SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1994.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6761
COLLINS & AIKMAN GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-1954600
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
8320 UNIVERSITY EXECUTIVE PARK, SUITE 102
CHARLOTTE, NORTH CAROLINA 28262
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704)
548-2350
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
$2.50 Convertible Preferred Stock, Series A American Stock Exchange
15% Subordinated Notes due 1995 American Stock Exchange
Pacific Stock Exchange*
11 3/8% Usable Subordinated Debentures due 1997 American Stock Exchange
Pacific Stock Exchange*
7 1/2%/10% Debentures due 2005 American Stock Exchange
Pacific Stock Exchange*
11 7/8% Senior Subordinated Debentures due 2001 American Stock Exchange
* Collins & Aikman Group, Inc. has applied to the Securities and Exchange Commission
("Commission") to have its debt securities removed from listing on the Pacific Stock
Exchange ("PSE"). The PSE did not object to such application, which is currently pending
before the Commission.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the $2.50 Convertible Preferred Stock, Series
A held by nonaffiliates of the Registrant (based upon the closing price on the
American Stock Exchange on May 2, 1994) was approximately $42,900,000.
As of May 2, 1994, the number of outstanding shares of the Registrant's
common stock, $0.10 par value, was 47,808,123 shares. Since April 13, 1989, all
shares have been held by Collins & Aikman Holdings Corporation (formerly WCI
Holdings Corporation).
DOCUMENTS INCORPORATED BY REFERENCE: NONE
COLLINS & AIKMAN GROUP INC. AND SUBSIDIARIES
INDEX TO AMENDMENT NO. 1 ON FORM 10-K/A TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994.
Page No.
Introduction i
Item 1. Business 1
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16
Signatures 21
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
AMENDMENT NO. 1 ON FORM 10-K/A
TO THE
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED JANUARY 29, 1994
INTRODUCTION
This Amendment No. 1 on Form 10-K/A (this "Amendment") to the Annual Report
on Form 10-K for the fiscal year ended January 29, 1994 filed May 4, 1994 (the
"1994 10-K") of Collins & Aikman Group, Inc. (the "Company") is being filed by
the Company to amend Items 1, 7 and 14 of the 1994 10-K as set forth below and
in the pages attached hereto.
Item 1 of the 1994 10-K is hereby amended to (i) add a statement at the end
of the fourth paragraph thereof defining the terms "leading" and "largest", (ii)
add statements regarding sufficiency of facilities at the end of each subsection
of the Item headed "Facilities", (iii) add a statement at the end of
"Wallcoverings-Products" regarding sales of Wallcoverings (residential) in the
last three fiscal years and (iv) make certain other changes in the description
of the Company's products. These revisions parallel amendments made to
corresponding information in the Registration Statement on Form S-2
(Registration No. 33-53179) (the "Registration Statement") filed by the
Company's parent, Collins & Aikman Holdings Corporation, largely as a result of
comments from the Securities and Exchange Commission ("SEC") in reviewing the
Registration Statement.
Item 7 of the 1994 10-K is hereby amended to (i) exclude reference to a $24
million restructuring charge which was previously recorded in the third quarter
of fiscal 1993 in error and reversed in the fourth quarter of fiscal 1993 and
(ii) make other changes in the text of Management's Discussion and Analysis of
Financial Condition and Results of Operations in response to SEC comments on the
Registration Statement and this Item of the 1994 10-K.
Item 14 of the 1994 10-K is hereby amended to (i) file an additional
exhibit (Exhibit 10.24), (ii) revise Note 2 "Summary of Significant Accounting
Policies" to provide additional disclosure regarding the Company's deposits with
an insurer and insurance reserves, provide policy disclosures regarding the
Company's methodology for assessing the recoverability of long lived assets and
disclose that newly issued accounting pronouncements will not have a material
impact on the Company (iii) revise Note 19 "Quarterly Financial Data" to exclude
a $24 million restructuring charge that was previously recorded in error, and
restate the fourth quarter of fiscal 1993 to exclude the previously reported
reversal of this charge and (iv) make additional changes to the Company's
consolidated financial statements in response to the SEC's comments on the
Registration Statement.
Except as described above, this Amendment makes no change to Item 1, 7 and
14 of the 1994 10-K or to any of the documents listed in Item 14 and filed as
part of the 1994 10-K.
Pursuant to Rule 12b-15 of the Rules and Regulations under the Securities
Exchange Act of 1934, the complete text of Items 1, 7 and 14, as amended, are
included in this Amendment. The Financial Statements, as amended, are
being filed with, and constitute part of, this Amendment. Exhibit 10.24 is being
filed with this Amendment through incorporation by reference to the Registration
Statement. All other Exhibits to the 1994 10-K and the Financial Statement
Schedules were filed with the 1994 10-K, are not amended by this Amendment and
are not included with this Amendment.
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PART I
ITEM 1. BUSINESS
Collins & Aikman Group, Inc. ("Group" or the "Company") (formerly Wickes
Companies, Inc.) was incorporated in Delaware on March 17, 1971, and is the
successor to a Michigan corporation called The Wickes Corporation, whose
earliest predecessor company was established in 1854.
On October 25, 1988, Group, Collins & Aikman Holdings II Corporation
("Holdings II") (formerly WCI Holdings II Corporation) and Collins & Aikman
Holdings Corporation ("Holdings") (formerly WCI Holdings Corporation) entered
into an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"). Pursuant to the Merger Agreement, Holdings acquired approximately
80% of the outstanding shares of the Company's common stock, par value $.01 per
share (the "Common Stock") on December 8, 1988 following a tender offer. On
April 13, 1989, a subsidiary of Holdings merged with and into Group (the
"Merger"), and Group became a direct wholly owned subsidiary of Holdings.
Holdings II and Holdings were formed for the purpose of acquiring the entire
equity interest in Group. Holdings II is a Delaware corporation jointly owned by
Blackstone Capital Partners L.P., a Delaware limited partnership ("Blackstone
Partners"), and Wasserstein Perella Partners, L.P., a Delaware limited
partnership ("WP Partners"), and their respective affiliates.
Since the acquisition of Group by Holdings (the "1988 Acquisition"), the
Company has divested 27 businesses for approximately $1.6 billion. By the end of
1993, the Company had streamlined its operations into its three existing
business segments. See Notes 4 and 16 to Consolidated Financial Statements.
The Company is a leader in each of its three business segments: Automotive
Products, the largest supplier of interior trim products to the North American
automotive industry; Interior Furnishings, the largest manufacturer of
residential upholstery fabrics in the U.S.; and Wallcoverings, the largest
producer of residential wallcoverings in the U.S. For certain financial
information regarding the Company's business segments, see Note 16 to
Consolidated Financial Statements and "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." With respect to
market or competitive information, references to the Company as "a leader", "a
leading" or "one of the leading" manufacturers in a particular product category
mean that the Company is one of the principal manufacturers in that product
category and references to the Company as "the leader", "the largest" or "the
leading" manufacturer in a particular product category mean that the Company has
the largest market share based on dollar sales volume in that product category.
All references to a year with respect to the Company refer to the fiscal
year of the Company which ends on the last Saturday of January of the following
year.
AUTOMOTIVE PRODUCTS
GENERAL
The Company is a leading designer and manufacturer of automotive products
with 1993 net sales in this segment of $677.9 million. Automotive Products
supplies four major interior trim products -- automotive seat fabric
("bodycloth"), molded floor carpets, accessory floor mats and luggage
compartment trim -- and convertible top stacks. Automotive Products had 1993 net
sales in these product lines of $541.5 million. Automotive Products has supplied
interior trim products to the automotive industry for over 60 years. While some
interior trim suppliers have sales volumes equivalent to or greater than that of
the Company in a single product line, management believes that the Company sells
a wider variety of interior trim products, has products on more vehicle lines
and has a broader, more uniform sales penetration at foreign owned North
American automotive production and assembly facilities ("Transplants") and U. S.
automotive equipment manufacturers (together with Transplants, "OEMs") than any
of its competitors.
The Company's sales are dependent on certain significant automotive
customers. Sales to General Motors Corporation accounted for more than 10% of
the Company's net sales in each of 1993, 1992 and 1991, and sales to Chrysler
Corporation accounted for approximately 10% of the Company's net sales in each
of 1993 and 1992.
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Automotive industry demand historically has been influenced by both
cyclical factors and long-term growth trends. Since nearly all of the historic
growth in the stock of light vehicles has been associated with increases in the
driving age population and real per capita income, the Company anticipates that
the fleet of light vehicles will continue to grow at rates consistent with these
factors.
Annual new car and truck sales historically have been cyclical. In the most
recent cycle, U.S. light vehicle sales declined from an average of 15.4 million
units per year in 1986-1988 to a low of 12.3 million units in 1991. Since late
1993, however, U.S. light vehicles sales have accelerated.
PRODUCTS
Automotive Products manufactures five principal products: automotive seat
fabric, molded floor carpets, accessory floor mats, luggage compartment trim and
convertible top stacks. Automotive Products also produces a variety of other
automotive and nonautomotive products.
AUTOMOTIVE SEAT FABRIC. Automotive Products manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. Automotive Products also
laminates foam to bodycloth. In 1993, 1992 and 1991, Automotive Products had net
sales of bodycloth of $221.2 million, $191.1 million and $189.8 million,
respectively.
MOLDED FLOOR CARPETS. Molded floor carpets includes polyethylene,
barrier-backed and molded urethane underlay carpet. In the Company's automotive
molded floor product line, it has developed a "foam-in-place" process to provide
floor carpeting with enhanced acoustical and fit characteristics, resulting in a
substantial gain in unit selling prices. In 1993, 1992 and 1991 net sales of
molded floor carpets were $181.1 million, $173.1 million and $161.9 million,
respectively.
ACCESSORY FLOOR MATS. Automotive Products produces carpeted automotive
accessory floor mats for both North American produced vehicles and imported
vehicles. In 1993, management estimates that approximately 63% of all vehicles
produced in North America included accessory mats as original equipment.
LUGGAGE COMPARTMENT TRIM. Luggage compartment trim includes one-piece
molded trunk systems and assemblies, wheelhouse covers, seatbacks, tireboard
covers, center pan mats and other trunk trim products.
CONVERTIBLE TOP STACKS. Automotive Products designs, manufactures and
distributes convertible top stacks through its Dura Convertible Systems division
("Dura"). In October 1993, Dura began shipping its "Top-in-a-Box" product for
Ford Motor Company's redesigned Mustang vehicle.
OTHER. Automotive Products also produces a variety of other auto products,
including die cuts for automotive interior trim applications, convertible power
train units, headliner fabric, molded package shelves, molded hood insulator
pads, foam laminated door fabrics and carpet trim, and roll goods for export and
domestic consumption. Small volumes of certain products, such as residential
floor mats, casket and tie linings and sliver knits, are sold to other
commercial and industrial markets.
COMPETITION
The automotive supply business is highly competitive. The primary
competitor in bodycloth is Milliken & Company. The primary competitors in molded
floor carpet are Masland Corporation and JPS Automotive Products Corp. In
accessory floor mats, the Company competes primarily against Pretty Products
Company. Automotive Products' primary competitors in luggage compartment trim
are Masland Corporation and Gates Corporation. In convertible top stacks,
Automotive Products competes primarily against American Sunroof Corporation.
The Company principally competes for new business at the design stage of
new models and upon the redesign of existing models. The Company is vulnerable
to a decrease in demand for the models that generate the most sales for the
Company, a failure to obtain purchase orders for new or redesigned models and
pricing pressure from the major automotive companies.
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FACILITIES
Automotive Products has 34 manufacturing, warehouse and other facilities
located in the U.S., Canada and Mexico aggregating approximately 5.9 million
square feet. The majority of these facilities are located in North Carolina,
Ohio and Michigan and in Ontario and Quebec, Canada. Approximately 90% of the
total square footage of these facilities is owned and the remainder is leased.
Many facilities are strategically located to provide just-in-time ("JIT")
inventory delivery to the Company's customers. Capacity at any plant depends,
among other things, on the product being produced, the processes and equipment
used and tooling. This varies periodically, depending on demand and shifts in
production between plants. The Company currently estimates that its Automotive
Products plants generally operate at between 50% and 100% of capacity on a
six-day basis. The Company's capacity utilization in this segment is generally
in line with its past experience in similar economic situations, and the Company
believes that its existing facilities are sufficient to meet both this segment's
existing needs and its anticipated growth requirements. The Company does not
anticipate any circumstances that would render its facilities inadequate for its
projected needs.
INTERIOR FURNISHINGS
Interior Furnishings designs and manufactures residential and commercial
upholstery fabrics through its Decorative Fabrics group and high-end specified
contract floorcoverings through its Floorcoverings group. In 1993, the Interior
Furnishings segment had net sales of $407.2 million.
DECORATIVE FABRICS
GENERAL. Interior Furnishings' Decorative Fabrics group is the largest
designer and manufacturer of upholstery fabrics in the U.S. The Decorative
Fabrics group had 1993 net sales of $313.6 million. Decorative Fabrics strives
to be the preferred supplier of middle to high-end flat-woven upholstery fabrics
to furniture manufacturers and fabric distributors. This group's primary
division, Mastercraft, is the leading manufacturer of flat-woven upholstery
fabrics. Management believes that Mastercraft has substantially more Jacquard
looms and styling capacity dedicated to upholstery fabrics, and offers more
patterns (approximately 14,000) in a greater range of price points than any of
its competitors. The breadth and size of Mastercraft's manufacturing and design
capabilities provide it with exceptional flexibility to respond to changing
customer demands and to develop innovative product offerings. In order to
accommodate anticipated growth, the Company recently initiated a plan to invest
$85 million in Mastercraft between 1994 and 1998. Investment is targeted toward
the purchase of high-speed looms to increase capacity and productivity, new
electronic jacquard heads to reduce pattern changeover times, and computer
monitoring systems to provide information about the manufacturing processes and
to improve quality, productivity and capacity.
The three primary types of upholstery fabric are flat-wovens, velvets and
prints. Flat-woven fabrics are made in two major styles: Jacquard, which is
produced on high-speed computerized looms capable of weaving intricate designs
into the fabric, and Dobby, a plain fabric produced on standard looms. Demand
for upholstery fabric generally varies with economic conditions, particularly
sales of new and existing homes, and is directly associated with sales of
upholstered furniture at the retail level. Shifts in consumer taste can also
affect demand for upholstery fabric.
PRODUCTS. Decorative Fabrics' four operating divisions are Mastercraft,
Cavel, Warner and Greeff. Mastercraft and Cavel design and manufacture
Jacquards, velvets and other woven fabrics for the furniture, interior design,
commercial, recreational vehicle and industrial markets. Greeff and Warner
design and distribute high-end designer fabrics to interior designers and
specialty retailers in the U.S. and the U.K., respectively.
Decorative Fabrics had net sales of flat-woven products in 1993, 1992 and
1991 of $268.9 million, $254.7 million and $214.5 million, respectively.
CUSTOMERS. Decorative Fabrics is a primary supplier to virtually all major
furniture manufacturers in the U.S., including La-Z-Boy, Ethan Allen,
Thomasville, Flexsteel, Bassett, Broyhill, Baker, Henredon, Rowe and
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Robert Allen. Due to the breadth of its product offerings, strong design
capabilities and superior customer service, the Company has developed close
relationships with many of Decorative Fabrics' over 1,000 customers.
Nearly all of Decorative Fabrics' products are made to customer order. This
reduces the amount of raw material and finished goods inventory required and
greatly reduces product returns, thereby improving profit margins.
COMPETITION. The U.S. upholstery fabrics market is highly competitive.
Manufacturers compete on the basis of design, quality, price and customer
service. Decorative Fabrics' primary competitors include Quaker Fabric
Corporation, Culp, Inc., Joan Fabrics Corp. and the Burlington House Upholstery
Division of Burlington Industries, Inc.
FACILITIES. Mastercraft operates four weaving plants and one finishing
plant in North Carolina aggregating 1.1 million square feet, of which
approximately 93% is owned and the remainder is leased. Cavel shares
manufacturing capacity with Automotive Products at three plants in Roxboro,
North Carolina. Greeff and Warner are designers and distributors, subcontracting
all manufacturing. During the last three years, the Company's capacity
utilization in the Mastercraft division of the Decorative Fabrics group has
consistently averaged nearly 100% on a six-day basis. The Company believes that
its existing facilities are sufficient to meet the Decorative Fabrics group's
existing needs and, after taking into account Mastercraft's five-year capital
investment plan (see "ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources"), anticipated growth requirements. Assuming the completion of
Mastercraft's five-year capital investment plan, the Company does not anticipate
any circumstances that would render its Decorative Fabrics facilities inadequate
for its projected needs.
FLOORCOVERINGS
GENERAL. The Floorcoverings group of the Interior Furnishings segment is a
leading producer of high-end specified contract carpeting products for
institutional and commercial customers. In 1993 Floorcoverings had net sales of
$93.6 million. Its principal products are six-foot wide rolls and modular carpet
tiles. Floorcoverings produces virtually no product for inventory or for
commodity markets.
Since 1990, Floorcoverings has repositioned its product offerings, shedding
those products in which it lacked either a low-cost position or proprietary
product advantage. By focusing on areas of competitive advantage, Floorcoverings
has prospered, notwithstanding a significant downturn in commercial construction
and renovation, and increased its average selling price per square yard by over
13%.
Management estimates that 70% of the Company's floorcoverings business is
based on renovation rather than new construction projects. Historically,
renovation activity has been significantly less cyclical than new construction.
Also, approximately 60% of Floorcoverings' 1993 net sales were to institutional
customers such as government, healthcare, and education facilities rather than
to commercial market customers. Management believes that government, healthcare
and educational customers are stable growth sectors.
PRODUCTS. Floorcoverings' key competitive advantage in its principal
products, six-foot wide rolls and modular carpet tiles, is its patented
Powerbond RS(Register mark) adhesive technology, which has 14 years of patent
protection remaining. Because the Powerbond RS(Register mark) system uses a
peel-and-stick adhesive as opposed to a wet adhesive, it permits the
installation of floorcoverings directly on floor surfaces, including existing
carpeting, with substantially reduced labor costs and without the fumes of
conventional wet adhesives. This allows for less disruptive and less
time-consuming installation and, for this reason, is particularly attractive to
institutions such as schools and hospitals. In addition to reducing installation
downtime for customers to as little as one day, management believes
Floorcoverings' product exhibits demonstrably superior durability and cleaning
characteristics ideally suited for high-traffic areas such as airline terminals
and customers such as Discovery Zone and Blockbuster.
COMPETITION. The commercial carpet industry is highly competitive, and
several of Floorcoverings' competitors have substantially greater commercial
carpet sales in the commodity segments of the industry, segments in which
Floorcoverings does not compete. Floorcoverings' niche products have demanding
specifications and generally cannot be manufactured using the equipment which
currently supplies most of the industry's commodity
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products. The Company's primary competitors are Interface, Milliken & Company,
Mohawk Industries and Shaw Industries, Inc.
FACILITIES. Floorcoverings owns and operates four facilities in Dalton,
Georgia aggregating approximately 630,000 square feet. The Company currently
estimates that Floorcoverings' plants operate at between 35% and 80% of capacity
on a six-day basis. The Company's capacity utilization in the Floorcoverings
group is generally in line with its past experience in similar economic
situations, and the Company believes that its existing facilities are sufficient
to meet both this group's existing needs and its anticipated growth
requirements. The Company does not anticipate any circumstances that would
render its Floorcoverings facilities inadequate for its projected needs.
WALLCOVERINGS
GENERAL
Wallcoverings, which operates under the name "Imperial", is a leading
manufacturer and distributor of a full range of wallcoverings for the
residential and commercial sectors of the wallcoverings market with 1993 net
sales of $220.4 million. It is the only producer of wallcoverings in the U.S.
that is fully integrated from paper production through design and distribution.
In addition, management believes that Imperial has a competitive advantage due
to its extensive in-house design expertise and licensing arrangements, its low
cost, vertically-integrated manufacturing capability and its advanced customer
ordering and service network.
The wallcoverings industry experienced significant and consistent growth
from the early 1980s through 1987. This growth resulted in part from increases
in new construction starts and existing home sales, which peaked in 1986 to
1987. In addition, a one-time surge in demand created a new industry-wide layer
of inventory as a result of the rapid growth of large in-stock retailers.
Between 1983 and 1987, the industry's physical shipment volume increased from
137 million to 200 million rolls of wallpaper per year, a 9.9% annual growth
rate. Between 1987 and 1990, the industry underwent a contraction, with volume
declining dramatically from 200 million rolls in 1987 to 174 million rolls in
1990, a 4.5% annual decline. This resulted from a slowdown in the overall
economy, particularly in the housing market, coupled with a reduction in
inventory by overstocked retailers. From 1991 to 1993, the industry's physical
shipment volume increased at a compound annual growth rate of 3.0%.
The wallcoverings market can generally be divided into the residential and
commercial sectors with the residential sector being the larger of the two
sectors. Demand for wallcoverings is primarily influenced by levels of
construction, renovation and remodeling. In addition to these cyclical factors,
shifts in consumer taste between wallpaper and paint can be a factor. The two
primary distribution channels within the residential sector of the wallcoverings
market are independent retailers ("dealers") and retail chains.
The industry contraction of the late 1980s and early 1990s left Imperial
with unutilized manufacturing capacity, an oversized distribution network and
excess product offerings. Between 1989 and 1992, Imperial implemented a
comprehensive downsizing program designed to bring Imperial's high fixed-cost
structure into better alignment with the changed industry environment. Imperial
closed 22 showrooms and 12 warehouses and reduced fixed costs by nearly 15%.
Imperial also substantially reduced the annual introduction rate of new
collections and virtually eliminated its use of independent distributors in
favor of exclusive captive distribution. This restructuring program improved
manufacturing efficiencies, but it adversely affected sales and led to a
reduction in shelf space and market share. As a result, Imperial's sales
declined during 1992 and into 1993, despite what management now believes to have
been a moderate upturn in industry conditions.
A new management team installed in February 1993 determined that the
reduction in new collections had been too severe. Accordingly, in late 1993,
management instituted a second restructuring program to bolster its new product
introduction rate through aggressive product design efforts. This product line
renewal led to 62 collections being introduced in 1993 and 70 collections being
planned for introduction in 1994, compared to 45 in 1992. Management is also
broadening its selection of in-stock programs and improving its order
fulfillment capabilities.
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PRODUCTS
Management believes Imperial has maintained its market position due to its
competitive edge in color and design. Its in-house studio of approximately 35
artists represents a major strategic investment by Imperial which is
supplemented by an active licensing program under which Imperial licenses proven
designs from well-known designers. Imperial is continuously introducing new
designs and color concepts that supplement its already vast library.
Imperial offers a large number of well-known brand names, including
Imperial, United, Sterling Prints, Katzenbach & Warren, Greeff, Albert Van Luit
and Plexus. In addition to these in-house brands, Imperial licenses a number of
well-known brand names, including Gear, Laura Ashley, Pfaltzgraff, Croscill,
Mario Buatta, David and Dash, Louis Nichole, Clarence House and Carlton Varney,
for which it converts home furnishing designs into wallcovering designs.
Imperial also distributes the lines of John Wilman, Great Britain's largest
wallcoverings designer and manufacturer.
In recent years, there has been increasing demand for wallcoverings
coordinated with decorative accessories such as window treatments, bedding,
upholstery fabric and other textile products. To satisfy this demand from
upscale home furnishings customers, Imperial provides fabrics, which it
generally purchases outside the Company, that are coordinated with its
wallcovering designs. Some of these fabrics are supplied by the Mastercraft and
Greeff divisions of the Company.
In 1993, 1992 and 1991, net sales of Wallcoverings (residential) were $196
million, $214 million and $211 million, respectively.
CUSTOMERS
Dealers and chains account for the largest portion of Imperial's customer
base. Management believes that the Company has the leading share in each of
these distribution channels. Management believes that Imperial has the most
extensive dealer network in the U.S., selling to approximately 15,000 dealers.
Imperial also sells to many of the leading chains in the country, including Home
Depot, Lowes, Sears, Sherwin Williams and Target.
COMPETITION
Competition in the wallcoverings industry is based on design, price and
customer service. Imperial's principal competitors are Borden, GenCorp, F.S.
Schumacher and Seabrook Wallcoverings.
FACILITIES
Imperial operates five manufacturing facilities in the United States and
three in Canada, as well as three distribution centers in the United States
aggregating 1.5 million square feet. Of this amount approximately 82% is owned
and the remainder is leased, including the three U.S. distribution centers. The
Company currently estimates that its Wallcoverings facilities that produce
surface print paper generally operate at approximately 35% of capacity on a
five-day basis and its facilities that produce gravure paper generally operate
between approximately 80% and 100% of capacity on a five-day basis. The
Company's capacity utilization in this segment is generally in line with its
past experience in similar economic situations, and the Company believes that
its existing facilities are sufficient to meet both this segment's existing
needs and its anticipated growth requirements. The Company does not anticipate
any circumstances that would render its Wallcoverings facilities inadequate for
its projected needs.
RAW MATERIALS
Raw materials and other supplies used in the Company's operations are
normally available from a variety of competing suppliers. The loss of a single
or few suppliers would not have a material adverse effect on the Company.
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ENVIRONMENTAL MATTERS
See "ITEM 3. LEGAL PROCEEDINGS -- Environmental Proceedings" and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Environmental Matters."
EMPLOYEES
As of January 29, 1994, the Company's subsidiaries employed approximately
12,000 persons on a full-time or full-time equivalent basis. Approximately 2,200
of such employees are represented by labor unions. Management believes that the
Company's relations with its employees and with the unions that represent
certain of them are good.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "ITEM 6.
SELECTED FINANCIAL DATA" and the Consolidated Financial Statements of the
Company and the notes thereto, included elsewhere in this Form 10-K.
RECENT DEVELOPMENTS
As part of a proposed recapitalization (the "Recapitalization"), the
Company's parent, Holdings, filed a registration statement on Form S-2 covering
the sale in a public offering of 25 million shares of Common Stock. Of the 25
million shares of Common Stock offered, 20 million shares are being sold by
Holdings and 5 million shares are being sold by Blackstone Partners and WP
Partners (the "Selling Stockholders"). Neither Holdings nor Group will receive
any of the proceeds from the sale of the shares being sold by the Selling
Stockholders. The Selling Stockholders have also granted the underwriters in the
public offering an option for 30 days to purchase up to an additional 3,750,000
shares of Common Stock.
The Recapitalization, if it occurs, would result in the defeasance and
redemption, or repayment, of all outstanding indebtedness and preferred stock of
the Company and its subsidiaries other than approximately $22.6 million of
mortgage and other debt which would remain outstanding. The sources of capital
for the Recapitalization are proceeds of the public offering, available cash and
amounts to be available under certain proposed new credit facilities (the "New
Credit Facilities").
The New Credit Facilities will consist of (i) a Closing Date Term Loan
Facility in an aggregate principal amount of $450 million with a term of eight
years (including a $45 million Canadian borrowing), (ii) a Delayed Draw Term
Loan Facility in an aggregate principal amount of $25 million with a term of
eight years (which may be drawn in full or in part on or prior to the first
anniversary of the closing date), (iii) a Revolving Facility in an aggregate
principal amount of up to $150 million with a term of seven years and (iv) a
Receivables Facility in an aggregate principal amount of $150 million with a
term of seven years. These facilities will include various restrictive covenants
including maintenance of EBITDA (i.e. earnings before interest, taxes,
depreciation and amortization) and interest coverage ratios, leverage and
liquidity tests and various other restrictive covenants which are typical of
such facilities.
In connection with the Recapitalization, Holdings II, currently the sole
common stockholder of Holdings, will be merged into Holdings. Concurrently, the
Company will be merged into its wholly-owned subsidiary, Collins & Aikman
Corporation ("C&A Co."). Holdings intends to change its name
from Collins & Aikman Holdings Corporation to Collins & Aikman Corporation and
C&A Co. will change its name to Collins & Aikman Products Co.
The Company believes that the Recapitalization, which will reduce its interest
expense, is in its best interest.
GENERAL
After the 1988 Acquisition, the Company implemented a restructuring plan
designed to focus on certain businesses in which it enjoyed a competitive
advantage and to eliminate unnecessary corporate overhead. The
7
Company divested 27 business units which in 1988 contributed 73% of net sales.
The aggregate proceeds from these divestitures were approximately $1.6 billion,
and enabled the Company to reduce total indebtedness from approximately $1.9
billion at October 29, 1988 to $763.1 million at the end of 1993. In addition,
the Company reduced and consolidated corporate staffs. Throughout this period,
the Company made substantial investments to enhance the competitive position of
its three continuing business segments and to strengthen its position as a low-
cost producer.
The Company's continuing business segments consist of Automotive Products,
Interior Furnishings and Wallcoverings. The Company's 1993 net sales were
$1,305.5 million, with approximately $677.9 million (51.9%) in Automotive
Products, $407.2 million (31.2%) in Interior Furnishings, and $220.4 million
(16.9%) in Wallcoverings.
The industries in which the Company competes are cyclical. Automotive
Products is influenced by the level of North American vehicle production.
Interior Furnishings is primarily influenced by the level of residential,
institutional and commercial construction and renovation. Wallcoverings is also
influenced by levels of construction and renovation and by the trends in home
remodeling.
During 1993, the Company disposed of several businesses and reclassified
one subsidiary as a continuing business. Accordingly, the Company's 1993
financial statements reflect (i) the sale of the Company's Engineering Group,
(ii) the disposition of substantially all of the assets, and the settlement of
substantially all the current liabilities, of the Company's Builders Emporium
division ("Builders Emporium"), (iii) the sale of Kayser-Roth, and (iv) the
decision to retain Dura. The results of the Engineering Group, Builders Emporium
and Kayser-Roth are classified as discontinued operations for all periods. The
results of Dura are now classified in Automotive Products and prior reporting
periods have been restated to reflect Dura as a continuing operation. As a
result of the foregoing, this discussion is not comparable to the previous
discussions of the Company's operations. See Note 4 to Consolidated Financial
Statements.
The Company reclassified its industry segments during 1993 to realign its
products based on primary customer groups. Businesses related to the automotive
industry which were part of the Company's former Specialty Textiles segment have
been reclassified as Automotive Products. The decorative fabrics and
floorcoverings businesses have been reclassified as Interior Furnishings.
Previously, the floorcovering business was part of the Specialty Textiles
segment. Wallcoverings' products, which were previously part of the Home
Furnishing segment, have been reclassified as Wallcoverings. Industry segment
information has been restated for the years 1992 and 1991. See Note 16 to the
Consolidated Financial Statements.
The Company does not believe that inflation has had a material impact on
sales or income during the three years ended January 29, 1994.
1993 COMPARED TO 1992
NET SALES
Net sales increased 2.2% to $1,305.5 million in 1993 (a 52-week year) from
$1,277.5 million in 1992 (a 53-week year). The overall increase in net sales
reflected improvement in Automotive Products and Interior Furnishings offset by
a decrease in net sales at Wallcoverings.
Automotive Products' net sales increased 5.3% in 1993 to $677.9 million.
Net sales growth increased, primarily during the second half of 1993, due to a
number of factors. First, the net sales growth appears to reflect cyclical
trends. Since late 1993, U.S. light vehicle sales have accelerated, reflecting
what management believes to be a cyclical upturn. Second, in recent years,
foreign manufacturers have shifted production from off-shore auto plants to
newly built or expanded Transplant facilities located in North America. As a
consequence, North American production has risen faster than retail sales. The
Company has benefitted from this trend. Third, the Company won placement of its
products on a number of new and redesigned vehicle lines in 1993. For example,
the Company was awarded the automotive fabric order for the Ford Explorer and
displaced one of its bodycloth competitors on the General Motors "W" and "N"
body lines. Fourth, the average sales content per vehicle of the five principal
automotive products produced by the Company increased in 1993 as it has in each
of the last five
8
years. In 1993, the Company continued to benefit from this trend. For example,
in 1993 General Motors' Cadillac division began using the Company's technically
advanced "foam-in-place" carpet system, which provides significant acoustical
benefits and sells at a significantly higher price than traditional molded floor
carpet. These factors were offset by decreased demand for products for certain
key models in the second quarter due to customers' production downtime during
model changeovers.
Interior Furnishings' net sales increased 3.9% in 1993 to $407.2 million.
The increase in net sales was attributable to an increase in U.S. upholstered
furniture shipments in 1993 and increased sales of the Company's patented
Powerbond RS(Register mark) floorcovering products. Net sales increased by 5.6%
at both Mastercraft, which represents 66.0% of Interior Furnishings' sales, and
Floorcoverings, due largely to volume increases. These sales increases were
offset by decreases in the net sales of lower-end woven velvet product line and
the Greeff product line.
Wallcoverings' net sales decreased 8.9% in 1993 to $220.4 million. The
decrease in sales was due primarily to the consolidation of certain product
distribution channels and to a reduction in shelf space and market share due to
Wallcoverings' downsizing program. In the fourth quarter, management responded
to these reduced sales by aggressively rebuilding dealer shelf space. As a
result, sample book placements in the dealer market increased.
GROSS MARGIN AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Automotive Products' gross margin increased to 18.1% in 1993 from 17.3% in
1992 as a result of improved product mix mainly due to new fabric placements and
as a result of improved absorption of fixed manufacturing costs over a larger
sales volume. Selling, general and administrative expenses as a percent of net
sales decreased to 9.9% in 1993 from 10.8% in 1992. Of this 0.9% decrease, 0.5%
was due to the absorption of fixed costs over a greater sales volume with the
remainder relating principally to cost reductions from reduced product
development activities.
Interior Furnishings' gross margin decreased to 27.6% in 1993 from 27.9% in
1992 due to price deterioration in the lower-end woven velvet product line of
the Decorative Fabrics group. Selling, general and administrative expenses as a
percent of net sales decreased to 17.6% from 19.0% primarily due to cost
reduction initiatives aimed at streamlining marketing efforts in the Greeff
product line.
Wallcoverings' gross margin increased to 33.9% in 1993 from 32.3% in 1992
as a result of manufacturing cost reduction initiatives aimed at improving
product quality and streamlining production processes. Selling, general and
administrative expenses were reduced by 1.8% of net sales due to the elimination
of outside information systems processing. An 8.9% reduction in net sales
resulted in an increase in selling, general, and administrative expenses as a
percent of net sales to 30.8% from 30.2%.
TOTAL OPERATING EXPENSES
Total operating expenses were $1,386.4 million and $1,229.5 million in 1993
and 1992, respectively, including $38.8 million ($26.7 million of which was a
one-time charge related to the Holdings 1993 Employee Stock Option Plan (the
"1993 Plan")) and $24.0 million of unallocated corporate expenses, respectively.
Operating expenses allocated to the Company's three business segments totaled
$1,347.6 million and $1,205.5 million in 1993 and 1992, respectively. These
operating expenses in 1993 included certain non-recurring charges relating to
the write-down of goodwill in the amount of $144.8 million in the quarter ended
October 30, 1993 and postretirement medical plan costs, which were $4.7 million
higher, on an annual basis, than expected in future periods due to changes in
plan provisions which became effective April 1, 1994. Operating expenses in 1992
included $10.0 million of charges relating to Wallcoverings' downsizing program.
See Notes 2 and 3 to the Consolidated Financial Statements.
INTEREST EXPENSE
Interest expense allocated to continuing operations, net of interest income
of $4.3 million in 1993 and $4.0 million in 1992, decreased to $84.2 million
during 1993 compared to $87.1 million in 1992. Interest expense,
9
including amounts allocated to discontinued operations and excluding interest
income, decreased to $107.9 million during 1993 compared to $114.4 million in
1992. The decrease in interest expense was due to the additional week in 1992
and a reduction in the Company's weighted average interest rate.
INCOME TAXES
In 1993 income taxes of $11.6 million consisted primarily of foreign and
state taxes. This amount compared with $2.3 million in 1992.
DISCONTINUED OPERATIONS
The Company's loss from discontinued operations was $115.6 million for 1993
and $229.8 million for 1992, including losses on disposals of $111.1 million and
$184.0 million, respectively.
The 1993 loss is primarily attributable to the $109.3 million additional
charge arising from the Company's determination as of the end of the second
quarter of 1993 that it would be unable to sell Builders Emporium as an ongoing
entity. The 1992 loss reflected primarily the expected loss on the anticipated
disposition of Builders Emporium.
NET INCOME
The combined effect of the foregoing resulted in a net loss of $292.3
million in 1993 compared to a net loss of $271.3 million in the prior year.
1992 COMPARED TO 1991
NET SALES
Net sales increased 7.9% to $1,277.5 million in 1992 (a 53-week year) from
$1,184.3 million in 1991 (a 52-week year).
Automotive Products' net sales increased 5.5% to $643.8 million in 1992
from $610.3 million in 1991, reflecting the impact of a modest increase in the
North American vehicle build as well as an improvement in Automotive Products'
product mix. The molded carpet product line experienced the largest net sales
increase.
Interior Furnishings net sales increased 16.3% to $391.8 million in 1992
from $336.8 million in 1991 principally due to two factors. First, 1992 net
sales reflected the full year impact of the acquisition of Doblin, a
manufacturer of high-end Jacquard fabric, in the third quarter of 1991, as well
as substantial incremental sales volume from the full utilization of excess
manufacturing capacity acquired with Doblin. Second, Floorcoverings' net sales
increased 17.7%, which was primarily attributable to restyled product offerings
in the six foot roll product line.
Wallcoverings net sales increased 2.0% to $241.9 million in 1992 from
$237.2 million in 1991. The net sales increase reflected a combination of two
offsetting factors. During the first quarter of 1992, the Company benefited from
the increase in industry demand for wallcoverings. However, this increase was
offset by reduced sales due primarily to Wallcoverings' efforts during 1992 to
consolidate certain product distribution channels and its downsizing program.
GROSS MARGIN AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Automotive Products' gross margin improved slightly due to greater fixed
cost absorption because of the 5.5% increase in sales volume in 1992. Selling,
general and administrative expenses as a percent of net sales increased to 10.8%
in 1992 from 9.7% in 1991 due to increased product development and marketing
activities.
Interior Furnishings' gross margin improved to 27.9% from 26.0% due to
improved Decorative Fabrics product mix related to the Doblin acquisition and
due to improved Floorcoverings product mix related to restyled product offerings
in the six foot roll product line. Selling, general and administrative expenses
as a percent of net sales increased to 19.0% from 18.6% due to product
development activities in Decorative Fabrics.
10
Wallcoverings' gross margin increased to 32.3% in 1992 from 27.4% in 1991
due to manufacturing material cost reduction. Selling, general and
administrative expenses as a percent of net sales decreased to 30.2% in 1992
from 32.6% in 1991, due to reduced sample book program costs.
TOTAL OPERATING EXPENSES
Total operating expenses were $1,229.5 million and $1,140.4 million in 1992
and 1991, respectively, including $24.0 million and $25.8 million of unallocated
corporate expense. Operating expenses allocated to the Company's three business
segments totaled $1,205.5 million and $1,114.5 million in 1992 and 1991,
respectively. Operating expenses in 1992 included $10.0 million of restructuring
costs.
RESTRUCTURING CHARGES
In 1992, the Company reevaluated the distribution methods as well as
certain manufacturing and product lines in Wallcoverings. This reevaluation
resulted in a restructuring charge of $10.0 million for the closure of certain
manufacturing facilities. Of this amount, $2.7 million related to asset
write-downs and $7.3 million related to the consolidation of Wallcoverings'
operations.
INTEREST EXPENSE
Interest expense for continuing operations, net of interest income of $4.0
million in 1992 and $6.9 million in 1991, decreased to $87.1 million during 1992
compared to $ 87.7 million in 1991. Interest expense, including amounts
allocated to discontinued operations and excluding interest income, decreased to
$114.4 million during 1992 compared to $119.6 million in 1991 principally as a
result of the reduction in the Company's weighted average cost of borrowings.
INCOME TAXES
The Company's 1992 income taxes of $2.3 million consisted primarily of
foreign and state taxes. In 1991, income taxes of $15.8 million consisted of
foreign and state taxes of $11.6 million and Federal income taxes of $4.2
million.
DISCONTINUED OPERATIONS
As previously discussed, loss from discontinued operations, net of taxes
and including loss on disposals, was $229.8 million in 1992 compared to the loss
from discontinued operations of $34.3 million in 1991. The 1992 loss primarily
reflected the expected loss on the anticipated sale of Builders Emporium. The
1991 loss was attributable to the discontinuation of the remaining businesses of
Wickes Manufacturing.
EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING
Gain on early retirement of indebtedness, net of taxes, was $10.9 million
in 1991. See Note 9 to the Consolidated Financial Statements.
The cumulative effect on prior years of the change in accounting for
postretirement benefits other than pensions was $87.6 million in 1991. See Note
11 to the Consolidated Financial Statements.
NET INCOME
The combined effect of the foregoing resulted in a net loss of $271.3
million in 1992 compared to a net loss of $170.5 million in 1991.
LIQUIDITY AND CAPITAL RESOURCES
At January 29, 1994, the Company had cash and cash equivalents totaling
$78.4 million compared to $80.1 million at January 30, 1993. Included in cash
and cash equivalents at January 29, 1994 was $8.6 million held by
11
C&A Co. On April 27, 1994, Group received cash proceeds of $71.2 million,
including accrued interest, from the payment of the Kayser-Roth note referred to
below.
The Company's principal uses of funds for the next several years will be to
fund principal and interest payments on its indebtedness, net working capital
increases and capital expenditures. The Company makes capital expenditures on a
recurring basis for replacement and improvements. As of January 29, 1994, the
Company had approximately $43.0 million in outstanding capital commitments.
During 1994, the Company anticipates capital expenditures will aggregate
approximately $80 million as compared to $44.9 million, $38.2 million and $38.9
million during 1993, 1992 and 1991, respectively. This increase is due primarily
to the planned acquisition of additional machinery and equipment at Decorative
Fabrics' Mastercraft division as part of an $85 million five-year capital
investment plan that was initiated this year for the purpose of expanding
production capacity at Mastercraft to accomodate anticipated growth.
Secondarily, this increase is due to the planned completion of an Automotive
Products facility in Mexico for approximately $6.0 million. The Company's
capital expenditures in future years will depend upon demand for the Company's
products and changes in technology. The Company currently estimates that capital
expenditures in 1995 will exceed $60 million.
The Company has significant obligations relating to postretirement,
casualty, environmental, lease and other liabilities of discontinued operations.
In connection with the sale and acquisition of certain businesses, the Company
has indemnified the purchasers and sellers for certain environmental
liabilities, lease obligations and other matters. In addition, the Company is
contingently liable with respect to certain lease and other obligations assumed
by certain purchasers and may be required to honor such obligations if such
purchasers are unable or unwilling to do so. Management anticipates that the net
cash requirements of its discontinued operations will be approximately $20.9
million during 1994. 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 needs relating to discontinued operations can be adequately funded
in 1994 by net cash provided by operating activities from continuing operations
and by borrowings under bank credit facilities.
From time to time, the Company evaluates acquisitions. In 1991 the Company
acquired the Doblin Fabrics Division of Springs Industries. The Company expects
to fund any future acquisitions with net cash provided by operating activities,
borrowings under bank credit facilities or the issuance of securities.
Net cash provided by the operating activities of the Company's continuing
operations in 1993 was $28.0 million. If the Recapitalization is effected, the
Company expects to have approximately $548 million of outstanding indebtedness
and unused borrowing availability of approximately $95 million under the New
Credit Facilities after giving effect to the Recapitalization. Management
believes that, if the Recapitalization is effected, cash flow from operations
and funds available under the New Credit Facilities will be sufficient to fund
the Company's long-and short-term liquidity requirements, including working
capital, capital expenditures and debt service requirements. However, even if
the Recapitalization is effected, the Company and its subsidiaries will continue
to have substantial indebtedness outstanding which could (i) adversely affect
the Company's ability to obtain additional financing, (ii) decrease the amount
of cash flow available for working capital, capital expenditures, acquisitions,
general corporate or other purposes, (iii) place the Company at a competitive
disadvantage and (iv) render the Company more vulnerable to increases in
interest rates or economic downturns.
As part of the Recapitalization as proposed, all the outstanding public
debt and preferred stock of the Company and its subsidiaries would be defeased
and redeemed. In addition, the C&A Co. Credit Agreement described below would be
terminated and all borrowings thereunder would be prepaid.
If the Recapitalization is not successful, management believes that the
Company has sufficient liquidity to meet its cash requirements through 1994 and
into 1995. To meet long-term cash requirements, the Company will require
alternative financing or proceeds from asset sales. There can be no assurance as
to the timing of any such financing or asset sales or the proceeds the Company
could realize therefrom. Restrictions in existing debt agreements of the Company
could limit the ability of the Company to effect future financings and asset
sales.
12
Since January 26, 1991, no additional cash dividends to Holdings have been
permitted under the most restrictive provisions in the existing debt agreements
of the Company. Under these provisions, which are contained in the 11 7/8%
Indenture, as of January 29, 1994, Group would have needed to earn an additional
$866.0 million of consolidated net income (as defined in the 11 7/8% Indenture)
in order to eliminate the deficit in its dividend capacity (assuming no change
in the other factors used to determine the Company's dividend capacity).
As of January 29, 1994, the Company had total outstanding long-term
indebtedness of $759.3 million (including the current portion of $25.9 million)
at varying interest rates between 5% and 15% per annum. Annual cash interest
expense on that indebtedness in 1994 will be approximately $87.2 million. At the
end of 1992 and 1991, the Company had total outstanding indebtedness of $855.1
million and $832.0 million, respectively. Cash interest paid during 1993, 1992
and 1991 was approximately $101.5 million, $102.5 million and $112.6 million,
respectively.
The maturities of long-term debt of the Company during 1994, 1995 and 1996
are $25.9 million, $170.9 million and $63.3 million, respectively. See Note 9 to
Consolidated Financial Statements. Under the terms of the 11 7/8% Indenture, the
Company is required to redeem $138 million aggregate principal amount of 11 7/8%
Securities on each June 1 from 1993 through 2000 ("Mandatory Redemptions") and
to repay the remaining outstanding 11 7/8% Securities at maturity on June 1,
2001. Under the terms of the 11 7/8% Indenture, if Adjusted Net Worth (as such
term is defined in the 11 7/8% Indenture) is equal to or less than $700 million
on the last day of any fiscal quarter (the "Minimum Equity Test"), the Company
will be required to begin on the last day of the second fiscal quarter
thereafter (unless the Minimum Equity Test is satisfied at the end of the
intervening fiscal quarter) semi-annual redemptions ("Accelerated Redemptions")
of $138 million aggregate principal amount of 11 7/8% Securities until all the
11 7/8% Securities are redeemed or until the Minimum Equity Test is again
satisfied. The Company can reduce its obligation to make any cash Mandatory
Redemption or Accelerated Redemption payment through the application of
previously redeemed or purchased and canceled 11 7/8% Securities as permitted by
the Indenture. The Company has previously delivered for cancellation $1,033
million in aggregate principal amount of 11 7/8% Securities, which are available
for such purpose. The Company satisfied the Minimum Equity Test at the end of
fiscal 1993. On that date, Adjusted Net Worth was $753.7 million. If the Company
had not satisfied the Minimum Equity Test at that date and did not subsequently
satisfy such test, the first cash redemption payment (after giving effect to
credits for previously acquired 11 7/8% Securities) would be required at the end
of the fiscal quarter ending January 1997. By comparison, if the Company
continues to satisfy the Minimum Equity Test at all times or cures any failure
of such test prior to any accelerated cash redemption payment becoming due, no
cash redemption payment will be required until June 1, 2000.
During 1993, the Company sold Kayser-Roth for approximately $170 million
(subject to post-closing purchase price adjustment), including a $70 million
senior unsecured bridge note. A portion of the proceeds was used to repay $66
million of borrowings under a Kayser-Roth credit facility. The Company's
Engineering Group, which was discontinued in 1992, was sold during 1993 for
approximately $51 million. Additionally, the Company has nearly completed the
disposition of the real estate, inventory and other assets of its Builders
Emporium home improvement retail chain which the Company discontinued at the end
of 1992. During 1993, the Company used cash from the aforementioned sources and
new borrowings of $76.1 million to repay $179.9 million of outstanding
indebtedness. During 1992 and 1991, the Company expended $54.4 million and
$182.8 million, respectively, for the reduction of indebtedness while incurring
new indebtedness of $60.1 million and $157.6 million, respectively. On April 27,
1994, the Kayser-Roth note was repaid with accrued interest. The Company intends
to use these cash proceeds of $71.2 million for general corporate purposes,
including possibly the repurchase of a portion of its 15% Subordinated Notes due
1995 or other debt in open market or privately negotiated transactions.
The Company's C&A Co. subsidiary consummated a $225 million credit
agreement with a syndicate of banks on May 22, 1991 that expires on May 15, 1998
(the "C&A Co. Credit Agreement"). In 1993, C&A Co. made net principal repayments
under the C&A Co. Credit Agreement of $54 million and paid Group dividends
aggregating $30 million. Availability under the C&A Co. Credit Agreement is
determined monthly based upon C&A Co.'s receivables balance. The C&A Co. Credit
Agreement permits C&A Co. to pay additional dividends to Group only if C&A Co.
satisfies a minimum liquidity requirement of $25 million and then limits the
amount of
13
total dividends to $175 million plus 90% (or 100% if certain specified ratios
are met) of C&A Co.'s net income (excluding the impact of Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions") subsequent to April 27, 1991. As of January 29, 1994, an
additional $54.8 million was available to C&A Co. under the C&A Co. Credit
Agreement. Although, as of that date, approximately $56 million of additional
dividends could be paid to Group under the dividend restriction in the C&A Co.
Credit Agreement, other financial covenants in the C&A Co. Credit Agreement
would limit the amount of dividends to approximately $47 million. C&A Co. and
its subsidiaries are separate corporate entities and the assets of C&A Co. and
its subsidiaries are available first and foremost to satisfy the claims of the
creditors of C&A Co. and such subsidiaries. At January 29, 1994, receivables and
fixed assets pledged as collateral under the C&A Co. Credit Agreement aggregated
approximately $168 million and $104 million, respectively.
The Company's Canadian subsidiaries have a bank demand line of credit that
made available to them approximately $8.5 million at January 29, 1994, of which
approximately $5.8 million was outstanding as of that date.
The Company's Board of Directors has authorized expenditures for the
voluntary repurchase from time to time of Group's outstanding publicly traded
debt securities. During 1991, the Company repurchased publicly traded debt
securities with a face value of approximately $160 million. The principal source
of funds for the repurchase of publicly traded debt in 1991 was net proceeds
from borrowings under the C&A Co. Credit Agreement. There were no repurchases of
publicly traded debt during 1992 or 1993. Repurchases of publicly traded debt
may be made from time to time through open market or privately negotiated
transactions. The Company expects to fund any such additional repurchases out of
the proceeds of the Kayser-Roth note referred to above, cash from operating
activities or borrowings under existing or new lines of credit. Such repurchases
may occur prior to the consummation of the proposed Recapitalization (which, if
effected as proposed, would result in the defeasance and redemption of such
debt) or at any other time, depending on market conditions, available cash and
other factors that the Board of Directors of Group in its sole discretion deems
relevant to the advisability of repurchasing publicly traded debt.
For information regarding commitments and contingencies, see Note 17 to
Consolidated Financial Statements.
ENVIRONMENTAL MATTERS
The Company is subject to increasingly stringent Federal, state and local
environmental laws and regulations that (i) affect ongoing operations and may
increase capital costs and operating expenses and (ii) impose liability for the
costs of investigation and remediation and otherwise related to on-site and
off-site soil and groundwater contamination. The Company's management believes
that it has obtained, and is in material compliance with, all material
environmental permits and approvals necessary to conduct its various businesses.
Environmental compliance costs for continuing businesses currently are accounted
for as normal operating expenses or capital expenditures of such business units.
In the opinion of management, based on the facts presently known to it, such
environmental compliance costs will not have a material adverse effect on the
Company's consolidated financial condition or 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 PRP in 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. It is a normal risk of operating a
manufacturing business that liability may be incurred for investigating and
remediating on-site and off-site contamination. 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 EPA, 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 scheme of joint and several liability, the Company could be
liable
14
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 PRP's,
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. 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 15 sites where the Company is participating in the investigation or
remediation of the site, either directly or through financial contribution, and
nine additional sites where the Company is alleged to be responsible for costs
of investigation or remediation. The Company's current estimate of its liability
for these 24 sites is approximately $29.5 million. As of January 29, 1994, the
Company has established reserves of approximately $30.8 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 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. See "ITEM 3. LEGAL PROCEEDINGS -- Environmental
Proceedings."
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
NUMBER
(A)(1) INDEX TO FINANCIAL STATEMENTS.
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................................................. F-1
Consolidated Statements of Operations for the fiscal years ended January 29, 1994, January
30, 1993 and January 25, 1992............................................................ F-2
Consolidated Balance Sheets at January 29, 1994 and January 30, 1993...................... F-3
Consolidated Statements of Other Paid in Capital for the fiscal years ended January 29,
1994, January 30, 1993 and January 25, 1992.............................................. F-4
Consolidated Statements of Accumulated Deficit for the fiscal years ended January 29,
1994, January 30, 1993 and January 25, 1992.............................................. F-4
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994, January
30, 1993 and January 25, 1992............................................................ F-5
Notes to Consolidated Financial Statements................................................ F-6
(A)(2) INDEX OF FINANCIAL SCHEDULES.
Report of Independent Public Accountants on Schedules(dag)................................ S-1
Schedule III-Condensed Financial Information of the Registrant(dag)....................... S-2
Schedule VIII-Valuation and Qualifying Accounts(dag)...................................... S-5
Schedule IX-Short-Term Borrowings(dag).................................................... S-6
Schedule X-Supplementary Statements of Operations Information(dag)........................ S-7
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are omitted
because they are not required, are inapplicable, or the information is included
in the consolidated financial statements or notes thereto.
(A)(3) EXHIBITS.
Please note that in the following description of exhibits, the title of any
document entered into, or filing made, prior to and in some cases on July 15,
1992 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 WCI Holdings II Corporation, WCI Holdings Corporation or Wickes Companies,
Inc., if such documents and filings were made prior to and in some cases on July
15, 1992.
EXHIBIT
NUMBER DESCRIPTION
3.1 -- Restated Certificate of Incorporation of Collins & Aikman Group, Inc.(dag)
3.2 -- By-Laws of Collins & Aikman Group, Inc.(dag)
3.3 -- Certificate of Merger merging WCI Acquisition Corporation, a Delaware corporation, with and
into Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.), a Delaware
corporation, is hereby incorporated by reference to Exhibit 3.3 of Wickes Companies, Inc.'s
Report on Form 10-K for the fiscal year ended January 28, 1989 (SEC File No. 1-6761).(dag)
(dag) Previously filed with the Annual Report on Form 10-K for the fiscal year
ended January 29, 1994 and not filed herewith.
16
EXHIBIT
NUMBER DESCRIPTION
3.4 -- Certificate of Correction Filed to Correct Certain Errors in the Certificate of Merger
merging WCI Acquisition Corporation with and into Collins & Aikman Group, Inc. (formerly
named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit 3.4 of Wickes
Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 27, 1990.(dag)
4.1 -- Specimen certificate representing the 15 1/2% Junior Cumulative Exchangeable Redeemable
Preferred Stock of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is
hereby incorporated by reference to Exhibit 4.1 of Wickes Companies, Inc.'s Report on Form
10-K for the fiscal year ended January 28, 1989 (SEC File No. 1-6761).(dag)
4.2 -- Specimen certificate of Common Stock, par value $0.10 per share, of Collins & Aikman Group,
Inc. (formerly named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit
4(a) of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 30,
1988 (SEC File No. 1-6761).(dag)
4.3 -- Indenture dated as of January 26, 1985, pursuant to which 7 1/2%/10% Debentures due 2005 of
Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were issued is hereby
incorporated by reference to Exhibit T3-C of Wickes Companies, Inc.'s Application for
Qualification of Indentures under the Trust Indenture Act of 1939 on Form T-3, as amended,
dated January 2, 1985 (SEC File No. 22-13520).(dag)
4.4 -- Indenture dated as of May 1, 1985, pursuant to which 11 3/8% Usable Subordinated Debentures
due 1997 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were
issued is hereby incorporated by reference to Exhibit 4(f) of Wickes Companies, Inc.'s
Current Report on Form 8-K dated May 21, 1985 (SEC File No. 1-6761).(dag)
4.5 -- Indenture dated as of May 1, 1985, pursuant to which 15% Subordinated Notes due 1995 of
Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were issued is hereby
incorporated by reference to Exhibit 4(g) of Wickes Companies, Inc.'s Current Report on
Form 8-K dated May 21, 1985 (SEC File No. 1-6761).(dag)
4.6 -- Indenture dated as of June 1, 1986, pursuant to which 11 7/8% Senior Subordinated
Debentures due 2001 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.)
were issued is hereby incorporated by reference to Exhibit 4 to Amendment No. 3 to Wickes
Companies, Inc.'s Registration Statement on Form S-3 (Registration No. 33-4401) filed June
5, 1986.(dag)
4.7 -- First Supplemental Indenture dated as of January 29, 1993, by and between Collins & Aikman
Group, Inc. and Bank One, Columbus, NA regarding 11 7/8% Senior Subordinated Debentures due
2001 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby
incorporated by reference to Exhibit 4.11 of Collins & Aikman Group Inc.'s Report on Form
10-K for the fiscal year ended January 30, 1993.(dag)
4.8 -- Second Supplemental Indenture dated as of January 29, 1993, by and between Collins & Aikman
Group, Inc. and Bank One, Columbus, NA regarding 11 7/8% Senior Subordinated Debentures due
2001 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby
incorporated by reference to Exhibit 4.12 of Collins & Aikman Group Inc.'s Report on Form
10-K for the fiscal year ended January 30, 1993.(dag)
(dag) Previously filed with the Annual Report on Form 10-K for the fiscal year
ended January 29, 1994 and not filed herewith.
17
EXHIBIT
NUMBER DESCRIPTION
4.9 -- Second Amendment and Restatement of Credit Agreement dated as of April 8, 1994, among
Collins & Aikman Group, Inc. and Continental Bank, N.A., Individually and as Issuing
Bank.(dag)
4.10 -- Credit Agreement dated as of May 15, 1991, among Collins & Aikman Corporation, certain
subsidiaries of Collins & Aikman Corporation, the financial institutions party thereto and
Continental Bank N.A., as Agent,is hereby incorporated by reference to Exhibit 4.18 of
Wickes Companies, Inc.'s Report on Form 10-Q for the quarter ended April 27, 1991.(dag)
4.11 -- First Amendment to Credit Agreement dated as of March 11, 1992, among Collins & Aikman
Corporation, certain subsidiaries of Collins & Aikman Corporation, the financial
institutions party thereto and Continental Bank N.A., as Agent, is hereby incorporated by
reference to Exhibit 4.21 of Wickes Companies Inc. Report on Form 10-K for the fiscal year
ended January 25, 1992.(dag)
Collins & Aikman Group, Inc. 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 Group, Inc. or any of its subsidiaries, which
debt does not exceed 10% of the total assets of Collins & Aikman Group, Inc. and its
subsidiaries on a consolidated basis.
10.1 -- Stockholders Agreement dated as of December 6, 1988, among Blackstone Capital Partners
L.P., Wasserstein Perella Partners, L.P., WCI Holdings II Corporation, WCI Holdings
Corporation and WCI Acquisition Corporation is hereby incorporated by reference to Exhibit
10.1 of the Registration Statement on Form S-4 of WCI Holdings Corporation and Wickes
Companies, Inc. (Registration No. 33-27143) filed February 22, 1989.(dag)
10.2 -- Amendment No.1 to Stockholders Agreement dated as of May 1, 1992 to Stockholders Agreement
dated as of December 6, 1988, among Blackstone Capital Partners L.P., Wasserstein Perella
Partners, L.P., Collins & Aikman Holdings II Corporation, Collins & Aikman Holdings
Corporation, and Collins & Aikman Group, Inc. is hereby incorporated by reference to
Exhibit 10.5 of Collins & Aikman Group, Inc.'s Report on Form 10-Q for the quarter ended
October 24, 1992.(dag)
10.3 -- Employment Agreements dated as of June 16, 1989 between Wickes Companies, Inc. and certain
executive officers is hereby incorporated by reference to Exhibit 10.1 of Wickes Companies,
Inc.'s Report on Form 10-K for the fiscal year ended January 27, 1990.*(dag)
10.4 -- First Amendment to Employment Agreements dated as of March 20, 1990 between Wickes
Companies, Inc. and certain executive officers is hereby incorporated by reference to
Exhibit 10.2 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended
January 27, 1990.*(dag)
10.5 -- Employment Agreement dated as of July 18, 1990 between Wickes Companies, Inc. and an
executive officer is hereby incorporated by reference to Exhibit 10.3 of Wickes Companies,
Inc.'s Report on Form 10-K for the fiscal year ended January 26, 1991.*(dag)
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form
pursuant to Item 14(c) of this report.
(dag) Previously filed with the Annual Report on Form 10-K for the fiscal year
ended January 29, 1994 and not filed
herewith.
18
EXHIBIT
NUMBER DESCRIPTION
10.6 -- Agreement dated as of February 25, 1993 and First Amendment dated as of March 29, 1993
between Collins & Aikman Group, Inc. and a former executive officer is hereby incorporated
by reference to Exhibit 10.8 of Collins & Aikman Group Inc.'s Report on Form 10-K for the
fiscal year ended January 30, 1993.*(dag)
10.7 -- Employment Agreement dated as of May 1, 1991 between Kayser-Roth Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.6 of Collins & Aikman
Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.*(dag)
10.8 -- First Amendment to Employment Agreement dated as of May 1, 1991 between Kayser-Roth
Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.7 of
Collins & Aikman Group, Inc.'s Report on Form 10-Q for the quarter ended July 31,
1993.*(dag)
10.9 -- Letter Agreement dated as of May 16, 1991 and Employment Agreement dated as of July 22,
1992 between Collins & Aikman Corporation and an executive officer is hereby incorporated
by reference to Exhibit 10.5 of Collins & Aikman Group Inc.'s Report on Form 10-K for the
fiscal year ended January 30, 1993.*(dag)
10.10 -- First Amendment to Employment Agreement dated as of February 24, 1994 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit
10.7 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation
(File No. 33-53179) filed April 19, 1994.*(dag)
10.11 -- Letter Agreements dated as of May 16, 1991 between Collins & Aikman Corporation and certain
executive officers is hereby incorporated by reference to Exhibit 10.14 of the Registration
Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed
April 19, 1994.*(dag)
10.12 -- Employment Agreement dated as of February 1, 1992 between Collins & Aikman Corporation and
an executive officer is hereby incorporated by reference to Exhibit 10.15 of the
Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No.
33-53179) filed April 19, 1994.*(dag)
10.13 -- Agreement dated as of March 23, 1992 between Collins & Aikman Group, Inc. and an executive
officer is hereby incorporated by reference to Exhibit 10.4 of Collins & Aikman Group
Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.*(dag)
10.14 -- First Amendment to Agreement dated as of April 4, 1994 between Collins & Aikman Group, Inc.
and an executive officer.*(dag)
10.15 -- Employment Agreement dated as of April 27, 1992 between Collins & Aikman Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.16 of the Registration
Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed
April 19, 1994.*(dag)
10.16 -- Letter Agreement dated as of August 12, 1992 between Collins & Aikman Group, Inc. and an
executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman
Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.*(dag)
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form
pursuant to Item 14(c) of this report.
(dag) Previously filed with the Annual Report on Form 10-K for the fiscal year
ended January 29, 1994 and not filed
herewith.
19
EXHIBIT
NUMBER DESCRIPTION
10.17 -- Employment Agreement dated as of March 1, 1993 between Imperial Wallcoverings, Inc. and an
executive officer is hereby incorporated by reference to Exhibit 10.17 of the Registration
Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed
April 19, 1994.*(dag)
10.18 -- Employment Agreement dated as of October 1, 1993 between Collins & Aikman Corporation and
an executive officer is hereby incorporated by reference to Exhibit 10.18 of the
Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No.
33-53179) filed April 19, 1994.*(dag)
10.19 -- The Wickes Equity Share Plan, is hereby incorporated by reference to Exhibit 10.8 of
Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30,
1993.*(dag)
10.20 -- Warrant Agreement dated as of January 8, 1994 by and between Collins & Aikman Group, Inc.
and Legwear Acquisition Corporation is hereby incorporated by reference to Exhibit 10.20 of
Collins & Aikman Holdings Corporation's Form 10-K for the fiscal year ended January 29,
1994.(dag)
10.21 -- 1993 Employee Stock option Plan is hereby incorporated by reference to Exhibit 10.12 of the
Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No.
33-53179) filed April 19, 1994.(dag)
10.22 -- 1994 Employee Stock option Plan is hereby incorporated by reference to Exhibit 10.13 of the
Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No.
33-53179) filed April 19, 1994.(dag)
10.23 -- Acquisition Agreement dated as of November 22, 1993 as amended and restated as of January
28, 1994, among Collins & Aikman Group, Inc., Kayser-Roth Corporation and Legwear
Acquisition Corporation is hereby incorporated by reference to Exhibit 2.1 of Collins &
Aikman Group, Inc.'s Current Report on Form 8-K dated February 10, 1994.(dag)
10.24 -- Collins & Aikman Corporation 1994 Executive Incentive Compensation Plan is hereby
incorporated by reference to Exhibit 10.22 of Collins & Aikman Holdings Corporation's
Amendment No. 3 to Registration Statement on Form S-2 filed June 21, 1994 (File No.
33-53179).*
21 -- List of subsidiaries of Collins & Aikman Group, Inc.(dag)
(B) REPORTS ON FORM 8-K.
No current reports on Form 8-K were filed during the year for which this report
on Form 10-K is filed.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this report.
(dag) Previously filed with the Annual Report on Form 10-K for the fiscal year
ended January 29, 1994 and not filed herewith.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 20th day of June,
1994.
COLLINS & AIKMAN GROUP, INC.
By: /s/ DAVID J. MCKITTRICK
David J. McKittrick
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Collins & Aikman Group, Inc.:
We have audited the accompanying consolidated balance sheets of Collins &
Aikman Group, Inc. (a Delaware corporation) and subsidiaries as of January 29,
1994 and January 30, 1993, and the related consolidated statements of
operations, other paid-in capital, accumulated deficit and cash flows for each
of the three fiscal years in the period ended January 29, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Collins & Aikman Group, Inc.
and subsidiaries as of January 29, 1994 and January 30, 1993, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 29, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 11 to the Consolidated Financial Statements,
the Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in the
fiscal year ended January 25, 1992.
ARTHUR ANDERSEN & CO.
Charlotte, North Carolina,
April 27, 1994.
F-1
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Net sales............................................................... $ 1,305,517 $ 1,277,500 $ 1,184,316
Cost of goods sold...................................................... 995,790 978,473 915,486
Selling, general and administrative expenses............................ 219,028 241,057 224,878
Management equity plan expense.......................................... 26,736 -- --
Restructuring costs..................................................... -- 10,000 --
Goodwill write-down..................................................... 144,800 -- --
1,386,354 1,229,530 1,140,364
Operating income (loss)................................................. (80,837) 47,970 43,952
Interest expense, net of interest income of $4,328, $3,958 and $6,935... 84,241 87,075 87,674
Loss from continuing operations before income taxes..................... (165,078) (39,105) (43,722)
Income taxes............................................................ 11,614 2,299 15,848
Loss from continuing operations......................................... (176,692) (41,404) (59,570)
Discontinued operations:
Income (loss) from operations, net of income taxes (benefit) of
($467), $1,234 and $2,560.......................................... (4,462) (45,849) 3,669
Loss on disposals, net of income tax benefit of $344,
$0 and $0.......................................................... (111,137) (184,000) (38,000)
Loss before extraordinary item.......................................... (292,291) (271,253) (93,901)
Extraordinary gain on early retirement of debt, net of income
taxes of $362......................................................... -- -- 10,949
Cumulative effect on prior years (to January 26, 1991) of change
in accounting principle, net of income taxes of $0.................... -- -- (87,563)
Net loss................................................................ $ (292,291) $ (271,253) $ (170,515)
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-2
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JANUARY 29, JANUARY 30,
1994 1993
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 78,363 $ 80,141
Accounts and notes receivable, net.................................................. 200,368 164,655
Inventories......................................................................... 176,062 165,864
Net assets of discontinued operations............................................... -- 205,131
Receivable from sale of business.................................................... 70,000 --
Other............................................................................... 53,397 23,370
Total current assets............................................................. 578,190 639,161
Property, plant and equipment, net.................................................... 292,600 292,434
Goodwill.............................................................................. 612,042 778,776
Other assets.......................................................................... 57,378 102,810
$ 1,540,210 $ 1,813,181
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable....................................................................... $ 3,789 $ 9,067
Current maturities of long-term debt................................................ 25,895 61,287
Accounts payable.................................................................... 85,591 75,996
Accrued expenses.................................................................... 140,514 166,049
Other............................................................................... 2,671 1,387
Total current liabilities........................................................ 258,460 313,786
Long-term debt........................................................................ 733,448 784,658
Deferred income taxes................................................................. 640 4,823
Other, including postretirement benefit obligation.................................... 337,186 220,475
Commitments and contingencies (Note 17)...............................................
Redeemable preferred stock (aggregate preference in liquidation $129)................. 132 165
Preferred stock (aggregate preference in liquidation $45,145)......................... 181 181
Common stock (47,808 shares issued and outstanding)................................... 4,781 4,781
Other paid-in capital................................................................. 1,001,126 974,339
Accumulated deficit................................................................... (782,179) (485,355)
Foreign currency translation adjustments.............................................. 309 1,174
Pension equity adjustment............................................................. (13,874) (5,846)
Total stockholder's equity....................................................... 210,344 489,274
$ 1,540,210 $ 1,813,181
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-3
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OTHER PAID-IN CAPITAL
(IN THOUSANDS)
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Balance at beginning of year.............................................. $ 974,339 $ 974,559 $ 974,559
Management equity plan.................................................... 26,736 -- --
Other..................................................................... 51 (220) --
Balance at end of year.................................................... $ 1,001,126 $ 974,339 $ 974,559
CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT
(IN THOUSANDS)
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Balance at beginning of year............................................... $(485,355) $(209,588) $ (34,558)
Net loss................................................................... (292,291) (271,253) (170,515)
Preferred stock dividends declared......................................... (4,533) (4,514) (4,515)
Balance at end of year..................................................... $(782,179) $(485,355) $(209,588)
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-4
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
OPERATING ACTIVITIES
Loss from continuing operations............................................ $(176,692) $ (41,404) $ (59,570)
Adjustments to derive cash flow from continuing operating activities:
Depreciation and amortization............................................ 75,225 79,562 78,456
Management equity plan expense........................................... 26,736 -- --
Goodwill write-down...................................................... 144,800 -- --
Restructuring costs...................................................... -- 10,000 --
Increase in accounts and notes receivable................................ (33,232) (149) (7,166)
Decrease (increase) in inventories....................................... (7,303) 4,308 12,269
Increase (decrease) in accounts payable.................................. 14,145 130 (2,874)
Other, net............................................................... (15,698) (24,703) (30,643)
Net cash provided by (used in) continuing operating activities...... 27,981 27,744 (9,528)
Loss from discontinued operations.......................................... (115,599) (229,849) (34,331)
Adjustments to derive cash flow from discontinued operating activities:
Loss on disposals........................................................ 111,137 184,000 38,000
Depreciation and amortization............................................ 18,075 24,082 24,475
Net change in receivables, inventory and accounts payable................ 70,162 24,163 5,634
Other, net............................................................... (151,192) (15,854) (20,243)
Net cash provided by (used in) discontinued operating
activities....................................................... (67,417) (13,458) 13,535
INVESTING ACTIVITIES
Additions to property, plant and equipment................................. (56,278) (54,181) (61,899)
Sales of property, plant and equipment..................................... 22,710 10,347 7,522
Proceeds from businesses sold.............................................. 148,743 -- 5,598
Other, net................................................................. 43,983 9,223 28,743
Net cash provided by (used in) investing activities................... 159,158 (34,611) (20,036)
FINANCING ACTIVITIES
Issuance of long-term debt................................................. 76,135 60,128 157,587
Reduction of long-term debt and capital lease obligations.................. (179,940) (54,376) (182,760)
Net proceeds (reduction) of short-term borrowings.......................... (5,899) 3,554 (1,057)
Dividends paid............................................................. (4,515) (4,514) (4,515)
Other, net................................................................. (7,281) (2,863) (459)
Net cash provided by (used in) financing activities................... (121,500) 1,929 (31,204)
Decrease in cash and cash equivalents...................................... (1,778) (18,396) (47,233)
Cash and cash equivalents at beginning of year............................. 80,141 98,537 145,770
Cash and cash equivalents at end of year................................... $ 78,363 $ 80,141 $ 98,537
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-5
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR -- The fiscal year of Collins & Aikman Group, Inc. ("Group" or
the "Company") ends on the last Saturday of January. Fiscal 1993 and fiscal 1991
were 52 week years which ended on January 29, 1994 and January 25, 1992,
respectively. Fiscal 1992 was a 53 week fiscal year which ended on January 30,
1993.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- Effective as of the
beginning of fiscal 1991, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"). SFAS 106 requires accrual, during the period in which
eligible employees render service, of the expected cost of providing these
benefits to an employee and the employee's beneficiaries and covered dependents.
The Company has recorded the cumulative effect at January 26, 1991, net of tax
of $0, of $87.6 million as of the beginning of fiscal 1991.
ACQUISITION BY COLLINS & AIKMAN HOLDINGS CORPORATION -- On October 25,
1988, the Company, Collins & Aikman Holdings II Corporation (formerly WCI
Holdings II Corporation) ("Holdings II") and Collins & Aikman Holdings
Corporation (formerly WCI Holdings Corporation) ("Holdings") entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement").
Pursuant to the Merger Agreement, Holdings, a corporation indirectly jointly
owned by Blackstone Capital Partners L.P. and Wasserstein Perella Partners,
L.P., and their respective affiliates, acquired approximately 80% of the shares
of common stock of the Company on December 8, 1988 following a cash tender
offer. Pursuant to the Merger Agreement, on April 13, 1989, a wholly owned
subsidiary of Holdings was merged into the Company (the "Merger"), and the
Company became a direct wholly owned subsidiary of Holdings.
CONSOLIDATION -- The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany items have
been eliminated in consolidation.
INCOME TAXES -- During fiscal 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 supersedes Statement of Financial Accounting
Standards No. 96, of the same title, which the Company previously followed to
account for income taxes. The adoption of SFAS 109 did not impact the Company's
financial position or results of operations. See also Note 14.
FOREIGN CURRENCY TRANSLATION -- Foreign currency accounts are translated in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation"("SFAS 52"). SFAS 52 generally provides that the assets and
liabilities of foreign operations be translated at the current exchange rates as
of the end of the accounting period and that revenues and expenses be translated
using average exchange rates. The resulting translation adjustment arising from
foreign currency translation is accumulated as a separate component of
stockholder's equity. Translation adjustments during fiscal 1993, 1992 and 1991
were ($865,000), ($5.8) million, and ($1.9) million, respectively.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three months
or less. Included in cash and cash equivalents at January 29, 1994 is $8.6
million which is held by the Company's Collins & Aikman Corporation subsidiary
("C&A Co.").
INVENTORIES -- Inventories are valued principally at the lower of cost or
market, but not in excess of net realizable value. Cost is determined on the
first-in, first-out basis.
INSURANCE DEPOSITS -- Other current assets at January 29, 1994 include
$22.8 million which is on deposit with an insurer to cover the self-insured
portion of the Company's workers compensation, automotive and general
liabilities. The Company's reserves for these claims are determined based upon
actuarial analyses and aggregated $36.5 million at January 29, 1994, $10.6
million of which is classified in current liabilities.
F-6
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. Provisions for depreciation are primarily computed on a straight-line
basis over the estimated useful lives of the assets, presently ranging from 3 to
40 years. Leasehold improvements are amortized over the lesser of the lease term
or the estimated useful life of the improvements.
Management's policy is to continually review whether there have been any
significant and permanent downturns in the industries in which the Company
operates, loss of a majority of customers, introduction of substitute products
and the current and expected future results of operations in assessing the
recoverability of property, plant and equipment and other long-lived assets.
When the foregoing considerations suggest that a long-term deterioration in the
Company's operations has occurred, management evaluates its long-lived assets
for impairment using its forecasted business unit results to determine whether
the cost of such assets can be recovered through future operations. Further, net
asset costs are also reduced, if required, to net realizable value at the time a
disposition is planned.
GOODWILL -- Goodwill is being amortized by the straight-line method over 40
years. Management's policy is to continually review whether there have been any
significant and permanent downturns in the industries in which the Company
operates, loss of a majority of customers, introduction of substitute products
and the current and expected future results of the acquired entities in
assessing the recoverability of the goodwill related to each of its businesses.
When the foregoing considerations suggests that a deterioration of the financial
condition of the Company has occurred, the methodology used by the Company to
determine whether there has been an impairment of goodwill is to assess whether
the forecasted operating results (including a proportionate share of the
Company's projected consolidated interest expense) of each of its business units
will recover the recorded goodwill balance over the remaining amortization
period.
Amortization applicable to continuing operations was $21.9 million, $23.1
million and $23.0 million for fiscal 1993, 1992 and 1991, respectively. During
fiscal 1993, Group wrote down goodwill by $144.8 million related to its
Wallcoverings segment as described in Note 2 below. Accumulated amortization was
$133.6 million and $142.0 million at January 29, 1994 and January 30, 1993,
respectively.
ENVIRONMENT -- Accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. Accruals for environmental liabilities are generally
included in the balance sheet as other noncurrent liabilities at undiscounted
amounts and exclude claims for recoveries from insurance or other third parties.
Accruals for insurance or other third party recoveries for environmental
liabilities are recorded when it is probable that the claim will be realized.
RECLASSIFICATIONS -- Certain reclassifications have been made to the fiscal
1992 and 1991 statements of operations and statements of cash flows and to the
January 30, 1993 balance sheet to conform to the fiscal 1993 presentation.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting
Standards Board has issued Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits" and certain other accounting
pronouncements which are not yet effective. The adoption of these pronouncements
will not have a material effect on the Company's consolidated financial
condition or results of operations.
2. GOODWILL:
The substantial losses of Builders Emporium and the inability to sell the
Builders Emporium chain as an ongoing entity left the Company with materially
higher leverage and interest costs than previously anticipated. The inability of
the Company to sell its Dura Convertible division ("Dura") at an acceptable
price along with the sale of Kayser-Roth Corporation ("Kayser-Roth") at a price
and on terms that were worse than management's prior expectations of value were
additional adverse factors. Prior to the end of the third quarter, management
F-7
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
explored debt recapitalization alternatives and the possibility of raising new
equity capital. The indications from the financial community at that time were
that a debt recapitalization was not likely to significantly reduce the
Company's interest burden and that raising new equity capital to deleverage the
Company was not feasible at that time. Although management of the Company, based
on the facts known to it at October 30, 1993, was expecting both cyclical and
long-term improvement in the results of operations, an analysis suggested that,
given the Company's capital structure, a deterioration of the financial
condition of the Company had occurred. As a result, the Company forecasted its
operating results forward 33 years, which approximated the remaining
amortization period of the Company's goodwill at October 30, 1993, to determine
whether cumulative net income would be sufficient to recover the goodwill.
At October 30, 1993, management believed that the projected future results
were the most likely scenario given the Company's current capital structure. In
spite of the fact that the operating results reflected in the forecasts showed
improvement over the historical results achieved during the past few years,
management concluded, based on the forecast, that the net income allocable to
the Company's Wallcoverings segment over the forecast period (including a
proportionate share of the Company's projected consolidated interest expense)
would not be sufficient to recover its entire goodwill balance. Accordingly, the
Company recorded a write-down of $144.8 million during the third quarter ended
October 30, 1993 to reflect the portion of Wallcoverings' goodwill balance which
was not forecasted to be recovered over the projection period. For the other
business units of the Company, net income over the forecast period was
sufficient to recover their respective goodwill balances.
Management's continuing evaluations have indicated no further impairment in
the ability of Wallcoverings to recover its remaining goodwill and no permanent
impairment with respect to the other operations of the Company.
3. RESTRUCTURING COSTS:
During fiscal 1992, the Company incurred certain identifiable costs in
connection with the restructuring of Wallcoverings. The restructuring costs,
aggregating $10.0 million, principally related to the closure of certain
manufacturing and distribution facilities.
4. DISCONTINUED OPERATIONS:
During fiscal 1991, Group reclassified the remaining businesses of Wickes
Manufacturing Company consisting of its Dura, Bumper and H. Koch & Sons ("H.
Koch") divisions as discontinued operations. In July 1992, Group sold its Bumper
and H. Koch divisions. As of the end of fiscal 1992, Group reclassified Builders
Emporium and the Engineering Group as discontinued operations. Group recorded a
loss on disposal of discontinued operations of $184 million in the fourth
quarter of fiscal 1992 principally to provide for the expected loss on sale of
Builders Emporium. In March 1993, the Engineering Group was sold for
approximately $51 million.
As of the end of the second quarter of fiscal 1993, the Company determined
that it would be unable to sell Builders Emporium as an ongoing entity. The
Company recorded an additional loss on disposal of discontinued operations of
$109.3 million principally to (i) provide additional reserves for the
significant reduction in estimated proceeds from disposition and other costs in
connection with the sale or disposition of Builders Emporium inventory, real
estate and other assets and (ii) provide for employee severance and other costs.
Builders Emporium's inventory was sold during the third and fourth quarters of
fiscal 1993 and substantially all accounts receivable and accounts payable
balances were settled as of January 29, 1994. Remaining assets and liabilities
of Builders Emporium relate primarily to real estate and insurance liabilities
which continue to be liquidated.
Kayser-Roth was reclassified as a discontinued operation at the end of the
third fiscal quarter ended October 30, 1993 and was sold on January 28, 1994 for
a total price of approximately $170 million (subject to post-closing purchase
price adjustment). A portion of the proceeds was used to repay $66 million of
borrowings under
F-8
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a Kayser-Roth credit facility. In connection with the sale, Group received a 90
day $70 million senior unsecured bridge note from the purchaser was paid with
accrued interest on April 27, 1994.
The results of Builders Emporium, Kayser-Roth, the Engineering Group,
Bumper and H. Koch are classified as discontinued operations for all periods
presented. At the end of the second fiscal quarter ended July 31, 1993, Group
decided to retain its Dura business. The results of Dura are now classified in
the automotive products segment and prior reporting periods have been restated
to reflect Dura as a continuing operation.
Summarized statements of operations for periods prior to units being
classified as discontinued operations follow (in thousands):
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Sales............................................................ $ 274,297 $ 977,098 $ 1,042,377
Costs and expenses, other than interest.......................... 268,821 998,703 1,012,309
Interest expense................................................. 10,405 23,010 23,839
Loss before income taxes......................................... (4,929) (44,615) 6,229
Income taxes (benefit)........................................... (467) 1,234 2,560
Income (loss) from discontinued operations....................... $ (4,462) $ (45,849) $ 3,669
The above summarized results include Builders Emporium and the Engineering
Group through January 30, 1993 and Kayser-Roth through the third quarter ended
October 30, 1993 (the respective dates at which these businesses were
reclassified as discontinued operations). The summarized statement of operations
for fiscal 1991 also includes Bumper and H. Koch through their date of sale.
Sales of Builders Emporium in fiscal 1993 aggregated approximately $410 million
and sales of Kayser-Roth for the fourth quarter of fiscal 1993 aggregated
approximately $95 million. Interest expense of $13.1 million (including $5.5
million of interest expense which was reserved for Builders Emporium and
Kayser-Roth), $19.7 million and $20.9 million during fiscal 1993, 1992 and 1991,
respectively, has been allocated to discontinued operations based upon the ratio
of net book value of discontinued operations (including reserves for loss on
disposal) to consolidated invested capital. Interest expense incurred by
Builders Emporium and Kayser-Roth subsequent to their reclassification as
discontinued operations aggregated $2.2 million. Such amounts were charged to
discontinued operations reserves.
In October 1993, Group received $35.1 million from Wickes Lumber Company in
exchange for a Wickes Lumber Company promissory note and warrant that Group had
received in partial consideration for the sale of Wickes Lumber Company in 1988.
The Company incurred fees to Blackstone Partners and WP Partners for
services related to divestitures aggregating $4.3 million and $500,000 during
fiscal 1993 and 1992, respectively. Amounts in fiscal 1993 related principally
to divestiture fees on the sales of Kayser-Roth and the Engineering Group, and
advisory services in connection with the sale of Builders Emporium inventory,
real estate and other assets.
The majority of Builders Emporium's leased properties have been assigned to
third parties. In addition, Group has assigned leases in connection with the
divestiture of Kayser-Roth, the Engineering Group, Wickes Manufacturing Company
and other divested businesses. Although Group has obtained releases from the
lessors of certain properties, Group remains contingently liable under most of
the leases. Group's 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.
F-9
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCOUNTS AND NOTES RECEIVABLE, NET:
Accounts and notes receivable, net, are summarized below (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Accounts and notes receivable.................................................. $ 207,439 $ 171,403
Less allowance for doubtful accounts........................................... (7,071) (6,748)
$ 200,368 $ 164,655
6. INVENTORIES:
Inventory balances are summarized below (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Raw materials.................................................................. $ 70,762 $ 62,663
Work in process................................................................ 24,739 26,121
Finished goods................................................................. 80,561 77,080
$ 176,062 $ 165,864
7. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, net, are summarized below (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Land and improvements.......................................................... $ 28,347 $ 20,747
Buildings...................................................................... 117,275 123,406
Machinery and equipment........................................................ 414,208 374,946
Leasehold improvements......................................................... 1,421 1,431
Construction in progress....................................................... 21,863 20,733
583,114 541,263
Less accumulated depreciation and amortization................................. (290,514) (248,829)
$ 292,600 $ 292,434
Depreciation and amortization expense of property, plant and equipment
applicable to continuing operations was $42.2 million, $45.5 million and $43.9
million for fiscal 1993, 1992 and 1991, respectively.
8. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Payroll and employee benefits.................................................. $ 42,086 $ 37,303
Interest....................................................................... 19,242 24,107
Insurance...................................................................... 15,152 25,122
Other.......................................................................... 64,034 79,517
$ 140,514 $ 166,049
F-10
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT:
Long-term debt is summarized below (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Senior indebtedness:
Mortgage notes............................................................... $ 1,464 $ 1,841
Notes payable to banks....................................................... 7,595 7,891
Notes payable to others...................................................... 8,266 4,744
C&A Co. credit facility, average interest rate of 5.5% and 5.3%.............. 137,129 191,155
Debentures due 2005, interest rate 7 1/2% until January 31, 1994, and 10%
thereafter................................................................ 138,694 138,694
Sinking fund debentures due 1994, interest rate 12%.......................... -- 40,982
Industrial revenue bonds due through 2006, interest rates from 5% to
7 5/8%.................................................................... 11,648 12,754
Unamortized debt discount.................................................... (47,650) (53,239)
257,146 344,822
Senior subordinated indebtedness:
Senior subordinated debentures due 2001, interest rate 11 7/8%............... 347,414 347,414
Unamortized debt discount.................................................... (4,629) (5,019)
342,785 342,395
Subordinated indebtedness:
Subordinated notes due 1995, interest rate 15%............................... 137,359 137,359
Subordinated debentures due 1997, interest rate 11 3/8%...................... 24,500 24,500
Unamortized debt discount.................................................... (2,447) (3,131)
159,412 158,728
Total debt..................................................................... 759,343 845,945
Less current maturities........................................................ (25,895) (61,287)
$ 733,448 $ 784,658
Group's C&A Co. subsidiary consummated a $225 million credit agreement with
a syndicate of banks on May 22, 1991 that expires on May 15, 1998 (the "C&A Co.
Credit Agreement"). During fiscal 1991, C&A Co. borrowed $152 million under the
C&A Co. Credit Agreement. Out of these borrowings, $120 million was paid to
Group as a dividend to be used for general corporate purposes. During fiscal
1992, C&A Co. paid Group dividends aggregating $110 million, borrowed an
additional $56.0 million and made principal repayments under the C&A Co. Credit
Agreement of $10.3 million. During fiscal 1993, C&A Co. paid Group dividends
aggregating $30 million, borrowed an additional $17.0 million and made principal
repayments under the C&A Co. Credit Agreement of $71.0 million. Availability
under the C&A Co. Credit Agreement is determined monthly based upon C&A Co.'s
receivables balance. The C&A Co. Credit Agreement permits C&A Co. to pay
additional dividends to Group only if C&A Co. satisfies a minimum liquidity
requirement of $25 million and then limits the amount of total dividends to $175
million plus 90% (or 100% if certain specified ratios are met) of C&A Co.'s net
income (excluding the impact of SFAS 106) subsequent to April 27, 1991. As of
January 29, 1994, an additional $54.8 million was available to C&A Co. under the
C&A Co. Credit Agreement. Although as of that date approximately $56 million of
additional dividends could be paid to Group under the dividend restrictions in
the C&A Co. Credit Agreement, other financial covenants in the C&A Co. Credit
Agreement would limit the amount of dividends to approximately $47 million. C&A
Co. and its subsidiaries are separate corporate entities and the assets of C&A
Co. and its subsidiaries are available first and foremost to satisfy the claims
of the creditors of
F-11
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C&A Co. and such subsidiaries. At January 29, 1994, receivables and fixed assets
pledged as collateral under the C&A Co. Credit Agreement aggregated
approximately $168 million and $104 million, respectively.
On March 12, 1993, Kayser-Roth and a bank consummated a $40 million credit
agreement. Kayser-Roth initially borrowed $35 million under the credit agreement
of which $26 million was paid to Group as a dividend. On May 27, 1993,
Kayser-Roth completed a $75 million credit facility (the "Kayser-Roth Credit
Agreement") with a group of banks to replace the $40 million credit agreement
and, on July 6, 1993, Kayser-Roth paid an additional dividend of $26 million to
Group. Group used approximately $41 million of the proceeds from the original
and the replacement Kayser-Roth credit facilities to redeem all of its
outstanding 12% Sinking Fund Debentures due January 31, 1994 on July 7, 1993.
Group repaid the outstanding borrowings under the Kayser-Roth Credit Agreement
of $66 million with a portion of the cash proceeds from the sale of Kayser-Roth.
There are limitations on the payment of dividends contained in various debt
agreements of Group. Currently, the most restrictive of such limitations is
contained in the indenture, as amended, (the "11 7/8% Indenture") governing the
11 7/8% Senior Subordinated Debentures due 2001 (the "11 7/8% Securities").
Since January 26, 1991, no additional dividends could be paid to Holdings under
such indenture. Under these provisions as of January 29, 1994, Group would have
needed to earn an additional $866 million of consolidated net income (as defined
in the 11 7/8% Indenture) in order to eliminate the deficit in its dividend
capacity (assuming no change in the other factors used to determine Group's
dividend capacity).
Under the terms of the 11 7/8% Indenture, the Company is required to redeem
$138 million aggregate principal amount of 11 7/8% Securities on each June 1
from 1993 through 2000 ("Mandatory Redemptions") and to repay the remaining
outstanding 11 7/8% Securities at maturity on June 1, 2001. Under the terms of
the 11 7/8% Indenture, if Adjusted Net Worth (as such term is defined in the
11 7/8% Indenture) is equal to or less than $700 million on the last day of any
fiscal quarter (the "Minimum Equity Test"), the Company would be required to
begin on the last day of the second fiscal quarter thereafter (unless the
Minimum Equity Test is satisfied at the end of the intervening fiscal quarter)
semi-annual redemptions ("Accelerated Redemptions") of $138 million aggregate
principal amount of 11 7/8% Securities until all the 11 7/8% Securities are
redeemed or until the Minimum Equity Test is again satisfied. The Company can
reduce its obligation to make any cash Mandatory Redemption or Accelerated
Redemption payment through the application of previously redeemed or purchased
and canceled 11 7/8% Securities as permitted by the 11 7/8% Indenture. The
Company has previously delivered for cancellation $1,033 million in aggregate
principal amount of 11 7/8% Securities, which are available for such purpose.
The Company satisfied the Minimum Equity Test at the end of fiscal 1993. On that
date, Adjusted Net Worth was $753.7 million. If the Company had not satisfied
the Minimum Equity Test at that date and did not subsequently satisfy such test,
the first cash redemption payment (after giving effect to credits for previously
acquired 11 7/8% Securities) would be required at the end of the fiscal quarter
ending January 1997. By comparison, if the Company continues to satisfy the
Minimum Equity Test at all times or cures any failure of such test prior to any
accelerated cash redemption payment becoming due, no cash redemption payment
will be required until June 1, 2000.
The 11 3/8% subordinated debentures of Group become callable on May 1,
1995. The remaining indebtedness of Group is callable at various premiums at the
Company's option.
Maturities of long-term debt during each of the five fiscal years
subsequent to January 29, 1994, are $25.9 million, $170.9 million, $63.3
million, $39.9 million and $20.6 million, respectively. Total interest paid by
the Company on all indebtedness was $101.5 million, $102.5 million and $112.6
million for fiscal 1993, 1992 and 1991, respectively.
For additional information see "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" elsewhere herein.
F-12
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM LEASES AND LEASE COMMITMENTS:
The Company is lessee under various long-term operating leases for land and
buildings for periods up to forty years. The majority of these leases contain
renewal provisions. In addition, the Company leases transportation, operating
and administrative equipment for periods ranging from one to ten years.
At January 29, 1994, future minimum lease payments under operating leases
are as follows (in thousands):
FISCAL YEAR ENDING
January 1995................................................. $ 16,568
January 1996................................................. 12,520
January 1997................................................. 9,165
January 1998................................................. 4,128
January 1999................................................. 1,143
Later years.................................................. 2,171
$ 45,695
Rental expense of continuing operations under operating leases was $19.2
million, $19.0 million and $15.4 million for fiscal 1993, 1992 and 1991,
respectively. Obligations under capitalized leases are not significant.
11. EMPLOYEE BENEFIT PLANS:
The Company and its subsidiaries have in effect defined benefit pension
plans covering substantially all employees who meet eligibility requirements.
Plan benefits are generally based on years of service and employee's
compensation during their years of employment. Funding of retirement costs for
these plans complies with the minimum funding requirements specified by the
Employee Retirement Income Security Act. Assets of the pension plans are held in
a Master Trust which invests primarily in equity and fixed income securities.
Net periodic pension cost of continuing operations for fiscal 1993, 1992
and 1991 included the following components (in thousands):
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Service cost...................................................... $ 5,232 $ 5,313 $ 5,240
Interest cost on projected benefit obligation and service cost.... 6,843 6,220 5,947
Actual return on assets........................................... (6,334) 746 (13,771)
Net amortization and deferral..................................... (1,119) (10,063) 7,136
$ 4,622 $ 2,216 $ 4,552
F-13
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at January 29, 1994 and
January 30, 1993 (in thousands):
JANUARY 29, 1994 JANUARY 30, 1993
PLANS FOR WHICH PLANS FOR WHICH
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
Actuarial present value of benefit obligation:
Vested benefit obligation.............................. $ (21,352) $ (82,248) $ (15,096) $ (76,958)
Accumulated benefit obligation......................... $ (22,214) $ (86,451) $ (15,850) $ (80,432)
Projected benefit obligation............................. $ (24,317) $ (89,435) $ (17,314) $ (83,050)
Plan assets at fair value................................ 24,761 66,795 20,089 72,763
Projected benefit obligation less than (in excess of)
plan assets............................................ 444 (22,640) 2,775 (10,287)
Unrecognized net loss.................................... 2,081 25,315 310 22,122
Prior service cost not yet recognized in net periodic
pension cost........................................... 424 (7,361) 443 (13,608)
Unrecognized net asset at February 1, 1986............... (665) (503) (80) (983)
Adjustment required to recognize minimum liability....... -- (14,068) -- (6,244)
Pension asset (pension liability) recognized in the
consolidated balance sheets............................ $ 2,284 $ (19,257) $ 3,448 $ (9,000)
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7% and 8% at January 29, 1994 and January 30,
1993, respectively. The expected rate of increase in future compensation levels
is 4% and 5.5% and the expected long-term rate of return on plan assets is 9%
and 10% in fiscal 1993 and 1992, respectively.
The provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS 87"), require companies with any
plans that have an unfunded accumulated benefit obligation to recognize an
additional minimum pension liability, an offsetting intangible pension asset
and, in certain situations, a contra-equity balance. In accordance with the
provisions of SFAS 87, the consolidated balance sheets at January 29, 1994 and
January 30, 1993 include an intangible pension asset of $194,000 and $398,000;
an additional minimum pension liability of $14.1 million and $6.2 million and a
contra-equity balance of $13.9 million and $5.8 million, respectively.
The Company sponsors defined contribution plans covering employees who meet
eligibility requirements. Company contributions are based on a formula as
specified in the plan agreements. Contributions related to continuing operations
were $4.7 million, $4.0 million and $3.4 million in fiscal 1993, 1992 and 1991,
respectively.
The Company has provided postretirement life, health and medical coverage
for certain retirees under plans currently in effect. Many of the Company's
domestic employees may be eligible for benefits if they reach retirement age
while still employed by the Company.
Effective as of the beginning of fiscal 1991, the Company adopted Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Statement requires that costs
of such benefits be accrued as a form of deferred compensation earned during the
period that employees render service, rather than the previously permitted
practice of accounting for such costs as incurred.
F-14
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company elected to recognize the cumulative effect of this change in
accounting principle as of the beginning of fiscal 1991.
The following table sets forth the amounts included in the Company's
consolidated balance sheets (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Accumulated postretirement benefit obligation:
Retirees..................................................................... $ 48,559 $ 56,497
Fully eligible active plan participants...................................... 12,425 13,145
Other active plan participants............................................... 13,845 26,366
Unrecognized prior service gain from plan amendments......................... 23,764 --
Unrecognized net gain........................................................ 7,408 8,869
Total postretirement benefit obligation................................. $ 106,001 $ 104,877
Net periodic postretirement benefit cost of continuing operations,
determined on the accrual basis, included the following components (in
thousands):
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Service cost -- benefits attributed to service during the year............. $ 2,131 $ 2,168 $ 2,066
Interest cost on accumulated postretirement benefit obligation............. 4,385 6,865 6,574
Amortization of unrecognized net gain...................................... (200) -- --
Net periodic postretirement benefit cost................................... $ 6,316 $ 9,033 $ 8,640
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7% at January 29, 1994 and 8% at January
30, 1993. The plans are unfunded.
For measurement purposes, a 14% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal 1993; the rate was
assumed to decrease 1% per year to 6% for fiscal 2001 and remain at that level
thereafter. The health care cost trend rate assumption has an impact on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of January 29, 1994 by $878,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $103,000.
Effective April 1, 1994, the Company amended the postretirement benefit
plan which covers substantially all of the eligible current and retired
employees of the Company's continuing operations. Pursuant to the amendment the
Company's obligation for future health care inflation will be limited to 6% per
year through March 31, 1998. Subsequent to March 1998, the Company will not
provide coverage for inflation in health care costs.
12. COMMON STOCK AND PREFERRED STOCK:
At January 29, 1994 and January 30, 1993, 70,000,000 shares of $.10 par
value common stock were authorized and approximately 47,808,000 shares were
issued and outstanding.
At January 29, 1994 and January 30, 1993, 30,000,000 shares of $.10 par
value preferred stock were authorized and approximately 1,806,000 shares of
convertible preferred stock, Series A were outstanding. Each share of Series A
preferred stock, which has an annual dividend of $2.50 per share, is convertible
into 0.50 shares of Merger Preferred Stock of Holdings, subject to subsequent
adjustment pursuant to its terms.
F-15
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. MANAGEMENT EQUITY PLANS:
Effective on January 28, 1994, Holdings adopted the 1993 Employee Stock
Option Plan ("1993 Plan") for certain key employees of Group. The 1993 Plan was
created for the special purpose of rewarding key employees for the appreciation
earned through prior service under the Company's previous equity share plan that
was terminated on October 29, 1993. Effective on January 28, 1994, Holdings
granted options to acquire approximately 3.1 million shares of the Common Stock
at an average exercise price of $4.57 per share. The majority of these options
vest 40% in June 1995 with the remaining shares vesting in June 1996. In
connection with the adoption of this plan, the Company recorded a charge of
$26.7 million for management equity plan expense.
In addition, effective in April 1994, Holdings adopted the 1994 Employee
Stock Option Plan ("1994 Plan") as a successor to the 1993 Plan to facilitate
awards to certain key employees and to consultants. The 1994 Plan authorizes the
issuance of up to 2,980,534 shares of Common Stock and provides that no options
may be granted after 10 years from the effective date of this plan. Options for
approximately 170,000 shares of Common Stock at an average exercise price of
$5.52 per share were granted to key employees of Group in April 1994. Management
equity plan expense of $1.6 million will be recognized as the options ratably
vest over the next three years.
Upon a change of control of Holdings, as defined, all of the above options
become fully vested and exercisable.
14. INCOME TAXES:
During the first quarter of fiscal 1992, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 supersedes Statement of Financial Accounting
Standards No. 96, of the same title, which the Company previously followed to
account for income taxes. The adoption of SFAS 109 did not impact the Company's
financial position or results of operations.
Deferred income taxes are provided for the temporary differences between
the financial reporting and tax basis of the Company's assets and liabilities.
The components of the net deferred tax liability as of January 29, 1994 and
January 30, 1993 were as follows (in thousands):
JANUARY 29, JANUARY 30,
1994 1993
Deferred tax assets:
Employee benefits including postretirement benefits.......................... $ 69,245 $ 69,903
Net operating loss carryforwards............................................. 134,928 83,599
Investment tax credit carryforwards.......................................... 11,900 14,567
Alternative minimum tax credits.............................................. 7,000 9,523
Other liabilities and reserves............................................... 130,093 133,586
Valuation allowance.......................................................... (289,204) (251,426)
Total deferred tax asset..................................................... 63,962 59,752
Deferred tax liabilities:
Property, plant and equipment................................................ 51,258 50,213
Unamortized debt discount.................................................... 13,344 14,362
Total deferred tax liability................................................. 64,602 64,575
Net deferred tax liability..................................................... $ 640 $ 4,823
The valuation allowances of $289.2 million at January 29, 1994 and $251.4
million at January 30, 1993 were established because, in the Company's
assessment, it was uncertain whether the net deferred tax assets would be
realized.
F-16
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes applicable to continuing operations for
fiscal 1993, 1992 and 1991, are summarized as follows (in thousands):
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Current
Federal, including tax sharing payment to (from) Holdings....... $ 337 $(1,222) $ 4,209
State and local................................................. 6,462 4,896 5,470
Foreign......................................................... 7,697 5,739 2,193
14,496 9,413 11,872
Deferred
State and local................................................. (16) (5,936) 3,339
Foreign......................................................... (2,866) (1,178) 637
(2,882) (7,114) 3,976
Income taxes.................................................... $11,614 $ 2,299 $15,848
Domestic and foreign components of income (loss) from continuing operations
before income taxes are summarized as follows (in thousands):
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Domestic.......................................................... $(175,213) $ (51,574) $ (51,794)
Foreign........................................................... 10,135 12,469 8,072
$(165,078) $ (39,105) $ (43,722)
A reconciliation between income taxes computed at the statutory Federal
rate (35% for fiscal 1993 and 34% for fiscal 1992 and 1991) and the provisions
for income taxes applicable to continuing operations is as follows (in
thousands):
FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
Amount at statutory Federal rate.................................. $ (57,777) $ (13,296) $ (14,865)
State and local income taxes, net of Federal income tax benefit... 6,229 (2,893) 5,814
Foreign tax more than Federal tax at statutory rate............... 1,284 321 86
Amortization and write-off of goodwill............................ 58,357 7,840 7,835
Valuation allowance............................................... 5,509 6,934 --
Net operating loss generated...................................... -- -- 13,454
Tax sharing payment to Holdings................................... 337 3,848 3,894
Other............................................................. (2,325) (455) (370)
Income taxes...................................................... $ 11,614 $ 2,299 $ 15,848
In addition, the valuation allowance was increased by $38.4 million in
fiscal 1993 and $68.6 million in fiscal 1992 to offset deferred tax assets
arising from the losses of discontinued operations.
F-17
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At January 29, 1994, Group had the following tax attribute carryforwards
available for Federal income tax purposes (in thousands):
EXPIRATION
AMOUNT DATES
Net operating losses -- regular tax
Prior to acquisition of Group by Holdings ("Preacquisition"), subject to
limitations............................................................... $134,000 1996-2003
Postacquisition, unrestricted................................................ 251,000 2006-2008
$385,000
Net operating losses -- alternative minimum tax
Preacquisition, subject to limitations....................................... $118,000 1996-2002
Postacquisition, unrestricted................................................ 202,000 2006-2008
$320,000
Investment tax and other credits
Preacquisition, subject to limitations....................................... $ 11,900 1994-2003
Alternative minimum tax credits................................................ $ 7,000 No limit
The regular tax net operating loss carryforwards include amounts related to
Kayser-Roth and subsidiaries for preacquisition regular tax purposes, subject to
limitations, of $35 million and postacquisition regular tax purposes,
unrestricted, of $62 million. Alternative minimum tax net operating loss
carryovers include amounts related to Kayser-Roth and subsidiaries of $33
million for preacquisition alternative minimum tax purposes, subject to
limitations, and $51 million for postacquisition alternative minimum tax
purposes, unrestricted. Although the sale agreement provides that an election
will be made (under Section 338(h)(10) of the Internal Revenue Code) to treat
the sale as an asset sale for Federal income tax purposes, there are provisions
whereby the purchaser of Kayser-Roth and the Company can reevaluate this
decision. If the purchaser and the Company mutually agree to treat the
transaction as a stock sale rather than an asset sale, the net operating losses
related to Kayser-Roth and subsidiaries will be transferred from the Company to
the purchaser.
The Internal Revenue Service has examined the returns of C&A Co. and its
subsidiaries for the last three fiscal years prior to its acquisition by the
Company in December 1986. Certain adjustments were agreed to and the effect of
those adjustments, principally reductions to the net operating loss
carryforwards and investment tax credit carryforwards, are reflected in the
amounts discussed above. In the course of an examination of the Company's
Federal income tax returns for fiscal 1988 and 1989, the IRS has challenged the
availability of $176.6 million of the Company's approximately $385.0 million of
current NOLs. The examination is at a preliminary stage and management believes
that the basis for the IRS' position is unclear. Management disputes the IRS'
challenge and believes that substantially all of the NOLs should be available
(subject to certain limitations) to offset its income, if any, in the future. If
the IRS were to maintain its position and all or a major portion of such
position were to be upheld in litigation, the amount of the NOLs available to
the Company in future years would be materially reduced.
The Company and its subsidiaries have entered into a tax sharing agreement
with Holdings. The tax sharing agreement provides for payments to (from)
Holdings for utilization of Holdings tax losses by the Company and its
subsidiaries. The agreement provides for tax sharing payments calculated in
accordance with Federal tax regulations. Tax sharing payments paid to Holdings
during fiscal 1993, 1992 and 1991 were $0, $4.5 million and $7.2 million,
respectively. The Company's tax sharing receivable from Holdings of $8.8 million
at January 29, 1994 and the related fiscal 1992 tax sharing benefit result from
the utilization of tax loss carrybacks. This receivable from Holdings is
currently expected to be settled through offset against future years tax sharing
payable amounts.
F-18
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes paid including tax sharing payments to Holdings of $0, $4.5
million and $7.2 million, were $3.3 million, $21.3 million and $26.2 million for
fiscal 1993, 1992 and 1991, respectively.
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, AND ACCOUNTS
PAYABLE -- The carrying amount approximates fair value because of the short
maturity of these instruments.
RECEIVABLE FROM SALE OF BUSINESS AND LONG-TERM INVESTMENTS -- Fair value
approximates carrying value.
LONG-TERM DEBT -- The fair value of the Company's publicly-traded long-term
debt is based upon the quoted market prices for the issues. The fair value
of the remaining long-term debt of the Company approximates the carrying
value.
The estimated fair values of the Company's financial instruments are
summarized as follows (in thousands):
JANUARY 29, 1994 JANUARY 30, 1993
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
Receivable from sale of business................................. $ 70,000 $ 70,000 $ -- $ --
Long-term investments............................................ -- -- 32,675 32,675
Long-term debt................................................... 759,343 826,066 845,945 830,875
16. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:
The Company reclassified its industry segments during 1993 to realign its
products based on primary customer groups. Businesses related to the automotive
industry which were part of Specialty Textiles have been renamed Automotive
Products. The decorative fabrics and floorcoverings businesses have been
reclassified as Interior Furnishings. Previously, the floorcoverings business
was part of the Specialty Textiles segment. Wallcoverings products which were
previously part of the Home Furnishings segment have been renamed Wallcoverings.
Industry segment information has been restated for fiscal 1992 and 1991.
For fiscal 1993, 1992 and 1991, sales to General Motors Corporation
approximated 16.1%, 15.3% and 17.2%, respectively, and sales to Chrysler
Corporation approximated 10.0%, 10.2% and 8.3%, respectively, of total
consolidated sales. These sales were part of the Automotive Products segment.
Information about the Company's segments for fiscal 1993, 1992 and 1991
follows (in thousands):
OPERATING
INCOME DEPRECIATION
NET (LOSS) AND CAPITAL
FISCAL YEAR ENDED JANUARY 29, 1994 SALES (B) AMORTIZATION (E) ASSETS (B) EXPENDITURES
Automotive Products...................... $ 677,867 $ 55,279 $ 36,712 $ 783,718 $ 29,208
Interior Furnishings..................... 407,201 40,683 15,617 350,342 11,768
Wallcoverings............................ 220,449 (138,010) 11,453 209,424 3,751
1,305,517 (42,048)(c) 63,782 1,343,484 44,727
Corporate items.......................... -- (38,789)(d) 384 196,726 196
1,305,517 (80,837) 64,166 1,540,210 44,923
Discontinued operations.................. -- -- 18,075 -- 11,355
$ 1,305,517 $ (80,837) $ 82,241 $1,540,210 $ 56,278
F-19
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING
INCOME DEPRECIATION
NET (LOSS) AND CAPITAL
FISCAL YEAR ENDED JANUARY 30, 1993 (A) SALES (B) AMORTIZATION (E) ASSETS (B) EXPENDITURES
Automotive Products...................... $ 643,827 $ 42,330 $ 39,771 $ 749,688 $ 20,563
Interior Furnishings..................... 391,778 34,647 15,876 335,708 14,295
Wallcoverings............................ 241,895 (4,960) 12,646 374,706 3,045
1,277,500 72,017(c) 68,293 1,460,102 37,903
Corporate items.......................... -- (24,047)(d) 228 147,948 306
1,277,500 47,970 68,521 1,608,050 38,209
Discontinued operations.................. -- -- 24,082 205,131 15,972
$ 1,277,500 $ 47,970 $ 92,603 $1,813,181 $ 54,181
OPERATING
INCOME DEPRECIATION
NET (LOSS) AND CAPITAL
FISCAL YEAR ENDED JANUARY 25, 1992 SALES (B) AMORTIZATION (E) ASSETS (B) EXPENDITURES
Automotive Products...................... $ 610,325 $ 45,242 $ 37,195 $ 762,009 $ 24,220
Interior Furnishings..................... 336,773 25,403 16,791 340,269 9,519
Wallcoverings............................ 237,218 (871) 12,712 406,529 5,093
1,184,316 69,774 66,698 1,508,807 38,832
Corporate items.......................... -- (25,822)(d) 246 134,447 96
1,184,316 43,952 66,944 1,643,254 38,928
Discontinued operations.................. -- -- 24,475 357,341 22,971
$ 1,184,316 $ 43,952 $ 91,419 $2,000,595 $ 61,899
(a) The fiscal year ended January 30, 1993 included fifty-three weeks.
(b) Operating income is determined by deducting all operating expenses,
including restructuring costs, goodwill write-down and other costs, from
revenues. Operating expenses do not include interest expense. Assets of the
business segments include goodwill. Operating income reflects related
amortization.
(c) The segment operating loss of $42.0 million includes the write-down of
goodwill of $144.8 million which is included in the $138.0 million operating
loss of the Wallcoverings segment. Segment operating income in 1992 includes
restructuring costs of $10.0 million which relate to the wallcoverings
business.
(d) Corporate items in fiscal 1993 include $26.7 million of management equity
plan expense. Corporate items in fiscal 1993, 1992 and 1991 each include
operating management and advisory fees to affiliates of Holdings of $5.0
million.
(e) Depreciation and amortization excludes the amortization of deferred
financing costs and debt discount which do not impact operating income.
17. COMMITMENTS AND CONTINGENCIES:
During 1991, a Fifth Consolidated Amended Complaint was filed in IN RE IVAN
F. BOESKY SECURITIES LITIGATION, involving numerous class actions and individual
claims against a variety of defendants including the Company. Among other
things, this complaint asserts claims on behalf of certain of the Company's
former preferred stockholders alleging a conspiracy to manipulate the price of
the Company's stock in 1986 for the purpose of triggering a redemption of
certain outstanding preferred stock of the Company. In 1992, Advanced
Development & Engineering Centre ("ADEC"), a division of an indirect subsidiary
of the Company, filed arbitration demands against the Pakistan Ordnance
Factories Board ("POF") concerning ADEC's installation of a munitions facility
F-20
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for POF. POF filed arbitration counterclaims alleging that ADEC's alleged breach
of contract caused POF to lose its entire investment in the munitions facility.
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.
In 1988, the federal government filed suit in the U.S. District Court for
the District of Rhode Island against Group's former Kayser-Roth Corporation
subsidiary and others in connection with a Superfund site in Rhode Island. The
District Court held Kayser-Roth liable under CERCLA for all past and future
response costs. By Amended Administrative Order issued June 4, 1991, the EPA
directed Kayser-Roth to implement the remedies set forth in its Record of
Decision issued September 18, 1990. Since the beginning of fiscal 1990 to date,
Kayser-Roth has paid approximately $2.9 million for past response costs,
prejudgment interest and remediation. Kayser-Roth is in the process of complying
with the remainder of the order. Group has agreed to indemnify Kayser-Roth with
respect to this matter.
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.
It is a normal risk of operating a manufacturing business that liability may be
incurred for investigating and remediating on-site and off-site contamination.
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 EPA, 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 scheme 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 PRP's, 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. Where it is
probable that an environmental liability has been incurred and the amount of
loss can be reasonably estimated within a range, the Company selects as the best
estimate of the liability an estimate at the high end of the range based upon
all information available to the Company, including the professional judgment of
the Company's environmental experts, outside environmental specialists and other
experts. 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 15 sites where the
Company is participating in the investigation or remediation of the site either
directly or through financial contribution, and nine additional sites where the
Company is alleged to be responsible for costs of investigation or remediation.
The Company's current estimate of its liability for these 24 sites is
approximately $29.5 million. As of January 29, 1994, the Company has established
reserves of approximately $30.8 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 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.
F-21
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to increasingly stringent 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 certain other damages related to
on-site and off-site soil and groundwater contamination. The Company's
management believes that it has obtained, and is in material compliance with,
all material environmental permits and approvals necessary to conduct its
various businesses. Environmental compliance costs for continuing businesses
currently are accounted for as normal operating expenses or capital expenditures
of such business units. In the opinion of management, based on the facts
presently known to it, such environmental compliance costs will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
For additional information regarding the foregoing, see "ITEM 3. LEGAL
PROCEEDINGS" appearing elsewhere herein.
18. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for fiscal 1993 and 1992 follows (in
thousands):
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE AFTER
GROSS INCOME INCOME NET
FISCAL YEAR ENDED JANUARY 29, 1994 NET SALES PROFIT TAXES TAXES LOSS
First Quarter.......................... $ 339,043 $ 78,948 $ 156 $ (5,296) $ (8,504)
Second Quarter......................... 289,694 61,230 (15,043) (17,222) (130,122)
Third Quarter.......................... 334,629 84,445 (137,449) (140,194) (139,685)
Fourth Quarter......................... 342,151 85,104 (12,742) (13,980) (13,980)
$1,305,517 $309,727 $(165,078) $(176,692) $(292,291)
LOSS FROM
CONTINUING OPERATIONS
BEFORE AFTER
GROSS INCOME INCOME NET
FISCAL YEAR ENDED JANUARY 30, 1993 NET SALES PROFIT TAXES TAXES LOSS
First Quarter.......................... $ 319,488 $ 72,564 $ (6,812) $ (11,009) $ (16,980)
Second Quarter......................... 319,713 74,081 (7,411) (11,855) (16,406)
Third Quarter.......................... 314,873 70,819 (7,048) (7,764) (16,078)
Fourth Quarter (a)..................... 323,426 81,563 (17,834) (10,776) (221,789)
$1,277,500 $299,027 $ (39,105) $ (41,404) $(271,253)
(a) The fourth quarter of fiscal 1992 included fourteen weeks.
The quarterly financial data above has been restated to reflect Kayser-Roth
as a discontinued operation and Dura as a continuing operation.
The third quarter of 1993 has been restated to exclude a restructuring
charge of $24.0 million that was previously recorded in error and the fourth
quarter of 1993 has been restated to exclude the previously reported reversal of
this charge. The Company previously reported income (loss) from continuing
operations before income taxes, income (loss) from continuing operations after
income taxes and net income (loss) for the thirteen weeks ended October 30, 1993
of ($161.4) million, ($164.2) million and ($163.7) million, respectively, and
$11.3 million, $10.0 million and $10.0 million for the thirteen weeks ended
January 29, 1994, respectively.
Loss from continuing operations before income taxes in the third quarter of
fiscal 1993 includes the write-down of goodwill of $144.8 million. The fourth
quarter of fiscal 1993 includes management equity plan expense of $26.7 million.
Net loss in fiscal 1993 includes provisions for loss on disposal of discontinued
operations of $1.8 million and $109.3 million in the first and second quarters,
respectively. Loss from continuing operations
F-22
COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
before income taxes in fiscal 1992 includes restructuring costs of $10.0 million
in the fourth quarter. Net loss in fiscal 1992 includes provision for loss on
disposal of discontinued operations of $184.0 million in the fourth quarter.
The Company's operations are not subject to significant seasonal
influences.
19. SUBSEQUENT EVENT:
On April 19, 1994, Holdings, as part of a proposed recapitalization (the
"Recapitalization") filed a registration statement on Form S-2 for the sale of
20.0 million shares of Holdings' common stock by Holdings. The Recapitalization,
if effected, would result in the defeasance and redemption, or repayment, of
virtually all outstanding debt and all preferred stock of Group. The sources of
capital for the Recapitalization are proceeds of the public offering, cash on
hand and amounts to be available under certain proposed new credit facilities
aggregating $775 million. In connection with the Recapitalization, Holdings II,
currently the sole common stockholder of Holdings, will be merged into Holdings.
Concurrently, Group will be merged into its wholly owned subsidiary, C&A Co.
Holdings intends to change its name from Collins & Aikman Holdings
Corporation to Collins & Aikman Corporation and C&A Co.
will change its name to Collins & Aikman Products Co.
F-23