UNITED STATES
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 quarterly period ended September 25, 1999
or
__Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _ to____
Commission File Number 1-10218
COLLINS & AIKMAN CORPORATION
(Exact name of registrant, as specified in its charter)
Delaware 13-3489233
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
701 McCullough Drive
Charlotte, North Carolina 28262
(704) 547-8500
(Address, including zip code and telephone number,
including area code, of registrant's principal executive officers)
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 8, 1999, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 61,914,072 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 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales............................................... $ 427,873 $ 377,928 $ 1,393,031 $ 1,319,403
--------------- --------------- --------------- ---------------
Cost of goods sold...................................... 363,710 339,351 1,180,018 1,138,279
Selling, general and administrative expenses............ 37,615 38,288 116,692 117,661
Restructuring charge.................................... 15,293 - 19,847 -
--------------- --------------- --------------- ---------------
416,618 377,639 1,316,557 1,255,940
--------------- --------------- --------------- ---------------
Operating income........................................ 11,255 289 76,474 63,463
Interest expense, net................................... 22,997 20,921 67,821 60,834
Loss on sale of receivables............................. 1,201 1,009 3,835 4,315
Other expense........................................... 1,670 1,327 2,864 5,052
--------------- --------------- --------------- ---------------
Income (loss) before income taxes....................... (14,613) (22,968) 1,954 (6,738)
Income tax expense (benefit)............................ (8,129) (14,614) 804 (6,580)
--------------- --------------- --------------- ---------------
Income (loss) before extraordinary charge and
cumulative effect of a change in accounting principle (6,484) (8,354) 1,150 (158)
Extraordinary charge, net of income taxes of $2,452....... - - - (3,679)
Cumulative effect of a change in accounting
principle, net of income taxes of $5,083.................. - - (8,850) -
--------------- --------------- --------------- ---------------
Net loss.................................................. $ (6,484) $ (8,354) $ (7,700) $ (3,837)
=============== =============== =============== ===============
Net loss per basic and diluted common share:
Income (loss) before extraordinary charge and
cumulative effect of a change in accounting
principle........................................... $ (0.10) $ (0.13) $ 0.02 $ -
Extraordinary charge................................... - - - (0.06)
Cumulative effect of a change in accounting
principle.......................................... - - (0.14) -
--------------- --------------- ---------------- --------------
Net loss................................................ $ (0.10) $ (0.13) $ (0.12) $ (0.06)
=============== =============== =============== ===============
Average common shares outstanding:
Basic................................................. 61,955 63,753 61,965 64,967
=============== =============== =============== ===============
Diluted............................................... 61,955 63,753 62,335 64,967
=============== =============== =============== ===============
</TABLE>
I-1
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 25, DECEMBER 26,
1999 1998
----------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 24,387 $ 23,755
Accounts and other receivables, net............................. 243,520 237,645
Inventories..................................................... 155,491 152,840
Other........................................................... 105,906 96,156
----------------- -------------
Total current assets.......................................... 529,304 510,396
Property, plant and equipment, net................................. 441,046 447,121
Deferred tax assets................................................ 86,066 70,632
Goodwill, net...................................................... 258,263 264,138
Other assets....................................................... 87,147 89,924
----------------- -------------
$ 1,401,826 $ 1,382,211
================== =============
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings........................................... $ 11,811 $ 10,054
Current maturities of long-term debt............................ 28,107 19,942
Accounts payable................................................ 159,576 169,808
Accrued expenses................................................ 155,103 143,302
----------------- -------------
Total current liabilities..................................... 354,597 344,006
Long-term debt..................................................... 917,169 846,107
Other, including postretirement benefit obligation................. 274,855 271,869
Commitments and contingencies......................................
Common stock (150,000 shares authorized, 70,521
shares issued and 61,914 shares outstanding at September 25, 1999
and 70,521 shares issued and 62,182 outstanding at
December 26, 1998).............................................. 705 705
Other paid-in capital.............................................. 585,325 585,401
Accumulated deficit................................................ (638,602) (580,666)
Accumulated other comprehensive loss............................... (29,347) (23,427)
Treasury stock, at cost (8,607 shares at September 25, 1999
and 8,339 shares at December 26, 1998).......................... (62,876) (61,784)
----------------- -------------
Total common stockholders' deficit............................ (144,795) (79,771)
----------------- -------------
$ 1,401,826 $ 1,382,211
================== =============
</TABLE>
I-2
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------------ ----------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations ............................ $ (6,484) $ (8,354) $ 1,150 $ (158)
Adjustments to derive cash flow from continuing operating activities:
Impairment of long-lived assets ................................ 5,057 -- 5,593 --
Deferred income tax benefit .................................... (8,136) (17,907) (9,367) (14,477)
Depreciation and amortization .................................. 17,013 16,279 51,944 50,118
Decrease (increase) in accounts and other receivables .......... (13,326) (15,292) 225 766
Decrease (increase) in inventories ............................. (13,034) 2,670 (2,651) (9,383)
Increase (decrease) in accounts payable ........................ 10,975 12,032 (10,232) (1,342)
Increase in interest payable ................................... 13,243 14,461 14,591 12,369
Other, net ..................................................... (13,022) 2,818 (22,741) (28,114)
--------- --------- --------- ---------
Net cash provided by (used in) continuing operating
activities ................................................ (7,714) 6,707 28,512 9,779
--------- --------- --------- ---------
Cash used in Wallcoverings discontinued operations .................. -- -- -- (15,052)
Cash used in other discontinued operations .......................... (1,355) (1,422) (5,786) (9,224)
--------- --------- --------- ---------
Net cash used in discontinued operations ..................... (1,355) (1,422) (5,786) (24,276)
--------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment .......................... (22,835) (22,382) (55,212) (71,887)
Sales of property, plant and equipment .............................. 7,319 1,745 9,953 5,669
Proceeds from disposition of discontinued operations ................ -- -- -- 71,200
Acquisition of businesses, net of cash acquired ..................... -- (4,120) (369) (24,359)
Other, net .......................................................... (785) (954) 973 2,583
--------- --------- --------- ---------
Net cash used in investing activities ........................ (16,301) (25,711) (44,655) (16,794)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Issuance of long-term debt .......................................... -- -- 100,000 225,000
Repayment of long-term debt ......................................... (5,849) (14,795) (15,335) (271,186)
Reduction of a participating interest in accounts receivable ........ (3,900) (25,500) (6,100) (28,500)
Net borrowings (repayments) on revolving credit facilities .......... 9,779 77,830 (7,602) 135,532
Increase on short-term borrowings ................................... 6,477 8,000 1,205 509
Purchase of treasury stock, net ..................................... (171) (16,479) (1,092) (23,024)
Dividends paid ...................................................... -- -- (50,198) --
Other, net .......................................................... (584) (2,145) 1,683 (4,236)
--------- --------- --------- ---------
Net cash provided by financing activities .................... 5,752 26,911 22,561 34,095
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................ (19,618) 6,485 632 2,804
Cash and cash equivalents at beginning of period .................... 44,005 20,323 23,755 24,004
--------- --------- --------- ---------
Cash and cash equivalents at end of period .......................... $ 24,387 $ 26,808 $ 24,387 $ 26,808
========= ========= ========= =========
</TABLE>
I-3
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION:
Collins & Aikman Corporation (the "Company") is a Delaware corporation.
As of September 25, 1999, Blackstone Capital Partners L.P. ("Blackstone
Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their
respective affiliates collectively owned approximately 87% 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. Certain prior year items have been
reclassified to conform with the fiscal 1999 presentation. Results of operations
for interim periods are not necessarily indicative of results for the full year.
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 26, 1998.
C. ACQUISITIONS:
The Company entered into a joint venture 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. Kigass has been named Collins &
Aikman Plastics (UK) Limited ("C&A Plastics UK"). Under the terms of the
purchase agreement, the Company assumed effective control of C&A Plastics UK on
January 1, 1998. Goodwill resulting from the acquisition was $15.0 million.
On June 30, 1998, the Company acquired for approximately $4.7 million
Pepers Beheer B.V., an automotive accessory floormat manufacturer located in the
Netherlands, which has been renamed Collins & Aikman Automotive Floormats
Europe, B.V. ("C&A Floormats Europe"). 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 $3.6 million if C&A Floormats Europe
meets certain operating goals in fiscal 1998 and fiscal 1999. The Company paid
$0.4 million into escrow during 1999 for operating goals met in fiscal 1998,
which the sellers will receive in 2000 if the Company has no claims against the
escrowed funds prior to such release.
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 the Company's JPS Automotive L.P. subsidiary ("JPS
Automotive"). The total price for the acquisition was approximately $1.0
million. Enjema is a carpet systems manufacturer located in Mexico. In September
1998, JPS Automotive distributed its 50% ownership in Enjema to the Company.
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 nine
months ended September 25, 1999, this agreement resulted in a reduction in
interest expense of approximately $122 thousand. During the quarter and nine
months ended September 26, 1998, this agreement resulted in reductions of
interest expense of approximately $62 thousand and $177 thousand, respectively.
These agreements expired in April 1999.
I-4
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The primary purpose of the Company's foreign currency hedging
activities is to protect against the volatility associated with intercompany
funding arrangements, third party loans and foreign currency purchase and sale
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 for several currencies that mature
during fiscal 1999. These contracts, which aggregated a U.S. dollar equivalent
of $103.8 million at September 25, 1999, will partially offset currency
volatility associated with intercompany funding arrangements and purchase and
sale transactions. The fair value of these contracts approximated the contract
value at September 25, 1999.
During 1998 and 1999, the Company purchased option contracts with a
notional amount of $130.4 million, giving the Company the right to purchase U.S.
dollars for use by its Canadian operations. These contracts expire periodically
throughout 1999 and 2000. The premium associated with these contracts of
approximately $2.2 million is being amortized over the contracts' terms and is
included in other expense in the accompanying consolidated statements of
operations. At September 25, 1999, contracts with a notional amount of $66.0
million were outstanding.
E. INVENTORIES:
Inventory balances are summarized below (in thousands):
September 25, 1999 December 26, 1998
------------------ -----------------
Raw materials ........... $ 85,059 $ 79,285
Work in process ......... 30,159 32,408
Finished goods .......... 40,273 41,147
-------- --------
$155,491 $152,840
======== ========
F. GOODWILL:
Goodwill, representing the excess of purchase price over the fair value
of net assets of acquired entities, is being amortized on a straight-line basis
over a period of forty years. Amortization of goodwill applicable to continuing
operations was $1.4 million and $5.2 million for the quarter and nine months
ended September 25, 1999, respectively, and $1.8 million and $5.3 million for
the quarter and nine months ended September 26, 1998, respectively. Accumulated
amortization at September 25, 1999 was $23.1 million. The carrying value of
goodwill at an enterprise level is reviewed periodically based on the predicted
non-discounted 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 25, 1999, the Company believes the recorded value
of its goodwill of $258.3 million is fully recoverable.
G. 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 and the Term Loan C Facility, as
hereinafter defined, 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
Term Loan C credit facility (the "Term Loan C Facility") of up to $150 million
in loan borrowings having amortization and interest rate terms to be agreed upon
I-5
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
between the Company and the applicable lenders who may supply commitments at
such time as the Term Loan C Facility may be utilized. On May 13, 1999, the
Company closed on the Term Loan C Facility in the principal amount of $100
million. The Term Loan C Facility is payable in quarterly installments beginning
in December 1999 through final maturity in December 2005. The Company used
approximately $44 million of the proceeds from the Term Loan C Facility to pay a
special dividend to shareholders on May 28, 1999. See Note M to Condensed
Consolidated Financial Statements. The remaining proceeds were used to repay
amounts outstanding on the Revolving Credit Facility and for general corporate
purposes.
At September 25, 1999, the Company had outstanding $88.8 million on the
Term Loan A Facility, $123.0 million on the Term Loan B Facility, $100.0 million
on the Term Loan C Facility and $139.1 million under the Revolving Credit
Facility (including $53.1 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
covenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities.
Effective March 8, 1999, the Company, in view of the decreased sales of
automotive fabrics and the General Motors strike which occurred in June and July
1998, obtained an amendment to the Credit Agreement Facilities primarily to
modify the covenants relating to interest coverage and leverage ratios. The
amendment resulted generally in an increase in the interest rates charged under
the Credit Agreement Facilities.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility, as amended March 8, 1999,
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 1.00%) plus a margin (the "ABR/Canadian Prime
Rate Margin") ranging from .25% to 1.25% 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/BA Margin") ranging from
1.25% to 2.25%. Margins, which are subject to adjustment based on changes in the
Company's ratio of funded debt to EBITDA (i.e., earnings before interest, taxes,
depreciation, amortization and other non-cash charges), were 2.25% and 1.25% in
the case of the the LIBOR/BA Margin and the ABR/Canadian Prime Rate Margin,
respectively, on September 25, 1999. 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) the
Canadian Prime Rate (which is the greater of Chase's prime rate for Canadian
dollar-denominated loans in Canada and the Canadian dollar-denominated one month
bankers' acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate Margin or
(ii) the bill of exchange rate ("Bankers' Acceptance" or "BA") denominated in
Canadian dollars for one, two, three or six months plus the LIBOR/BA Margin.
Indebtedness under the Term Loan B Facility as amended March 8, 1999 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 ranging from 1.25% to
1.75% (the "Tranche B ABR Margin") or (ii) LIBOR of one, two, three, or six
months, as selected by the Company, plus a margin ranging from 2.25% to 2.75%
(the "Tranche B LIBOR Margin"). The Tranche B ABR Margin and the Tranche B LIBOR
Margin were 1.75% and 2.75%, respectively, at September 25, 1999. Indebtedness
under the Term Loan C Facility bears interest at a per annum rate equal to LIBOR
plus 3.25% (the "Tranche C LIBOR Margin") or Chase's Alternate Base Rate plus
2.25% (the "Tranche C ABR Margin").
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 the Company's 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 and certain intercompany indebtedness.
I-6
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
At September 25, 1999, the scheduled maturities of long-term debt are
as follows (in thousands):
Remainder of fiscal year 1999 ..... $ 5,045
Fiscal year 2000 .................. 27,856
Fiscal year 2001 .................. 116,710
Fiscal year 2002 .................. 32,911
Fiscal year 2003 .................. 81,399
Later years ....................... 681,355
--------
$945,276
========
H. RESTRUCTURING:
On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North American
Automotive Interior Systems, headquartered in the Detroit metropolitan area, and
European Automotive Interior Systems, headquartered in Germany. As part of the
Reorganization, the Company also established the Specialty Automotive Products
division, which includes the Company's automotive fabrics and convertible top
systems businesses. In addition, the Company is in the process of relocating its
corporate headquarters from Charlotte, North Carolina to the Detroit
metropolitan area and currently expects the relocation to be completed in the
fourth quarter of fiscal 1999.
The Company had previously announced that it anticipated incurring a
restructuring charge related to the Reorganization of approximately $8 to $9
million in the first quarter of fiscal 1999. However, in connection with the
change in the Company's Chief Executive Officer and the Company's operating
results in the first quarter, the Company delayed certain aspects of the
Reorganization while the Company's new Chief Executive Officer, Thomas Evans,
reviewed the Reorganization plan.
During the second quarter of 1999, Mr. Evans approved certain portions
of the Reorganization plan for the Company's North American Automotive Interior
Systems division and corporate headquarters. As a result, during the second
quarter of 1999, the Company recognized a pre-tax restructuring charge of $4.6
million, principally representing severance costs associated with employee
reductions which either occurred or were announced in the second quarter of
fiscal 1999. Approximately 400 employees were affected, of which approximately
350 were located at a plastics facility in Homer, Michigan which is being
closed. The remaining employees held management or administrative positions
within the Company. The charge also included a $0.5 million impairment loss
related to assets located in the plastics facility.
During the third quarter of 1999, Mr. Evans approved additional
elements of the Reorganization plan, resulting in a pretax restructuring charge
of $15.3 million. The charge is primarily related to plant closures and employee
reduction actions initiated or completed in the third quarter in the North
American Automotive Interior Systems and Specialty Automotive Products
divisions. The third quarter restructuring charge included a $4.4 million loss
on the sale of a fabrics manufacturing facility located in Cramerton, North
Carolina. The sales transaction was consummated on September 22, 1999 for $6.0
million. The Cramerton sale also impacted approximately 180 employees, for whom
$1.6 million in severance costs were recorded. The Company also terminated
certain sales commission arrangements in the North American Automotive Interior
Systems division and is negotiating to eliminate other commission arrangements.
The third quarter charge included $5.0 million related to these activities. The
Company recorded $0.7 million for additional asset impairments in connection
with the closure of the Homer, Michigan plastics facility. The remaining $3.6
million of the restructuring charge represents severance costs for managerial
and administrative personnel reductions in the North American Automotive
Interior Systems division and corporate headquarters, affecting approximately
120 employees.
In addition to the restructuring charge, the Company also expensed
certain costs for relocation and start up of operations related to the closed
facilities. These expenses amounted to approximately $2 million during the third
quarter.
I-7
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The components of the reserves for the restructuring charges are as
follows (in thousands):
<TABLE>
<CAPTION>
Original Changes in Remaining
Reserve Reserve Reserve
------- ------- -------
<S> <C> <C> <C>
Anticipated severance benefits ................ $ 9,285 $ (3,345) $ 5,940
Anticipated payments related to the termination
of sales commission arrangements ........... 4,969 (1,669) 3,300
-------- -------- --------
$ 14,254 $ (5,014) $ 9,240
======== ======== ========
</TABLE>
The Company currently expects to recognize an additional restructuring
charge in the fourth quarter of fiscal 1999 once Mr. Evans completes his review
of the Reorganization plan. The Company currently estimates that this charge,
the majority of which is expected to relate to the Company's European Automotive
Interior Systems division, will be in the range of $10 million to $15 million.
The total restructuring charge and other non-recurring costs associated with the
Reorganization to be recognized by the Company have not been finalized and may
exceed the Company's current estimates.
The Company currently anticipates that the restructuring actions will
be completed during fiscal 2000.
I. 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 from April 1996 (the date of
Wallcoverings' discontinuance) to the date of sale 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.
J. 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 I to Condensed Consolidated
Financial Statements. The Company incurred fees and expenses for services
performed by WP Partners, or its affiliates, in connection with the sale of
Wallcoverings, totaling approximately $0.7 million. In June 1998, the Company
incurred fees and expenses of approximately $0.1 million for services performed
by Blackstone Partners or its affiliates for the 1996 acquisitions of JPS
Automotive and Perstorp Components and the 1997 acquisition of the remaining
interest of the Collins & Aikman/Perstorp Joint Venture.
K. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
The Company's continuing operations primarily supply automotive
interior systems - textile and plastic products, acoustics and convertible top
systems - to the global automotive industry.
I-8
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company's reportable segments reflect the divisions established in
the Reorganization. Financial data for all periods has been presented on this
basis. North American Automotive Interior Systems and European Automotive
Interior Systems include the following product groups: molded floor carpet,
luggage compartment trim, acoustical products, accessory floormats and
plastic-based interior trim systems. The Specialty Automotive Products division
includes automotive fabrics and convertible top systems. The three divisions
also produce other automotive and non-automotive products.
The Company evaluates performance based on profit or loss from
operations before interest expense, foreign exchange gains and losses, loss on
sale of receivables, other income and expense, and income taxes.
Information about the Company's divisions is presented below (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended September 25, 1999
-----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
External revenues ....................... $ 260,032 $ 64,412 $ 103,429 $ -- $ 427,873
Inter-segment revenues .................. 21,138 6,724 7,151 (35,013) --
Depreciation and amortization ........... 9,352 3,645 3,687 329 17,013
Operating income (loss) ................. 15,412 3,060 7,170 (14,387) 11,255
Total assets ............................ 805,222 249,077 240,664 106,863 1,401,826
Capital expenditures .................... 15,030 4,340 2,471 994 22,835
Quarter Ended September 26, 1998
-----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ---------- ----------- -----
External revenues ...................... $ 217,695 $ 77,834 $ 82,399 $ -- $ 377,928
Inter-segment revenues ................. 20,437 5,947 4,959 (31,343) --
Depreciation and amortization .......... 8,338 3,962 3,601 378 16,279
Operating income (loss) ................ 1,529 2,319 (3,346) (213) 289
Total assets ........................... 766,815 257,301 271,570 101,585 1,397,271
Capital expenditures ................... 11,877 3,178 4,325 3,002 22,382
Nine Months Ended September 25, 1999
-----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- -------- --------- -----
External revenues ....................... $ 836,089 $ 223,505 $ 333,437 $ -- $1,393,031
Inter-segment revenues .................. 65,211 21,067 25,285 (111,563) --
Depreciation and amortization ........... 27,674 12,256 11,227 787 51,944
Operating income (loss) ................. 55,638 6,979 32,649 (18,792) 76,474
Total assets ............................ 805,222 249,077 240,664 106,863 1,401,826
Capital expenditures .................... 33,509 11,377 6,925 3,401 55,212
Nine Months Ended September 26, 1998
-----------------------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ------------- --------- -----
External revenues ....................... $ 761,440 $ 245,891 $ 312,072 $ -- $1,319,403
Inter-segment revenues .................. 64,731 18,090 22,415 (105,236) --
Depreciation and amortization ........... 25,569 12,333 11,029 1,187 50,118
Operating income ........................ 43,661 7,152 12,610 40 63,463
Total assets ............................ 766,815 257,301 271,570 101,585 1,397,271
Capital expenditures .................... 37,297 8,816 15,790 9,984 71,887
</TABLE>
(a) Other includes the Company's discontinued operations, non-operating units
and the effect of eliminating entries.
I-9
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Sales for the Company's primary product groups are as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------------- --------------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Molded floor carpet ................................ $ 110,387 $ 84,003 $ 342,475 $ 296,971
Luggage compartment trim ........................... 20,957 17,441 63,062 67,504
Acoustical products ................................ 44,014 53,266 151,501 164,980
Accessory floormats ................................ 37,625 35,823 120,486 109,148
Plastic-based interior trim systems ................ 91,926 83,390 316,820 297,635
Automotive fabrics ................................. 66,461 54,028 199,034 190,608
Convertible top systems ............................ 25,464 16,205 95,550 80,113
Other .............................................. 31,039 33,772 104,103 112,444
---------- ---------- ---------- ----------
Total .............................................. $ 427,873 $ 377,928 $1,393,031 $1,319,403
========== ========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 25, September 26,
1999 1998
------------- -------------
<S> <C> <C>
General Motors Corporation ............................................. 31.5% 29.4%
Ford Motor Company ..................................................... 19.8% 20.3%
DaimlerChrysler A.G .................................................... 19.0% 18.9%
</TABLE>
Sales for the Company's continuing operations in different geographic
areas are presented below (in thousands):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------------- ----------------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States .......................... $ 245,209 $ 221,573 $ 797,959 $ 756,410
Canada ................................. 92,824 63,968 292,468 256,355
Mexico ................................. 25,428 14,553 81,099 60,747
United Kingdom ......................... 26,401 32,404 89,344 106,827
Other Europe ........................... 38,011 45,430 134,161 139,064
---------- ---------- ---------- ----------
Consolidated ........................... $ 427,873 $ 377,928 $1,393,031 $1,319,403
========== ========== ========== ==========
</TABLE>
I-10
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Long-lived assets for the Company's continuing operations in different
geographical regions are presented below (in thousands):
September 25, September 26,
1999 1998
-------------- -------------
United States ............................ $431,503 $446,554
Canada ................................... 197,266 185,555
Mexico ................................... 17,829 15,501
United Kingdom ........................... 62,065 54,650
Other Europe ............................. 77,793 83,142
-------- --------
Consolidated ............................. $786,456 $785,402
======== ========
L. 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.
M. COMMON STOCKHOLDERS' DEFICIT:
Total comprehensive loss for the quarters ended September 25, 1999 and
September 26, 1998 was $1.3 million and $3.5 million, respectively. For the nine
months ended September 25, 1999 and September 26, 1998, comprehensive income
(loss) was $(13.6) million and $3.8 million, respectively. Activity in the
common stockholders' deficit since December 26, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Current Year Other
Comprehensive Accumulated Accumulated Other Common Paid-In Treasury
Loss Total Deficit Comprehensive Loss Stock Capital Stock
------------- ---------- -------------- -------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 26, 1998.......... $ (79,771) $ (580,666) $ (23,427) $ 705 $585,401 $(61,784)
Comprehensive loss:
Net loss...................... $ (7,700) (7,700) (7,700) - - - -
Other comprehensive loss,
net of tax:
Foreign currency
translations
adjustments........... (5,818) (5,818) - (5,818) - - -
Pension equity adjustment.. (102) (102) - (102) - - -
---------
$(13,620)
=========
Compensation expense adjustment.... 386 - - - 386 -
Purchase of treasury stock
(375 shares).................. (2,040) - - - - (2,040)
Exercise of stock options
(107 shares)................... 448 (38) - - (462) 948
Dividends.......................... (50,198) (50,198) - - - -
------- ------- ---------- ----- -------- --------
Balance at September 25, 1999......... $(144,795) $(638,602) $ (29,347) $ 705 $585,325 $(62,876)
========= ========= ========== ===== ======== ========
</TABLE>
I-11
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The accumulated balances and current period activity for each component
of Accumulated Other Comprehensive Loss are as follows (in thousands):
<TABLE>
<CAPTION>
Foreign Currency Pension Accumulated Other
Translation Equity Comprehensive
Adjustments Adjustment Loss
-------- -------- --------
<S> <C> <C> <C>
Balance at December 26, 1998 ............................. $(21,554) $ (1,873) $(23,427)
Current period change .................................... (5,818) (102) (5,920)
-------- -------- --------
Balance at September 25, 1999 ............................ $(27,372) $ (1,975) $(29,347)
======== ======== ========
</TABLE>
On February 10, 1999, the Company declared a special dividend of
approximately $6.2 million, representing $0.10 per share on all outstanding
shares of common stock held by stockholders of record as of the close of
business on February 22, 1999. The dividend was paid on March 1, 1999. On May
13, 1999, the Company declared another special dividend of approximately $44.0
million, representing $0.71 per share on all outstanding shares of common stock
held by stockholders of record as of the close of business on May 20, 1999. The
dividend was paid on May 28, 1999. In connection with these dividends, the
amount authorized by the Company's Board of Directors for the Company's 1999
share repurchase program was reduced from $25 million to approximately $2
million.
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>
Quarter Ended Nine Months Ended
----------------------------- --------------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 427,873 $ 377,928 $ 1,393,031 $ 1,319,403
Gross margin ....................................... 64,163 38,577 213,013 181,124
Income (loss) from continuing operations ........... (6,439) (8,366) 1,538 219
Net loss ........................................... (6,439) (8,366) (7,312) (3,460)
September 25, December 26,
1999 1998
---------- ----------
Current assets ...................................... $ 529,160 $ 510,303
Noncurrent assets ................................... 872,522 871,815
Current liabilities ................................. 354,598 343,807
Noncurrent liabilities .............................. 1,189,441 1,115,394
</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.
I-12
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(UNAUDITED)
O. NEWLY ISSUED ACCOUNTING STANDARDS:
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance on the accounting for the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998 and should be applied to
internal use computer software costs incurred in those fiscal years for all
projects, including those projects in progress upon initial application. The
Company adopted SOP 98-1 on December 27, 1998. The adoption of this standard did
not have a material impact on its consolidated financial position or results of
operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires that all non-governmental
entities expense the costs of start-up activities as these costs are incurred
instead of being capitalized and amortized. The Company adopted SOP 98-5 on
December 27, 1998. The initial impact of adopting SOP 98-5 resulted in a charge
of approximately $8.8 million, net of income taxes of $5.1 million, which has
been reflected as a cumulative effect of a change in accounting principle in the
accompanying consolidated statement of operations for the nine months ended
September 25, 1999.
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". 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 of 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.
In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133". Under SFAS No. 137,
SFAS No. 133 is now effective for fiscal years beginning after June 15, 2000. 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. The
adoption of SFAS No. 133 could increase volatility in earnings and other
comprehensive income.
In September 1999, the FASB's Emerging Issue Task Force ("EITF")
reached a consensus regarding EITF Issue No. 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements" ("EITF No.
99-5"). EITF No. 99-5 requires that design and development costs for products to
be sold under long-term supply arrangements be expensed as incurred, and costs
incurred for molds, dies and other tools that will be used in producing the
products under long-term supply agreements be capitalized and amortized over the
shorter of the expected useful life of the assets or the term of the supply
arrangement. The consensus can be applied prospectively to costs incurred after
December 31, 1999 or as a cumulative effect of a change in accounting principle
as of the beginning of a company's fiscal year. The accounting treatment
proposed by EITF No. 99-5 is consistent with the Company's current accounting
policy regarding design and tooling costs and the Company does not anticipate
the adoption of EITF No. 99-5 to have a material impact on its consolidated
financial position or results of operations.
I-13
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
NEW OFFICERS
On April 22, 1999, the Company announced that the Company's Board of
Directors had elected Thomas E. Evans as the Company's new Chief Executive
Officer. Mr. Evans replaces Thomas E. Hannah, who retired from the Company on
June 30, 1999. Mr. Evans also serves as a director and Chairman of the Company's
Board of Directors. Mr. Evans, 48 years old, was formerly President of Tenneco
Automotive, a subsidiary of Tenneco, Inc. Prior to that, Mr. Evans held several
management positions, the last being Senior Vice President of Operations, at
Case Corporation, another subsidiary of Tenneco, Inc.
On July 26, 1999, the Company announced that Rajesh K. Shah had been
named Executive Vice President and Chief Financial Officer. Mr. Shah replaces J.
Michael Stepp, who has been named Executive Vice President - Corporate Planning
and Development. Mr. Shah, 48 years old, was formerly Vice President and Chief
Financial Officer of UT Automotive, Inc. Prior to that, Mr. Shah held several
management positions at Varity Corporation.
DIVIDENDS
On March 1, 1999, the Company paid a special dividend of approximately
$6.2 million, representing $0.10 per share on all outstanding shares of Common
Stock held by stockholders of record as of the close of business on February 22,
1999. On May 28, 1999, the Company paid a special dividend of approximately
$44.0 million, representing $0.71 per share on all outstanding shares of Common
Stock held by stockholders of record as of the close of business on May 20,
1999. In connection with these dividends, the amount authorized by the Company's
Board of Directors for the Company's 1999 share repurchase program was reduced
from $25 million to approximately $2 million.
TERM LOAN C FACILITY
On May 13, 1999, the Company closed a senior six-year term loan
facility in the principal amount of $100 million payable in quarterly
installments beginning in December 1999 through final maturity in December 2005
(the "Term Loan C Facility"). The Term Loan C Facility was provided for, but not
committed to, in the Company's renegotiated credit facilities obtained in May
1998. The Company used a portion of the proceeds to pay the $44.0 million
special dividend discussed above. The remaining proceeds were used to repay
amounts outstanding under the Company's revolving credit facility and for
general corporate purposes.
REORGANIZATION
On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North American
Automotive Interior Systems, headquartered in the Detroit metropolitan area, and
European Automotive Interior Systems, headquartered in Germany. As part of the
Reorganization, the Company also established the Specialty Automotive Products
division, which includes the Company's automotive fabrics and convertible top
systems businesses. In addition, the Company is in the process of relocating its
corporate headquarters from Charlotte, North Carolina to the Detroit
metropolitan area and currently expects the relocation to be completed in the
fourth quarter of fiscal 1999.
The Company had previously announced that it anticipated incurring a
restructuring charge related to the Reorganization of approximately $8 to $9
million in the first quarter of fiscal 1999. However, in connection with the
change in the Company's Chief Executive Officer and the Company's operating
results in the first quarter, the Company delayed certain aspects of the
Reorganization while the Company's new Chief Executive Officer, Thomas Evans,
reviewed the Reorganization plan.
During the second quarter of 1999, Mr. Evans approved certain portions
of the Reorganization plan for the Company's North American Automotive Interior
Systems division and corporate headquarters. As a result, during the second
quarter of 1999, the Company recognized a pre-tax restructuring charge of $4.6
million, principally representing severance costs associated with employee
reductions which either occurred or were announced in the second quarter of
I-14
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
fiscal 1999. Approximately 400 employees were affected, of which approximately
350 were located at a plastics facility in Homer, Michigan which is being
closed. The remaining employees held management or administrative positions
within the Company. The charge also included a $0.5 million impairment loss
related to assets located in the plastics facility.
During the third quarter of 1999, Mr. Evans approved additional
elements of the Reorganization plan, resulting in a pretax restructuring charge
of $15.3 million. The charge is primarily related to plant closures and employee
reduction actions initiated or completed in the third quarter at the North
American Automotive Interior Systems and Specialty Automotive Products
divisions. The third quarter restructuring charge included a $4.4 million loss
on the sale of a fabrics manufacturing facility located in Cramerton, North
Carolina. The sales transaction was consummated on September 22, 1999 for $6.0
million. The Cramerton sale also impacted approximately 180 employees, for whom
$1.6 million in severance costs were recorded. The Company also terminated
certain sales commission arrangements in the North American Automotive Interior
Systems division and is negotiating to eliminate other commission arrangements.
The third quarter charge included $5.0 million related to these activities. The
Company recorded $0.7 million for additional asset impairments in connection
with the closure of the Homer, Michigan plastics facility. The remaining $3.6
million of the charge represents severance costs for managerial and
administrative personnel reductions in the North American Interior Systems
division and corporate headquarters, affecting approximately 120 employees.
In addition to the restructuring charge, the Company also expensed
certain costs for relocation and start up of operations related to the closed
facilities. These expenses amounted to approximately $2 million during the third
quarter.
The Company currently expects to recognize an additional restructuring
charge in the fourth quarter of fiscal 1999 once Mr. Evans completes his review
of the Reorganization plan. The Company currently estimates that this charge,
the majority of which is expected to relate to the Company's European Automotive
Interior Systems division, will be in the range of $10 million to $15 million.
The total restructuring charge and other non-recurring costs associated with the
Reorganization to be recognized by the Company have not been finalized and may
exceed the Company's current estimates. The Company currently anticipates that
the restructuring actions will be completed during fiscal 2000.
RESULTS OF OPERATIONS
NET SALES: Net sales for the third quarter increased $49.9 million compared to
the 1998 third quarter. Net sales for the nine months ended September 25, 1999
increased $73.6 million compared to the nine months ended September 26, 1998. A
strike at General Motors, the Company's largest customer, negatively impacted
sales in the third quarter of 1998 by approximately $43.2 million. Sales at both
the North American Interior Systems and Specialty Automotive Products divisions
were impacted by the strike. The strike depressed sales by approximately $60.9
million during the nine months ended September 26, 1998.
Sales at the North American Interior Systems division during the quarter and
nine months ended September 25, 1999 were up approximately $9.7 million and
$28.0 million, respectively, excluding the impact of the General Motors strike,
on strong auto and light truck build in North America. Sales at the Specialty
Automotive Products division during the quarter and nine months ended September
25, 1999 were up approximately $10.4 million and $7.1 million, respectively,
excluding the impact of the General Motors strike, related to increased demand
for the Chrysler Sebring and Ford Mustang. Sales at the European Automotive
Interior Systems division during the quarter and nine months ended September 25,
1999 declined by $13.4 million and $22.4 million, respectively, principally
related to weak demand for acoustical products from Rover, Ford and Volvo.
Management expects acoustical sales in Europe to continue to be weak through the
end of 1999. Demand for acoustical products in the United Kingdom is expected to
increase during fiscal year 2000 as Rover introduces the Freelander and Model
400 during the year.
Approximately 18% of the Company's sales for the nine months ended September 25,
1999 were attributable to products utilized in vehicles built outside North
America, compared to 21% in the nine months ended September 26, 1998. The
Company's North American content per vehicle was approximately $86 for the nine
months ended September 25, 1999, compared to an average of $89 for the 1998
fiscal year. The Company's European content per vehicle was approximately $16
for the nine months ended September 25, 1999, compared to an average of $17 for
the 1998 fiscal year.
I-15
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net sales for the fourth quarter of 1999 are currently expected to approximate
$450 million, down slightly from the 1998 fourth quarter. The decrease is
expected to be primarily related to lower demand from General Motors in North
America and weaker sales in Europe as compared to the fiscal 1998 fourth
quarter. General Motors substantially increased output in the 1998 fourth
quarter following the strike.
GROSS MARGIN: For the third quarter of 1999, gross margin was 15.0%, up from
10.2% in the comparable 1998 period. For the nine months ended September 25,
1999, gross margin was 15.3%, up from 13.7% in the comparable 1998 period. These
increases are primarily due to improved volume and manufacturing efficiencies at
the Company's North American Automotive Interior Systems division, which was
impacted by several events in 1998 including the General Motors strike and the
closure and relocation of certain carpet manufacturing operations into other
facilities. In addition, gross margin at the Company's Specialty Automotive
Products division improved over prior year results, which were impacted by the
General Motors strike and lower sales volumes and manufacturing inefficiencies
due to increased demand for leather seating applications. These improvements in
gross margin were partially offset by the impact of certain costs incurred with
the closure and relocation of the Homer, Michigan plastics facility and the
Cramerton, North Carolina fabrics facility into other facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the third quarter of 1999 decreased 1.8% to $37.6
million, down from $38.3 million in the comparable 1998 period. For the nine
months ended September 25, 1999, selling, general and administrative expenses
were $116.7 million, compared to $117.7 million in the comparable 1998 period.
As a percentage of sales, selling, general and administrative expenses were 8.8%
and 10.1% for the third quarters of 1999 and 1998, respectively, and 8.4% and
8.9% for the nine months ended September 25, 1999 and September 26, 1998,
respectively. Increased costs associated with systems upgrades and Year 2000
compliance efforts were more than offset by cost-cutting efforts at the
Specialty Automotive Products division and lower personnel costs at the
Company's corporate headquarters due to employee reductions resulting from the
Reorganization.
RESTRUCTURING CHARGE: During the third quarter of 1999, the Company recognized a
$15.3 million charge, consisting of a $4.4 million loss on the sale of the
Cramerton, North Carolina fabrics facility, a $5.0 million charge relating to
the termination of certain sales commission arrangements, a $0.7 million
impairment loss associated with the Homer, Michigan plastics facility and $5.2
million of severance costs associated with employee reductions in connection
with the Reorganization. The Company also recognized a $4.6 million
restructuring charge in the second quarter of 1999, principally representing
severance costs and a $0.5 million impairment loss related to the Homer,
Michigan plastics facility which is being closed as part of the Reorganization.
INTEREST EXPENSE: Interest expense, net of interest income of $0.6 million in
each of the third quarters of 1999 and 1998, increased to $23.0 million, up from
$20.9 million in the comparable 1998 period. For the nine months ended September
25, 1999, interest expense, net of interest income of $2.0 million and $2.9
million for the nine months ended September 25, 1999 and September 26, 1998,
respectively, increased to $67.8 million, up from $60.8 million in the
comparable 1998 period. The increases are primarily due to higher levels of
outstanding debt during 1999.
LOSS ON 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 $1.2 million was recognized
during the third quarter of 1999, compared to a loss of $1.0 million for the
third quarter of 1998. The increase in the loss on sale of receivables during
the quarter ended September 25, 1999 is due to decreased availability under the
receivables facility during the third quarter of 1998 resulting from the General
Motors strike. Losses of $3.8 million and $4.3 million were recognized for the
nine months ended September 25, 1999 and September 26, 1998, respectively. The
decrease in the loss on sale of receivables during the nine months ended
September 25, 1999 is primarily due to a lower interest rate on the receivables
facility during 1999.
OTHER EXPENSE: The Company recognized other expense of $1.7 million in the third
quarter of 1999, compared to $1.3 million in the third quarter of 1998. The
increase is primarily due to amortization of premiums associated with option
contracts entered into by the Company's Canadian operations to purchase U.S.
dollars. For the nine months ended September 25, 1999, the Company recognized
other expense of $2.9 million, compared to other expense of $5.1 million in the
comparable 1998 period. The decrease for the nine months ended September 25,
1999 is primarily due to higher foreign currency transaction losses associated
with the Canadian dollar in 1998.
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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)
INCOME TAXES: The Company recognized an income tax benefit of $8.1 million in
the third quarter of 1999 compared to an income tax benefit of $14.6 million in
the third quarter of 1998. For the nine months ended September 25, 1999, the
Company recognized income tax expense of $0.8 million, compared to an income tax
benefit of $6.6 million in the comparable 1998 period. The Company's effective
tax rate was 55.6% and 63.6% in the third quarters of 1999 and 1998,
respectively, and 41.1% and 97.7% for the nine months ended September 25, 1999
and September 26, 1998, respectively. The percentage decreases in the Company's
reported tax rates for the quarter and nine months ended September 25, 1999 are
primarily due to the impact of certain state taxes and non-deductible goodwill,
which do not fluctuate with income and certain tax credits reported in the third
quarter of 1999.
EXTRAORDINARY CHARGE: For the nine months ended September 26, 1998, the Company
recognized 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 repurchase 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.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE: The Company adopted the
provisions of Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") at the beginning of 1999. 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. The initial impact of SOP 98-5 resulted in a charge of $8.8 million,
net of income taxes of $5.1 million.
NET LOSS: The combined effect of the foregoing resulted in a net loss of $6.5
million in the third quarter of 1999, compared to a net loss of $8.4 million in
the third quarter of 1998. The Company recognized a net loss of $7.7 million in
the nine months ended September 25, 1999, compared to a net loss of $3.8 million
for the nine months ended September 26, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$24.4 million and $23.8 million at September 25, 1999 and December 26, 1998,
respectively. The Company had a total of $98.3 million of borrowing availability
under its credit arrangements as of September 25, 1999. Availability as of
September 25, 1999 has been reduced by outstanding letters of credit of $19.2
million. The total was comprised of $91.7 million under the revolving credit
facility (including $6.9 million available to the Canadian Borrowers, as
hereinafter defined), and approximately $6.6 million under bank demand lines of
credit in Austria, Canada, the Netherlands, and the United Kingdom. No amounts
were available under the Receivables Facility, as hereinafter defined.
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 and the Term Loan C Facility, as
hereinafter defined, 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"). On
May 13, 1999, the Company closed on a senior term loan facility in the principal
amount of $100 million, payable in quarterly installments beginning in December
1999 through final maturity in December 2005 (the "Term Loan C Facility"). The
proceeds from the Term Loan C Facility were used to pay the $44.0 million
special dividend discussed above, repay amounts outstanding under the Company's
Revolving Credit Facility and for general corporate purposes.
At September 25, 1999, the Company had outstanding $88.8 million under
the Term Loan A Facility, $123.0 million under the Term Loan B Facility, $100.0
million under the Term Loan C Facility, and $139.1 million under the Revolving
Credit Facility (including $53.1 million borrowed by the Canadian Borrowers).
I-17
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
Effective March 8, 1999, the Company, in view of the decreased sales of
automotive fabrics and the General Motors strike which occurred in June and July
of 1998, obtained an amendment to the Credit Agreement Facilities primarily in
order to modify the covenants relating to interest coverage and leverage ratios.
The amendment resulted generally in an increase in the interest rates charged
under the Credit Agreement Facilities. 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 the Company's Imperial Wallcoverings,
Inc. subsidiary ("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 and certain intercompany indebtedness.
On June 10, 1996, C&A Products issued $400 million principal amount of
11-1/2% Subordinated Notes due 2006 (the "Subordinated Notes"). 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) of cash flow to interest expense or (iii) the aggregate of
all such Restricted Payments from the issue date exceeds a specified threshold
(based, generally, on 50% of cumulative consolidated net income since the
quarter in which the issue date occurred plus 100% of the net proceeds of
capital contributions to C&A Products from stock issuances by the Company).
These prohibitions are subject to a number of significant exceptions, including
dividends to stockholders of the Company or stock repurchases not exceeding $10
million in any fiscal year or $20 million in the aggregate until the maturity of
the Subordinated Notes, dividends to stockholders of the Company of the net
available proceeds from the sale 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 1999. However, the Company expects all its borrowing needs for the
foreseeable future to be allowed under exceptions for permitted indebtedness in
the indenture.
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 25, 1999. 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
I-18
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
the Company and C&A Products) which are customary for such securities. These
covenants are also subject to a number of significant exceptions. As of
September 25, 1999, JPS Automotive had approximately $87.6 million of
indebtedness outstanding (including a premium of $1.5 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, Inc., ("Carcorp"), a wholly-owned, bankruptcy remote subsidiary of C&A
Products, 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.
As a result of the Company's divestiture of its non-automotive
businesses, the trust was required to redeem certain of the outstanding term
certificates. As of September 25, 1999, $50 million of the term certificates
remained outstanding. 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 25, 1999, the maximum amount available under the variable funding
certificates was $58.4 million, of which the entire amount was utilized.
The proceeds received by Carcorp from collections on receivables, after
the payment of expenses and amounts due on the certificates, are used to
purchase new receivables from the Sellers. Collections on receivables are
required to remain in the Trust if at any time the Trust does not contain
sufficient eligible receivables to support the outstanding certificates. The
Receivables Facility contains certain other restrictions on Carcorp (including
maintenance of $25 million net worth) and on the Sellers (including limitations
on liens on receivables, modifications of the terms of receivables, and changes
in credit and collection practices) customary for facilities of this type. The
commitments under the Receivables Facility are subject to termination prior to
their term upon the occurrence of certain events, including payment defaults,
breach of covenants, bankruptcy, insufficient eligible receivables to support
the outstanding certificates, default by C&A Products in servicing the
receivables and, in the case of the variable funding certificates, failure of
the receivables to satisfy certain performance criteria. The scheduled
amortization of the Receivables Facility begins December 25, 1999. The Company
is currently reviewing proposals to replace this facility.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At September 25, 1999, the Company had $20.0
million of potential availability under this master lease for future machinery
and equipment requirements of the Company subject to the lessor's approval. In
the quarter ended September 25, 1999, the Company made lease payments relating
to continuing operations of approximately $1.5 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 1999.
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
used in the continuing operating activities of the Company was $7.7 million for
the quarter ended September 25, 1999, compared to net cash provided of $6.7
million in the quarter ended September 26, 1998. Net cash provided by the
continuing operations of the Company was $28.5 million for the nine months ended
September 25, 1999 compared to $9.8 million for the nine months ended September
26, 1998.
I-19
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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, income
tax payments, costs associated with the Company's previously divested businesses
and capital expenditures. At September 25, 1999, the Company had total
outstanding indebtedness of $945.3 million (excluding approximately $19.2
million of outstanding letters of credit) at an average interest rate of 9.8%
per annum. Of the total outstanding indebtedness, $850.9 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 1999 to repurchase shares of the Company's Common Stock at
management's discretion. This amount was reduced to approximately $2 million in
connection with the approximately $6.2 million special dividend paid on March 1,
1999, and the approximately $44.0 million special dividend paid on May 28, 1999.
The Company believes it has sufficient liquidity under its existing credit
arrangements to effect the repurchase program. The Company spent approximately
$1.8 million to repurchase shares during the first nine months of 1999.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility as amended March 8, 1999 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/Canadian Prime Rate
Margin") ranging from .25% to 1.25% 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/BA Margin") ranging from 1.25% to
2.25%. Margins, which are subject to adjustment based on changes in the
Company's ratio of funded debt to EBITDA (i.e., earnings before interest, taxes,
depreciation, amortization and other non-cash charges) were 2.25% in the case of
the LIBOR/BA Margin and 1.25% in the case of the ABR/Canadian Prime Rate Margin
on September 25, 1999. 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) the Canadian Prime
Rate (which is the greater of Chase's prime rate for Canadian dollar-denominated
loans in Canada and the Canadian dollar-denominated one month bankers'
acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate Margin or (ii) the
bill of exchange rate ("Bankers' Acceptance" or "BA") denominated in Canadian
dollars for one, two, three or six months plus the LIBOR/BA Margin. Indebtedness
under the Term Loan B Facility as amended March 8, 1999 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 ranging from 1.25% to 1.75% (the "Tranche B ABR
Margin") or (ii) LIBOR of one, two, three, or six months, as selected by the
Company, plus a margin ranging from 2.25% to 2.75% (the "Tranche B LIBOR
Margin"). The Tranche B ABR Margin and the Tranche B LIBOR Margin, were 1.75%
and 2.75%, respectively, at September 25, 1999. Indebtedness under the Term Loan
C Facility bears interest at a per annum rate of LIBOR plus 3.25% (the "Tranche
C LIBOR Margin") or Chase's Alternate Base Rate plus 2.25% (the "Tranche C ABR
Margin"). The weighted average interest rate on the Credit Agreement Facilities
was 8.1% at September 25, 1999. The weighted average interest rate on the sold
interests under the Receivables Facility at September 25, 1999 was 6.2%. Under
the Receivables Facility, the term certificates bear interest at an average rate
equal to one month LIBOR plus .34% per annum and the variable funding
certificates bear interest, at Carcorp's option, at LIBOR plus .40% per annum or
a prime rate. The Subordinated Notes bear interest at 11.5% per annum. The JPS
Automotive Senior Notes bear interest at a rate of 11.125% per annum. Cash
interest paid for the quarters ended September 25, 1999 and September 26, 1998
was $9.7 million and $6.7 million, respectively. Cash interest paid was $53.9
million and $49.9 million for the nine months ended September 25, 1999 and
September 26, 1998, respectively.
Due to the variable interest rates under the Credit Agreement
Facilities and the Receivables Facility, the Company is sensitive to changes 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 25, 1999 a .5% increase in each of LIBOR and Canadian bankers'
acceptance rates (5.6% and 4.7%, respectively, at September 25, 1999) would
impact interest costs by approximately $2.2 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 bankers' acceptance rates and 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 June 1998.
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
1999 and for 2000, 2001, 2002 and 2003 are $5.0 million, $27.9 million, $116.7
million, $32.9 million and $81.4 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
I-20
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 makes capital expenditures on a recurring basis for
replacements and improvements. As of September 25, 1999, the Company's
continuing operations had approximately $30.2 million in outstanding capital
expenditure commitments. The Company currently anticipates that its capital
expenditures for continuing operations for fiscal 1999 will be in the range of
$80 million to $90 million, a portion of which may be financed through leasing
arrangements. 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 materials supply
base. During the third quarter of 1999, prices for most of the Company's primary
raw materials remained constant with price levels at December 26, 1998. While
the Company may not be able to pass on future raw materials 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 $12.6 million for the remainder of fiscal 1999. 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.
TAX MATTERS
At December 26, 1998, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $219.2 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2018. The Company also has unused Federal tax credits of approximately $13.3
million, $1.1 million of which expire during the period 1999 to 2006.
Approximately $3.1 million of the Company's NOLs and $1.1 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
I-21
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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."
Management has reviewed the Company's operating results for recent
years as well as the outlook for its continuing businesses in concluding it is
more likely than not that the net deferred tax assets of $96.1 million at
September 25, 1999 will be realized. A major goal of the Reorganization is to
lower the overall cost structure of the Company and thereby increase
profitability. These factors along with the timing of the reversal of its
temporary differences and the expiration dates of its NOLs were also considered
in reaching this conclusion. The Company's ability to generate future taxable
income is dependent on numerous factors, including general economic conditions,
the state of the automotive industry and other factors beyond management's
control. Therefore, there can be no assurance that the Company will meet its
expectation of future taxable income.
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 except for certain costs incurred
at acquired locations. Environmental compliance costs relating to conditions
existing at the time the locations were acquired are generally charged to
reserves established in purchase accounting. 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 25, 1999, 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 24 sites where the Company is participating in the
investigation or remediation of the site, either directly or through financial
contribution, and 8 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of September 25, 1999,
the Company's estimate of its liability for these 32 sites is approximately
$23.0 million. As of September 25, 1999, the Company has established reserves of
approximately $33.0 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
I-22
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
identified or properly assessed all potential environmental liability arising
from the activities or properties of the Company, its present and former
subsidiaries and their corporate predecessors.
IMPACT OF YEAR 2000 READINESS
The Company developed a comprehensive plan intended to address Year
2000 issues (the "Year 2000 Plan"). The Year 2000 Plan includes the acceleration
of the Company's Business Systems Integration Plan (the "BSIP Plan"), initiated
in connection with the Company's 1996 acquisitions, to create common
manufacturing, financial reporting and cost control information systems
throughout the Company as a whole. The BSIP Plan, which affects essentially all
the Company's locations worldwide, involves new installations of hardware and
software at acquired operations and upgrades to hardware and software at
pre-existing locations.
As part of the Year 2000 Plan, the Company selected a team of managers
and outside consultants to identify, evaluate and implement a timetable aimed at
bringing all of the Company's critical business systems and applications into
Year 2000 readiness prior to December 31, 1999. The Year 2000 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 and safety 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:
<TABLE>
<CAPTION>
<S> <C>
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 ready
</TABLE>
Currently, the Company estimates that a majority of the Company's
locations are either in or have completed the Testing phase for each area of
Year 2000 risk.
The Company intends for all of its systems in North America and Europe
to become Year 2000 ready during 1999. The Company has formalized contingency
plans for its operations and for critical corporate support services. These
contingency plans include, among other things, the following: (i) establishing
back-up production capacities within the Company to shift the manufacturing of
similar products between plants if a plant should be unable to complete its
scheduled production requirements; (ii) formulating enhanced information
technology disaster recovery plans; (iii) maintaining offline documentation of
production schedules, releases and inventory levels; (iv) carrying additional
inventory where appropriate and (v) establishing alternative communications
links. The Company has not yet quantified the entire costs associated with these
contingency plans.
The Company currently anticipates that the total cost of its Year 2000
Plan including approximately $26 million of costs associated with the BSIP Plan
and $1 million of costs associated with contingency plans, will be approximately
$30 million. Included in this estimate is approximately $7 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 $26 million of
these costs have been incurred through September 25, 1999 including
approximately $6 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 flow from operations and
borrowings under the Credit Agreement Facilities.
Due to the general uncertainty inherent in the Year 2000 process, 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
I-23
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONCLUDED)
suppliers to become Year 2000 ready. To mitigate this risk, the Company has
issued questionnaires to its suppliers and has visited or had discussions with
certain of these suppliers to assess their Year 2000 readiness. The majority of
the Company's suppliers have represented that they will be Year 2000 ready by
the end of 1999. 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 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 ready 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.
SAFE HARBOR STATEMENT
This Report on Form 10-Q contains statements which 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 general economic conditions in the markets in
which the Company operates and industry-based factors such as possible declines
in the North American and 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, pricing pressure from automotive customers and Year
2000 readiness issues, as well as factors such as the substantial leverage of
the Company and its subsidiaries, limitations imposed by the Company's debt
facilities and changes made in connection with the integration of operations
acquired by the Company. The Company's divisions may also be affected by changes
in the popularity of particular car models or particular interior trim packages
or the loss of programs on particular car models and risks associated with
conducting business in foreign countries. 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 Commission filings,
including without limitation "BUSINESS" in the Company's Annual Report on Form
10-K for the fiscal year ended December 26, 1998 (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 Forms 10-Q for the fiscal quarters ended March
27, 1999 and June 26, 1999, 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.
For the period ended September 25, 1999, the Company did not experience
any material changes in market risk disclosure that affect the quantitative and
qualitative disclosures presented in the 10-K.
I-24
<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 the fiscal year ended December 26, 1998.
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 and Amendment thereto is
hereby incorporated by reference to Exhibit 3.1 of Collins & Aikman Corporation's Report on Form
10-Q for the fiscal quarter ended June 26, 1999.
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 - Tranche C Term Loan Supplement dated as of May 12, 1999 to the Credit Agreement dated as of May 28,
1998 among Collins & Aikman Products Co., Collins & Aikman Canada, Inc., Collins & Aikman Plastics,
Ltd., Collins & Aikman Corporation, the Financial Institutions 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 is hereby incorporated by reference to
Exhibit 4.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended June
26, 1999.
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 - Employment Agreement dated as of April 22, 1999 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-Q for the fiscal quarter ended March 27, 1999.
10.2 - Letter agreement dated as of May 12, 1999 with an executive officer is hereby incorporated by
reference to Exhibit 10.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
10.3 - 1994 Employee Stock Option Plan, as amended and restated through June 3, 1999 is hereby
incorporated by reference to Exhibit 10.2 of Collins & Aikman Corporation's Report on Form 10-Q for
the fiscal quarter ended June 26, 1999.
11 - Computation of Earnings Per Share.
II-1
<PAGE>
27 - Financial Data Schedule.
</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-2
<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 8, 1999
COLLINS & AIKMAN CORPORATION
(Registrant)
By: /s/ Rajesh K. Shah
---------------------------
Rajesh K. Shah
Chief Financial Officer and
Executive Vice President
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
EXHIBIT 11
COLLINS & AIKMAN CORPORATION
COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Average shares outstanding during the period ....................... 61,955 63,753 61,965 64,967
------------- ------------ ------------- ------------
Incremental shares under stock options computed under
the price of issuer's stock during the period ................. -- -- 370 --
------------- ------------ ------------- ------------
Total shares for diluted EPS .................................. 61,955 63,753 62,335 64,967
============= ============ ============= ============
Income (loss) before extraordinary charge and
cumulative effect of a change in accounting principle ......... $ (6,484) $ (8,354) $ 1,150 $ (158)
Extraordinary charge ............................................... -- -- -- (3,679)
Cumulative effect of a change in accounting principle .............. -- -- (8,850) --
------------- ------------ ------------- ------------
Net loss ...................................................... $ (6,484) $ (8,354) $ (7,700) $ (3,837)
============= ============ ============= ============
Net income (loss) per basic and diluted common share:
Income (loss) before extraordinary charge and
cumulative effect of a change in accounting principle ....... $ (0.10) $ (0.13) $ 0.02 $ --
Extraordinary charge .......................................... -- -- -- (0.06)
Cumulative effect of a change in accounting
principle ................................................... -- -- (0.14) --
------------- ------------ ------------- ------------
Net loss ...................................................... $ (0.10) $ (0.13) $ (0.12) $ 0.06
============= ============ ============= ============
</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 25, 1999 AND SUCH IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-25-1999
<CASH> 24,387
<SECURITIES> 0
<RECEIVABLES> 248,025
<ALLOWANCES> 4,505
<INVENTORY> 155,491
<CURRENT-ASSETS> 529,304
<PP&E> 743,612
<DEPRECIATION> 302,566
<TOTAL-ASSETS> 1,401,826
<CURRENT-LIABILITIES> 354,597
<BONDS> 917,169
0
0
<COMMON> 705
<OTHER-SE> (145,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,401,826
<SALES> 1,393,031
<TOTAL-REVENUES> 1,393,031
<CGS> 1,180,018
<TOTAL-COSTS> 115,720
<OTHER-EXPENSES> 26,546
<LOSS-PROVISION> 972
<INTEREST-EXPENSE> 67,821
<INCOME-PRETAX> 1,954
<INCOME-TAX> 804
<INCOME-CONTINUING> 1,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (8,850)
<NET-INCOME> (7,700)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
