acceptances for one
month plus 1%, plus (y) the ABR Margin and (ii) Chase's discount rate for
bankers' acceptances having a term of 30, 60, 90 or 180 days, as applicable,
plus the LIBOR Margin. 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% or (ii) LIBOR of
one, two, three or six months, as selected by the Company, plus a margin of 2%.
The weighted average rate of interest on the Credit Agreement Facilities at
September 26, 1998 was 7.4%. The weighted average interest rate on the sold
interests under the Receivables Facility at September 26, 1998 was 6.1%. Under
the Receivables Facility, the term certificates bear interest at an average rate
equal to one month LIBOR plus .34% 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 11.5% per annum. The JPS
Automotive Senior Notes pay interest at a rate of 11.125% per annum. Cash
interest paid for the quarters ended September 26, 1998 and September 27, 1997
was $6.7 million and $7.6 million, respectively. Cash interest paid was $49.9
million and $58.4 million for the nine months ended September 26, 1998 and
September 27, 1997, respectively.
Due to the variable interest rates under the Credit Agreement Facilities
and the Receivables Facility, the Company is sensitive to increases in interest
rates. Accordingly, 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 on $27.0 million of notional principal amount
by entering into an 8.50% cap on LIBOR. Based upon amounts outstanding at
September 26, 1998, a .5% increase in each of LIBOR and Canadian banker
acceptance rates (5.39% and 5.41%, respectively, at September 26, 1998) would
impact interest costs by approximately $1.8 million annually on the Credit
Agreement Facilities and $0.5 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 swapped LIBOR based interest rates for
the Canadian equivalent as well as fixed the exchange rate for the principal
balance upon maturation. This agreement
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<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
was terminated on June 1, 1998 as a result of the repayment of the Canadian term
loan. The term loan balance was repaid in conjunction with the refinancing and
replacement of the Replaced Facilities.
The current maturities of long-term debt primarily consist of the current
portion of the Credit Agreement Facilities, vendor financing, an industrial
revenue bond and other miscellaneous debt. The maturities of long-term debt of
the Company's continuing operations during the remainder of 1998 and for 1999,
2000, 2001 and 2002 are $0.3 million, $19.9 million, $24.1 million, $114.3
million and $28.9 million, respectively. The JPS Automotive Senior Notes will
mature in 2001. In addition, the Credit Agreement Facilities provide for
mandatory prepayments of the Term Loan A and Term Loan B Facilities with certain
excess cash flow of the Company, net cash proceeds of certain asset sales or
other dispositions by the Company, 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 Credit Agreement Facilities) 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 indenture governing the JPS Automotive
Senior Notes requires JPS Automotive to apply the net proceeds from the sale of
assets of JPS Automotive to offer to purchase JPS Automotive Senior Notes, to
the extent not applied within 270 days of such asset sale to an investment in
capital expenditures or other long term tangible assets of JPS Automotive, to
permanently reduce senior indebtedness of JPS Automotive or to purchase JPS
Automotive Senior Notes in the open market. The Company 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 September 26, 1998, the Company's
continuing operations had approximately $27.1 million in outstanding capital
expenditure commitments. The Company currently anticipates that its capital
expenditures for continuing operations for fiscal 1998 (including costs incurred
to date and outstanding commitments in the remainder of fiscal 1998) will be in
the range of $90 million to $100 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 the third quarter of 1998, prices for most of the Company's primary
raw materials remained constant with price levels at December 27, 1997. The
prices of certain types of yarn utilized in fabric manufacturing have declined
during 1998, resulting in cost savings of approximately $4.2 million through
September 26, 1998. In addition, the price of polyethylene has declined slightly
in both North America and Europe. 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.
After Wallcoverings was classified as a discontinued operation in April
1996, Wallcoverings continued to experience sales declines. From April 1996
through October 1997, the Company 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 in March 1998, the Company expended approximately $19.9
million principally to fund Wallcoverings' operations, working capital and
capital expenditure requirements. Of this amount, approximately $13.9 million
was added to the base purchase price of $58 million provided in the sales
agreement and was paid by the purchaser as part of the final purchase price.
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 will be
approximately $5.2 million during the remainder of 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 its credit facilities.
I-21
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
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 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 September 26, 1998, 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 10 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of September 26, 1998,
the Company's estimate of its liability for these 35 sites is approximately
$28.9 million. As of September 26, 1998, the Company has established reserves of
approximately $42.6 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.
I-22
<PAGE>
IMPACT OF YEAR 2000 COMPLIANCE
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
IMPACT OF YEAR 2000 COMPLIANCE
The Company has developed a comprehensive plan intended to address Year
2000 issues. This plan includes the acceleration of the Company's existing plan
to convert its recently acquired operations to consistent financial and
manufacturing systems and upgrade financial and manufacturing systems at
the Company's remaining locations. As part of the plan, the Company has selected
a team of managers and outside consultants to identify, evaluate and implement a
time-table aimed at bringing all of the Company's critical business systems and
applications into Year 2000 compliance prior to December 31, 1999. The plan
addresses the Company's information technology and non-information technology
and categorizes them into the following areas which are vulnerable to Year 2000
risk: (i) business computer systems, including financial, human resources,
purchasing, manufacturing and sales and marketing systems; (ii) manufacturing,
warehousing and servicing equipment, including shop floor controls; (iii)
technical infrastructure, including local area networks, mainframes and
communication systems; (iv) end-user computing, including personal computers;
(v) suppliers, agents and service providers, including systems which interface
with customers; (vi) environmental operations, including fire, security,
emission and waste controls and elevators; and (vii) dedicated research and
development facilities, including CAD/CAE/CAM systems and product testing
systems.
The Company has evaluated the state of readiness of each area vulnerable
to Year 2000 risk using the following definitions:
Inventory - Systems are being surveyed and documented regarding
compliance
Remediation - Strategies are being implemented to modify or replace
affected hardware and software
Testing - Systems are being tested by Company employees or third
party consultants
Complete - Systems are Year 2000 compliant
Currently, the Company estimates that a majority of its
North American locations are in the Remediation stage for each area of Year 2000
risk. As discussed above, the Company has coordinated its Year 2000 compliance
efforts with a plan to establish its recently acquired operations on consistent
financial and manufacturing systems. Since the majority of the Company's
European locations have been recently acquired, the Company anticipates that
more time will be required by its European locations to become Year 2000
compliant than the Company's North American operations. Currently, the majority
of the Company's European locations are in the Remediation stage for each area
of Year 2000 risk.
The Company intends for all of its systems in North America and Europe to
become Year 2000 compliant during 1999. Based upon the current status of the
North American operations, the Company has not developed a formal contingency
plan for North America. Individual locations will develop informal contingency
plans in the event that they do not expect to be fully Year 2000 compliant
within the current time estimates. Because the Company anticipates that the
European locations will require more time to become Year 2000 compliant, the
Company is in the process of developing formal contingency plans for each
location.
The Company anticipates that the total cost of the its Year 2000 plan will
be approximately $16 million. Included in this estimate is approximately $3
million of salaries and other payroll costs of Company employees to the extent
that they have devoted a portion of their time to the project. Approximately $9
million of these costs have been incurred through September 26, 1998, including
approximately $1 million of salaries and other payroll costs. The Company has
been expensing and capitalizing the costs to complete the Year 2000 plan in
accordance with appropriate accounting policies. The Company is funding the
expenditures related to the Year 2000 plan with cash flows from operations.
Due to the general uncertainty inherent in the Year 2000 process at this
stage, it is difficult for the Company to determine a reasonably likely Year
2000 worst case scenario. One possible scenario would be the failure of the
Company's key suppliers to become compliant. To mitigate the risk of this, the
Company is in the process of issuing questionnaires to its suppliers and
visiting certain of these suppliers to assess their Year 2000 readiness. This
process is expected to continue over the next several months. Based upon the
responses which the Company will receive through the questionnaires and
meetings, the Company will develop contingency plans in the event that these
suppliers will not be Year 2000 compliant in a timely manner. Due to the number
of suppliers that the Company deals with, the Company is unable to make a
meaningful estimate of the revenue that would be lost in the event such a
scenario was realized.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. The Company currently anticipates that, with the
modifications discussed above, the Year 2000 issue should not pose significant
operational problems for the Company. However, if such modifications are not
made, or are not completed timely, or if contingency plans fail, the Year 2000
issue could have a material adverse impact on the operations of the Company.
Success of the Year 2000 plan may to some extent depend on the availability of
outside consultants as well as establishing reliable telecommunication
I-23
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
links with the Company's operations in Europe and Mexico. Further, 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.
The cost of the Company's Year 2000 plan and the dates by which the
Company believes it will be Year 2000 compliant are based on management's
current best estimates, which were derived based on numerous assumptions of
future events, some of which are beyond the control of the Company, including
the continued availability of certain resources, third party modification plans
and other factors. There can be no guarantee, however, that these estimates will
be achieved, and actual results could differ materially from those anticipated.
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 as of September 26,
1998, 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.
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "Participating Countries") are scheduled to establish fixed
conversion rates between their existing sovereign currencies and the euro. The
Participating Countries have agreed to adopt the euro as their common currency
on that date. The Company is currently analyzing the impact of the conversion to
the euro on its operations, but does not anticipate that the conversion will
have a material adverse effect on the Company's consolidated financial position
or results of operation.
SAFE HARBOR STATEMENT
This Report on Form 10-Q 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 Report
on Form 10-Q 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 Report
on Form 10-Q include industry-based factors such as possible declines in the
North American or European 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
I-24
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONCLUDED)
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
particular interior trim packages 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 the Company's
Securities and Exchange filings, including without limitation "BUSINESS" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1997
(the "10-K"), and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" in the 10-K, the Company's Reports on Form 10-Q for
the fiscal quarters ended March 28, 1998 and June 27, 1998 and above in this
Form 10-Q and also see the Company's other filings with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Disclosures not required at this time.
I-25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in legal proceedings involving
the Company or its subsidiaries since those reported in the Company's Report on
Form 10-K for fiscal year ended December 27, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 - Restated Certificate of Incorporation of Collins & Aikman Corporation
is hereby incorporated by reference to Exhibit 4.1 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended July 30,
1994.
3.2 - By-laws of Collins & Aikman Corporation, as amended, are hereby
incorporated by reference to Exhibit 3.2 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January 27,
1996.
3.3 - Certificate of Elimination of Cumulative Exchangeable Redeemable
Preferred Stock of Collins & Aikman Corporation is hereby incorporated
by reference to Exhibit 3.3 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended October 28, 1995.
4.1 - Specimen Stock Certificate for the Common Stock is hereby incorporated
by reference to Exhibit 4.3 of Amendment No. 3 to Collins & Aikman
Holdings Corporation's Registration Statement on Form S-2 (Registration
No. 33-53179) filed June 21, 1994.
4.2 - Indenture, dated as of June 1, 1996, between Collins & Aikman Products
Co., Collins & Aikman Corporation and First Union National Bank of
North Carolina, as Trustee, is hereby incorporated by reference to
Exhibit 4.2 of Collins & Aikman Corporation's Report on Form 10-Q for
the fiscal quarter ended April 27, 1996.
4.3 - First Supplemental Indenture dated as of June 1, 1996, between Collins
& Aikman Products Co., Collins & Aikman Corporation and First Union
National Bank of North Carolina, as Trustee, is hereby incorporated by
reference to Exhibit 4.3 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended April 27, 1996.
4.4 - Credit Agreement, dated as of May 28, 1998, among Collins & Aikman
Products Co., as Borrower, Collins & Aikman Canada, Inc. and Collins &
Aikman Plastics, Ltd., as Canadian Borrowers, Collins & Aikman
Corporation, as Guarantor, the lenders named therein, Bank of America
N.T.S.A., as Documentation Agent, The Chase Manhattan Bank, as
Administrative Agent, and The Chase Manhattan Bank of Canada, as
Canadian Administrative Agent, is hereby incorporated by reference to
Exhibit 4.4 of Collins & Aikman Corporation's Report on Form 10-Q for
the fiscal quarter ended June 27, 1998.
4.5 - Waiver dated as of October 27, 1998 under the Credit Agreement dated as
of May 28, 1998, among Collins & Aikman Products Co., Collins & Aikman
Canada, Inc. and Collins & Aikman Plastics, Ltd., as Canadian Borrowers,
Collins & Aikman Corporation, as Guarantor, the Lender Parties thereto,
Bank of America, N.T.S.A., as Documentation Agent, The Chase Manhattan
Bank, as Administrative Agent, and The Chase Manhattan Bank of Canada, as
Canadian Administrative Agent.
4.6 - Indenture dated as of June 28, 1994, between JPS Automotive Products
Corp., as Issuer, JPS Automotive L.P., as Guarantor and Shawmut Bank
Connecticut, N.A., as Trustee, is hereby incorporated by reference to
Exhibit 4.2 of JPS Automotive Corp.'s Registration Statement on Form
S-1, Registration No. 33-75510.
II-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.7 - First Supplemental Indenture, dated as of October 5, 1994, between JPS
Automotive Products Corp. and JPS Automotive L.P., as Co-Obligors, and
Shawmut Bank Connecticut, N.A., as Trustee is hereby incorporated by
reference to Exhibit 4.48A of JPS Automotive L.P.'s and JPS Automotive
Products Corp.'s Report on Form 10-Q for the fiscal quarter ended
October 2, 1994.
Collins & Aikman Corporation agrees to furnish to the Commission upon
request in accordance with Item 601 (b)(4) (iii) (A) of Regulation S-K
copies of instruments defining the rights of holders of long-term debt of
Collins & Aikman Corporation or any of its subsidiaries, which debt does
not exceed 10% of the total assets of Collins & Aikman Corporation and
its subsidiaries on a consolidated basis.
10.1 - Amended and Restated Stockholders Agreement dated as of June 29, 1994
among the Company, Collins & Aikman Group, Inc., Blackstone Capital
Partners L.P. and Wasserstein Perella Partners, L.P. is hereby
incorporated by reference to Exhibit 10.1 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January 28,
1995.
10.2 - Employment Agreement dated as of July 18, 1990 between Wickes Companies,
Inc. and an executive officer is hereby incorporated by reference to
Exhibit 10.3 of Wickes Companies, Inc.'s Report on Form 10-K for the
fiscal year ended January 26, 1991.
10.3 - Letter Agreement dated as of May 16, 1991 and Employment Agreement
dated as of July 22, 1992 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.7
of Collins & Aikman Holdings Corporation's Report on Form 10-K for the
fiscal year ended January 30, 1993.
10.4 - First Amendment to Employment Agreement dated as of February 24, 1994
between Collins & Aikman Corporation and an executive officer is hereby
incorporated by reference to Exhibit 10.7 of Collins & Aikman Holdings
Corporation's Registration Statement on Form S-2 (Registration No.
33-53179) filed April 19, 1994.
10.5 - Second Amendment, dated as of October 3, 1996, to the Employment
Agreement, dated as of July 22, 1992, as amended, between Collins &
Aikman Products Co. and an executive officer is hereby incorporated by
reference to Exhibit 10.26 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended October 26, 1996.
10.6 - Third Amendment dated as of August 1, 1997, to the Employment Agreement
dated as of July 22, 1992, as amended, between the Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.35
of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal
quarter ended September 27, 1997.
10.7 - Letter Agreement dated as of May 16, 1991 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.14 of Collins & Aikman Holdings Corporation's Registration
Statement on Form S-2 (Registration No. 33-53179) filed April 19, 1994.
10.8 - Letter Agreement dated as of June 30, 1995 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.6 of Collins & Aikman Corporation's Report on Form 10-K for
the fiscal year ended January 27, 1996.
10.9 - Letter Agreement dated October 9, 1992 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.10 of Collins & Aikman Corporation's Report on Form 10-K
for the fiscal year ended December 27, 1997.
10.10 - Employment Agreement dated as of March 3, 1997 between Collins & Aikman
Plastics, Inc. and an executive officer is hereby incorporated by
reference to Exhibit 10.11 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended March 28, 1998.
10.11 - Collins & Aikman Corporation 1997 Executive Incentive Compensation Plan
is hereby incorporated by reference to Exhibit 10.9 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended September
27, 1997.
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.12 - Collins & Aikman Corporation Supplemental Retirement Income Plan is
hereby incorporated by reference to Exhibit 10.23 of Amendment No. 5 to
Collins & Aikman Holdings Corporation's Registration Statement on Form
S-2 (Registration No. 33-53179) filed July 6, 1994.
10.13 - 1993 Employee Stock Option Plan, as amended and restated, is hereby
incorporated by reference to Exhibit 10.13 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended April
29, 1995.
10.14 - 1994 Employee Stock Option Plan, as amended through February 7, 1997, is
hereby incorporated by reference to Exhibit 10.12 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended March 29,
1997.
10.15 - 1994 Directors Stock Option Plan is hereby incorporated by reference to
Exhibit 10.15 of Collins & Aikman Corporation's Report on Form 10-K for
the fiscal year ended January 28, 1995.
10.16 - Excess Benefit Plan of Collins & Aikman Corporation is hereby
incorporated by reference to Exhibit 10.25 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January 28,
1995.
10.17 - Change in control agreement dated March 17, 1998 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.17 of Collins & Aikman Corporation's Report on Form 10-K
for the fiscal year ended December 27, 1997.
10.18 - Change in control agreement dated March 17, 1998 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.18 of Collins & Aikman Corporation's Report on Form 10-K
for the fiscal year ended December 27, 1997.
10.19 - Change in control agreement dated March 17, 1998 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.19 of Collins & Aikman Corporation's Report on Form 10-K
for the fiscal year ended December 27, 1997.
10.20 - Change in control agreement dated March 17, 1998 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.20 of Collins & Aikman Corporation's Report on Form 10-K
for the fiscal year ended December 27, 1997.
10.21 - Change in control agreement dated March 17, 1998 between Collins & Aikman
Corporation and an executive officer is hereby incorporated by reference
to Exhibit 10.22 of Collins & Aikman Corporation's report on Form 10-Q
for the fiscal quarter ended March 28, 1998.
10.22 - Lease, executed as of the 1st day of June 1987, between Dura
Corporation and Dura Acquisition Corp. is hereby incorporated by
reference to Exhibit 10.24 of Amendment No. 5 to Collins & Aikman
Holdings Corporation's Registration Statement on Form S-2 (Registration
No. 33-53179) filed July 6, 1994.
10.23 - Amended and Restated Receivables Sale Agreement dated as of March 30,
1995 among Collins & Aikman Products Co., Ack-Ti-Lining, Inc., WCA
Canada Inc., Imperial Wallcoverings, Inc., The Akro Corporation, Dura
Convertible Systems Inc., each of the other subsidiaries of Collins &
Aikman Products Co. from time to time parties thereto and Carcorp, Inc.
is hereby incorporated by reference to Exhibit 10.18 of Collins &
Aikman Corporation's Report on Form 10-K to the fiscal year ended
January 28, 1995.
10.24 - Servicing Agreement, dated as of March 30, 1995, among Carcorp, Inc.,
Collins & Aikman Products Co., as Master Servicer, each of the
subsidiaries of Collins & Aikman Products Co. from time to time parties
thereto and Chemical Bank, as Trustee is hereby incorporated by
reference to Exhibit 10.19 of Collins & Aikman Corporation's Report on
Form 10-K to the fiscal year ended January 28, 1995.
10.25 - Pooling Agreement, dated as of March 30, 1995, among Carcorp, Inc.,
Collins & Aikman Products Co., as Master Servicer and Chemical Bank, as
Trustee, is hereby incorporated by reference to Exhibit 10.20 of
Collins & Aikman Corporation's Report on Form 10-K to the fiscal year
ended January 28, 1995.
10.26 - Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp,
Inc., Collins & Aikman Products Co., as Master Servicer and Chemical
Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.21
of Collins & Aikman Corporation's Report on Form 10-K to the fiscal
year ended January 28, 1995.
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.27 - Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp,
Inc., Collins & Aikman Products Co., as Master Servicer, the Initial
Purchasers parties thereto, Societe Generale, as Agent for the
Purchasers and Chemical Bank, as Trustee is hereby incorporated by
reference to Exhibit 10.22 of Collins & Aikman Corporation's Report on
Form 10-K to the fiscal year ended January 28, 1995.
10.28 - Amendment No. 1, dated September 5, 1995, among Carcorp, Inc., as
Company, Collins & Aikman Products Co., as Master Servicer, and
Chemical Bank, as Trustee, to the Pooling Agreement, dated as of
March 30, 1995, among the Company, the Master Servicer and Trustee is
hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended July 29,
1995.
10.29 - Amendment No. 2, dated October 25, 1995, among Carcorp, Inc., as
Company, Collins & Aikman Products Co., as Master Servicer, and
Chemical Bank, as Trustee, to the Pooling Agreement, dated as of
March 30, 1995, among the Company, the Master Servicer and the Trustee
is hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended
October 28, 1995.
10.30 - Amendment No. 1, dated February 29, 1996, to the Series 1995-1
Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins &
Aikman Products Co., as Master Servicer, and Chemical Bank, as Trustee,
is hereby incorporated by reference to Exhibit 10.20 of Collins &
Aikman Corporation's Report on Form 10-K for the fiscal year ended
January 27, 1996.
10.31 - Amendment No. 1, dated February 29, 1996, to the Series 1995-2
Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins &
Aikman Products Co., as Master Servicer, Societe Generale, as agent,
and Chemical Bank, as Trustee, is hereby incorporated by reference to
Exhibit 10.21 of Collins & Aikman Corporation's Report on Form 10-K for
the fiscal year ended January 27, 1996.
10.32 - Master Equipment Lease Agreement dated as of September 30, 1994,
between NationsBanc Leasing Corporation of North Carolina and Collins &
Aikman Products Co. is hereby incorporated by reference to Exhibit
10.27 of Collins & Aikman Corporation's Report on Form 10-Q for the
fiscal quarter ended October 29, 1994.
10.33 - Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS
Automotive L.P. and Collins & Aikman Products Co. dated August 28, 1996
is hereby incorporated by reference to Exhibit 2.1 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended July 27,
1996.
10.34 - Amendment No. 1 to Equity Purchase Agreement by and among JPSGP, Inc.,
Foamex - JPS Automotive L.P., Foamex International Inc. and Collins &
Aikman Products Co. dated as of December 11, 1996 is hereby
incorporated by reference to Exhibit 2.2 of Collins & Aikman
Corporation's Current Report on Form 8-K dated December 10, 1996.
10.35 - Equity Purchase Agreement by and among Seiren U.S.A. Corporation,
Seiren Automotive Textile Corporation, Seiren Co., Ltd. and Collins &
Aikman Products Co. dated December 11, 1996, is hereby incorporated by
reference to Exhibit 2.3 of Collins & Aikman Corporation's Current
Report on Form 8-K dated December 10, 1996.
10.36 - Acquisition Agreement between Perstorp A.B. and Collins & Aikman
Products Co. dated December 11, 1996 is hereby incorporated by
reference to Exhibit 2.4 of Collins & Aikman Corporation's Current
Report on Form 8-K dated December 10, 1996.
10.37 - Agreement among Perstorp A.B., Perstorp GmbH, Perstorp Biotec A.B. and
Collins & Aikman Products Co. dated December 11, 1996 is hereby
incorporated by reference to Exhibit 2.5 of Collins & Aikman
Corporation's current report on Form 8-K dated December 10, 1996.
II-4
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.38 - Settlement and Amendment Agreement dated as of December 16, 1997 by
and among Collins & Aikman Products Co., Perstorp A.B., Perstorp GmbH,
Collins & Aikman Holding A.B., Collins & Aikman Automotive Systems
GmbH, Collins & Aikman Automotive Systems N.V., Collins & Aikman
Automotive System A.B. and Perstorp Components GmbH and related Letter
Amendment Agreement.
10.39 - Acquisition Agreement dated as of December 9, 1996 among Collins &
Aikman Products Co., Collins & Aikman Floor Coverings Group, Inc.,
Collins & Aikman Floor Coverings, Inc., CAF Holdings, Inc. and CAF
Acquisition Corp. is hereby incorporated by reference to Exhibit 2.7 of
Collins & Aikman Corporation's Current Report on Form 8-K dated
December 10, 1996.
10.40 - 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.
10.41 - 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.
10.42 - 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.
10.43 - 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
is hereby incorporated by reference to Exhibit 2.4 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended December
27, 1997.
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule.
99 - Voting Agreement between Blackstone Capital Partners L.P. and
Wasserstein Perella Partners, L.P. is hereby incorporated by reference
to Exhibit 99 of Amendment No. 4 to Collins & Aikman Holdings
Corporation's Registration Statement on Form S-2 (Registration No.
33-53179) filed June 27, 1994.
</TABLE>
(b) Reports on Form 8-K
During the quarter for which this Report on Form 10-Q is being filed, the
Company filed no reports on Form 8-K.
II-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 9, 1998
COLLINS & AIKMAN CORPORATION
(Registrant)
By: /s/ J. Michael Stepp
---------------------
J. Michael Stepp
Chief Financial Officer and
Executive Vice President
(On behalf of the Registrant
and as Principal Financial and
Accounting Officer)
Exhibit 4.5
WAIVER
WAIVER, dated as of October 27, 1998 (this "Waiver"), under the
Credit Agreement, dated as of May 28, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among COLLINS &
AIKMAN PRODUCTS CO., a Delaware corporation (the "Company"), COLLINS & AIKMAN
CANADA INC., a Canadian corporation (the "Collins & Aikman Canada"), COLLINS &
AIKMAN PLASTICS, LTD., a Canadian corporation ("Collins & Aikman Plastics", and
collectively with Collins & Aikman Canada, the "Canadian Borrowers"), COLLINS &
AIKMAN CORPORATION, a Delaware corporation ("Holdings"), the financial
institutions parties thereto (the "Lenders"), BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION, as documentation agent (in such capacity, the
"Documentation Agent") and THE CHASE MANHATTAN BANK, as administrative agent (in
such capacity, the "Administrative Agent") and THE CHASE MANHATTAN BANK OF
CANADA, as Canadian administrative agent (in such capacity, the "Canadian
Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Canadian Borrowers and Holdings have
requested the Lenders to waive certain covenants in the Credit Agreement as set
forth herein; and
WHEREAS, the Lenders are willing to waive such covenants in the
Credit Agreement on and subject to the terms and conditions thereof;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
parties agree as follows:
SECTION 1. Definitions. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined.
SECTION 2. Waiver of Section 6.14 (Interest Coverage Ratio). Section
6.14 of the Credit Agreement is hereby waived for the period of four fiscal
quarters ending September 26, 1998; provided that such waiver is effective only
if the Interest Coverage Ratio for such period is at least 1.75 to 1.00.
SECTION 3. Waiver of Section 6.16 (Leverage Ratio). Section 6.16 of
the Credit Agreement is hereby waived in respect of the last day of the fiscal
quarter ending September 26, 1998; provided that such waiver is effective only
if the Leverage Ratio on such day is no greater than 5.25 to 1.00.
SECTION 4. Representations and Warranties. Holdings, the Company
and the Canadian Borrowers hereby represent and warrant to the Administrative
Agent, the Canadian
<PAGE>
2.
Administrative Agent and each Lender that after giving effect to the waivers
contained herein, Holdings and the Borrower hereby confirm, reaffirm and restate
the representations and warranties set forth in Article III of the Credit
Agreement as if made on and as of the Waiver Effective Date, except as they may
specifically relate to an earlier date; provided that such representations and
warranties shall be and hereby are amended so that all references to the
Agreement therein shall be deemed a reference to (i) the Credit Agreement, (ii)
this Waiver and (iii) the Credit Agreement as amended by this Waiver.
SECTION 5. Conditions Precedent. This Waiver shall become effective
as of the date hereof (the "Waiver Effective Date") when each of the conditions
precedent set forth below shall have been fulfilled:
(a) Waiver. The Administrative Agent shall have received this
Waiver, executed and delivered by a duly authorized officer of each of the
Company, the Canadian Borrowers, Holdings and the Required Lenders.
(b) No Default or Event of Default. On and as of the Waiver
Effective Date and after giving effect to this Waiver and the transactions
contemplated hereby, no Default or Event of Default shall have occurred and be
continuing.
(c) Representations and Warranties. The representations and
warranties made by the Company and the Canadian Borrowers in the Credit
Agreement and herein after giving effect to this Waiver and the transactions
contemplated hereby shall be true and correct in all material respects on and as
of the Waiver Effective Date as if made on such date, except where such
representations and warranties relate to an earlier date in which case such
representations and warranties shall be true and correct as of such earlier
date.
(d) Acknowledgement and Consent. The Administrative Agent shall have
received from each of Holdings, the Company, the Canadian Borrowers and the
other Loan Parties with respect to each Loan Document to which it is a party a
duly executed Acknowledgment and Consent, substantially in the form of Exhibit A
hereto.
SECTION 6. Continuing Effect of Credit Agreement. This Waiver shall
not constitute an amendment or waiver of any provision of the Credit Agreement
not expressly referred to herein and shall not be construed as an amendment,
waiver or consent to any action on the part of any party hereto that would
require an amendment, waiver or consent of the Administrative Agent or the
Lenders except as expressly stated herein. Except as expressly waived hereby,
the provisions of the Credit Agreement are and shall remain in full force and
effect.
SECTION 7. Waiver Fee. The Company shall pay to each Lender which
executes and delivers this Waiver on or prior to 5:00 p.m., New York City time,
October 30, 1998, a fee equal to .10% of the sum of such Lender's (a) Revolving
Credit Commitment, (b) Canadian Revolving Credit Commitment, (c) outstanding
Tranche A Term Loans and (d) outstanding Tranche B Term Loans, such fee to be
payable only if the conditions precedent to the Waiver Effective Date have been
fulfilled by such time.
<PAGE>
3.
SECTION 8. Expenses. The Company and the Canadian Borrowers agree to
pay or reimburse the Administrative Agent for all of its reasonable
out-of-pocket costs and expenses incurred in connection with (a) the
negotiation, preparation, execution and delivery of this Waiver and any other
documents prepared in connection herewith, and consummation of the transactions
contemplated hereby and thereby, including the fees and expenses of Simpson
Thacher & Bartlett, counsel to the Administrative Agent, and (b) the enforcement
or preservation of any rights under this Waiver and any other such documents.
SECTION 9. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 10. Counterparts. This Waiver may be executed in any number
of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all counterparts taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
duly executed and delivered by their respective duly authorized officers as of
the day and year first above written.
COLLINS & AIKMAN PRODUCTS CO.
By /s/ J. Michael Stepp
------------------------------------
Name: J. Michael Stepp
Title: Chief Financial Officer
and Executive Vice President
COLLINS & AIKMAN CANADA INC.
By /s/ J. Michael Stepp
------------------------------------
Name: J. Michael Stepp
Title: Chief Financial Officer
and Executive Vice President
COLLINS & AIKMAN PLASTICS, LTD.
By /s/ J. Michael Stepp
------------------------------------
Name: J. Michael Stepp
Title: Chief Financial Officer
and Executive Vice President
<PAGE>
COLLINS & AIKMAN CORPORATION
By /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Chief Financial Officer
and Executive Vice President
THE CHASE MANHATTAN BANK, as Administrative
Agent, Collateral Agent and as a lender
By /s/ Rosemary Bradley
-------------------------------
Name: Rosemary Bradley
Title: Vice President
THE CHASE MANHATTAN BANK OF CANADA, as
Canadian Administrative Agent and as a
Lender
By /s/ Christine Chan
-------------------------------
Name: Christine Chan
Title: Vice President
By /s/ Arun K. Bery
-------------------------------
Name: Arun K. Bery
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Documentation
Agent and as a Lender
By /s/ David H. Dinkins
-------------------------------
Name: David H. Dinkins
Title: Vice President
THE BANK OF NEW YORK
By /s/ Ann Marie Hughes
-------------------------------
Name: Ann Marie Hughes
Title: Vice President
<PAGE>
BANK AUSTRIA
By: /s/ Carl G. Drake
-------------------------------
Name: Carl G. Drake
Title: Vice President
By: /s/ William E. McCollum, Jr.
-------------------------------
Name: William E. McCollum, Jr.
Title: Senior Associate
THE BANK OF NOVA SCOTIA
By: /s/ Willam E. Zarrett
-------------------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
BANK OF SCOTLAND
By /s/ Annie Chin Tat
-------------------------------
Name: Annie Chin Tat
Title: Senior Vice President
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By /s/ Friedrich N. Wilms
-------------------------------
Name: Friedrich N. Wilms
Title: Vice President
BRANCH BANKING AND TRUST COMPANY
By /s/ Thatcher L. Townsend III
-------------------------------
Name: Thatcher L. Townsend III
Title: Vice President
<PAGE>
CIBC INC.
By /s/ E. Lindsay Gordon
-------------------------------
Name: E. Lindsay Gordon
Title: Executive Director, CIBC
Oppenheimer Corp. AS AGENT
COMERICA BANK
By /s/ Robert M. Ramirez
-------------------------------
Name: Robert M. Ramirez
Title: Account Representative
COMPAGNIE FINANCIERE DE
CIC ET DE L'UNION EUROPEENNE
By /s/ Anthony Rock
-------------------------------
Name: Anthony Rock
Title: Vice President
By /s/ Sean Mounier
-------------------------------
Name: Sean Mounier
Title: First Vice President
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLENBANK
B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH
By /s/ Robert S. Bucklin
-------------------------------
Name: Robert S. Bucklin
Title: Chief Corporate Banking Officer
By /s/ M. Christina Debler
-------------------------------
Name: M. Christina Debler
Title: Vice President
<PAGE>
CREDIT AGRICOLE INDUSUEZ
By /s/ David Boule
-------------------------------
Name: David Boule, F.V.P.
Title: Head of Corporate Banking - Chicago
By /s/ Dean Balice
-------------------------------
Name: Dean Balice
Title: Senior Vice President, Branch Manager
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ David M. Cawrse
-------------------------------
Name: David M. Cawrse
Title: First Vice President
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
its Investment Manager
By /s/ Justin L. Driscoll
-------------------------------
Name: Justin L. Driscoll
Title: Senior Vice President
CYPRESSTREE SENIOR FLOATING RATE FUND
By: CypressTree Investment Management
Company, Inc., as Portfolio Manager
By /s/ Catherine C. McDermott
-------------------------------
Name: Catherine C. McDermott
Title: Principal
<PAGE>
KZH-CYPRESSTREE-1 LLC
By /s/ Virginia Conway
-------------------------------
Name: Virginia Conway
Title: Authorized Agent
DRESDNER BANK, A.G. NEW YORK AND GRAND
CAYMAN BRANCH
By /s/ Christopher E. Sarisky
-------------------------------
Name: Christopher E. Sarisky
Title: Assistant Vice President
By /s/ Brigitte Sagin
-------------------------------
Name: Brigitte Sagin
Title: Assistant Treasurer
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG
By /s/ Rima Terradista
-------------------------------
Name: Rima Terradista
Title: Vice President
By /s/ John S. Runnion
-------------------------------
Name: John S. Runnion
Title: First Vice President
FIRST NATIONAL BANK OF CHICAGO
By /s/ Gaye C. Plunkett
-------------------------------
Name: Gaye C. Plunkett
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK
By /s/ Douglas T. Davis
-------------------------------
Name: Douglas T. Davis
Title: Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By /s/ Teiji Teramoto
-------------------------------
Name: Teiji Teramoto
Title: Vice President and Manager
GM CASH MANAGEMENT
By
Name:
Title:
INDOSUEZ CAPITAL FUNDING IV LP
By Indosuez Capital as Portfolio Advisor
By /s/
-------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By /s/ Takuya Honjo
-------------------------------
Name: Takuya Honjo
Title: Senior Vice President
KZH III LLC
By /s/ Virginia Conway
-------------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN
LIMITED, NEW YORK BRANCH
By /s/ Koji Sasayama
-------------------------------
Name: Koji Sasayama
Title: Deputy General Manager
MERRILL LYNCH PRIME RATE PORTFOLIO
By
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
By
Name:
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ Beatrice E. Rossodo
-------------------------------
Name: Beatrice E. Rossodo
Title: Senior Vice President
MORGAN STANLEY SENIOR FUNDING INC.
By /s/ Christopher A. Pucillo
-------------------------------
Name: Christopher A. Pucillo
Title: Vice President
<PAGE>
NATEXIS BANQUE BFCE
By /s/ William C. Maier
-------------------------------
Name: William C. Maier
Title: Senior Vice President
By /s/ Jordan Sadler
-------------------------------
Name: Jordan Sadler
Title: Associate
NATIONSBANK, N.A.
By /s/ David H. Dinkins
-------------------------------
Name: David H. Dinkins
Title: Vice President
NEW YORK LIFE INSURANCE COMPANY
By /s/ Steven M. Benevento
-------------------------------
Name: Steven M. Benevento
Title: Director
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By: New York Life Insurance Company
By /s/ Steven M. Benevento
-------------------------------
Name: Steven M. Benevento
Title: Director
<PAGE>
OCTAGON LOAN TRUST
By: Octagon Credit Investors, As Manager
By
-------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research as
Investment Advisor
By /s/ Payson F. Swaffield
-------------------------------
Name: Payson F. Swaffield
Title: Vice President
SOCIETE GENERALE
By /s/ Richard M. Lewis
-------------------------------
Name: Richard M. Lewis
Title: Director
THE SUMITOMO TRUST & BANKING CO., LTD.,
NEW YORK BRANCH
By /s/ Suraj Bhatia
-------------------------------
Name: Suraj Bhatia
Title: Senior Vice President
SUNTRUST BANK, ATLANTA
By /s/ Bradley J. Staples
-------------------------------
Name: Bradley J. Staples
Title: Vice President
By /s/ Kelley E. Brinson
-------------------------------
Name: Kelley E. Brinson
Title: Banking Officer
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By
Name:
Title:
THE TORONTO-DOMINION BANK
By /s/ Warren Finlay
-------------------------------
Name: Warren Finlay
Title: President
THE TRAVELERS INSURANCE COMPANY
By /s/ A. W. Carnduff
-------------------------------
Name: A. W. Carnduff
Title: 2nd Vice President
VAN KAMPEN CLO II LTD.
By: VAN KAMPEN AMERICAN CAPITAL MANAGEMENT
as Collateral Manager
By /s/ Jeffrey W. Marlet
-------------------------------
Name: Jeffrey W. Marlet
Title: Senior Vice President
WACHOVIA BANK, N.A.
By /s/ Suzanne Morrison
-------------------------------
Name: Suzanne Morrison
Title: Vice President
<PAGE>
EXHIBIT A TO
WAIVER
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Persons hereby:
(a) acknowledges and consents to the execution, delivery and performance
of the Waiver, dated as of October 27, 1998 (the "Waiver") to the Credit
Agreement dated as of May 28, 1998 (as the same may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among Collins &
Aikman Products Co. (the "Company"), Collins & Aikman Canada Inc. ("Collins &
Aikman Canada"), Collins & Aikman Plastics, Ltd. ("Collins & Aikman Plastics",
and collectively with Collins & Aikman Canada, the "Canadian Borrowers") Collins
& Aikman Corporation ("Holdings"), the several banks and other institutions from
time to time parties to the Credit Agreement (the "Lenders"), Bank of America
National Trust & Savings Association, as documentation agent (in such capacity,
the "Documentation Agent") and The Chase Manhattan Bank, as administrative agent
(in such capacity, the "Administrative Agent") and The Chase Manhattan Bank of
Canada, as Canadian administrative agent (in such capacity, the "Canadian
Administrative Agent"); and
(b) agrees that such execution, delivery and performance shall not in any
way affect such Person's obligations under any Loan Document (as defined in the
Credit Agreement) to which such Person is a party, which obligations on the date
hereof remain absolute and unconditional and are not subject to any defense,
set-off or counterclaim;
Dated: October __, 1998
COLLINS & AIKMAN PRODUCTS CO.
By:
-------------------------------
Name:
Title:
COLLINS & AIKMAN CANADA INC.
By:
-------------------------------
Name:
Title:
COLLINS & AIKMAN PLASTICS, LTD.
By:
-------------------------------
Name:
Title:
<PAGE>
5
COLLINS & AIKMAN CORPORATION
By:_______________________
Name:
Title:
THE AKRO CORPORATION
By:_________________________
Name:
Title:
DURA CONVERTIBLE SYSTEMS, INC.
By:_________________________
Name:
Title:
WICKES ASSET
MANAGEMENT, INC.
By:_________________________
Name:
Title:
COLLINS & AIKMAN INTERNATIONAL CORPORATION
By:_________________________
Name:
Title:
WICKES REALTY, INC.
By:_________________________
Name:
Title:
<PAGE>
AMCO CONVERTIBLE FABRICS, INC.
By:_________________________
Name:
Title:
COLLINS & AIKMAN PLASTICS, INC.
By:_________________________
Name:
Title:
HUGHES PLASTICS, INCORPORATED
By:_________________________
Name:
Title:
COLLINS & AIKMAN EUROPE, INC.
By:_________________________
Name:
Title:
PACJ, INC.
By:_________________________
Name:
Title:
COLLINS & AIKMAN CARPET & ACOUSTICS (TN),
INC.
By:_________________________
Name:
Title:
<PAGE>
COLLINS &AIKMAN CARPET & ACOUSTICS
(MI), INC.
By:_________________________
Name:
Title:
COLLINS & AIKMAN AUTOMOTIVE INTERNATIONAL,
INC.
By:_________________________
Name:
Title:
COLLINS & AIKMAN ASSET SERVICES, INC.
By:_________________________
Name:
Title:
CW MANAGEMENT CORPORATION
By:_________________________
Name:
Title:
HOPKINS SERVICES, INC.
By:_________________________
Name:
Title:
SAF SERVICES CORPORATION
By:_________________________
Name:
Title:
<PAGE>
COLLINS & AIKMAN (GIBRALTAR) LIMITED
By:_________________________
Name:
Title:
Exhibit 10.38
SETTLEMENT AND AMENDMENT AGREEMENT (this "Agreement") dated as of December
16, 1997 by and among Collins & Aikman Products Co. ("C&A"), Perstorp A.B.
("Perstorp"), Perstorp GmbH ("Perstorp Germany"), Collins & Aikman Holding A.B.
(formerly Perstorp Biotec A.B.) ("JV Holdings"), Collins & Aikman Automotive
Systems GmbH ("C&A Germany"), Collins & Aikman Automotive Systems N.V. (formerly
Perstorp Components N.V.)("Components Belgium"), Collins & Aikman Automotive
System A.B. (formerly Perstorp Components A.B.)("Components Sweden") and
Perstorp Components GmbH ("Components").
WHEREAS Perstorp and C&A are parties to the Acquisition Agreement dated as
of December 11, 1996 (the"Acquisition Agreement") and Perstorp, Perstorp
Germany, JV Holdings and C&A are parties to the Formation Agreement dated as of
December 11, 1996 (the "Formation Agreement") and Perstorp Germany, Components
and C&A Germany are parties to the Acquisition Agreement dated as of September
4, 1997 (the "German Acquisition Agreement"); and
WHEREAS Perstorp, C&A and the other parties hereto wish to settle
outstanding issues between Perstorp and C&A relating to the Acquisition
Agreement, the Formation Agreement and the German Acquisition Agreement and in
connection therewith amend such agreements.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Section 7.1(b) of the Acquisition Agreement is hereby amended by
deleting clauses (ii), (iv), (v), (vi), (vii) and (ix) therefrom.
2. Schedule 7.1(b) of the Acquisition Agreement is hereby amended by
deleting Items 3, 4, 6, 7, 9, 10, 11(b), 11(c), 11(d) and 11(e) therefrom.
3. Section 7.1(c) of the Formation Agreement is hereby amended by deleting
clauses (ii), (iv), (v), (vi), (vii), (ix) and (xi) therefrom.
4. Schedule 7.1(c) of the Formation Agreement is hereby amended by
deleting Item 3 therefrom.
5. Section 7.1(b) of the German Acquisition Agreement is hereby amended by
deleting clause (ii) therefrom. Section 9.15 and 9.22 of the German Acquisition
Agreement are hereby deleted.
6. Schedule 7.1(b) of the German Acquisition Agreement is hereby amended
by deleting Item 2 therefrom.
7. In consideration of the amendments and releases set forth herein,
Perstorp Germany hereby sells, transfers and assigns ("Transfers") to C&A
500,000 shares (the "Perstorp Shares") of JV Holdings. Such sale and purchase,
which is effective December 16, 1997, shall be hereinafter referred
<PAGE>
to as the "Completion". For the purposes of the Shareholders Agreement dated as
of December 11, 1996 among C&A, Perstorp and the other parties thereto (the
"Shareholders Agreement"), the sale and purchase of the Perstorp Shares at
Completion shall be deemed to be an exercise of the C&A Call Option (as defined
in the Shareholders Agreement). Perstorp Germany shall be deemed without further
action to agree to the matters set forth in Section 9.4(b)(iii)(B) of the
Shareholders Agreement.
8. Perstorp Germany hereby represents and warrants to C&A that (a)
Perstorp Germany is conveying and C&A is acquiring the entire record and
beneficial ownership of, and good and valid title to, the Perstorp Shares, free
and clear of any and all claims, liens, pledges, charges, encumbrances, security
interests, options, trusts, commitments, voting and other restrictions or other
third-party rights (including rights of pre-exemption) of any nature whatsoever
("Encumbrances"), except for Encumbrances created by any applicable securities
laws or by C&A; (b) the Perstorp Shares constitute all of the shares of JV
Holdings in which Perstorp Germany or any of its affiliates has a direct or
indirect beneficial ownership; and (c) the Perstorp Shares include the 0.1% of
the issued shares of JV Holdings previously transferred to an individual (the
"Individual Shareholder"), which Perstorp Germany repurchased from the
Individual Shareholder prior to Completion.
9. Immediately following Completion and no later then December 17, 1997,
Perstorp Germany shall deliver to C&A at the offices of C&A's counsel, Lagerlof
& LeMan, the following: (a) a duly executed transfer or transfers in favor of
C&A or as it may direct, together with the relative share certificates in
respect of the Perstorp Shares, and any other duly executed instruments or
documents as may be reasonably required to permit C&A to acquire the Perstorp
Shares free and clear of any and all Encumbrances, except for Encumbrances
created by any applicable securities laws or by C&A, together with all rights
attaching to them; (b) the written resignation of those directors and deputy
directors of JV Holdings appointed by it, and Perstorp Germany hereby agrees
that it will indemnify, defend and hold harmless JV Holdings and its officers,
directors, employees and representatives and any affiliate of the foregoing from
and against all claims by such directors and deputy directors in connection with
their employment by or service as director of or resignation from JV Holdings;
and (d) a copy of a resolution of the board of directors of Perstorp Germany
(certified by a duly appointed officer as true and correct) authorizing the
Transfer of the Perstorp Shares to C&A. In addition, each party shall do all
such other things and execute all such other documents as the other party may
reasonably require to give effect to the sale and purchase of the Perstorp
Shares.
10. C&A shall use its best efforts to obtain the release of Perstorp
Germany from any guarantees, indemnities or other security which Perstorp
Germany may have given in respect of any of the obligations or liabilities of JV
Holdings to third parties and pending the obtaining of such release shall keep
Perstorp Germany fully and effectively indemnified against any such guarantees,
indemnities or other security. Perstorp and Perstorp Germany shall use their
reasonable efforts (i) to cause Bank Brussels Lambert and Handelsbanken ("JV
Lenders") not to cancel any loan facility, or accelerate any loans, of JV
Holdings and (ii) to assist C&A in obtaining new financing for JV Holdings
without any guarantee or other comfort from Perstorp Germany. Until such time as
Perstorp Germany is released by the JV Lenders from
2
<PAGE>
its guarantees of indebtedness of JV Holdings, JV Holdings shall expend cash
only for (i) expenditures in the ordinary course of business and (ii) to reduce
debt of JV Holdings that has become due and payable or is guaranteed by Perstorp
Germany. C&A shall cause JV Holdings to execute such documents and to pledge
such excess cash as Perstorp Germany may reasonably require as security for
C&A's obligations under this paragraph. Perstorp Germany shall use any pledged
cash solely for the purpose of reducing debt of JV Holdings.
11. This Agreement shall (a) constitute a final accord and satisfaction of
(i) all claims and defenses seeking adjustment of the balance sheet price
pursuant to Section 3.4 of the Acquisition Agreement: (ii) all claims and
defenses seeking adjustment of Benefit Amounts (as that term is defined in the
Acquisition Agreement); (iii) all claims and defenses seeking adjustment of the
balance sheet pursuant to Section 3.5 of the Formation Agreement; (iv) all
claims by Perstorp seeking any amount due or claimed to be due from C&A under
the German Acquisition Agreement; and (v) all claims and defenses relating to
any claim by C&A or Perstorp that the financial projections underlying the
Acquisition Agreement, the Formation Agreement, or the German Acquisition
Agreement were materially false or misleading in respect of any of the same
matters as were released in connection with subparagraphs 11(a)(i)-(iv) above
(other than claims for subrogation, contribution, indemnity, or any claim
arising from claims asserted by non-parties hereto), and (b) effect the final
complete transfer and assignment of all shares to C&A, together with all right,
title, and interest of any ownership interest, not already owned by C&A in JV
Holdings.
12. In further consideration of the amendments and releases set forth
herein and in respect of the environmental indemnity claims previously submitted
to Perstorp, Perstorp shall pay to C&A $600,000. C&A Germany shall pay to
Perstorp Germany DM 600,000 for Perstorp Germany's sale and transfer of the M17
and the Water Jet Machine (as such terms are defined in the German Acquisition
Agreement) to C&A Germany. Perstorp shall wire the net amount (based on average
buy/sell exchange rate as of the close of business on the date hereof) to C&A
immediately upon Perstorp Germany being released from its guarantee to the JV
Lenders in respect of indebtedness of JV Holdings. C&A Germany shall have the
right to use free of charge for a period of six months from the date hereof the
building where the M17 is currently situated. Perstorp shall pay for all labor,
material and services provided or performed in connection with the Restructuring
Plan (as defined in the German Acquisition Agreement) through the date of this
Agreement. The definition of the defined term "Retained Liabilities" in the
German Acquisition Agreement is hereby amended by adding the following sentence
at the end thereof: "Notwithstanding the foregoing, Retained Liabilities shall
not include the cost of labor, material or services provided or performed in
connection with the Restructuring Plan after December 16, 1997."
13. The parties agree to release each other and covenant not to sue with
respect to all claims, causes of action, demands, proceedings, obligations,
contracts, agreements, debts, liabilities, loss, expenses, attorneys' fees, and
costs, whether known or unknown, suspected or unsuspected, developed or
undeveloped, whether in law or equity, whether common law or statutory, which
any party has, has ever had, or may hereafter in the future have against any
other party ("Claims") as to which the accord and satisfaction set forth in
Paragraph 11 is given. In addition C&A hereby agrees to release and indemnify to
the fullest extent permitted by law any director or deputy director of JV
Holdings appointed by Perstorp to the extent (for the purposes of both the
release and the indemnification) that such director or deputy director acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interest of JV Holdings.
3
<PAGE>
14. By entering into this Agreement, none of the parties hereto admits to
any of the allegations made by any other party or to any liability or breach of
any agreement or other wrongdoing of any kind, all of which each party expressly
denies. The parties hereto acknowledge that this is a settlement and compromise
of disputed claims and, as such, shall not constitute nor be treated, deemed, or
otherwise construed as an admission, waiver, evidence or concession by any other
party hereto.
15. Each party represents that, in executing this Agreement, it has relied
solely on the advice given by its own respective counsel and that it is not
relying on any inducement, promise, representation, or statement made by any
other party hereto, except as expressly set forth herein.
16. This Agreement shall not create any rights in any third parties. This
Agreement constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes and renders of no force or effect any and
all contemporaneous or prior agreements, understandings, representations, or
statements with respect to said subject matter. This Agreement may not be
changed, amended, modified, extended, compromised, or waived except by a writing
executed by the parties hereto. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and to their respective heirs,
successors and assigns. Except as expressly amended by this Agreement, the
Acquisition Agreement, the Formation Agreement and the German Acquisition
Agreement shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed.
17. This Agreement may be signed in counterparts, and the signature of
each person below constitutes his or her representation that he or she is fully
authorized to sign this Agreement on his behalf and on behalf of any persons and
entities on behalf of whom any obligations, undertakings, or releases are being
made or given.
18. Each party hereto represents that it has full power and authority to
execute, deliver and perform its obligations under this Agreement; that the
execution, delivery and performance by it of this Agreement and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action; that no other proceedings on its part are necessary
to authorize this Agreement or the transactions contemplated hereby; and that
this Agreement has been duly executed and delivered by it, and constitutes the
legal, valid and binding obligation of it, enforceable against it in accordance
with the terms hereof, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting rights of creditors generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
19. Each party hereto represents that no precompletion consent, approval,
authorization, license or order of, registration or filing with, or notice to
any governmental agency is necessary to be obtained, made or given by it in
connection with the execution, delivery and performance by it of this Agreement,
or the consummation by it of the transactions contemplated hereby.
20. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual interest, and no rule of strict
construction will be applied against any party.
21. In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein, shall, for any reason,
be held to invalid, illegal or unenforceable in any respect, then to the maximum
extent permitted by law, such invalidity, illegality or unenforceability shall
not affect any other provision of this Agreement or any other such instrument.
Furthermore, in lieu of any such invalid or unenforceable term or provision, the
parties hereto intend that there shall be added as a part of this Agreement a
provision as similar in terms to such invalid or unenforceable provision as may
be possible and be valid and enforceable.
4
<PAGE>
IN WITNESS WHEREOF this Agreement has been signed on behalf of the parties the
day and year first before written.
Collins & Aikman Products Co.
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Automotive Systems GmbH
By: /s/ J. Michael Stepp
--------------------
Perstorp A.B.
By: /s/ Mats Tuner
--------------------
Perstorp GmbH
By: /s/ Max Granander
--------------------
Collins & Aikman Holding A.B.
(formerly Perstorp Biotec A.B.)
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Automotive Systems N.V.
(formerly Perstorp Components N.V.)
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Automotive System A.B.
(formerly Perstorp Components A.B.)
By: /s/ J. Michael Stepp
--------------------
Perstorp Components GmbH
By: /s/ Mats Tuner
--------------------
5
<PAGE>
LETTER AMENDMENT AGREEMENT
Re: Settlement and Amendment Agreement entered into on December
16, 1997 among Collins & Aikman Products Co., Perstorp AB and
the other parties defined therein (the ASettlement Agreement@)
We confirm that the following amendments and clarifications have
been agreed to by the parties to the Settlement Agreement. Capitalized
terms not defined herein have the meanings given to them in the Settlement
Agreement. Reference is made below to the paragraphs in the Settlement
Agreement.
2. Schedule 6.1 of the Acquisition Agreement is hereby amended by
deleting all Items, except Items 4(a)-(c), 14 and 17.
3. Section 7.1(b) of the Formation Agreement is hereby amended by
deleting clause (ii).
4. Schedule 6.1 of the Formation Agreement is hereby amended by
deleting all Items, except Items 4(a)-(d), 14, 17 and 34-39.
5. Section 9.12 of the German Acquisition Agreement is hereby
deleted. For the avoidance of doubt and not by way of
limitation, it is clarified that Perstorp Germany will retain
its liabilities under that agreement with respect to the
Restructuring Employees and that C&A Germany will retain the
Restructuring Plan Hold-Back Amount.
6. Schedule 6.1 of the German Acquisition Agreement is hereby
amended by deleting all Items, except Items 4.2, 12 and 15.1.
With reference to Item 4.2, C&A and C&A Germany confirm that
the draft Completion Date Statement of Net Assets provided by
Arthur Andersen, dated as of October 30, 1997, shall be deemed
to be the Final Completion Date Statement of Net Assets.
8. Neither Perstorp nor any Affiliate has any claims against JV
Holdings or its Affiliates and JV Holdings and its Affiliates
have no debts or other obligations to Perstorp or any of its
Affiliates other than (i) trade payables, if any, incurred in
the ordinary course of business and (ii) a loan in the amount
of 75,000,000 Belgian francs which shall become due on August
1, 1998. Perstorp shall use best efforts to assist C&A in the
refinancing of this loan. This Settlement Agreement shall not
affect any trade payables owed by Perstorp and its Affiliates
to C&A and its Affiliates or owed by C&A and its Affiliates to
Perstorp and its Affiliates. All such trade payables shall be
honored in accordance with their terms.
10. C&A releases and forever discharges Perstorp (not Perstorp
Germany) from guarantees to the JV Lenders in respect of
indebtedness of JV Holdings and guarantees to Perstorp the
repayment of the loan referred to in paragraph 8 (ii) above,
when such loan becomes due. Further, Perstorp's obligation in
connection with the refinancing of JV Holdings and its present
subsidiaries
1
<PAGE>
is limited to providing assistance (including by making
telephone calls, writing letters and participating in meetings
if requested by C&A) to C&A in arranging such refinancing as
soon as practically possible on such terms as C&A may achieve,
but without any obligation on the part of Perstorp to incur
any costs or expenses or to compensate C&A if C&A fails to
achieve refinancing. C&A shall pledge to Perstorp (in
accordance with an agreement to be entered into between C&A
and Perstorp) 350,000 of the Perstorp Shares in JV Holdings as
security for its obligations in respect of indebtedness owed
to the JV Lenders until such time as Perstorp is released by
the JV Lenders from its guarantees of indebtedness of JV
Holdings, and until such pledge agreement is executed, the
Perstorp Shares to be pledged shall be in the possession of
Perstorp or, to the extent required to produce a share
certificate representing the Perstorp Shares to be pledged,
shall be held in trust for Perstorp in its capacity as pledgee
by a third party acceptable to Perstorp. Such pledge agreement
shall provide that C&A retains all rights, title and interest
in and to such shares, unless C&A defaults under such
agreement, and shall have such other terms as are reasonable
in the circumstances. The pledge shall immediately be released
without any further action on the part of either party (x) if
at any time Perstorp is released by the JV Lenders from its
guarantees of indebtedness of JV Holdings or (y) if at any
time such pledge becomes a default under C&A's bank
arrangements provided (in the case of this clause (y)) that
C&A uses its best reasonable efforts to provide Perstorp with
a substantially similar guarantee in a form reasonably
acceptable to Perstorp. C&A represents and warrants to
Perstorp that it is not currently in default under such bank
arrangements.
11. The Settlement Agreement (as amended) shall constitute a final
accord and satisfaction and shall be in full and final
settlement of all matters referred to in paragraph 11 of the
Settlement Agreement including also all Claims against
Perstorp and its Affiliates and C&A and its Affiliates arising
out of (a) breaches of warranties and representations in the
Acquisition Agreement, the Formation Agreement and the German
Acquisition Agreement which have been deleted by the
Settlement Agreement (as amended), (b) the indemnification
provisions in the said three agreements which have been
deleted by the Settlement Agreement (as amended), (c) breaches
or omittance to perform any post-closing obligation in the
said three agreements which have been deleted by the
Settlement Agreement (as amended) and (d) the statement of net
assets pursuant to Section 3.4 of the German Acquisition
Agreement. Paragraph 11 (a) (v) of the Settlement Agreement is
hereby amended by deleting the word Amaterially@ and by
deleting the following: Ain respect of any of the same matters
as were raised in connection with subparagraphs 11(a) (i) -
(iv) above (other than claims for subrogation, contribution,
indemnity, or any claim arising from claims asserted by
non-parties hereto)@.
13. The release means that the Claims as to which the accord and
satisfaction set forth in Paragraph 11 is given are released
and forever discharged and neither Perstorp nor any of its
Affiliates shall accept any of the released
2
<PAGE>
claims under the Acquisition Agreement, the Formation
Agreement or the German Acquisition Agreement.
The Settlement Agreement (as amended) is in respect of each of the agreements
being amended subject to the governing law and dispute resolution provisions
applicable in the respective agreement that is amended.
Each of Perstorp and C&A guarantees, in respect of each of the agreements being
amended and in accordance with the applicable provisions therein, all
obligations of their Affiliates contained in the Settlement Agreement (as
amended).
The clarifications and amendments herein prevail over the provisions in the
Settlement Agreement to the extent of any inconsistency. Except as expressly
amended by this Letter Amendment Agreement, the Settlement Agreement shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed.
The amendments and clarifications herein shall be deemed to take effect from the
effectiveness of the Settlement Agreement on December 16, 1997.
This Letter Amendment Agreement shall not be valid, legal or binding on any
party to any extent whatsoever unless executed by each party hereto and
delivered by each such party and received by each such other party.
[This space was left blank intentionally.]
3
<PAGE>
Please have this Letter Amendment Agreement signed and returned confirming that
this is the agreement of the parties with respect to the amendment and
clarifications that have on this 22nd day of December 1997 been made to the
Settlement Agreement.
Yours sincerely,
Perstorp AB
By: /s/ Mats Tuner
--------------------
Perstorp GmbH
By: /s/ Mats Tuner
--------------------
Perstorp Components GmbH
By: /s/ Mats Tuner
--------------------
Collins & Aikman Products Co.
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Automotive Systems GmbH
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Holdings AB
(formerly Perstorp Biotec AB)
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Automotive Systems N.V.
(Formerly Perstorp Components (N.V.)
By: /s/ J. Michael Stepp
--------------------
Collins & Aikman Automotive Systems AB
(formerly Perstorp Components AB)
By: /s/ J. Michael Stepp
--------------------
4
<TABLE>
<CAPTION>
Exhibit 11
Collins & Aikman Corporation
Computation of Earnings Per Share
In thousands, except per share data
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
------------------------------ ----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Average shares outstanding during the period 63,753 66,072 64,967 66,447
------------- ------------ ------------- -------------
Incremental shares under stock options
computed under the treasury stock method using
the average market price of issuer's stock
during the period.......................... - - - -
------------- ------------ ------------- -------------
Total shares for diluted
EPS........................................ 63,753 66,072 64,967 66,447
============= ============ ============= =============
Loss applicable to common shareholders:
Continuing operations................... $ (8,354) $ (42,002) $ (158) $ (19,137)
Discontinued operations................. - (496) - 4,306
Gain on sale of discontinued operations. - 76,449 - 161,741
Extraordinary loss...................... - - (3,679) (721)
------------- ------------ ------------- -------------
Net income (loss)....................... $ (8,354) $ 33,951 $ (3,837) $ 146,189
============= ============ ============= =============
Income (loss) per basic and diluted common share:
Continuing operations................... $ (.13) $ (.64) $ - $ (.29)
Discontinued operations................. - (.01) - .07
Gain on sale of discontinued operations. - 1.16 - 2.43
Extraordinary loss...................... - - (.06) (.01)
------------- ------------ ------------- -------------
Net income (loss)....................... $ (.13) $ .51 $ (.06) $ 2.20
============= ============ ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998 AND SUCH IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> SEP-26-1998
<CASH> 26,808
<SECURITIES> 0
<RECEIVABLES> 258,395
<ALLOWANCES> 6,987
<INVENTORY> 157,047
<CURRENT-ASSETS> 534,802
<PP&E> 684,952
<DEPRECIATION> 246,286
<TOTAL-ASSETS> 1,397,271
<CURRENT-LIABILITIES> 350,169
<BONDS> 851,697
0
0
<COMMON> 705
<OTHER-SE> (87,209)
<TOTAL-LIABILITY-AND-EQUITY> 1,397,271
<SALES> 1,319,403
<TOTAL-REVENUES> 1,319,403
<CGS> 1,138,279
<TOTAL-COSTS> 1,253,356
<OTHER-EXPENSES> 9,367
<LOSS-PROVISION> 2,584
<INTEREST-EXPENSE> 60,834
<INCOME-PRETAX> (6,738)
<INCOME-TAX> (6,580)
<INCOME-CONTINUING> (158)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,679)
<CHANGES> 0
<NET-INCOME> (3,837)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
