<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the quarterly period ended April 1, 2000
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)
5755 New King Court
Troy, Michigan 48098
(Address of principal executive offices, including zip code)
(248) 824-2500
(Registrant's telephone number, including area code)
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 May 15, 2000, the number of outstanding shares of the Registrant's common
stock, $.01 par value, was 61,879,272 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
------------------------
APRIL 1, MARCH 27,
2000 1999
(14 WEEKS) (13 WEEKS)
---------- ----------
<S> <C> <C>
Net sales .......................................... $ 534,761 $ 478,337
Cost of goods sold ................................. 451,046 407,749
--------- ---------
Gross profit ....................................... 83,715 70,588
Selling, general and administrative expenses ....... 43,553 40,755
--------- ---------
Operating income ................................... 40,162 29,833
Interest expense, net .............................. 25,062 21,815
Loss on sale of receivables ........................ 3,818 1,311
Other expense (income) ............................. (1,079) 2,177
--------- ---------
Income before income taxes ......................... 12,361 4,530
Income tax expense ................................. 5,347 2,214
--------- ---------
Income before cumulative effect of a change in
accounting principle ............................. 7,014 2,316
Cumulative effect of a change in accounting
principle, net of income taxes of $5,083 ......... -- (8,850)
--------- ---------
Net income (loss) .................................. $ 7,014 $ (6,534)
========= =========
Net income (loss) per basic and diluted common
share:
Income before cumulative effect of a change in
accounting principle .......................... $ 0.11 $ 0.04
Cumulative effect of a change in accounting
principle ..................................... -- (0.14)
--------- ---------
Net income (loss) .................................. $ 0.11 $ (0.10)
========= =========
Average common shares outstanding:
Basic ............................................ 61,889 61,992
========= =========
Diluted .......................................... 62,365 62,351
========= =========
</TABLE>
I-1
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 1, DECEMBER 25,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 41,478 $ 13,980
Accounts and other receivables, net ................. 229,078 233,819
Inventories ......................................... 137,534 132,625
Other ............................................... 76,260 84,942
----------- -----------
Total current assets .............................. 484,350 465,366
Property, plant and equipment, net ..................... 441,395 443,526
Deferred tax assets .................................... 86,449 86,235
Goodwill, net .......................................... 252,604 256,362
Other assets ........................................... 92,871 97,401
----------- -----------
$ 1,357,669 $ 1,348,890
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings ............................... $ 8,503 $ 3,088
Current maturities of long-term debt ................ 29,021 27,992
Accounts payable .................................... 188,141 198,466
Accrued expenses .................................... 167,484 132,709
----------- -----------
Total current liabilities ......................... 393,149 362,255
Long-term debt ......................................... 860,040 884,550
Other, including post-retirement benefit obligation .... 252,190 253,206
Commitments and contingencies ..........................
Common stock (150,000 shares authorized, 70,521 shares
issued and 61,879 shares outstanding at April 1, 2000
and 70,521 shares issued and 61,904 shares outstanding
at December 25, 1999) ............................... 705 705
Other paid-in capital .................................. 585,679 585,484
Accumulated deficit .................................... (634,103) (641,117)
Accumulated other comprehensive loss ................... (36,922) (33,260)
Treasury stock, at cost (8,642 shares at April 1, 2000
and 8,617 shares at December 25, 1999) .............. (63,069) (62,933)
----------- -----------
Total common stockholders' deficit ................ (147,710) (151,121)
----------- -----------
$ 1,357,669 $ 1,348,890
=========== ===========
</TABLE>
I-2
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
APRIL 1, MARCH 27,
2000 1999
(14 WEEKS) (13 WEEKS)
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations .............................. $ 7,014 $ 2,316
Adjustments to derive cash flow from continuing operating
activities:
Deferred income tax expense (benefit) ..................... 2,143 (1,193)
Depreciation and amortization ............................. 18,761 17,232
Decrease (increase) in accounts and other receivables ..... 9,392 (20,775)
Decrease (increase) in inventories ........................ (4,909) 11,134
Decrease in accounts payable .............................. (10,325) (13,166)
Increase in interest payable .............................. 14,910 14,131
Other, net ................................................ 31,969 5,839
-------- --------
Net cash provided by continuing operating activities .... 68,955 15,518
-------- --------
Net cash used in discontinued operations ....................... (3,188) (1,683)
INVESTING ACTIVITIES
Additions to property, plant and equipment ..................... (15,095) (12,534)
Sales of property, plant and equipment ......................... 74 2,441
Other, net ..................................................... -- (800)
-------- --------
Net cash used in investing activities ................... (15,021) (10,893)
-------- --------
FINANCING ACTIVITIES
Repayment of long-term debt .................................... (13,676) (4,589)
Proceeds from (reduction of) participating interests in accounts
receivable .................................................. (4,651) 8,300
Net borrowings (repayments) on revolving credit facilities ..... (10,463) 9,500
Increase on short-term borrowings .............................. 5,678 2,151
Purchase of treasury stock, net ................................ (136) (1,233)
Dividends paid ................................................. -- (6,193)
Other, net ..................................................... -- (158)
-------- --------
Net cash provided by (used in) financing activities ..... (23,248) 7,778
-------- --------
Net increase in cash and cash equivalents ...................... 27,498 10,720
Cash and cash equivalents at beginning of period ............... 13,980 23,755
-------- --------
Cash and cash equivalents at end of period ..................... $ 41,478 $ 34,475
======== ========
</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 April 1, 2000, 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 2000 presentation. Results of operations
for interim periods are not necessarily indicative of results for the full year.
The Company's fiscal year ends on the last Saturday of December. The
2000 fiscal year will consist of 53 weeks. In a 53-week year, the Company's
policy is to include the additional week in the first quarter of the year. As a
result, the quarter ended April 1, 2000 consisted of 14 weeks. The quarter ended
March 27, 1999 consisted of 13 weeks.
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 25, 1999.
C. FOREIGN CURRENCY PROTECTION PROGRAMS
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. Corporate policy prescribes the range of allowable hedging
activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months. The Company
has in place forward exchange contracts denominated in multiple currencies which
will mature during fiscal 2000. These contracts aggregated a U.S. dollar
equivalent of $122.3 million at April 1, 2000. The fair value of these contracts
approximated the contract value at April 1, 2000.
During 2000 and 1999, the Company purchased option contracts giving the
Company the right to purchase U.S. dollars for use by its Canadian operations.
The premiums associated with these contracts are amortized over the contracts'
terms which are one year or less. The total notional amount purchased was $127.2
million with associated premiums of $1.3 million. The total notional amount
outstanding at April 1, 2000 was $90.1 million.
D. INVENTORIES:
Inventory balances are summarized below (in thousands):
<TABLE>
<CAPTION>
April 1, December 25,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials ...................................... $ 67,839 $ 69,182
Work in process .................................... 33,250 27,073
Finished goods ..................................... 36,445 36,370
-------- --------
$137,534 $132,625
======== ========
</TABLE>
E. 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 $1.8 million and $1.7 million for the quarter ended April 1, 2000
and March 27, 1999, respectively. Accumulated amortization at April 1, 2000 was
$26.7 million. The carrying value of goodwill at an enterprise level is reviewed
periodically based on the projected 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
I-4
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Company's carrying value of the goodwill will be reduced. At April 1, 2000, the
Company believes the recorded value of its goodwill of $252.6 million is fully
recoverable.
F. LONG-TERM DEBT:
On May 28, 1998, the Company entered into new credit facilities
consisting of: (i) a senior secured term loan facility in the principal amount
of $100 million payable in quarterly installments until final maturity on
December 31, 2003 (the "Term Loan A Facility"); (ii) a senior secured term loan
facility in the principal amount of $125 million payable in quarterly
installments until final maturity on June 30, 2005 (the "Term Loan B Facility"
and, together with the Term Loan A Facility 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.
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. The
remaining proceeds were used to repay amounts outstanding on the Revolving
Credit Facility and for general corporate purposes.
At April 1, 2000, the Company had outstanding $76.3 million on the Term
Loan A Facility, $120.0 million on the Term Loan B Facility, $98.0 million on
the Term Loan C Facility and $101.6 million under the Revolving Credit Facility
(including $24.8 million borrowed by the Canadian Borrowers).
The Credit Agreement Facilities, which are guaranteed by the Company
and its U.S. subsidiaries (subject to certain exceptions), contain restrictive
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 in 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% in the case
of the LIBOR/BA Margin and 1.25% in the case of the ABR/Canadian Prime Rate
Margin on April 1, 2000. 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 April 1, 2000. 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"). The weighted average rate of interest on the Credit
Agreement Facilities at April 1, 2000 was 8.83%.
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
I-5
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
At April 1, 2000, the scheduled maturities of long-term debt are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Remainder of fiscal year 2000................. $ 14,790
Fiscal year 2001.............................. 116,174
Fiscal year 2002.............................. 32,833
Fiscal year 2003.............................. 28,261
Fiscal year 2004.............................. 155,473
Later years................................... 541,530
-------------
$ 889,061
=============
</TABLE>
G. RECEIVABLES FACILITY
On December 27, 1999, the Company entered into a new receivables
facility (the "New Receivables Facility"), replacing the Company's previous
receivables facility (the "Old Receivables Facility") which had expired. The New
Receivables Facility utilizes funding provided by commercial paper conduits
sponsored by three of the Company's lenders under its Credit Agreement
Facilities. Carcorp, a wholly-owned, bankruptcy remote subsidiary of C&A
Products, remains the purchaser of the Sellers' trade receivables, transferring
rights to collections on those receivables to the conduits. The conduits in turn
issue commercial paper which is collateralized by those rights. The liquidity
facilities backing the New Receivables Facility have terms of 364 days,
renewable annually.
The total funding available to the Company on a revolving basis under
the New Receivables Facility is up to $171.6 million, depending upon criteria
similar to those in the Old Receivables Facility. On December 27, 1999, the
Company funded $120 million through the New Receivables Facility, leaving
approximately $12 million available, but unutilized. At April 1, 2000, $111.8
million was funded under the New Receivables Facility, with $1.7 million
unutilized. The interest rate on sold interests is equal to the rate paid by the
conduits to the holders of the commercial paper plus a margin of .70% and dealer
fees of .05% (6.66% at inception and 6.10% at April 1, 2000). In addition, the
Company pays .25% on the unused committed portion of the facility. The New
Receivables Facility contains certain other restrictions on Carcorp (including
maintenance of $40 million net worth) and on the Sellers (including limitations
on liens on receivables, modifications of the terms of receivables, and change
in credit and collection practices) customary for facilities of this type. The
commitments under the New Receivables Facility are subject to termination prior
to their term upon the occurrence of certain events, including payment defaults,
breach of covenants, including defined interest coverage and leverage ratios,
bankruptcy, insufficient eligible receivables to support the outstanding
certificates, default by C&A Products in servicing the receivables and failure
of the receivables to satisfy certain performance criteria.
I-6
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Wiesbaden, Germany. In
addition, the Company subsequently implemented a global account manager
structure for each of the Company's automotive original equipment manufacturer
("OEM") customers. The Company undertook the Reorganization to reduce costs and
improve operating efficiencies through the Company's operations and to more
effectively respond to the OEMs' demand for complete interior trim systems and
more sophisticated components. As part of the Reorganization, the Company also
established the Specialty Automotive Products division, which includes the
Company's automotive fabrics and Dura Convertible Systems businesses. Although
these products have not historically been sold in conjunction with the Company's
other interior trim offerings, the Company's new strategy of leveraging its
acoustic capabilities with its design and styling expertise is anticipated to
change the marketing approach for all of the Company's products.
The 1999 Reorganization includes the closure of three facilities. The
Homer, Michigan plastics facility was closed in August 1999 and its operations
were relocated to an existing plastics facility. The Cramerton, North Carolina
fabrics facility was sold in September 1999 and its operations are in the
process of being relocated to another fabrics facility. The acoustics facility
in Vastra Frolunda, Sweden, is scheduled to be closed in September 2000. In
addition to these closures, the Company recognized severance costs for operating
personnel at the Company's plastics operations in the United Kingdom and the
Company's fabrics, convertibles and accessory floormats operations in North
America. The Company also recognized severance costs for management and
administrative personnel at the Company's former North Carolina headquarters and
North American Automotive Interior Systems division. At April 1, 2000,
approximately 750 employees had been terminated. When completed, the
Reorganization will affect approximately 1,100 employees. The Company currently
expects the Reorganization plan to be substantially completed by December 2000.
During 1999, the Company recognized a pre-tax restructuring charge and
impairment of long-lived assets related to the Reorganization of $33.4 million,
including $13.4 million of asset impairments, $15.0 million of severance costs
and $5.0 million related to the termination of sales commissions contracts at
the Company's North American plastics operations.
The components of the reserves for the restructuring charges are as
follows (in thousands):
<TABLE>
<CAPTION>
Original Changes Remaining
Reserve in Reserve Reserve
-------- ---------- ---------
<S> <C> <C> <C>
Anticipated severance benefits ......................... $ 15,061 $ (7,631) $ 7,430
Anticipated payments related to the termination of sales
commission arrangements .............................. 4,969 (1,669) 3,300
-------- -------- --------
$ 20,030 $ (9,300) $ 10,730
======== ======== ========
</TABLE>
I. RELATED PARTY TRANSACTIONS:
Under the Amended and Restated Stockholders' Agreement among the
Company, C&A Products, Blackstone Partners and WP Partners, the Company pays
Blackstone Partners and WP Partners, or their respective affiliates, each an
annual monitoring fee of $1.0 million, which is payable in quarterly
installments.
I-7
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
J. 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.
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 modules, systems and components. 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 April 1, 2000 (14 weeks)
---------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ------------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
External revenues ...................... $ 326,613 $ 86,248 $ 121,900 $ - $ 534,761
Inter-segment revenues ................. 4,969 9,381 10,738 (25,088) -
Depreciation and
amortization....................... 10,841 4,293 3,291 336 18,761
Operating income (loss) ................ 28,286 2,399 10,903 (1,426) 40,162
Total assets ........................... 799,981 245,099 243,388 69,201 1,357,669
Capital expenditures ................... 9,068 3,083 2,568 376 15,095
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended March 27, 1999 (13 weeks)
---------------------------------------------------------------------------
North American European Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
External revenues ...................... $ 283,612 $ 81,867 $ 112,858 $ - $ 478,337
Inter-segment revenues.................. 22,760 7,283 8,772 (38,815) -
Depreciation and
amortization ...................... 9,271 3,944 3,768 249 17,232
Operating income (loss)................. 18,744 884 10,947 (742) 29,833
Total assets ........................... 782,468 258,936 263,344 81,333 1,386,081
Capital expenditures ................... 7,050 3,144 1,282 1,058 12,534
</TABLE>
(a) Other includes the Company's discontinued operations, non-operating units
and the effect of eliminating entries.
I-8
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Sales for the Company's primary product groups are as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
------------------------
April 1, March 27,
2000 1999
(14 weeks) (13 weeks)
---------- ----------
<S> <C> <C>
Molded floor carpet ....................................... $ 124,098 $ 114,162
Luggage compartment trim .................................. 24,868 24,084
Acoustical products ....................................... 63,588 56,008
Accessory floormats ....................................... 46,438 39,965
Plastic-based interior trim modules, systems and components 133,945 101,122
Automotive fabrics ........................................ 70,989 64,998
Convertible top systems ................................... 36,906 33,428
Other ..................................................... 33,929 44,570
--------- ---------
Total ..................................................... $ 534,761 $ 478,337
========= =========
</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 of shipment, 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>
Quarter Ended
--------------------
April 1, March 27,
2000 1999
-------- ---------
<S> <C> <C>
General Motors Corporation............................................ 29.7% 31.4%
Ford Motor Company.................................................... 19.4% 18.6%
DaimlerChrysler AG.................................................... 20.1% 18.8%
</TABLE>
Information about the Company's continuing operations in different
geographic areas for the quarters ended April 1, 2000 and March 27, 1999 are
presented below (in thousands):
<TABLE>
<CAPTION>
Quarter Ended April 1, 2000 Quarter Ended March 27, 1999
(14 weeks) (13 weeks)
--------------------------- ----------------------------
Long-Lived Long-Lived
Net Sales Assets Net Sales Assets
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
United States .............. $300,273 $538,375 $271,899 $557,039
Canada ..................... 115,117 88,268 94,764 76,888
Mexico ..................... 33,122 22,839 29,807 16,834
United Kingdom ............. 35,796 63,764 32,552 59,401
Other (a) .................. 50,453 73,624 49,315 78,927
-------- -------- -------- --------
Consolidated ............... $534,761 $786,870 $478,337 $789,089
======== ======== ======== ========
</TABLE>
(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and
the Netherlands and, for long-lived assets, the Company's discontinued
operations.
I-9
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
K. COMMITMENTS AND CONTINGENCIES:
See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings." The
ultimate outcome of the legal proceedings to which the Company is a party will
not, in the opinion of the Company's management, based on the facts presently
known to it, have a material effect on the Company's consolidated financial
condition or future 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 future
results of operations.
L. COMMON STOCKHOLDERS' DEFICIT:
Total comprehensive income (loss) for the quarters ended April 1, 2000
and March 27, 1999 was $3.4 million and $(13.4) million, respectively. Activity
in the common stockholders' deficit since December 25, 1999 is as follows (in
thousands):
<TABLE>
<CAPTION>
Current Year Other
Comprehensive Accumulated Accumulated Other Common Paid-In Treasury
Income Total Deficit Comprehensive Loss Stock Capital Stock
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 25, 1999 ...... $ (151,121) $(641,117) $ (33,260) $ 705 $585,484 $(62,933)
Comprehensive income:
Net income ...................... $ 7,014 7,014 7,014 - - - -
Other comprehensive income
(loss), net of tax:
Foreign currency
translations adjustments.. (3,690) (3,690) - (3,690) - - -
Pension equity adjustment .. 28 28 - 28 - - -
---------
$ 3,352 - - - - - -
=========
Compensation expense adjustment .. 195 - - - 195 -
Purchase of treasury stock
(25 shares) .................. (136) - - - - (136)
----------- --------- ------------- -------- -------- --------
Balance at April 1, 2000 .......... $ (147,710) $(634,103) $ (36,922) $ 705 $585,679 $(63,069)
=========== ========= ============= ======== ======== ========
</TABLE>
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 25, 1999...... $ (32,203) $ (1,057) $ (33,260)
Current period change ............ (3,690) 28 (3,662)
---------------- ---------- -----------------
Balance at April 1, 2000 ......... $ (35,893) $ (1,029) $ (36,922)
================ ========== =================
</TABLE>
I-10
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
M. 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
------------------------------
April 1 March 27,
2000 1999
(14 weeks) (13 weeks)
---------- ----------
<S> <C> <C>
Net sales................................... $ 534,761 $ 478,337
Gross margin................................ 83,715 70,588
Income from continuing operations........... 7,052 2,475
Net income (loss)........................... 7,052 (6,375)
Current assets.............................. 484,334 520,017
Noncurrent assets........................... 873,319 866,040
Current liabilities......................... 393,149 359,916
Noncurrent liabilities...................... 1,109,648 1,124,371
</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.
N. NEWLY ISSUED ACCOUNTING STANDARDS:
In September 1999, the Financial Accounting Standards Board's ("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 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 arrangements 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 Company
adopted the provisions of EITF No. 99-5 on a prospective basis on December 26,
1999. The adoption of EITF No. 99-5 did not have a material effect on the
consolidated financial position or the results of operations of the Company. At
April 1, 2000, the Company had assets of approximately $5.1 million recognized
pursuant to agreements that provide for contractual reimbursement of design and
development costs, approximately $54.9 million for molds, dies and other tools
that are customer-owned and approximately $1.3 million for molds, dies and other
tools that the Company owns.
In June 1998, the FASB issued 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 on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. 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
I-11
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("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 $8.9 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 quarter ended March
27, 1999.
I-12
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's fiscal year ends on the last Saturday of December. The 2000 fiscal
year will consist of 53 weeks. In a 53-week year, the Company's policy is to
include the additional week in the first quarter of the year. As a result, the
quarter ended April 1, 2000 consisted of 14 weeks. The quarter ended March 27,
1999 consisted of 13 weeks. Therefore, sales in all divisions and associated
costs and expenses were impacted by the longer reporting period in the first
quarter of 2000.
NET SALES: Net sales for the first quarter of 2000 increased 11.8% to $534.8
million, up $56.4 million from the 1999 first quarter. Management estimates that
approximately $35.0 million of this increase is due to the inclusion of the
additional week in the first quarter of 2000. Net sales for the North American
Interior Systems division during the quarter were up approximately 15.2% to
$326.6 million, driven primarily by strong production schedules. Net sales for
the European Automotive Interior Systems division were up 5.4% to $86.2 million.
The increase in Europe was primarily due to increased sales levels for the
carpet, acoustics and plastics operations among several customers. Net sales for
the Specialty Automotive Products division increased 8.0% to $121.9 million, due
primarily to production volume increases in the fabrics business and increased
demand for the Ford Mustang convertible top. Management currently expects that
the proposed sale of Rover may result in slightly lower volume in the Company's
European segment in the second quarter of fiscal 2000.
Approximately 18% of the Company's sales for the quarter ended April 1, 2000,
were attributable to products utilized in vehicles built outside North America,
compared to 19% for the quarter ended March 27, 1999. The Company's North
American content per vehicle was approximately $91 for the quarter ended April
1, 2000, compared to an average of $88 for the 1999 fiscal year. The Company's
European content per vehicle was approximately $17 for the quarter ended April
1, 2000, compared to an average of $15 for the 1999 fiscal year.
GROSS MARGIN: For the first quarter of 2000, gross margin was 15.7%, up from
14.8% in the comparable 1999 period. The increase is primarily a result of
increased operating efficiencies related to higher volume in North America and
Europe and improvements made at the Company's plastics facility in Manchester,
Michigan, which experienced significant start-up costs in 1999 related to the
production of the General Motors GMX-270 program. These improvements were
partially offset by costs associated with the relocation of the Company's
headliner fabric business from Cramerton, North Carolina to another fabrics
facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the first quarter of 2000 increased 6.9% to $43.6
million, up from $40.8 million in the comparable 1999 period. The increase is
primarily related to spending for product development for new convertible top
programs, establishment of headquarter operations in Troy, Michigan and
Wiesbaden, Germany, continued investment in computer systems and the inclusion
of the additional week in the first quarter of 2000. As a percentage of sales,
selling, general and administrative expenses were 8.1% and 8.5% for the first
quarters of 2000 and 1999, respectively.
INTEREST EXPENSE: Interest expense, net of interest income of $0.6 million and
$0.8 million for the first quarter of 2000 and 1999, respectively, increased
$3.2 million to $25.1 million for the first quarter of 2000. The increase in
interest expense is primarily attributed to the impact of the additional week,
slightly higher interest rates and higher average debt balances.
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 $3.8 million was recognized
during the first quarter of 2000, compared to a loss of $1.3 million for the
first quarter of 1999. During the first quarter of 2000, the Company entered
into a new accounts receivable securitization arrangement, resulting in a one-
time expense for initial fees totaling $1.6 million. The remaining increase is
due to increased sales of eligible receivables under the new securitization
facility. The Company's prior securitization facility expired in December, 1999.
OTHER EXPENSE (INCOME): The Company recognized other income of $1.1 million in
the first quarter of 2000, compared to other expense of $2.2 million in the
first quarter of 1999. The other income is primarily attributable to foreign
exchange gains on the Canadian dollar in the first quarter of 2000. The other
expense in the first quarter of 1999 related to fluctuations in the Mexican
peso.
I-13
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INCOME TAXES: The Company recognized income tax expense of $5.3 million in the
first quarter of 2000 compared to income tax expense of $2.2 million in the
first quarter of 1999. The Company's effective tax rate was 43.3% and 48.9% in
the first quarters of 2000 and 1999, respectively. The percentage decrease in
the Company's reported tax rates for the quarter is primarily due to the impact
of certain state taxes and non-deductible goodwill, which do not fluctuate with
income.
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 $8.9 million,
net of income taxes of $5.1 million.
NET INCOME (LOSS): The combined effect of the foregoing resulted in net income
of $7.0 million in the first quarter of 2000, compared to a net loss of $(6.5)
million in the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$41.5 million and $14.0 million at April 1, 2000 and December 25, 1999,
respectively. The Company had a total of $154.4 million of borrowing
availability under its credit arrangements as of April 1, 2000. Availability as
of April 1, 2000 has been reduced by outstanding letters of credit of $19.1
million. The total was comprised of $129.2 million under the revolving credit
facility (including $35.2 million available to the Canadian Borrowers, as
hereinafter defined), and approximately $23.5 million under bank demand lines of
credit in Austria and Canada and a line of credit for certain other European
locations, and $1.7 million available under the Receivables Facility.
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 a $44.0 million special
dividend in May, 1999, repay amounts outstanding under the Company's Revolving
Credit Facility and for general corporate purposes.
At April 1, 2000, the Company had outstanding $76.3 million under the
Term Loan A Facility, $120.0 million under the Term Loan B Facility, $98.0
million under the Term Loan C Facility, and $101.6 million under the Revolving
Credit Facility (including $24.8 million borrowed by the Canadian Borrowers).
The Credit Agreement Facilities, which are guaranteed by the Company
and its U.S. subsidiaries (subject to certain exceptions), contain restrictive
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 in 1998, obtained an amendment
to the Credit Agreement Facilities primarily in order to modify the covenants
relating to interest coverage and leverage ratios throughout the existing terms
of the Credit Agreement Facilities. The amendment resulted generally in an
increase in the interest rates charged under the Credit Agreement Facilities.
For additional discussion of the Credit Agreement Facilities and related
restrictive covenants, see Note F to the Condensed Consolidated Financial
Statements and Note 10 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 25, 1999 (the
"10-K").
In June 1996, the Company's wholly-owned subsidiary, C&A Products,
issued at face value $400 million principal amount of 11 1/2% Senior
Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by
the
I-14
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Company. The Subordinated Notes indenture contains 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 2000. However, the Company expects all
its borrowing needs for the foreseeable future to be allowed under exceptions
for permitted indebtedness in the indenture. For additional discussion of the
Subordinated Notes, see Note 10 to the Consolidated Financial Statements
included in the 10-K.
At April 1, 2000, JPS Automotive had approximately $87.1 million of
indebtedness outstanding (including a premium of $1.1 million) related to the
JPS Automotive 11 1/8% Senior Notes due 2001 (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. For additional discussion of the JPS Automotive Senior
Notes, see Note 10 to the Consolidated Financial Statements included in the
10-K.
On December 27, 1999, the Company entered into a new receivables
facility (the "New Receivables Facility"), replacing the Company's previous
receivables facility (the "Old Receivables Facility"). The New Receivables
Facility utilizes funding provided by commercial paper conduits sponsored by
three of the Company's lenders under its Credit Agreement Facilities. Carcorp
remains the purchaser of the Sellers' trade receivables, transferring rights to
collections on those receivables to the conduits. The conduits in turn issue
commercial paper which is collateralized by those rights. The liquidity
facilities backing the New Receivables Facility have terms of 364 days,
renewable annually.
The total funding available to the Company on a revolving basis under
the New Receivables Facility is up to $171.6 million, depending upon criteria
similar to those in the Old Receivables Facility. On December 27, 1999, the
Company funded $120 million through the New Receivables Facility, leaving
approximately $12 million available, but unutilized. At April 1, 2000, $111.8
million was funded under the New Receivables Facility, with $1.7 million
unutilized. For further discussion of the New Receivables Facility, see Note G
to the Condensed Consolidated Financial Statements and Note 11 to the
Consolidated Financial Statements included in the 10-K.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At April 1, 2000, 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 April 1, 2000, 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 approximately $4.7
million during the remainder of fiscal 2000.
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 New Receivables Facility. Net
cash provided by the continuing operating activities of the Company was $69.0
million for the quarter ended April 1, 2000, compared to net cash provided of
$15.5 million in the quarter ended March 27, 1999. The increase in cash provided
by operating activities is due primarily to improved collections of accounts
receivable, resulting from a compensation program implemented in 1999 which is
based in part upon maximizing cash flow and increasing asset utilization. In
addition, the Company was able to release cash collateral associated with the
Old Receivables Facility when it was replaced in early fiscal 2000.
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 April 1, 2000, the Company had total outstanding
indebtedness of $889.1 million (excluding short-term borrowings and
approximately $19.1 million of outstanding letters of credit) at a weighted
average interest rate of 10.2% per annum. Of the total outstanding indebtedness,
$795.9 million relates to the Credit Agreement Facilities and the Subordinated
Notes.
The Company's Board of Directors authorized the expenditure of up to
$1.4 million in 2000 to repurchase shares of the Company's Common Stock at
management's discretion. The Company believes it has sufficient liquidity under
its existing credit arrangements to effect the repurchase program. The Company
spent approximately $136 thousand to repurchase shares during the first quarter
of 2000 and $1.3 million in the first quarter of fiscal 1999.
I-15
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cash interest paid for the quarters ended April 1, 2000 and March 27,
1999 was $10.3 million and $8.1 million, respectively.
Due to the variable interest rates under the Credit Agreement
Facilities and the New Receivables Facility, the Company is sensitive to changes
in interest rates. Based upon amounts outstanding at April 1, 2000 a .5%
increase in each of LIBOR and Canadian bankers' acceptance rates (6.10% and
6.05%, respectively, at April 1, 2000) would impact interest costs by
approximately $2.0 million annually on the Credit Agreement Facilities and $0.6
million annually on the New Receivables Facility.
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
2000 and for 2001, 2002, 2003 and 2004 are $14.8 million, $116.2 million, $32.8
million, $28.3 million and $155.5 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 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 April 1, 2000, the Company's continuing
operations had approximately $11.7 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations for fiscal 2000 will be in the range of $70 million to $80
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 first quarter of 2000, prices for most of the Company's primary
raw materials remained constant with price levels at December 25, 1999. 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 in
conjunction with its major customers and by continued reductions in the cost of
off-quality products and processes.
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. On January 5, 2000, Imperial Home
Decor Group, Inc., which purchased Wallcoverings, in March 1998, filed voluntary
petitions for protection under Chapter 11 of the U.S. Bankruptcy Code. The
Company is currently assessing the impact of that bankruptcy filing. Management
currently anticipates that the net cash requirements of its discontinued
operations will be approximately $17.2 million for the remainder of fiscal 2000.
However, because the requirements of the Company's discontinued operations are
largely a function of contingencies, it is possible that the actual net cash
requirements of the Company's discontinued operations could differ materially
from management's estimates. Management believes that the Company's cash needs
relating to discontinued operations can be provided by operating activities from
continuing operations and by borrowings under its credit facilities.
I-16
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TAX MATTERS
At December 25, 1999, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $268.1 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2019. The Company also has unused Federal tax credits of approximately $18.9
million, $6.7 million of which expire during the period 2000 to 2019.
Future sales of common stock by the Company or its principal
shareholders, or changes in the composition of its principal shareholders, could
constitute a "change in control" that would result in annual limitations on the
Company's use of its NOLs and unused tax credits. Management cannot predict
whether such a "change in control" will occur. If such a "change in control"
were to occur, the resulting annual limitations on the use of NOLs and tax
credits would depend on the value of the equity of the Company and the amount of
"built-in gain" or "built-in loss" in the Company's assets at the time of the
"change in control", which cannot be known at this time.
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 $90.1 million at April
1, 2000 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.
The valuation allowance at April 1, 2000 provides for certain deferred
tax assets that in management's assessment may not be realized due to tax
limitations on the use of such amounts or that relate to tax attributes that are
subject to uncertainty due to the long-term nature of their realization.
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 relate 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 April 1, 2000, 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 23 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 April 1, 2000,
I-17
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
the Company's estimate of its liability for these 31 sites, is approximately
$22.9 million. As of April 1, 2000, the Company has established reserves of
approximately $31.1 million for the estimated future costs related to all its
known environmental sites. In the opinion of management, based on the facts
presently known to it, the environmental costs and contingencies will not have a
material adverse effect on the Company's consolidated financial condition or
future results of operations. However, there can be no assurance that the
Company has identified or properly assessed all potential environmental
liability arising from the activities or properties of the Company, its present
and former subsidiaries and their corporate predecessors.
SAFE HARBOR STATEMENT
This Report on Form 10-Q contains statements which, to the extent they
are not historical facts, 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 builds, 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, as
well as factors such as the substantial leverage of the Company and its
subsidiaries, limitations imposed by the Company's debt facilities, changes made
in connection with the integration of operations acquired by the Company and the
implementation of the global reorganization program. The Company's divisions may
also be affected by changes in the popularity of particular vehicle models or
particular interior trim packages or the loss of programs on particular vehicle
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 "ITEM 1. BUSINESS" and
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" in the 10-K 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 April 1, 2000, the Company did not experience any
material changes from the quantitative and qualitative disclosures about market
risk presented in the 10-K.
I-18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in legal proceedings involving
the Company or its subsidiaries since those reported in the Company's Report on
Form 10-K for fiscal year ended December 25, 1999.
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.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3(i).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(i).2 - 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
3(ii) - 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.
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 March 29, 2000 between Collins &
Aikman Products Co. and an executive officer.
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule.
(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-1
<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: May 15, 2000
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 Chief Accounting Officer)
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of March 29, 2000, by and between COLLINS & AIKMAN PRODUCTS CO., a Delaware
corporation (the "Company"), and FRANK J. PRESTON ("Employee").
W I T N E S S E T H
WHEREAS, the Company wishes to retain Employee's services by providing
Employee the compensation and benefits set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ Employee,
and Employee hereby accepts employment, for a period of approximately 3 years,
commencing April 19, 2000 and ending April 30, 2003, subject to the terms and
conditions of this Agreement. The initial 3 year term of Employee's employment
under this Agreement shall be automatically extended, without further action by
either the Company or Employee, for 1 additional year commencing on the first
anniversary of the date of Employee's employment hereunder and continuing on
each subsequent anniversary date of Employee's employment hereunder. Either
party may terminate such automatic extension of this Agreement by giving the
other party written notice of intent not to extend at least 60 days prior to an
anniversary date of Employee's employment hereunder. In the event such notice of
intent not to extend is properly delivered, this Agreement shall expire at the
end of the 3 year term then in progress.
2. Position of Employment. During the term of this Agreement, Employee
shall be employed in the position of President - Collins & Aikman North American
Interior Systems Group and shall perform such services for the Company and its
affiliates as may be assigned to him from time to time by the Chairman or the
Board of Directors of the Company. Employee shall devote his full time and
attention to the affairs of the Company and his duties in such position. The
initial location of Employee's employment hereunder shall be the Company's
Global Headquarters in Troy, Michigan.
Nothing in this Agreement shall prohibit Employee from participating in
civic or community organizations or from making passive investments using his
personal assets so long as such participation and investments do not interfere
with the performance of Employee's duties under this Agreement. In addition,
Employee may, with the prior written approval of the Chairman or the Board of
Directors of the Company, serve as a member of the board of directors of any
business that is not a direct or indirect competitor of the Company and its
affiliates.
3. Compensation.
(a) Base Salary. The Company shall pay to Employee base salary at an
annual rate of not less than $350,000 during the term of his employment
hereunder. Such amount shall be
<PAGE>
reviewed annually by the Board of Directors of the Company or an appropriate
committee thereof (the Company's Board of Directors or such committee being
referred to herein as the "Compensation Board") and may be increased in the sole
discretion of the Compensation Board.
(b) Bonus Plans. During the term of Employee's employment hereunder,
Employee shall be eligible to participate in the Company's annual Executive
Incentive Compensation Plan (the "EIC Plan") in accordance with the applicable
provisions of the EIC Plan. The standard bonus for Employee under the EIC Plan
shall be fifty percent (50%) of Employee's base salary. Employee shall be
entitled to receive a full bonus under the EIC Plan for the 2000 fiscal year
notwithstanding Employee's commencement of employment on or before May 1, 2000
and Employee's bonus for the 2000 fiscal year shall in no event be less than
$87,500.
(c) Stock Options. Employee shall be eligible to participate in the
Collins & Aikman Corporation Employee Stock Option Plans (collectively, the
"Option Plan") and shall be granted the option to purchase up to 100,000 shares
of the Common Stock of Collins & Aikman Corporation, in accordance with the
applicable terms and conditions of the Option Plan and an Option Agreement
between Collins & Aikman Corporation and Employee to be entered into, dated and
effective as of the date Employee's employment under this Agreement commences.
The option price for all such shares shall be the closing price of Collins &
Aikman Corporation shares on the New York Stock Exchange as of such date .
Subject to the terms and conditions the Option Plan and the Option Agreement,
the option of Employee to purchase up to the 100,000 shares shall vest as
follows:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
VESTING DATE SHARES VESTED PERCENTAGE VESTED
<S> <C> <C>
One year from date of grant 33,334 33 1/3%
Two years from date of grant 66,667 66 2/3%
Three years from date of grant 100,000 100%
</TABLE>
4. Benefits and Perquisites.
(a) General. Employee shall be entitled to such fringe benefits and
perquisites, and to participate in such pension, profit sharing and benefit
plans as are generally made available to executives of the Company during the
term hereof, including consideration for annual stock option awards, major
medical, extended medical and disability insurance, supplemental retirement
income plan, group term life insurance and appropriate annual holidays, sick
days and vacation time with no fixed schedule.
(b) Company Automobile. The Company shall furnish to Employee the use
of a Buick Park Avenue or comparable automobile or an annual allowance of $9,000
(grossed up for applicable taxes) and shall reimburse Employee for normal
gasoline and maintenance charges for the operation thereof, subject to proper
allocation of personal use for income tax purposes.
(c) Relocation Expenses. The Company acknowledges that Employee's
principal residence is currently located in Plymouth, Michigan and that Employee
is not required to relocate his residence to the Troy, Michigan area as a
condition of his employment hereunder
2
<PAGE>
with the Company. However, if Employee voluntarily elects to relocate his
principal residence to the Troy, Michigan area at any time during the first 2
years of his employment hereunder, the Company shall reimburse Employee for the
reasonable expenses incurred by Employee in connection with such relocation,
including without limitation, any broker's commission incurred in connection
with the sale of Employee's current principal residence and the costs incurred
by Employee in connection with closing the sale of his current principal
residence and the purchase of a new principal residence. In addition, the
Company shall purchase Employee's current principal residence in the event such
residence is not sold within 90 days after being listed with a sales agent. All
such reimbursements and any purchase of Employee's current residence shall be
made in accordance with the Company's Relocation Policy.
5. Reimbursement of Expenses. The Company shall reimburse Employee for
all reasonable travel, entertainment and other reasonable business expenses
reasonably incurred by Employee in connection with the performance of his duties
hereunder, provided that Employee furnishes to the Company adequate records or
other evidence respecting such expenditures.
6. Termination of Employment. Employee's employment under this
Agreement may be terminated:
(a) by the Company upon Employee's death (which shall be referred
to as a "Death Termination") or Employee's physical or mental
disability for any consecutive six-month period (measured from the
first date on which Employee is absent from work due to such disability
to the same date in the sixth succeeding calendar month, or, if there
is no such date or such date is not a business day, the next succeeding
business day) (which shall be referred to as an "Inability
Termination");
(b) by the Company for Cause, which means (i) fraud or
misappropriation with respect to the business of the Company or
intentional material damage to the property or business of the Company,
(ii) willful failure by Employee to perform his duties and
responsibilities and to carry out his authority, (iii) willful
malfeasance or misfeasance or breach of fiduciary duty or
representation to the Company or its stockholders, (iv) willful failure
to act in accordance with any specific lawful instructions of a
majority of the Board of Directors of the Company, or (v) conviction of
Employee of a felony (which shall be referred to as a "For Cause
Termination");
(c) by the Company at any time for any reason other than a For
Cause Termination, Death Termination or Inability Termination (which
shall be referred to as a "No Cause Termination");
(d) by Employee at any time for any reason other than a
"Constructive Termination" (as defined below) (which shall be referred
to as a "Voluntary Termination"); or
(e) by Employee within 30 days after the occurrence of one or more
of the following: (i) any reduction in Employee's base salary, unless
such reduction is being made in conjunction with an across-the-board
reduction in the salaries of all senior
3
<PAGE>
executives of the Company in response to adverse economic conditions,
(ii) a material breach of this Agreement by the Company, (iii) a
material reduction in Employee's total compensation and benefits
package or (iv) the Company's giving notice of the non-renewal of this
Agreement upon an anniversary date of Employee's employment hereunder
pursuant to Paragraph 1 hereof (which shall be referred to as a
"Constructive Termination"); provided, however, no event or
circumstance described in clause (ii) or (iii) shall give rise to a
"Constructive Termination" for purposes of this Agreement unless
Employee shall have given notice to the Company of Employee's
determination of the occurrence of an event or circumstance described
in clause (ii) or (iii) and such event or circumstance shall be
continuing as of the end of 45 days after the giving of such notice.
For purposes of Paragraph 6(c), no act or failure to act on Employee's part
shall be considered "willful" unless knowingly done or failed to be done by
Employee in bad faith and without the reasonable belief that Employee's action
or omission was in the best interest of the Company.
7. Termination Procedure.
(a) Notice of Termination. Any termination of Employee's employment by
the Company or by Employee under Paragraph 6 hereof shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Paragraph 13. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances providing a basis for termination of Employee's employment under
the provision so indicated.
(b) Termination Date. " Termination Date" shall mean (i) if Employee's
employment is terminated pursuant to Paragraph 6(a) or (b) above, the date on
which a Notice of Termination is given or (ii) if Employee's employment is
terminated pursuant to Paragraph 6(c), (d) or (e) above, 30 days after the date
on which a Notice of Termination is given.
8. Benefits Upon Termination.
(a) Termination as a Result of Death Termination or Inability
Termination. If Employee's employment under this Agreement is terminated prior
to the expiration of the term of this Agreement as a result of a Death
Termination or an Inability Termination, the Company shall pay Employee or, if
applicable, Employee's estate or legal representative, (i) Employee's unpaid
base salary under Paragraph 3(a) accrued to the date on which his employment
terminates (the "Termination Date"), (ii) 12 months of Employee's base salary
based on the rate of base salary in effect immediately preceding the Termination
Date and (iii) if Employee's employment is terminated as a result of an
Inability Termination, an amount equal to the average annual bonus paid or
payable to Employee for the 2 fiscal years of the Company immediately prior to
the fiscal year in which the Termination Date occurs.
(b) Termination as a Result of Voluntary Termination or For Cause
Termination. If Employee's employment under this Agreement is terminated prior
to the expiration of the term of this Agreement as a result of a Voluntary
Termination or a For Cause Termination, the
4
<PAGE>
Company shall pay Employee (i) his unpaid base salary under Paragraph 3(a)
accrued to the Termination Date, (ii) any accrued but unused vacation and (iii)
all vested and accrued benefits earned by Employee under any employee benefit
plans and programs sponsored by the Company in which Employee participates.
(c) Termination as a Result of No Cause Termination or Constructive
Termination. If Employee's employment under this Agreement is terminated prior
to the expiration of the term of this Agreement as a result of a No Cause
Termination or a Constructive Termination, the Company shall pay and provide to
Employee the following benefits:
(i) Employee's unpaid base salary accrued to the Termination
Date and any accrued but unused vacation;
(ii) base salary for the greater of (A) 12 months or (B) the
remaining term of this Agreement, based on the rate of base salary in
effect immediately preceding the Termination Date;
(iii) an amount equal to the average annual bonus paid or
payable to Employee for the 2 fiscal years of the Company immediately
prior to the fiscal year in which the Termination Date occurs; and
(iv) continued participation in the benefit plans, programs
and arrangements described in Paragraphs 4(a) and (b) during the
severance period described in Paragraph 8(c)(ii) above.
In addition, all outstanding stock options granted to Employee under
the Option Plan will immediately vest upon a No Cause Termination or a
Constructive Termination prior to the expiration of the term of this Agreement
and will continue to be fully exercisable until the earlier of 12 months after
the Termination Date or the original expiration date of said options. The
Company shall also cause Employee to receive all vested and accrued benefits
earned by Employee under all employee benefit plans and programs sponsored by
the Company in which Employee participates.
(d) Method of Payment of Severance Compensation. The amount due to
Employee pursuant to Paragraph 8(a)(ii) or 8(c)(ii) above shall be paid on a
periodic basis in accordance with the Company's normal pay practice. The amount
due to Employee pursuant to Paragraph 8(a)(iii) or 8(c)(iii) above shall be paid
in a lump sum within 30 days of the Termination Date.
9. Representations and Covenants of Employee.
(a) Conduct. Employee will at all times refrain from taking any action
or making any statements, written or oral, which are intended to and do
disparage the goodwill or reputation of the Company or any of its subsidiaries
or affiliates or any directors or officers thereof or which could adversely
affect the morale of employees of the Company or its subsidiaries.
5
<PAGE>
(b) Performance of Duties. In consideration of the payments to be made
hereunder, Employee agrees that during the term of his employment under this
Agreement, he shall devote his entire business time and attention to the
performance of his duties hereunder, serve the Company diligently and to the
best of his abilities. Employee further agrees not compete with the Company or
its subsidiaries in any way whatsoever within Europe or the United States during
the term of employment under this Agreement and after the Termination Date
during the period of base salary continuation under Paragraph 8(c)(ii). Without
limiting the generality of the foregoing, Employee shall not, during any such
applicable period of time, directly or indirectly (whether for compensation or
otherwise), alone or as an agent, principal, partner, officer, employee,
trustee, director, shareholder or in any other capacity, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of, or furnish any capital to, or be connected in any manner with or provide any
services as a consultant for any business which competes with the business of
the Company, its parent company or their subsidiaries or affiliates as it may be
conducted from time to time; provided, however, that notwithstanding the
foregoing, nothing contained in the Agreement shall be deemed to preclude
Employee from owning not more than 5% of the publicly traded securities of any
entity which is in competition with the business of the Company, its parent
company or their subsidiaries or affiliates.
(c) Company Information. Employee agrees that so long as he is employed
by the Company and following any termination of his employment Employee will
keep confidential all confidential information and trade secrets of the Company
and any of its subsidiaries or affiliates and will not disclose such information
to any person without the prior approval of the Board of Directors of the
Company or use such information for any purpose other than in the course of
fulfilling his duties of employment with the Company pursuant to this Agreement.
It is understood that for purposes of this Agreement the term "confidential
information" is to be construed broadly to include all material nonpublic or
proprietary information.
10. Release. In consideration of the compensation continuance available
in certain events pursuant to this Agreement, Employee unconditionally releases
and covenants not to sue the Company and its subsidiaries and affiliates and
directors, officers, employees and stockholders thereof, from any and all
claims, liabilities and obligations of any nature pertaining to termination of
employment other than those explicitly provided for by this Agreement including,
without limitation, any claims arising out of alleged legal restrictions on the
Company's rights to terminate its employees, such as any implied contract of
employment or termination contrary to public policy.
11. Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by the laws of Michigan, regardless of the laws that
might be applied under applicable principles of conflicts of laws.
12. Entire Agreement and Survivorship. This Agreement constitutes the
entire agreement and understanding between the parties hereto with respect to
the matters referred to herein and supersedes all prior agreements and
understandings between the parties hereto with respect to the matters referred
to herein. The representations, warranties and covenants of
6
<PAGE>
Employee contained in all parts of Paragraph 9, and the release contained in
Paragraph 10 shall survive expiration or termination of this Agreement by either
party.
13. Notice. Any written notice required to be given by one party to the
other party hereunder shall be deemed effective if mailed by certified or
registered mail:
To the Company: Collins & Aikman Products Co.
701 McCullough Drive
Charlotte, North Carolina 26262
Attention: Greg Tinnell
To Employee: Frank J. Preston
13557 Westbrook Road
Plymouth, Michigan 48170
or such other address as may be stated in notice given under this Paragraph 13.
14. Severability. The invalidity, illegality or enforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement or
such provision in any other jurisdiction, it being the intent of the parties
hereto that all rights and obligations of the parties hereto under this
Agreement shall be enforceable to the fullest extent permitted by law.
15. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their personal representatives,
and, in the case of the Company, its successors and assigns, and Paragraph 10
shall also inure to the benefit of the other persons and entities identified
therein; provided, however, that Employee shall not, without the prior written
consent of the Company, transfer, assign, convey, pledge or encumber this
Agreement or any interest under this Agreement. Employee understands that the
assignment of this Agreement or any benefits hereof or obligations hereunder by
the Company to any of its subsidiaries or affiliates or to any purchaser of all
or a substantial portion of the assets of the Company or of any affiliated
company then employing Employee, and the employment of Employee by such
subsidiary or affiliate or by any such purchaser or by any successor of the
Company in a merger or consolidation, shall not be deemed a termination of
Employee's employment for purposes of Paragraphs 6, 7 and 8 or otherwise.
16. Amendment. This Agreement may be amended or canceled only by an
instrument in writing duly executed and delivered by each party to this
Agreement.
17. Headings. Headings contained in this Agreement are for or
convenience only and shall not limit this Agreement or affect the interpretation
thereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ Frank J. Preston
------------------------------------
Frank J. Preston
COLLINS & AIKMAN PRODUCTS CO.
By: /s/ Greg Tinnell
-------------------------------
Greg Tinnell, Senior Vice
President - Human Resources
8
<PAGE>
Exhibit 11
Collins & Aikman Corporation
Computation of Earnings Per Share
In thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------
April 1, March 27,
2000 1999
-------- --------
<S> <C> <C>
Average shares outstanding during the period ........ 61,889 61,992
-------- --------
Incremental shares under stock options computed under
the price of issuer's stock during the period .. 476 359
-------- --------
Total shares for diluted EPS ................... 62,365 62,351
======== ========
Income (loss) before cumulative effect of a change
in accounting principle ........................ $ 7,014 $ 2,316
Cumulative effect of a change in
accounting principle............................ -- (8,850)
-------- --------
Net income (loss) .............................. $ 7,014 $ (6,534)
======== ========
Net income (loss) per basic and diluted common share:
Income (loss) cumulative effect of a change in
accounting principle ......................... $ .11 $ .04
Cumulative effect of a change in accounting
principle .................................... -- (0.14)
-------- --------
Net income (loss) .............................. $ .11 $ (0.10)
======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statements of operations
for the quarter ended April 1, 2000 and such is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> DEC-26-1999
<PERIOD-END> APR-01-2000
<CASH> 41,478
<SECURITIES> 0
<RECEIVABLES> 237,028
<ALLOWANCES> 7,950
<INVENTORY> 137,534
<CURRENT-ASSETS> 484,350
<PP&E> 771,546
<DEPRECIATION> 330,151
<TOTAL-ASSETS> 1,357,669
<CURRENT-LIABILITIES> 393,149
<BONDS> 860,040
0
0
<COMMON> 705
<OTHER-SE> (148,415)
<TOTAL-LIABILITY-AND-EQUITY> 1,357,669
<SALES> 534,761
<TOTAL-REVENUES> 534,761
<CGS> 451,046
<TOTAL-COSTS> 43,553
<OTHER-EXPENSES> 2,739
<LOSS-PROVISION> 474
<INTEREST-EXPENSE> 25,062
<INCOME-PRETAX> 12,361
<INCOME-TAX> 5,347
<INCOME-CONTINUING> 7,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,014
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
