-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UttqGYf78reyg+qWUBojoJNZRMHq2SiG16Ql5FgEis/V4Q0D3Gb+yOTvmAm8Ivni tDSyiNCpeD/5vgPVjEXT8g== 0000950168-97-000734.txt : 19970329 0000950168-97-000734.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950168-97-000734 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLINS & AIKMAN CORP CENTRAL INDEX KEY: 0000846815 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 133489233 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10218 FILM NUMBER: 97566477 BUSINESS ADDRESS: STREET 1: 8320 UNIVESITY EXECUTIVE PARK, SUITE 102 STREET 2: P O BOX 4056 CITY: CHARLOTTE STATE: NC ZIP: 28262 BUSINESS PHONE: 7045482350 MAIL ADDRESS: STREET 1: PO BOX 562237 CITY: CHARLOTTE STATE: NC ZIP: 28256-2237 FORMER COMPANY: FORMER CONFORMED NAME: COLLINS & AIKMAN HOLDINGS CORP/DE DATE OF NAME CHANGE: 19930914 FORMER COMPANY: FORMER CONFORMED NAME: COLLINS & AIKMAN HOLDINGS CORP DATE OF NAME CHANGE: 19930114 FORMER COMPANY: FORMER CONFORMED NAME: WCI HOLDINGS CORP DATE OF NAME CHANGE: 19920703 10-K 1 COLLINS & AIKMAN 10K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from January 28, 1996 to December 28, 1996 Commission file number 1-10218 COLLINS & AIKMAN CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3489233 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 701 MCCULLOUGH DRIVE CHARLOTTE, NORTH CAROLINA 28262 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 547-8500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock New York Stock Exchange 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. [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant was $112,838,317 as of March 25, 1997. As of March 25, 1997, the number of outstanding shares of the Registrant's common stock, $.01 par value, was 66,377,523 shares. DOCUMENTS INCORPORATED BY REFERENCE: (1) Proxy Statement for 1997 Annual Meeting of Stockholders to be filed within 120 days of December 28, 1996 - Items 10, 11, 12 and 13.* * Only the portions of this document expressly described in the items listed are incorporated by reference herein. COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES FORM 10-K ANNUAL REPORT INDEX Item 1. Business, page 1. Item 2. Properties, page 5. Item 3. Legal Proceedings, page 5. Item 4. Submission of Matters to a Vote of Security Holders, page 7. Executive Officers of the Registrant, page 7. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters, page 9. Item 6. Selected Financial Data, page 10. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 12. Item 8. Financial Statements and Supplementary Data, page 26. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure, page 26. Item 10. Directors and Executive Officers of the Registrant, page 27. Item 11. Executive Compensation, page 27. Item 12. Security Ownership of Certain Beneficial Owners and Management, page 27. Item 13. Certain Relationships and Related Transactions, page 27. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, page 28. i PART I ITEM 1. BUSINESS DEVELOPMENT Collins & Aikman Corporation (the "Company") is a major supplier of automotive interior systems - textile and plastic trim, acoustics and convertible tops - to the global automotive industry. The Company (formerly Collins & Aikman Holdings Corporation) is a Delaware corporation which was formed on September 21, 1988. Prior to July 13, 1994, the Company was a wholly-owned subsidiary of Collins & Aikman Holdings II Corporation ("Holdings II"). In connection with an initial public offering of Common Stock and a recapitalization (the "Recapitalization"), Holdings II was merged into the Company. Concurrently, Collins & Aikman Group, Inc., a wholly-owned subsidiary of the Company ("Group"), was merged into its wholly-owned subsidiary, Collins & Aikman Corporation, which changed its name to Collins & Aikman Products Co. ("C&A Products"). On July 7, 1994, the Company changed its name from Collins & Aikman Holdings Corporation to Collins & Aikman Corporation. Prior to the Recapitalization, the Company was jointly owned by Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their respective affiliates. As of December 28, 1996, Blackstone Partners and WP Partners and their respective affiliates collectively own approximately 80% of the Common Stock of the Company. The Company conducts all of its operating activities through its wholly-owned C&A Products subsidiary. During 1996, the Company took major steps to implement its automotive growth strategy which will focus the Company's resources on expanding its core automotive business in North America and globally as well as adding complementary product offerings. To that end, the Company made several strategic automotive acquisitions and discontinued its Interior Furnishings and Wallcoverings segments, all as discussed below. On January 3, 1996, the Company acquired Manchester Plastics for a purchase price of approximately $184 million, which includes approximately $40.4 million of debt extinguished in connection with the acquisition. Manchester Plastics is a designer and manufacturer of high quality plastic-based automotive door panels, headrests, floor console systems and instrument panel components used in the interior of automobiles, light trucks, sport utility vehicles and minivans. The Manchester Plastics product line adds a broad range of molded plastic products to the Company's extensive textile-based automotive trim products. On April 9, 1996, the Company announced a plan to spin off the Company's Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings") to the stockholders of the Company in the form of a stock dividend. The proposed spin-off requires, among other things, the declaration of the dividend by the Company's Board of Directors. The Company had originally anticipated the proposed spin-off to occur during 1996. However, as a result of management changes at Wallcoverings and other factors, the Company currently expects the proposed spin-off to occur during the second half of 1997. On May 1, 1996, the Company acquired the business of BTR Fatati Limited ("Fatati"), a manufacturer and supplier of molded floor carpets and luggage compartment trim for the European automotive market. The acquisition increases the Company's carpet molding capacity and gives it a European base from which to supply its new carpet molding plant in Austria. Fatati's customers include General Motors, Saab and Toyota. On December 4, 1996, the Company announced it is considering the sale of the Mastercraft Group to further pursue its automotive growth strategy. Based on determinations of value from potential purchasers, the Company has decided to pursue the sale of the Mastercraft Group and anticipates the sale to be completed by the summer of 1997. The Mastercraft Group is the leading manufacturer of flat woven upholstery fabric. 1 On December 10, 1996, the Company announced that it entered into an agreement to sell its Floorcoverings subsidiary ("Floorcoverings") for approximately $197 million, subject to adjustment. Management believes that this sale, which occurred in February 1997, better positions the Company to focus on its automotive growth strategy. On December 11, 1996, the Company acquired JPS Automotive L. P. ("JPS Automotive") for $220 million, subject to post-closing adjustment, consisting of approximately $195 million of indebtedness of JPS Automotive and approximately $25 million of cash. The Company also acquired the minority interest in a JPS Automotive subsidiary for $10 million. This acquisition further strengthened the Company's position in automotive molded floor carpet and bodycloth as well as expanding the Company's interior product offerings to include headliner fabric. On December 11, 1996, the Company acquired Perstorp AB's automotive supply operations (primarily acoustical products) in North America, the United Kingdom and Spain for $108 million, subject to adjustment. The acquisition positions the Company to source floor carpet and acoustical products as a package both domestically and internationally. In addition, the Company and Perstorp AB ("Perstorp") entered into a joint venture agreement relating to Perstorp's automotive supply operations (primarily acoustical and plastic components) in Sweden, Belgium and France. Each of the Company and Perstorp has a 49.9% interest in the joint venture. The Company has accounted for the financial results and net assets of Floorcoverings and the Mastercraft Group (which were formerly reported in the Interior Furnishings segment), and Wallcoverings as discontinued operations. Accordingly, previously reported financial results for all periods have been restated to reflect those three businesses as discontinued operations. In addition to the acquisitions and divestitures (or planned divestitures) discussed above, on June 10, 1996, the Company's wholly-owned subsidiary, C&A Products, issued $400 million principal amount of 11-1/2% Senior Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by the Company. The Subordinated Notes were sold at a price equal to 100% of their principal amount. The Company used approximately $356.8 million of the total net proceeds of $387.0 million to repay $348.2 million principal amount of the outstanding bank borrowings plus accrued interest on such borrowings and related fees and expenses, and used the remainder for general corporate purposes. During November 1996, the Company decided to change its fiscal year end to the last Saturday of December. Fiscal 1996 ended on December 28, 1996 and was an 11-month period. All previous fiscal years ended on the last Saturday of January of the following year. With respect to competitive information, references to the Company as "a leader", "a leading" or "one of the leading" manufacturers in a 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 product category mean that the Company has the largest product share based on dollar sales volume in that product category. GENERAL The Company is a leading designer and manufacturer of automotive products with 1996 net sales of $1,055.9 million. The Company supplies eight principal automotive products--automotive seat fabric ("bodycloth"), molded floor carpets, acoustical products, accessory floor mats, luggage compartment trim, convertible top systems, headliner fabric and plastic-based interior systems. The Company's 1996 acquisitions, which are discussed above, significantly increased the Company's content per build through growth in existing product lines as well as by adding complementary product offerings. 2 The Company's sales are dependent on certain significant customers. In 1996, 1995 and 1994 direct and indirect sales to each of General Motors Corporation, Ford Motor Company and Chrysler Corporation accounted for 10% or more of the Company's net sales. Automotive industry demand historically has been influenced by both cyclical factors and long-term growth trends in the driving age population and real per capita income. Annual new car and light truck sales historically have been cyclical. In the most recent cycle, North American 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. For the last three years, North American light vehicle sales have averaged 15.1 million units. PRODUCTS The Company manufactures eight principal automotive products: automotive bodycloth, molded floor carpets, acoustical products, accessory floor mats, luggage compartment trim, convertible top systems, headliner fabric and plastic-based interior systems. The Company also produces certain other automotive and nonautomotive products. AUTOMOTIVE BODYCLOTH. The Company manufactures a wide variety of bodycloth, including flat-wovens, velvets and knits. The Company also laminates foam to bodycloth. In 1996, 1995 and 1994, the Company had net sales of bodycloth of $243.9 million, $327.5 million and $340.3 million, respectively. MOLDED FLOOR CARPETS. Molded floor carpets include polyethylene, barrier-backed and molded urethane underlay carpet. In 1996, 1995 and 1994, net sales of molded floor carpets were $234.1 million, $231.8 million, $213.2 million, respectively. ACOUSTICAL PRODUCTS. In December 1996, the Company acquired from Perstorp its North American, United Kingdom and Spanish automotive supply operations. These operations supply acoustical products to both domestic and international automotive manufacturers. These products can be combined with molded floor carpets to provide complete interior floor systems to the automotive industry. ACCESSORY FLOOR MATS. The Company produces carpeted automotive accessory floor mats for both North American produced vehicles and imported vehicles. LUGGAGE COMPARTMENT TRIM. Luggage compartment trim includes one-piece molded trunk systems and assemblies, wheelhouse covers and center pan mats, seatbacks, tireboard covers and other trunk trim products. CONVERTIBLE TOP SYSTEMS. The Company designs and manufactures convertible top systems through its Dura Convertible Systems subsidiary ("Dura"). In October 1993, Dura began shipping its "Top-in-a-Box" system, in which it designs and manufactures all aspects of a convertible top, including the framework, trim set, backlight and power actuating system. HEADLINER FABRIC. With the December 1996 acquisition of JPS Automotive, the Company expanded its interior product offerings to include headliner fabric. PLASTIC-BASED INTERIOR SYSTEMS. In January 1996, the Company acquired Manchester Plastics, a manufacturer of automotive door panels, headrests, floor console systems and instrument panel components. The acquisition of Manchester Plastics added a broad range of molded plastic components to the Company's textile-based automotive interior trim products. 3 OTHER. The Company also produces certain other automotive products, including carpet die cuts for automotive interior trim applications, convertible power actuating units, airbag fabric and carpet roll goods for export and domestic consumption. In addition, the Company manufactures small volumes of certain other products, such as velvet furniture fabrics, residential floor mats, casket liners, sliver knits and woven fabrics, for various commercial and industrial markets. COMPETITION The automotive supply business is highly competitive. The Company has competitors in respect to each of its automotive products, some of which may have substantially greater financial and other resources than the Company. The Company's competitors in molded plastic components include subsidiaries of certain U.S. automotive and light vehicle manufacturers. 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. FACILITIES The Company has 65 manufacturing, warehouse and other facilities located in the U.S., Canada, Mexico, the United Kingdom, Spain and Austria aggregating approximately 10.0 million square feet. The majority of these facilities are located in North Carolina, South 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 plants generally operate at between 50% and 100% of capacity. During the second half of 1994 the Company experienced capacity constraints with respect to certain automotive seat fabrics due to the unanticipated popularity of certain vehicles for which the Company supplies seat fabric. To meet customer expectations, the Company utilized outside commission weaving and redeployed certain manufacturing capacity from its velvet furniture fabrics. The Company terminated commission weaving during the second quarter of 1995. Except for the foregoing constraints, which the Company believes were short term, the Company's capacity utilization is generally in line with its past experience in similar economic situations, and the Company believes that its facilities are sufficient to meet existing needs. RAW MATERIALS Raw materials and other supplies used in the Company's continuing operations are normally available from a variety of competing suppliers. With respect to most materials, the loss of a single or even a few suppliers would not have a material adverse effect on the Company. For a discussion of increasing raw material price trends, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources". 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 December 28, 1996, the Company's continuing operations employed approximately 12,800 persons on a full-time or full-time equivalent basis. Approximately 3,400 of such employees are represented 4 by labor unions. Management believes that the Company's relations with its employees and with the unions that represent certain of them are generally good. ITEM 2. PROPERTIES For information concerning the principal physical properties of the Company and its various operating divisions, see "ITEM 1. BUSINESS". ITEM 3. LEGAL PROCEEDINGS Except as described below, the Company and its subsidiaries are not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to their businesses. ENVIRONMENTAL PROCEEDINGS DOUGLAS, MICHIGAN. On January 4, 1991, a complaint was filed in the Circuit Court for Allegan County, Michigan, captioned HAWORTH, INC. V. WICKES MANUFACTURING COMPANY (the "Haworth action"), in which Haworth, Inc. ("Haworth") alleged that predecessors of Wickes Manufacturing Company ("Wickes Manufacturing"), an indirect wholly owned subsidiary of the Company, released environmental contaminants on property, now owned by Haworth, located in the Village of Douglas, Michigan. On October 22, 1993, Haworth filed a complaint in the United States District Court for the Western District of Michigan, captioned HAWORTH, INC. V. WICKES MANUFACTURING COMPANY AND PARAMOUNT COMMUNICATIONS, INC. (the "Second HAWORTH action"). In the Second HAWORTH action, Haworth alleged federal claims with respect to Wickes Manufacturing that were factually similar to the state law claims alleged in the HAWORTH action, and Haworth sought a declaratory judgment that Wickes Manufacturing and Paramount Communications, Inc. were liable for the alleged contamination at the site, an order requiring Wickes Manufacturing and Paramount Communications, Inc. to implement response actions at the site, and damages, interest and costs, all in unspecified amounts. On January 29, 1997, the parties entered into a settlement agreement settling both the HAWORTH action and the Second HAWORTH action without payment by any party. On February 5, 1997, the Second HAWORTH action and on February 10, 1997, the HAWORTH action were dismissed with prejudice. OTHER ENVIRONMENTAL MATTERS. The Company is legally or contractually responsible or alleged to be responsible for the investigation and remediation of contamination, or has received notices that it is a potentially responsible party (a "PRP"), at various other sites. These sites include, among others, the following: a site formerly operated by Stamina Mills, Inc., a former subsidiary of a former indirect subsidiary of the Company, in North Smithfield, Rhode Island; a site adjacent to a facility formerly operated by Wickes Manufacturing's former Bohn Heat Transfer division located at Beardstown, Illinois; a site formerly owned and operated by Wickes Manufacturing's alleged former Daybrook Ottawa division located at Bowling Green, Ohio; a site owned and formerly operated by a Company subsidiary located at Elmira, California; the Reliable Equipment Superfund Site located at Grand Rapids, Michigan; the Butterworth Landfill Superfund Site located at Grand Rapids, Michigan; a site owned and formerly operated by Wickes Manufacturing's former Mechanical Components division located at Mancelona, Michigan; the former Albert Van Luit plant site owned by a Company subsidiary located at North Hollywood, California; the Stringfellow Superfund Site located at Riverside County, California; and certain sites associated with the former Wickes Engineering business. In addition to the environmental sites and proceedings listed above, the Company is and has been a party or PRP at other sites and involved in other proceedings from time to time. The majority of environmental site costs have been incurred in connection with the North Smithfield, Rhode Island; Elmira, California; and North Hollywood, California sites. In estimating the total future cost of investigation and remediation, the Company has considered, among other things, the Company's prior experience in remediating contaminated sites, remediation efforts by other parties, data released by the United States Environmental Protection Agency, the professional judgment of the Company's environmental experts, outside environmental specialists and other experts, and 5 the likelihood that other parties which have been named as PRPs will have the financial resources to fulfill their obligations at sites where they and the Company may be jointly and severally liable. Under the theory of joint and several liability, the Company could be liable for the full costs of investigation and remediation even if additional parties are found to be responsible under the applicable laws. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRPs, uncertainty regarding the extent of environmental problems and the Company's share, if any, of liability for such problems, the selection of alternative compliance approaches, the complexity of environmental laws and regulations and changes in cleanup standards and techniques. When it has been possible to provide reasonable estimates of the Company's liability with respect to environmental sites, provisions have been made in accordance with generally accepted accounting principles. The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. As of December 28, 1996, the Company has established reserves of approximately $46.1 million for the estimated future costs related to all its known environmental sites. In the opinion of management, based on the facts presently known to it, the environmental costs and contingencies will not have a material adverse effect on the Company's consolidated financial condition or future results of operations. However, there can be no assurance that the Company has identified or properly assessed all potential environmental liability arising from the activities or properties of the Company, its present and former subsidiaries and their corporate predecessors. The Company is seeking insurance coverage for a portion of the defense costs and liability it has incurred and may incur in connection with the environmental proceedings described above. Coverage issues have not been resolved. While the Company has received some payments from certain insurance carriers, there can be no assurance that additional payments will be received. LITIGATION PROCEEDINGS PREFERRED STOCK REDEMPTION LITIGATION. On August 2, 1991, a Fifth Consolidated Amended Complaint was filed in IN RE IVAN F. BOESKY SECURITIES LITIGATION in the United States District Court for the Southern District of New York against a variety of defendants including Group alleging, among other things, a conspiracy to manipulate the price of Group's common stock in 1986 for the purpose of triggering a redemption of certain outstanding preferred stock of Group. On November 20, 1996, plaintiffs and C&A Products agreed to a settlement whereby plaintiffs released all claims relating to the litigation against Group and the individual Group-related defendants in exchange for payment by C&A Products of $4.25 million. On May 12, 1995, C&A Products paid $4.25 million into an escrow account with the Court pursuant to the terms of the settlement in principal. On December 18, 1996, the Court preliminarily approved the final settlement. On March 18, 1997, the Court ratified the settlement. The settlement was within previously established accruals. In the opinion of the Company's management based on the facts presently known to it, the ultimate outcome of any of these legal proceedings will not have a material adverse effect on the Company's consolidated financial condition or future results of operations. 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT (Pursuant to Instruction G(3) of the General Instructions to Form 10-K, the following information is included herein as an unnumbered item in lieu of being included in the Company's definitive Proxy Statement). The following is a list of the names and ages (as of March 25, 1997) of all the executive officers of the Company and a description of all positions and offices with the Company held by each such person and each such person's principal occupations and employment during the past five years. All executive officers hold office at the pleasure of the Company's Board of Directors. NAME AGE POSITION ----------------------------------- --- --------------------------- David A. Stockman 50 Co-Chairman of the Board Randall J. Weisenburger 38 Co-Chairman of the Board Thomas E. Hannah 58 Chief Executive Officer Dennis E. Hiller 42 President of Automotive Carpet and Acoustics Group John D. Moose 60 President of Automotive Fabrics Division Harry F. Schoen III 61 President of Mastercraft Division Elizabeth R. Philipp 40 Executive Vice President, General Counsel and Secretary J. Michael Stepp 52 Executive Vice President and Chief Financial Officer DAVID A. STOCKMAN has been a director of the Company since October 1988 and Co-Chairman of the Board of the Company since July 1993. Mr. Stockman has been a member of Blackstone Group Holdings L.L.C. ("BGH"), which is under common control with Blackstone Partners, a principal stockholder of the Company, since March 1996 pursuant to a reorganization of Blackstone Group Holdings L.P. ("Blackstone Group") and has been a Senior Managing Director of The Blackstone Group L. P. (or has served in this capacity) since 1988. Mr. Stockman was a General Partner of Blackstone Group from 1988 to February 1996. Prior to joining Blackstone Group, Mr. Stockman was a Managing Director of Salomon Brothers Inc. Mr. Stockman served as the Director of the Office of Management and Budget in the Reagan Administration from 1981 to 1985. Prior to that, Mr. Stockman represented Southern Michigan in the U. S. House of Representatives. Mr. Stockman is also a director of LaSalle Re Holdings Ltd. and Bar Technologies Inc. RANDALL J. WEISENBURGER has been a director of the Company since August 1989 and Co-Chairman of the Board since June 1995. Mr. Weisenburger was Vice Chairman of the Company from April 1994 to June 1995, Deputy Chairman of the Company from July 1992 to April 1994 and Vice President from August 1989 to July 1992. Mr. Weisenburger has been Managing Director of Wasserstein Perella & Co., Inc. ("WP & Co."), an affiliate of WP Partners, a principal stockholder of the Company, since December 1993. Mr. Weisenburger was a Director of WP & Co. from December 1992 to December 1993 and Vice President of WP & Co. from December 1989 to December 1992. Mr. Weisenburger is also Chairman of Yardley of London, Ltd. and Co-Chairman of Alliance Entertainment Corp. THOMAS E. HANNAH has been a director of the Company and Chief Executive Officer of the Company since July 1994. Mr. Hannah was President and Chief Executive Officer of Collins & Aikman Textile and Wallcoverings Group, a division of a wholly owned subsidiary of the Company, from November 1991 until July 1994 and was named an executive officer of the Company for purposes hereof in April 1993. Mr. Hannah was President and Chief Executive Officer of the Collins & Aikman Textile Group from February 1989 to November 1991 and President of Milliken & Company's Finished Apparel Division prior to that. DENNIS E. HILLER has been President of the Automotive Carpet and Acoustics Group since December 1996 and was President of the Automotive Carpet division from November 1994 to December 1996. Mr. Hiller was President of The Akro Corporation, an indirect subsidiary of the Company, from 1992 until November 1994 7 and Manager, Fabricated Products for the Company prior to that. Mr. Hiller was named an executive officer of the Company for purposes hereof in April 1996. JOHN D. MOOSE has been President of the Automotive Fabrics division since October 1994 and was President of the North American Auto Group from June 1989 until October 1994. Mr. Moose was named an executive officer of the Company for purposes hereof in April 1994. Mr. Moose joined a wholly owned subsidiary of the Company in 1960. HARRY F. SCHOEN III has been President of the Mastercraft division since January 1993 and was named an executive officer of the Company for purposes hereof in April 1994. Mr. Schoen was Executive Vice President and Chief Operating Officer of the Mastercraft division from April 1992 to December 1992. Mr. Schoen was General Manager of Milliken & Company's Greige Fine Goods Group prior to that. ELIZABETH R. PHILIPP has been Executive Vice President, General Counsel and Secretary of the Company since April 1994. Ms. Philipp was Vice President, General Counsel and Secretary of the Company from April 1993 to April 1994 and Vice President and General Counsel from September 1990 to April 1993. J. MICHAEL STEPP has been Executive Vice President and Chief Financial Officer since April 1995. Mr. Stepp was Executive Vice President and Chief Financial Officer of Purolator Products Company from December 1992 to January 1995. Prior to that, Mr. Stepp was President of American Corporate Finance Group, Inc. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been traded on the New York Stock Exchange under the symbol "CKC" since July 7, 1994. At March 25, 1997, there were 161 holders of record. The following table lists the high and low sales prices for the Common Stock for the full quarterly periods during the two most recent fiscal years. FISCAL 1996 FISCAL 1995 ------------------- ------------------ HIGH LOW HIGH LOW -------- -------- ------------------ First Quarter 8-1/4 6-1/8 8-3/8 7-1/2 Second Quarter 7-1/8 5-1/2 9 6-3/8 Third Quarter 7 5-7/8 9-1/4 7-1/2 Fourth Quarter 6-5/8 5-3/4 8-3/8 6-1/8 No dividend or other distribution with respect to the Common Stock has been paid by the Company since its incorporation in 1988. Any payment of future dividends and the amounts thereof will be dependent upon the Company's earnings, financial requirements and other factors deemed relevant by the Company's Board of Directors. The Company currently does not intend to pay any cash dividends in the foreseeable future; rather, the Company intends to retain earnings to provide for the operation and expansion of its business and to reduce debt. On April 9, 1996, the Company announced a plan to spin off its Wallcoverings subsidiary to the stockholders of the Company in the form of a stock dividend. The proposed spin-off is subject to, among other things, the declaration of the dividend by the Company's Board of Directors. The Company currently expects the proposed spin-off to occur during the second half of 1997. See "ITEM 1. BUSINESS - - Development" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Recent Developments". Certain restrictive covenants contained in the agreements governing the Company's credit facilities and subordinated notes limit the Company's ability to make dividend and other payments. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources" and Note 11 to the Consolidated Financial Statements. 9 ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30, 1996 (1) 1996 1995 1994 1993 (2) ----------------- ---------------- ---------------- --------------- -------------- STATEMENT OF OPERATIONS DATA: Net sales................................. $ 1,055,931 $ 902,017 $ 906,997 $ 689,286 $ 656,625 Gross margin.............................. 188,674 161,925 172,487 120,250 110,358 Selling, general and administrative expenses............................... 82,727 65,996 68,304 71,397 86,624 Management equity plan expense............ - - - 26,736 - Goodwill amortization and write-off....... 3,898 270 - 79,216 2,212 Operating income (loss)................... 102,049 95,659 104,183 (57,099) 21,522 Interest expense, net (3)................. 39,850 22,150 44,440 70,449 80,759 Loss on sale of receivables(4)............ 4,533 6,246 6,124 - - Income (loss) from continuing operations before income taxes......... 57,553 67,263 51,361 (132,081) (63,751) Income tax expense (benefit).............. 24,442 (139,959) 10,031 9,580 (5,096) Income (loss) from continuing operations............................. 33,111 207,222 41,330 (141,661) (58,655) Income (loss) from discontinued operations, including disposals, net of income taxes.................................. 14,323 (781) 34,416 (136,003) (205,003) Income (loss) before extraordinary items.................................. 47,434 206,441 75,746 (277,664) (263,658) Net income (loss)......................... 40,824 206,441 (30,782) (277,664) (263,658) Income (loss) from continuing operations per primary and fully diluted common share................... .47 2.91 (1.04) (6.07) (2.84) BALANCE SHEET DATA: Total Assets $ 1,536,480 $ 991,361 $ 578,900 $ 819,819 $ 1,037,956 Long-term debt, including current portion................................ 1,176,219 759,966 557,039 914,938 974,884 Redeemable preferred stock................ - - - 122,368 98,602 Common stockholders' deficit.............. (194,578) (227,852) (412,622) (702,220) (421,460) OTHER DATA (FROM CONTINUING OPERATIONS): Capital expenditures...................... $ 35,000 $ 53,156 $ 56,193 $ 29,266 $ 20,493 Depreciation and leasehold amortization........................... 24,568 24,146 24,648 23,259 25,946 EBITDA (5)................................ 134,581 124,086 128,831 72,559 50,164
(1) 1996 was a 48-week year. (2) 1992 was a 53-week year. 10 (3) Excludes amounts related to discontinued operations as follows:
DECEMBER 28, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30, 1996 1996 1995 1994 1993 ----------------- ---------------- ---------------- --------------- --------------- The Mastercraft Group, Floorcoverings, and Wallcoverings........................ $ 26,734 $ 26,454 $ 31,243 $ 40,842 $ 30,108 Operations discontinued prior to fiscal 1995................................... - - - 18,871 23,010 ----------------- ---------------- ---------------- --------------- --------------- $ 26,734 $ 26,454 $ 31,243 $ 59,713 $ 53,118 ================= ================ ================ =============== ===============
(4) Excludes amounts allocated to discontinued operations totaling $2.2 million, $2.4 million and $1.5 million in 1996, 1995 and 1994, respectively. (5) EBITDA represents earnings before deductions for net interest expense, loss on sale of receivables, income tax, depreciation, amortization and the non-cash portion of non-recurring charges. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INITIAL PUBLIC OFFERING AND RECAPITALIZATION On July 13, 1994, the Company completed an initial public offering (the "Offering") of shares of Common Stock. In connection with the Offering, the Company effected the Recapitalization which reduced the Company's indebtedness, lowered interest expense and provided liquidity for operations and other general corporate purposes. After the Offering and Recapitalization, approximately 70.5 million shares of Common Stock were outstanding. Since that time, the Company has repurchased, net of shares reissued, approximately 2.8 million shares of Common Stock and, as of December 28, 1996, approximately 67.7 million shares were outstanding. RECENT DEVELOPMENTS ACQUISITIONS On May 1, 1996 the Company acquired the business of Fatati, a manufacturer and supplier of molded floor carpets and luggage compartment trim for the European automotive market. The acquisition increases the Company's carpet molding capacity and gives it a European base from which to supply its new carpet molding plant in Austria. Fatati's customers include General Motors, Saab and Toyota. On December 11, 1996, the Company completed the acquisition of JPS Automotive, a subsidiary of Foamex International, Inc. The purchase price of $220 million, subject to post closing adjustment, consists of approximately $195 million of indebtedness of JPS Automotive and approximately $25 million in cash. The Company also acquired the minority interest in a JPS Automotive subsidiary for $10 million. The cash portion of the purchase price of the JPS Automotive acquisition, the minority interest purchase and the approximately $15 million of indebtedness of JPS Automotive that was repaid at the time of closing were funded through the Company's existing revolving credit facility. See "Liquidity and Capital Resources". JPS Automotive, which reported fiscal 1995 revenues of $312.1 million, provides automotive carpet systems to both domestic and non-U.S. automotive manufacturers in North America. The Company believes the JPS Automotive acquisition expands its leading positions in North America in automotive bodycloth and carpet. The Company believes the acquisition of JPS Automotive's headliner fabrics business will also provide important synergies with existing product lines. The Company has accounted for the acquisition of JPS Automotive as a purchase, and it is therefore included in fiscal 1996 for a period of approximately two and one half weeks. The purchase price and related expenses exceeded the fair value of the net assets acquired by approximately $132 million. The resulting goodwill is being amortized on a straight line basis over 40 years. See Notes 3 and 5 to the Consolidated Financial Statements for further discussion and pro forma information. On December 11, 1996, the Company also acquired Perstorp's automotive supply operations (primarily acoustical products) in North America, the United Kingdom and Spain ("Perstorp Components") for a purchase price of $108 million, subject to adjustment. The purchase price was financed with funds from the Company's existing revolving credit facility. See "Liquidity and Capital Resources". In addition, on December 17, 1996, the Company and Perstorp entered into a joint venture relating to Perstorp's automotive supply operations (primarily acoustical and plastic components) in Sweden, Belgium and France. Pursuant to the joint venture, the Company and Perstorp each contributed $7.4 million in cash and have a 49.9% interest in the joint venture, which is managed by the Company. The joint venture purchased from Perstorp its automotive supply operations in Sweden, Belgium and France for approximately $67 million, comprised of approximately $15 million equity investment and approximately $52 million of indebtedness. The indebtedness was initially held by Perstorp but has been refinanced with new bank debt. The Company has no liability for the new bank financing. The Company has an option to purchase Perstorp's equity interest in 12 the joint venture at a predetermined multiple of future cashflow for a period of three years, after which Perstorp will have a two-year purchase right if the Company has not exercised its purchase right. Perstorp Components' ten facilities in North America, the United Kingdom and Spain had estimated combined sales of $170 million for its fiscal year ended August 31, 1996. The joint venture's facilities had estimated annual sales of $140 million for the same period. Perstorp Components' and the joint venture's main customers include Chrysler, Ford, General Motors, Mercedes, Nissan, Rover, and Volvo. The acoustical products manufactured by Perstorp Components' facilities complement the Company's existing molded floor carpet products. The Company believes that automotive manufacturers are increasingly sourcing floor carpet and acoustical products as a package as well as requiring suppliers to provide parts and render engineering support on a global basis. The Company believes its leading position in North America and growing presence in Europe coupled with the acoustical product lines acquired through the Perstorp Components acquisition will enable the Company to capitalize on this sourcing trend, both domestically and internationally. The Company has accounted for the acquisition of Perstorp Components as a purchase, and it is therefore included in fiscal 1996 for a period of approximately two and one half weeks. The purchase price and related expenses exceeded the fair value of the net assets acquired by approximately $10 million. The resulting goodwill is being amortized on a straight line basis over 40 years. See Notes 3 and 5 to the Consolidated Financial Statements for further discussion and pro forma information. DISCONTINUED OPERATIONS On April 9, 1996, the Company announced a plan to spin off Wallcoverings to the Company's stockholders in the form of a stock dividend. The proposed spin-off requires, among other things, the declaration of the dividend by the Company's Board of Directors. The Company had originally anticipated the proposed spin-off to occur during 1996. However, as a result of management changes at Wallcoverings and other factors, the Company currently expects the proposed spin-off to occur during the second half of 1997. On December 4, 1996, the Company announced that it is considering the sale of the Mastercraft Group, a leading manufacturer of upholstery fabric. Based on determinations of value from potential purchasers, the Company has decided to pursue the sale of the Mastercraft Group and anticipates the sale to be completed by the summer of 1997. On December 10, 1996, the Company announced that it entered into an agreement to sell Floorcoverings for $197 million, subject to adjustment. This sale occurred during February 1997 and the net proceeds of $195.6 million (subject to post-closing purchase price adjustment) were used to pay down debt incurred to finance the Company's automotive strategy. The Company has accounted for the financial results and net assets of Wallcoverings, Floorcoverings and the Mastercraft Group as discontinued operations. Accordingly, previously reported financial results for all periods have been restated to reflect these businesses as discontinued operations. See Note 15 to the Consolidated Financial Statements for information regarding discontinued operations. $400 MILLION SUBORDINATED NOTE OFFERING On June 10, 1996, the Company's wholly-owned subsidiary, C&A Products, issued $400 million principal amount of the Subordinated Notes, which are guaranteed by the Company. The Subordinated Notes were sold at a price equal to 100% of their principal amount. The Company used approximately $356.8 million of the total net proceeds of $387.0 million to repay $348.2 million principal amount of the outstanding bank borrowings plus accrued interest on such borrowings and related fees and expenses, and used the remainder for general corporate purposes. 13 GENERAL The Company is a major supplier of automotive interior systems - textile and plastic trim, acoustics and convertible tops - to the global automotive industry. The Company's net sales in fiscal 1996 were $1,055.9 million compared to $902.0 million in fiscal 1995. During 1996, the Company changed it fiscal year end to the last Saturday in December. Fiscal 1996 was a 48-week period which ended on December 28, 1996. All prior years refer to the fiscal year of the Company which ended on the last Saturday of January of the following year. Fiscal 1995 and 1994 were 52-week periods. Capitalized terms that are used in this discussion and not defined herein have the meanings assigned to such terms in the Notes to Consolidated Financial Statements. During 1996, the Company took major steps in implementing its automotive growth strategy, which is to expand the Company's core automotive businesses in North America and globally as well as to add complementary product offerings. The automotive supply industry in which the Company competes is cyclical and is influenced by the level of North American vehicle production. RESULTS OF OPERATIONS
FISCAL YEAR ENDED ------------------------------------------------------ DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- --------------- ---------------- (48 WEEKS) (52 WEEKS) (52 WEEKS) (IN MILLIONS) Net sales.....................................$ 1,055.9 $ 902.0 $ 907.0 Cost of goods sold............................ 867.2 740.1 734.5 Gross margin.................................. 188.7 161.9 172.5 Selling, general and administrative expenses.. 82.7 65.9 68.3 Goodwill amortization and write-off........... 4.0 .3 - Operating income..............................$ 102.0 $ 95.7 $ 104.2 Gross margin percentages...................... 17.9% 18.0% 19.0% Operating margin percentages.................. 9.7% 10.6% 11.5% EBITDA (1)....................................$ 134.6 $ 124.1 $ 128.8
(1) EBITDA represents earnings before deductions for net interest expense, loss on sale of receivables, income tax, depreciation, amortization and the non-cash portion of non-recurring charges. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles. 1996 COMPARED TO 1995 As a result of the Company's decision to change its year-end, fiscal 1996 was a 48-week period as compared to fiscal 1995 which was a 52-week period. Therefore, sales in all product lines and the associated costs and expenses were impacted by reporting a shorter period. A discussion of the results of operations for the Company follows: NET SALES: The Company's net sales increased 17.1% to $1,055.9 million in 1996, up $153.9 million over 1995. The majority of this increase resulted from the January 1996 acquisition of Manchester Plastics, which had sales for 1996 of $176.3 million compared with $10.8 million in fiscal 1995. Increased sales in three of the Company's products (molded carpet, convertible top systems and accessory mats) were offset by a decrease in sales of automotive bodycloth. In addition, sales also increased as a result of the JPS Automotive and Perstorp Components acquisitions, which generated combined sales of $14.0 million from December 11, 1996 through year end. 14 Sales to General Motors during 1996 were negatively impacted by the United Auto Workers' strike in March 1996 and the Canadian Auto Workers' strike in October 1996. The decrease in net sales to General Motors in 1996 attributable to these strikes is estimated at $33.5 million. Automotive bodycloth sales decreased 25.5% to $243.9 million in 1996, down $83.6 million from 1995. The decline in sales was due to a decrease in unit shipments on a comparable basis, which was partially mitigated by a 3.8% increase in average selling price due primarily to a shift in product mix. Automotive bodycloth sales were negatively impacted by an estimated $12.6 million as a result of the General Motors strikes. The overall decrease in automotive bodycloth for the year was principally related to decreased sales to the Ford Thunderbird, Mustang, Escort, and F-Series Truck and the Chevrolet Cavalier. These decreases were partially offset by increased sales to the Mercury Sable and the Chrysler Grand Cherokee and Breeze. Molded carpet sales increased 1.0% to $234.1 million, up $2.3 million over 1995. The increase in sales was due to a 1.5% increase in average selling price as well as increased sales in Europe as a result of the Company's expansion into that market. The increase in average selling price is partially attributable to a shift in automotive original equipment manufacturer ("OEM") production to higher content vehicles, such as the Chrysler Voyager. For the year, the overall increase in molded carpet sales was principally related to increased sales to the Chrysler Voyager and T300 Truck and the Chevrolet C/K Truck line. These increases were partially offset by decreased sales to the Ford Explorer, the Chevrolet Camaro and Lumina and the Pontiac Grand Prix. Convertible top systems sales increased 72.2% to $100.2 million, up $42.0 million from 1995. The increase in net sales resulted from the increased shipments of the Chrysler Sebring partially offset by reduced OEM production of the Ford Mustang convertible and the scheduled discontinuance of the Chrysler LeBaron convertible. Accessory mat sales increased 4.3% to $83.7 million, up $3.4 million over 1995. The increase in sales was primarily due to increased unit volume. For the year the overall increase in accessory mat sales was principally related to increased sales to the Subaru Legacy, the Chrysler Caravan/Voyager, the Toyota Camry and the Honda Civic and Accord. These increases were partially offset by decreased sales to the Chrysler Cirrus and Chevrolet Camaro. Luggage compartment trim sales decreased 1.9% to $51.4 million, from $52.4 million in 1995. This decrease in sales was primarily due to the shorter fiscal year partially offset by a 9.3% increase in average selling price. The increase in average selling price reflects the OEMs' continued move to one-piece luggage compartments. During the year, luggage compartment trim sales increased to the Honda Civic, Pontiac Grand Prix and Toyota Camry. These increases were offset by decreased sales to the Honda Accord and Ford Explorer. Manchester Plastics, which was acquired in January 1996, contributed $176.3 million in sales of plastic interior trim components during fiscal 1996 compared to $10.8 million in fiscal 1995. Manchester's sales in 1996 were negatively impacted by the General Motors strikes in the amount of $9.4 million and delays in the launch of certain new programs. These factors resulted in an increase in the Company's average revenue per North American-produced vehicle to approximately $68 for 1996 from approximately $54 for 1995. GROSS MARGIN: For 1996, gross margin was 17.9% of sales, down from 18.0% in 1995. The decrease in gross margin was attributable primarily to the lower sales to General Motors and lower margins in plastic components partially offset by the increase in the higher margin convertible top systems sales. In addition, Manchester Plastics reduced its gross profit by $3 million for a one-time special charge in December 1996 related to a disagreement with a customer over goods supplied. During 1995, the Company recorded a $2.4 million charge related to a plant closing and the write-off of certain assets in its molded carpet operations. 15 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses of $82.7 million in 1996 were $16.8 million higher than in 1995. The increase resulted primarily from the acquisitions of Manchester Plastics in January 1996 and Amco Convertible Fabrics in October 1995 and increased general and administrative costs due to expansion in Mexico and Europe. Selling, general and administrative expenses as a percentage of sales increased to 7.8% in 1996 from 7.3% in 1995. INTEREST EXPENSE: Interest expense, allocated to continuing operations, net of interest income of $4.0 million in 1996 and $1.6 million in 1995, increased to $39.9 million in 1996 from $22.2 million in 1995. In 1996, interest expense, including amounts allocated to discontinued operations and excluding interest income, increased to $70.6 million from $50.2 million in 1995. The overall increase in interest expense was due to the higher amount of overall outstanding indebtedness primarily related to the $197 million credit facility that was entered into in connection with the acquisition of Manchester Plastics in January 1996 (the "Term Loan B Facility") as well as the higher interest rates associated with the Subordinated Notes issued in June 1996. LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July 1994, the Company has sold on a continuous basis, through its Carcorp subsidiary, interests in a pool of accounts receivable. In connection with the receivables sales, a loss of $4.5 million, net of amounts allocated to discontinued operations, was incurred in 1996 compared to a loss of $6.2 million, net of amounts allocated to discontinued operations, in 1995. Total loss on sale of receivables, including amounts allocated to discontinued operations, decreased to $6.7 million in 1996 from $8.7 million in 1995. This decrease resulted from the shorter fiscal year in 1996 as well as an overall decrease in the outstanding interest sold under the variable portion of the accounts receivable facility during 1996. The decrease in the outstanding interest sold resulted primarily from the use of proceeds from the Subordinated Notes offering to satisfy a portion of the Company's liquidity needs. OTHER EXPENSE: In 1996, the Company recognized $.1 million in net foreign currency transaction losses related to obligations to be settled in currencies other than the functional currency of its foreign operations. INCOME TAXES: In 1996, the Company recognized a $24.4 million tax provision compared with a $140.0 million benefit in 1995. The increase in the Company's tax expense and reported rate results from the Company's recognition of certain deferred tax assets in 1995. In 1995, the benefit principally resulted from a reduction of valuation allowances against the Company's Federal net operating loss carryforwards and other deferred tax assets, offset by $9.9 million in current foreign, state, franchise and Federal alternative minimum taxes. DISCONTINUED OPERATIONS: The Company's income from discontinued operations was $14.3 million in 1996 compared to a loss of $.8 million in 1995. The increase relates primarily to Wallcoverings' results subsequent to April 29, 1996 being charged to the Company's existing discontinued operations reserves. Additionally, in 1995, Wallcoverings reported a $23.3 million loss which resulted from certain charges for the write-down of inventory, the consolidation of operations and the closing of facilities. Excluding the impact of Wallcoverings, income from discontinued operations declined due to the increase in reported tax rates which was partially offset by improved operating results for both the Mastercraft Group and Floorcoverings. EXTRAORDINARY LOSS: During 1996, the Company recognized a non-cash charge of $6.6 million, net of income taxes of $4.7 million, related to the refinancing of its bank credit facilities. The refinancing was done in conjunction with C&A Products' issuance of the Subordinated Notes. NET INCOME: The combined effect of the foregoing resulted in net income of $40.8 million in 1996 compared to net income of $206.4 million in 1995. 16 1995 COMPARED TO 1994 A discussion of the results of operations for the Company follows: NET SALES: Net sales decreased 0.6% to $902.0 million in 1995, from $907.0 million in 1994. Increased sales in three of the Company's products (molded carpet, luggage compartment trim and accessory mats), as well as the addition of Manchester Plastics on January 3, 1996, were substantially offset by a decrease in sales of convertible top systems and automotive bodycloth. Sales also declined 29.1% in velvet furniture fabrics as a result of the Company's decision to temporarily redeploy manufacturing capacity to automotive bodycloth. The North American automobile and light truck build declined 1.3% in 1995 from 1994. Automotive bodycloth sales decreased 3.8% to $327.5 million in 1995, down $12.8 million from 1994. The decline in sales was primarily due to an 8.2% decrease in unit shipments, which was partially mitigated by a 4.9% increase in average selling price due primarily to a shift in product mix. The unit shipment decline resulted from reduced automotive build in certain high content platforms which the Company supplies. The overall decrease in automotive bodycloth for the year was principally related to decreased sales to the Chrysler minivan platforms, the Ford Thunderbird, Windstar, Ranger and F-Series Truck and the Chevrolet Caprice and S-10 Truck. These decreases were partially offset by increased sales to the Chevrolet C/K Truck, Cavalier and Blazer, the Toyota Avalon and pickup truck, the Ford Contour and Escort, the Mercury Sable and the Chrysler Concorde. Molded floor carpet sales increased 8.7% to $231.8 million, up $18.6 million over 1994. The increase in sales was due to a 3.0% increase in unit shipments and a 5.6% increase in average selling price. The increase in average selling price is partially attributable to a shift in OEM production to higher content vehicles, such as the Chevrolet C/K truck line and the Ford Explorer. For the year, the overall increase in molded carpet sales was principally related to increased sales to the Chrysler Cirrus/Stratus, T300 Truck and Caravan minivan, the Ford Explorer and the Chevrolet C/K Truck. These increases were partially offset by decreased sales to the Chrysler Voyager minivan, the Ford Mustang and Probe, the Cadillac DeVille and the Toyota Camry. Convertible top systems sales decreased 27.5% to $58.2 million, down $22.0 million from 1994. The net decrease in sales resulted from a 46.2% decline in OEM production of the Ford Mustang convertible and the scheduled discontinuance of the Chrysler LeBaron convertible, which were partially offset by the introduction of the new Chrysler Sebring convertible in the latter part of October 1995 and the new Alfa Romeo Spider convertible, which began volume production in February 1995. Accessory mat sales increased 7.4% to $80.3 million, up $5.5 million over 1994. The increase in sales was primarily due to increased unit volume. For the year the overall increase in accessory mat sales was principally related to increased sales to the Ford Explorer, the Chrysler Cirrus/Stratus, the Toyota Avalon and the Honda Civic. These increases were partially offset by decreased sales to the Ford Mustang, Probe and Thunderbird, the Mazda 626 and the Mercury Cougar. Luggage compartment trim sales increased 15.8% to $52.4 million, up $7.2 million over 1994. The increase in sales was primarily due to a 7.1% increase in unit shipments and an 8.1% increase in average selling price. The increase in unit shipments and average selling price reflects the OEMs' continued move to finished luggage compartments. For the year, the overall increase in luggage compartment trim sales was principally related to increased sales to the Ford Explorer, the Chrysler Cirrus/Stratus and the Honda Civic. These increases were partially offset by decreased sales to the Nissan Sentra, the Chrysler Neon and the Pontiac Bonneville. These factors resulted in the Company's average revenue per North American-produced vehicle of approximately $54 for 1995 compared to approximately $53 for 1994. GROSS MARGIN: For 1995, gross margin was 18.0% of sales, down from 19.0% in 1994. The decrease in gross margin was attributable primarily to the decline in convertible top systems sales, which carry higher contribution margins than the segment's average. In addition, gross margin was impacted by certain 17 manufacturing inefficiencies, commission weaving costs incurred due to capacity constraints in the production of automotive bodycloth during the first half of 1995 and charges totaling $2.4 million related to a plant closing and the write-off of certain assets discussed previously. During the fourth quarter of 1995, the Company incurred charges of $2.4 million related to the anticipated closure of a molded carpet plant in Clinton, Oklahoma, the write-down of spinning equipment previously utilized in the production of molded carpet for Chrysler in Canada and the decision to discontinue the Company's automotive aftermarket accessory mat product line. The closure of the Clinton facility, which impacted 93 employees, and the write-down of the Canadian molded carpet equipment, resulted from changes in the supply requirements of certain of the Company's OEM customers. The Company terminated commission weaving during the second quarter of 1995. Manufacturing inefficiencies which impacted the first and second quarters resulted from the in-house startup of fabric lines which had previously been woven outside on a commission basis. Manufacturing inefficiencies also resulted to a lesser extent from the reengineering of fabric lines to meet customers' specifications. For the year, the impact of raw material price increases was offset by the Company's cost improvement programs and to a lesser extent by price increases to customers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses of $65.9 million in 1995 were $2.4 million lower than in 1994. The decrease resulted primarily from a reduction in certain advisory fees partially offset by increased product development, the acquisition of Manchester Plastics and increased general and administrative costs due to expansion in Mexico and Austria. Selling, general and administrative expenses as a percentage of sales decreased to 7.3% in 1995 from 7.5% in 1994. INTEREST EXPENSE: Interest expense, allocated to continuing operations, net of interest income of $1.6 million in 1995 and $6.4 million in 1994, decreased to $22.2 million in 1995 from $44.4 million in 1994. In 1995, interest expense, including amounts allocated to discontinued operations and excluding interest income, decreased to $50.2 million from $82.1 million in 1994. The overall decrease in interest expense was due to the Recapitalization, which reduced the amount of overall outstanding indebtedness and replaced higher fixed rate indebtedness with variable rate borrowings. LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July 1994, the Company has sold on a continuous basis, through its Carcorp subsidiary, interests in a pool of accounts receivable. In connection with the receivables sales, a loss of $6.2 million, net of amounts allocated to discontinued operations, was incurred in 1995 compared to a loss of $6.1 million, net of amounts allocated to discontinued operations, in 1994. Total loss on sale of receivables, including amounts allocated to discontinued operations, increased to $8.7 million in 1995 from $7.6 million in 1994. In 1994, the total loss of $7.6 million included $1.3 million related to one time fees and expenses related to the Bridge Receivables Facility (as defined below). INCOME TAXES: In 1995, the Company recognized a $140.0 million tax benefit compared with a $10.0 million provision in 1994. In 1995, the benefit principally resulted from a reduction of valuation allowances against the Company's Federal net operating loss carryforwards and other deferred tax assets, offset by $9.9 million in current foreign, state, franchise and Federal alternative minimum taxes. In 1994, income taxes consisted of foreign, state and franchise taxes and, to a small extent, Federal alternative minimum tax. DISCONTINUED OPERATIONS: The Company's loss from discontinued operations was $.8 million in 1995 compared with income of $34.4 million in 1994. A $23.3 million loss at Wallcoverings in 1995 resulted from charges for a write-down of inventory, the consolidation of all distribution activities to a new state of the art distribution center in Knoxville, Tennessee, the closure of Wallcoverings' Hammond, Indiana facility and the reengineering of Wallcoverings' production processes. The discontinued operations' loss was also impacted by reduced earnings from the Mastercraft Group due to market softness, which was partially offset by increased income from Floorcoverings. 18 EXTRAORDINARY LOSS: During 1994, the Company, as part of the Recapitalization, recognized a loss on the extinguishment of debt of $106.5 million, consisting of $9.6 million of premiums paid to redeem indebtedness and $96.9 million of unamortized discounts, deferred financing charges and defeasance costs. NET INCOME: The combined effect of the foregoing resulted in a net income of $206.4 million in 1995 compared to a net loss of $30.8 million in 1994. LIQUIDITY AND CAPITAL RESOURCES The Company and its subsidiaries had cash and cash equivalents totaling $14.3 million and $1.0 million at December 28, 1996 and January 27, 1996, respectively. The Company had a total of $69.4 million of borrowing availability under its credit arrangements as of December 28, 1996. The total was comprised of $20.1 million under the Revolving Facility, $35.0 million under the Delayed Draw Term Loan, $3.3 million under the Receivables Facility and approximately $11.0 million under bank demand lines of credit in Canada and Austria. In addition, $112 million was available at that date under the Delayed Draw Term Loan for specified purposes as discussed below. During February 1997, the Company sold its Floorcoverings subsidiary for net proceeds of $195.6 million (subject to post-closing adjustment), which were used to pay down the outstanding portion of the Revolving Facility and a portion of the Receivables Facility. As part of the Recapitalization, the Company entered into credit facilities consisting of (i) a Term Loan Facility, (ii) a Revolving Facility (together with the Term Loan Facility, the "Credit Agreement Facilities") and (iii) a bridge receivables facility, (the "Bridge Receivables Facility"), which was terminated and replaced with the Receivables Facility described below. On December 22, 1995, the Company and C&A Products entered into the Term Loan B Facility to finance the January 1996 purchase of Manchester Plastics. On June 3, 1996, the Company and C&A Products entered into an amendment and restatement (the "Amendment") of the Credit Agreement Facilities and the Term Loan B Facility (collectively, the "Bank Credit Facilities"). The Amendment was effected in connection with the sale of the Subordinated Notes described below and the use of proceeds from such sale to repay various outstanding loans under the Credit Agreement Facilities. As a result of the Amendment and the repayment of a portion of the Credit Agreement Facilities with a portion of the proceeds from the Subordinated Notes, the Bank Credit Facilities consist of (i) the Term Loan Facility, in an aggregate principal amount of $195 million (including a $45 million facility in Canada), payable in installments until final maturity on July 13, 2002, (ii) the Term Loan B Facility, in the principal amount of $195.8 million, payable in installments until final maturity on December 31, 2002, and (iii) the Revolving Facility, having an aggregate principal amount of up to $250 million and terminating on July 13, 2001. The Bank Credit Facilities, which are guaranteed by the Company and its U.S. subsidiaries (subject to certain exceptions), contain restrictive covenants including maintenance of EBITDA (i.e. earnings before interest, taxes, depreciation, amortization and other non-cash charges) and interest coverage ratios, leverage and liquidity tests and various other restrictive covenants which are customary for such facilities. In addition, C&A Products is generally prohibited from paying dividends or making other distributions to the Company except to the extent necessary to allow the Company to (w) pay taxes and ordinary expenses, (x) make permitted repurchases of shares or options, (y) make permitted investments in finance, foreign or acquired subsidiaries and (z) effect the proposed spin-off of Wallcoverings or the distribution of certain net proceeds of a sale of Wallcoverings if the proposed spin-off is not affected. In addition, the Company is permitted to pay dividends and repurchase shares of the Company in any fiscal year in an aggregate amount equal to the greater of (i) $12 million and (ii) if certain financial ratios are satisfied, 25% of the Company's consolidated net income for the previous fiscal year, and is permitted to pay additional dividends to effect the proposed spin-off of Wallcoverings or in amounts representing certain net proceeds from any sale of Wallcoverings in the event the proposed spin-off is not effected. The Company's obligations under the Bank Credit Facilities are secured by a pledge of the stock of C&A Products and its significant subsidiaries. 19 On June 10, 1996 C&A Products issued $400 million principal amount of Subordinated Notes, which mature in 2006. The Subordinated Notes are guaranteed by the Company. The indenture governing the Subordinated Notes generally prohibits the Company, C&A Products and any Restricted Subsidiary (as defined) from making certain payments and investments (generally, dividends and distributions on their capital stock; repurchases or redemptions of their capital stock; repayment prior to maturity of debt subordinated to the Subordinated Notes; and investments (other than permitted investments)) ("Restricted Payments") if (i) there is a default under the Subordinated Notes or (ii) after giving pro forma effect to the Restricted Payment, C&A Products could not incur at least $1.00 of additional indebtedness under the indenture's general test for the incurrence of indebtedness, which is a specified ratio (currently 2.0 to 1.0) of cash flow to interest expense or (iii) the aggregate of all such Restricted Payments from the issue date exceeds a specified threshold (based, generally, on 50% of cumulative consolidated net income since the quarter in which the issue date occurred plus 100% of the net proceeds of capital contributions to C&A Products from stock issuances by the Company). These prohibitions are subject to a number of significant exceptions, including dividends to stockholders of the Company or stock repurchases not exceeding $10 million in any fiscal year or $20 million in the aggregate until the maturity of the Subordinated Notes and dividends to the Company to permit it to pay its operating and administrative expenses. The Subordinated Notes indenture also contains other restrictive covenants (including, among others, limitations on the incurrence of indebtedness, asset dispositions and transactions with affiliates) which are customary for such securities. These covenants are also subject to a number of significant exceptions. In connection with the closing of the acquisition of JPS Automotive (the "JPS Automotive Acquisition"), in early December 1996 the Company amended the Bank Credit Facilities primarily to allow for the existence of the JPS Automotive 11-1/8% Senior Notes due 2001 (the "JPS Automotive Senior Notes") and to allow the Company to retain the proceeds from the sale of Floorcoverings. As part of the JPS Automotive Acquisition, the Company paid off approximately $15 million of outstanding bank indebtedness of JPS Automotive. The cash portion of the purchase price of the JPS Automotive Acquisition, the purchase price for the acquisition of a minority interest in a JPS Automotive subsidiary and the bank indebtedness at JPS Automotive that was repaid at the time of closing were funded through the Company's Revolving Facility. After giving effect to the above, JPS Automotive had as of December 28, 1996 approximately $118 million of indebtedness outstanding, which includes approximately $117 million (including a $5 million premium recorded to reflect market value at the time of the acquisition) of indebtedness related to the JPS Automotive Senior Notes. In addition, as a result of the JPS Automotive Acquisition, holders of the JPS Automotive Senior Notes had the right to put their notes to JPS Automotive at a price of 101% of their principal amount plus accrued interest. Approximately $3.9 million principal amount of JPS Automotive Senior Notes were so put to JPS Automotive and then repurchased by JPS Automotive on March 10, 1997. The Company will operate JPS Automotive as a restricted subsidiary under the Bank Credit Facilities and the indenture governing the Subordinated Notes. The indenture governing the JPS Automotive Senior Notes generally prohibits JPS Automotive from making certain restricted payments and investments (generally, dividends and distributions on its equity interests; purchases or redemptions of its equity interests; purchases of any indebtedness subordinated to the JPS Automotive Senior Notes; and investments other than as permitted) ("JPS Automotive Restricted Payments") unless (i) there is no default under the JPS Automotive Senior Notes indenture; (ii) after giving pro forma effect to the JPS Automotive Restricted Payment, JPS Automotive would be permitted to incur at least $1.00 of additional indebtedness under the indenture's general test for the incurrence of indebtedness which is a specified ratio (currently 2.5 to 1.0) of cashflow to interest expense, and (iii) the aggregate of all JPS Automotive Restricted Payments from the issue date is less than a specified threshold (based, generally, on 50% of JPS Automotive's cumulative consolidated net income since the issue date plus 100% of the aggregate net cash proceeds of the issuance by JPS Automotive of certain equity and convertible debt securities and cash contributions to JPS Automotive) (the "JPS Automotive Restricted Payments Tests"). These conditions were satisfied immediately following the closing of the JPS Automotive Acquisition and as of December 28, 1996. The JPS Automotive Restricted Payments Tests are subject to a number of significant exceptions. The indenture governing the JPS Automotive Senior Notes also contains other restrictive covenants (including, among others, limitations on the incurrence of indebtedness and issuance of preferred stock, asset 20 dispositions and transactions with affiliates including the Company and C&A Products) which are customary for such securities. These covenants are also subject to a number of significant exceptions. Additionally, in early December 1996, in connection with the JPS Automotive Acquisition, the Company entered into a $200 million delayed draw term loan (the "Delayed Draw Term Loan"). The Delayed Draw Term Loan is a 5.25 year term loan which was entered into to finance or refinance the purchase of any JPS Automotive Senior Notes put by the holders to JPS Automotive as a result of the change in control resulting from the JPS Automotive Acquisition or otherwise acquired. The Delayed Draw Term Loan is available until December 11, 1997. Up to $20 million of the Delayed Draw Term Loan can be utilized for general corporate purposes, including premium and accrued interest on the JPS Automotive Senior Notes. Prior to the JPS Automotive Acquisition, the Company had purchased in the open market $68 million principal amount of JPS Automotive Senior Notes, which were subsequently retired by JPS Automotive. As of December 28, 1996, $53 million had been drawn under the Delayed Draw Term Loan and $147 million was available, consisting of $15 million available to refinance previously acquired JPS Automotive Senior Notes, $20 million available for general corporate purposes and $112 million available for future purchases of JPS Automotive Senior Notes. The Board of Directors of the general partner of JPS Automotive has authorized JPS Automotive to expend for the repurchase of JPS Automotive Senior Notes up to the amount of funds that may be drawn for such purpose under the Delayed Draw Term Loan. The Delayed Draw Term Loan's security and restrictive covenants are identical to those in the Bank Credit Facilities. On March 31, 1995, C&A Products entered, through the Trust formed by Carcorp, into the Receivables Facility, comprised of (i) term certificates, which were issued on March 31, 1995, in an aggregate face amount of $110 million and have a term of five years and (ii) variable funding certificates, which represent revolving commitments of up to an aggregate of $75 million and have a term of five years. Carcorp purchases on a revolving basis and transfers to the Trust virtually all trade receivables generated by C&A Products and certain of its subsidiaries (the "Sellers"). The certificates represent the right to receive payments generated by the receivables held by the Trust. Availability under the variable funding certificates at any time depends primarily on the amount of receivables generated by the Sellers from sales to the auto industry, the rate of collection on those receivables and other characteristics of those receivables which affect their eligibility (such as the bankruptcy or downgrading below investment grade of the obligor, delinquency and excessive concentration). Based on these criteria, at December 28, 1996 approximately $28.3 million was available under the variable funding certificates, $25.0 million of which was utilized. In connection with the proposed spin-off of Wallcoverings, Wallcoverings was terminated as a seller of receivables under the Receivables Facility on September 21, 1996. Receivables sold by Wallcoverings prior to the termination will remain in the Trust until their collection. As of December 28, 1996, the Trust had not been required to redeem the term certificates resulting from the Trust's collection of Wallcoverings receivables. The Company also terminated Floorcoverings as of February 6, 1997 as a seller of receivables under the Receivables Facility in connection with the Company's sale of Floorcoverings. On March 25, 1997, the Trust redeemed $30 million face value of term certificates primarily as a result of the Trust collecting Wallcoverings and Floorcoverings receivables which were not replaced by eligible receivables. The proceeds received by Carcorp from collections on receivables, after the payment of expenses and amounts due on the certificates, are used to purchase new receivables from the Sellers. Collections on receivables are required to remain in the Trust if at any time the Trust does not contain sufficient eligible receivables to support the outstanding certificates. The Receivables Facility contains certain other restrictions on Carcorp (including maintenance of $25 million net worth) and on the Sellers (including limitations on liens on receivables, modifications of the terms of receivables, and changes in credit and collection practices) customary for facilities of this type. The commitments under the Receivables Facility are subject to termination prior to their term upon the occurrence of certain events, including payment defaults, breach of covenants, bankruptcy, insufficient eligible receivables to support the outstanding certificates, default by 21 C&A Products in servicing the receivables and, in the case of the variable funding certificates, failure of the receivables to satisfy certain performance criteria. The Company has a master equipment lease agreement for a maximum of $50 million of machinery and equipment. At December 28, 1996, the Company had $20.0 million of potential availability under this master lease for future machinery and equipment requirements of the Company subject to the lessor's approval. The Company has made lease payments relating to continuing operations of approximately $4.0 million in fiscal 1996 for machinery and equipment sold and leased back under this master lease. The Company expects lease payments for continuing operations under this master lease to be $5.6 million during 1997. The Company's principal sources of funds are cash generated from continuing operating activities, borrowings under the Bank Credit Facilities, the sale of receivables under the Receivables Facility and the sale of Floorcoverings and the Mastercraft Group. Net cash provided by the operating activities of the Company's continuing operations was $55.8 million for 1996. The Company's principal uses of funds for the next several years will be to fund interest and principal payments on its indebtedness, net working capital increases, capital expenditures, and acquisitions. At December 28, 1996, the Company had total outstanding indebtedness of $1,176.2 million (excluding approximately $25.9 million of outstanding letters of credit and $3.4 million of indebtedness of the discontinued operations) at an average interest rate of 9.1% per annum. Of the total outstanding indebtedness, $1,040.6 million relates to the Bank Credit Facilities and the Subordinated Notes. The Company's Board of Directors authorized the expenditure of up to $12 million in 1997 to repurchase shares of the Company's Common Stock. The Company believes it has sufficient liquidity under its existing credit arrangements to effect the repurchase program. The Company spent an aggregate of $9.6 million to repurchase shares during 1996. Indebtedness under the Term Loan Facility, the Revolving Facility and the Delayed Draw Term Loan bears interest at a per annum rate equal to the Company's choice of (i) Chase Manhattan Bank's Alternate Base Rate (which is the highest of Chase's announced prime rate, the Federal Funds Rate plus .5% and Chase's base certificate of deposit rate plus 1%) plus a margin (the "ABR Margin") ranging from 0% to .75% or (ii) the offered rates for Eurodollar deposits ("LIBOR") of one, two, three, six, nine or twelve months, as selected by the Company, plus a margin ranging from 1% to 1.75%. Margins, which are subject to adjustment based on changes in the Company's ratios of senior funded debt to EBITDA and cash interest expense to EBITDA, were 1.75% in the case of the "LIBOR Margin" and .75% in the case of the ABR Margin on December 28, 1996. Such margins will increase by .25% over the margins then in effect on July 13, 1999. Indebtedness under the Term Loan B Facility bears interest at a per annum rate equal to the Company's choice of (i) Chase Bank's Alternate Base Rate (as described above) plus a margin of 1.25% or (ii) LIBOR of one, two, three or six months, as selected by the Company, plus a margin of 2.25%. The weighted average rate of interest on the Bank Credit Facilities and the Delayed Draw Term Loan at December 28, 1996 was 7.54%. The weighted average interest rate on the sold interests under the Receivables Facility at December 28, 1996 was 6.28%. Under the Receivables Facility, the term certificates bear interest at an average rate equal to one month LIBOR plus .34% per annum and the variable funding certificates bear interest, at Carcorp's option, at LIBOR plus .40% per annum or a prime rate. The Subordinated Notes bear interest at a rate of 11.5% per annum. The JPS Automotive Senior Notes bear interest at a rate of 11.125% per annum. Cash interest paid during fiscal 1996 and 1995 was $60.0 million and $45.8 million, respectively. Due to the variable interest rates under the Bank Credit Facilities, the Delayed Draw Term Loan and the Receivables Facility, the Company is sensitive to increases in interest rates. Accordingly, during April 1996, the Company limited its exposure through April 2, 1998 on $80 million of notional principal amount utilizing zero cost collars with 4.75% floors and a weighted average cap of 7.86%. Based upon amounts outstanding at December 28, 1996, a .5% increase in LIBOR (5.5% at December 28, 1996) would impact interest costs by 22 approximately $3.2 million annually on the Bank Credit Facilities and $.7 million annually on the Receivables Facility. The current maturities of long-term debt primarily consist of the current portion of the Bank Credit Facilities, vendor financing, industrial revenue bonds and other miscellaneous debt. The maturities of long-term debt of the Company's continuing operations during 1997, 1998, 1999, 2000 and 2001 are $38.2 million, $53.2 million, $62.1 million $67.5 million and $187.9 million, respectively. The JPS Automotive Senior Notes, to the extent not previously put to JPS Automotive or otherwise acquired by the Company or JPS Automotive, will mature in 2001. In addition, the Bank Credit Facilities and the Delayed Draw Term Loan provide for mandatory prepayments of the Term Loan and Term Loan B Facilities and the Delayed Draw Term Loan with certain excess cash flow of the Company, net cash proceeds of certain asset sales or other dispositions by the Company other than proceeds generated from the sale of Floorcoverings, net cash proceeds of certain sale/leaseback transactions and net cash proceeds of certain issuances of debt obligations. The indenture governing the Subordinated Notes provides that in the event of certain asset dispositions, C&A Products must apply net proceeds (to the extent not reinvested in the business) first to repay Senior Indebtedness (as defined, which includes the Bank Credit Facilities and the Delayed Draw Term Loan) and then, to the extent of remaining net proceeds, to make an offer to purchase outstanding Subordinated Notes at 100% of their principal amount plus accrued interest. C&A Products must also make an offer to purchase outstanding Subordinated Notes at 101% of their principal amount plus accrued interest if a Change in Control (as defined) of the Company occurs. In addition, the Delayed Draw Term Loan, if fully drawn, will require a payment of $27 million on December 11, 1997 (the anniversary date of the initial draw) and equal quarterly payments in annual amounts equal to $38 million in 1998, $41 million in 1999, $42 million in 2000, $41 million in 2001 and $11 million at termination. In addition, the indenture governing the JPS Automotive Senior Notes requires JPS Automotive to apply the net proceeds from the sale of assets of JPS Automotive to offer to purchase JPS Automotive Senior Notes, to the extent not applied within 270 days of such asset sale to an investment in capital expenditures or other long term tangible assets of JPS Automotive, to permanently reduce senior indebtedness of JPS Automotive or to purchase JPS Automotive Senior Notes in the open market. The Company makes capital expenditures on a recurring basis for replacements and improvements. As of December 28, 1996, the Company's continuing operations had approximately $18.6 million in outstanding capital expenditure commitments. The Company currently anticipates that its capital expenditures for continuing operations in fiscal 1997 will aggregate approximately $90 million, a portion of which may be financed through leasing. The Company's capital expenditures in future years will depend upon demand for the Company's products and changes in technology. As of December 28, 1996, Wallcoverings and the Mastercraft Group had approximately $1.6 million and $1.0 million, respectively, in outstanding capital expenditure commitments. The Company is sensitive to price movements in its raw material supply base. During 1996, prices for most of the Company's primary raw materials remained constant with price levels at January 27, 1996. While the Company may not be able to pass on future raw material price increases to its customers, it believes that a significant portion of the increased cost can be offset by continued results of its value engineering/value analysis and cost improvement programs and by continued reductions in the cost of nonconformance. Since the Company announced in April 1996 its plan to spin off Wallcoverings the Company has repaid $21 million of intercompany amounts owed to Wallcoverings and expended approximately $19 million to fund operations, working capital and capital expenditures and to replace receivables previously sold to Carcorp. In 1997, the Company currently expects to expend (subject to the discretion of the Company's Board of Directors) approximately $40 million prior to the anticipated spin-off of Wallcoverings principally to fund Wallcoverings' future operations, working capital and capital expenditure requirements. Amounts actually required for these purposes could differ materially from expected amounts due to, among other things, changes in Wallcoverings' operating results and the availability of outside financing for Wallcoverings. 23 The Company has significant obligations relating to postretirement, casualty, environmental, lease and other liabilities of discontinued operations. In connection with the sale and acquisition of certain businesses, the Company has indemnified the purchasers and sellers for certain environmental liabilities, lease obligations and other matters. In addition, the Company is contingently liable with respect to certain lease and other obligations assumed by certain purchasers and may be required to honor such obligations if such purchasers are unable or unwilling to do so. Management currently anticipates that the net cash requirements of its discontinued operations, excluding Wallcoverings, Floorcoverings, and the Mastercraft Group, will be approximately $23 million in fiscal 1997. However, because the requirements of the Company's discontinued operations are largely a function of contingencies, it is possible that the actual net cash requirements of the Company's discontinued operations could differ materially from management's estimates. Management believes that the Company's cash needs relating to discontinued operations, including Wallcoverings and the Mastercraft Group, can be provided by operating activities from continuing operations and by borrowings under the Bank Credit Facilities. TAX MATTERS At December 28, 1996, the Company had outstanding net operating loss carryforwards ("NOLs") of approximately $284.2 million for Federal income tax purposes, which excludes $10.4 million related to the Company's discontinued Wallcoverings business. Substantially all of these NOLs expire over the period from 2000 to 2008. The Company also has unused Federal tax credits of approximately $12.7 million, $4.2 million of which expire during the period 1997 to 2007. Approximately $85.9 million of the Company's NOLs and $4.2 million of the Company's unused Federal tax credits may be used only against the income and apportioned tax liability of the specific corporate entity that generated such losses or credits or its successors. The Company believes that a substantial portion of these tax benefits will be realized in the future. Future sales of common stock by the Company or its principal shareholders, or changes in the composition of its principal shareholders, could constitute a "change in control" that would result in annual limitations on the Company's use of its NOLs and unused tax credits. Management cannot predict whether such a "change in control" will occur. If such a "change in control" were to occur, the resulting annual limitations on the use of NOLs and tax credits would depend on the value of the equity of the Company and the amount of "built-in gain" or "built-in loss" in the Company's assets at the time of the "change in control", which cannot be known at this time. In fiscal 1993 and prior years, the Company incurred significant financial reporting and tax losses principally as a result of a capital structure that contained a substantial amount of high interest rate debt. In addition, losses were incurred as the Company exited businesses which it did not consider to be consistent with its long-term strategy. Although substantial net deferred tax assets were generated during these periods, a valuation allowance was established because in management's assessment the historical operating trends made it uncertain whether the net deferred tax assets would be realized. During July 1994, the Company completed the Offering and Recapitalization, which reduced the Company's indebtedness, lowered interest expense and provided liquidity for operations and other general corporate purposes. As a result of the Recapitalization, the Company's annual financing costs were reduced from $115 million in fiscal 1993 to $57 million in fiscal 1995. In fiscal 1994, the Company reported taxable income and had net income before an extraordinary loss on the Recapitalization for financial reporting purposes; however, management determined, largely because of the Company's prior losses, that it remained uncertain whether the net deferred tax assets would be realized. In fiscal 1995, the Company's continuing business segments generated substantial operating income, consistent with historical trends, that, when combined with the post-Recapitalization capital structure, resulted in income for both tax and financial reporting purposes. The proposed spin-off of Wallcoverings that was announced in April 1996 further clarified management's assessment of the Company's likely future performance. Management considered these factors as well as the future outlook for its continuing 24 businesses in concluding that it is more likely than not that net deferred tax assets of $148.9 million and $161.9 million at December 28, 1996 and January 27, 1996, respectively, will be realized. While continued operating performance at current levels is sufficient to realize these assets, the Company's ability to generate future taxable income is dependent on numerous factors, including general economic conditions, the state of the automotive industry and other factors beyond management's control. Therefore, there can be no assurance that the Company will meet its expectation of future taxable income. The valuation allowance at December 28, 1996 provides for certain deferred tax assets that in management's assessment may not be realized due to tax limitations on the use of such amounts or that relate to tax attributes that are subject to uncertainty due to the long-term nature of their realization. In fiscal 1995, the California Franchise Tax Board issued a notice of tax assessment for approximately $11.8 million related to the treatment of the sale of certain foreign subsidiaries during 1987. The Company disputes the assessment and has filed a protest with the Franchise Tax Board. If the Franchise Tax Board were to maintain its position and such position were to be upheld in litigation, the Company would also become liable for the payment of interest which is currently estimated to be $16.5 million. In the opinion of management, the final determination of any additional tax and interest liability related to this matter will not have a material adverse effect on the Company's consolidated financial condition or future results of operations. ENVIRONMENTAL MATTERS The Company is subject to Federal, state and local environmental laws and regulations that (i) affect ongoing operations and may increase capital costs and operating expenses and (ii) impose liability for the costs of investigation and remediation and otherwise related to on-site and off-site 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 future results of operations. The Company is legally or contractually responsible or alleged to be responsible for the investigation and remediation of contamination at various sites. It also has received notices that it is a potentially responsible party ("PRP") in a number of proceedings. The Company may be named as a PRP at other sites in the future, including with respect to divested and acquired businesses. The Company is currently engaged in investigation or remediation at certain sites. In estimating the total cost of investigation and remediation, the Company has considered, among other things, the Company's prior experience in remediating contaminated sites, remediation efforts by other parties, data released by the United States Environmental Protection Agency, the professional judgment of the Company's environmental experts, outside environmental specialists and other experts, and the likelihood that other parties which have been named as PRPs will have the financial resources to fulfill their obligations at sites where they and the Company may be jointly and severally liable. Under the theory of joint and several liability, the Company could be liable for the full costs of investigation and remediation even if additional parties are found to be responsible under the applicable laws. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRPs, uncertainty regarding the extent of environmental problems and the Company's share, if any, of liability for such problems, the selection of alternative compliance approaches, the complexity of environmental laws and regulations and changes in cleanup standards and techniques. When it has been possible to provide reasonable estimates of the Company's liability with respect to environmental sites, provisions have been made in accordance with generally accepted accounting principles. As of December 28, 1996, including sites relating to the acquisition of Manchester Plastics, JPS Automotive and Perstorp Components and 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 22 sites where the Company is participating in the 25 investigation or remediation of the site, either directly or through financial contribution, and 9 additional sites where the Company is alleged to be responsible for costs of investigation or remediation. As of December 28, 1996, the Company's estimate of its liability for these 31 sites, which exclude sites related to Wallcoverings, is approximately $33.8 million. As of December 28, 1996, the Company has established reserves of approximately $46.1 million for the estimated future costs related to all its known environmental sites, excluding sites related to Wallcoverings. In the opinion of management, based on the facts presently known to it, the environmental costs and contingencies will not have a material adverse effect on the Company's consolidated financial condition or future results of operations. However, there can be no assurance that the Company has identified or properly assessed all potential environmental liability arising from the activities or properties of the Company, its present and former subsidiaries and their corporate predecessors. SAFE HARBOR STATEMENT This Form 10-K contains statements which, to the extent they are not historical fact, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements involve risks and uncertainties. The forward-looking statements in this Form 10-K are intended to be subject to the safe harbor protection provided by the Safe Harbor Acts. Risks and uncertainties that could cause actual results to vary materially from those anticipated in the forward-looking statements included in this on Form 10-K include industry-based factors such as possible declines in the North American automobile and light truck build, labor strikes at the Company's major customers and changes in consumer taste as well as factors more specific to the Company such as its dependence on significant automotive customers, the level of competition in the automotive supply industry, the substantial leverage of the Company and its subsidiaries, limitations imposed by the Company's debt facilities and organizational, managerial and financial changes made in connection with the integration of the operations acquired by the Company. The Company's divisions may also be affected by changes in the popularity of particular car models or the loss of programs on particular car models. For a discussion of certain of these and other important factors which may affect the Company's operations, products and markets, see "ITEM 1. BUSINESS" and the above discussion in this "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and see also the Company's other filings with the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Consolidated Financial Statements of Collins & Aikman Corporation and subsidiaries included herein and listed on the Index to Financial Statements set forth in Item 14 (a) of this Form 10-K report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 401 of Regulation S-K regarding executive officers is set forth in Part I hereof under the caption "Executive Officers of the Registrant" and the information required by Item 401 of Regulation S-K regarding directors is incorporated herein by reference to that portion of the Registrant's definitive Proxy Statement to be used in connection with its 1997 Annual Meeting of Stockholders, which will be filed in final form with the Commission not later than 120 days after December 28, 1996 (the "Proxy Statement"), captioned "Election of Directors--Information as to Nominees and Other Directors". The information required by Item 405 of Regulation S-K is incorporated herein by reference to that portion of the Proxy Statement captioned "Section 16 (a) Beneficial Ownership Reporting Compliance". ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to that portion of the Proxy Statement captioned "Executive Compensation". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to those portions of the Proxy Statement captioned "Voting Securities and Principal Stockholders" and "Election of Directors--Information as to Nominees and Other Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to that portion of the Proxy Statement captioned "Compensation Committee Interlocks and Insider Participation". 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS:
PAGE NUMBER Report of Independent Public Accountants F-1 Consolidated Statements of Operations for the fiscal years ended December 28, 1996, January 27, 1996, and January 28, 1995 F-2 Consolidated Balance Sheets at December 28, 1996 and January 27, 1996 F-3 Consolidated Statements of Cash Flows for the fiscal years ended December 28, 1996, January 27, 1996, and January 28, 1995 F-4 Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended December 28, 1996, January 27, 1996, and January 28, 1995 F-5 Notes to Consolidated Financial Statements F-6
(a) (2) FINANCIAL SCHEDULES: The following financial statement schedules of Collins & Aikman Corporation for the fiscal years ended December 28, 1996, January 27, 1996 and January 28, 1995 are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Collins & Aikman Corporation.
PAGE NUMBER Report of Independent Public Accountants on Schedules....................................................... S-1 Schedule I-Condensed Financial Information of the Registrant................................................ S-2 Schedule II-Valuation and Qualifying Accounts............................................................... S-5
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 July 7, 1994 reflects the name of the entity a party thereto or filing, as the case may be, at such time. Accordingly, documents and filings described below may refer to Collins & Aikman Holdings Corporation, Collins & Aikman Group, Inc. or Wickes Companies, Inc., if such documents and filings were made prior to July 7, 1994. 28
EXHIBIT NUMBER DESCRIPTION 2.1 - Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS Automotive L.P. and Collins & Aikman Products Co. dated August 28, 1996 is hereby incorporated by reference to Exhibit 2.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 27, 1996. 2.2 - Amendment No. 1 to Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS Automotive L. P., Foamex International Inc. and Collins & Aikman Products Co. dated as of December 11, 1996 is hereby incorporated by reference to Exhibit 2.2 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996. 2.3 - Equity Purchase Agreement by and among Seiren U.S.A. Corporation, Seiren Automotive Textile Corporation, Seiren Co., Ltd. and Collins & Aikman Products Co. dated December 11, 19996, is hereby incorporated by reference to Exhibit 2.3 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996. 2.4 - Acquisition Agreement between Perstorp A.B. and Collins & Aikman Products Co. dated December 11, 1996 is hereby incorporated by reference to Exhibit 2.4 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996. 2.5 - Agreement among Perstorp A. B., Perstorp GmbH, Perstorp Biotec A.B. and Collins & Aikman Products Co. dated December 11, 1996 is hereby incorporated by reference to Exhibit 2.5 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996. 2.6 - Shareholders Agreement among Collins & Aikman Products Co., Collins & Aikman Europe, Inc., Perstorp GmbH, Perstorp A.B., Perstorp Biotec A.B., Perstorp Components N.V. and Perstorp Components A.B., dated December 11, 1996 is hereby incorporated by reference to Exhibit 2.6 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996. 2.7 - Acquisition Agreement dated as of December 9, 1996 among Collins & Aikman Products Co., Collins & Aikman Floor Coverings Group, Inc., Collins & Aikman Floor Coverings, Inc., CAF Holdings, Inc. and CAF Acquisition Corp. is hereby incorporated by reference to Exhibit 2.7 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996. 3.1 - Restated Certificate of Incorporation of Collins & Aikman Corporation is hereby incorporated by reference to Exhibit 4.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 30, 1994. 3.2 - By-laws of Collins & Aikman Corporation, as amended, are hereby incorporated by reference to Exhibit 3.2 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 27, 1996. 3.3 - Certificate of Elimination of Cumulative Exchangeable Redeemable Preferred Stock of Collins & Aikman Corporation is hereby incorporated by reference to Exhibit 3.3 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 28, 1995. 4.1 - Specimen Stock Certificate for the Common Stock is hereby incorporated by reference to Exhibit 4.3 of Amendment No. 3 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed June 21, 1994. 4.2 - Indenture, dated as of June 1, 1996, between Collins & Aikman Products Co., Collins & Aikman Corporation and First Union National Bank of North Carolina, as Trustee, is hereby incorporated 29 EXHIBIT NUMBER DESCRIPTION by reference to Exhibit 4.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended April 27, 1996. 4.3 - First Supplemental Indenture dated as of June 1, 1996, between Collins & Aikman Products Co., Collins & Aikman Corporation and First Union National Bank of North Carolina, as Trustee, is hereby incorporated by reference to Exhibit 4.3 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended April 27, 1996. 4.4 - Amended and Restated Credit Agreement, dated as of June 3, 1996, among Collins & Aikman Products Co., as Borrower, Collins & Aikman Canada Inc., as Canadian Borrower, Collins & Aikman Corporation, as Guarantor, the lenders named therein, Bank of America N.T.S.A. and NationsBank, N.A., as Managing Agents, and Chemical Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 4.1 of Collins & Aikman Corporation's Current Report on Form 8-K dated June 3, 1996. 4.5 - Amendment, dated as of December 5, 1996, to the Amended and Restated Credit Agreement, dated as of June 3, 1996, among Collins & Aikman Products Co., as Borrower, Collins & Aikman Canada Inc., as Canadian Borrower, Collins & Aikman Corporation, as Guarantor, the Lenders parties thereto, and The Chase Manhattan Bank, as Administrative Agent, is hereby incorporated by reference to Exhibit 4.5 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 26, 1996. 4.6 - Credit Agreement, dated as of December 5, 1996, among Collins & Aikman Products Co., as Borrower, Collins & Aikman Corporation, as Guarantor, the Lenders named therein and The Chase Manhattan Bank, as Administrative Agent is hereby incorporated by reference to Exhibit 4.6 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 26, 1996. 4.7 - Indenture dated as of June 28, 1994, between JPS Automotive Products Corp., as Issuer, JPS Automotive L. P., as Guarantor and Shawmut Bank Connecticut, N.A., as Trustee, is hereby incorporated by reference to Exhibit 4.2 of JPS Automotive Corp.'s Registration Statement on Form S-1, Registration No. 33-75510. 4.8 - First Supplemental Indenture, dated as of October 5, 1994, between JPS Automotive Products Corp. and JPS Automotive L.P., as Co-Obligors and Shawmut Bank Connecticut, N.A., as Trustee is hereby incorporated by reference to Exhibit 4.48A of JPS Automotive L. P.'s and JPS Automotive Products Corp.'s Report on Form 10-Q for the fiscal quarter ended October 2, 1994. Collins & Aikman Corporation agrees to furnish to the Commission upon request in accordance with Item 601 (b)(4) (iii) (A) of Regulation S-K copies of instruments defining the rights of holders of long-term debt of Collins & Aikman Corporation or any of its subsidiaries, which debt does not exceed 10% of the total assets of Collins & Aikman Corporation and its subsidiaries on a consolidated basis. 10.1 - Amended and Restated Stockholders Agreement dated as of June 29, 1994 among the Company, Collins & Aikman Group, Inc., Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. is hereby incorporated by reference to Exhibit 10.1 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995. 30 EXHIBIT NUMBER DESCRIPTION 10.2 - Employment Agreement dated as of July 18, 1990 between Wickes Companies, Inc. and an executive officer is hereby incorporated by reference to Exhibit 10.3 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 26, 1991. * 10.3 - Letter Agreement dated as of May 16, 1991 and Employment Agreement dated as of July 22, 1992 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.4 - First Amendment to Employment Agreement dated as of February 24, 1994 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed April 19, 1994.* 10.5 - Letter Agreement dated as of May 16, 1991 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.14 of Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed April 19, 1994.* 10.6 - Employment Agreement dated as of April 6, 1995 between Collins & Aikman Products Co. and an executive officer is hereby incorporated by reference to Exhibit 10.24 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995.* 10.7 - Letter Agreement dated as of June 30, 1995 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.6 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 27, 1996.* 10.8 - Lease, executed as of the 1st day of June 1987, between Dura Corporation and Dura Acquisition Corp. is hereby incorporated by reference to Exhibit 10.24 of Amendment No. 5 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed July 6, 1994. 10.9 - Collins & Aikman Corporation 1996 Executive Incentive Compensation Plan is hereby incorporated by reference to Exhibit 10.9 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 27, 1996.* 10.10 - Collins & Aikman Corporation Supplemental Retirement Income Plan is hereby incorporated by reference to Exhibit 10.23 of Amendment No. 5 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed July 6, 1994.* 10.11 - 1993 Employee Stock Option Plan, as amended, is hereby incorporated by reference to Exhibit 10.13 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended April 29, 1995.* 10.12 - 1994 Employee Stock Option Plan is hereby incorporated by reference to Exhibit 10.14 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended April 29, 1995.* * 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. 31 EXHIBIT NUMBER DESCRIPTION 10.13 - 1994 Directors Stock Option Plan is hereby incorporated by reference to Exhibit 10.15 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995.* 10.14 - Excess Benefit Plan of Collins & Aikman Corporation is hereby incorporated by reference to Exhibit 10.25 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 28, 1995.* 10.15 - Amended and Restated Receivables Sale Agreement dated as of March 30, 1995 among Collins & Aikman Products Co., Ack-Ti-Lining, Inc., WCA Canada Inc., Imperial Wallcoverings, Inc., The Akro Corporation, Dura Convertible Systems Inc., each of the other subsidiaries of Collins & Aikman Products Co. from time to time parties thereto and Carcorp, Inc. is hereby incorporated by reference to Exhibit 10.18 of Collins & Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995. 10.16 - Servicing Agreement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, each of the subsidiaries of Collins & Aikman Products Co. from time to time parties thereto and Chemical Bank, as Trustee is hereby incorporated by reference to Exhibit 10.19 of Collins & Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995. 10.17 - Pooling Agreement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.20 of Collins & Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995. 10.18 - Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.21 of Collins & Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995. 10.19 - Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, the Initial Purchasers parties thereto, Societe Generale, as Agent for the Purchasers and Chemical Bank, as Trustee is hereby incorporated by reference to Exhibit 10.22 of Collins & Aikman Corporation's Report on Form 10-K to the fiscal year ended January 28, 1995. 10.20 - Amendment No. 1, dated September 5, 1995, among Carcorp, Inc., as Company, Collins & Aikman Products Co., as Master Servicer, and Chemical Bank, as Trustee, to the Pooling Agreement, dated as of March 30, 1995, among the Company, the Master Servicer and Trustee is hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 29, 1995. 10.21 - Amendment No. 2, dated October 25, 1995, among Carcorp, Inc., as Company, Collins & Aikman Products Co., as Master Servicer, and Chemical Bank, as Trustee, to the Pooling Agreement, dated as of March 30, 1995, among the Company, the Master Servicer and the Trustee is hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 28, 1995. * 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. 32 EXHIBIT NUMBER DESCRIPTION 10.22 - Amendment No. 1, dated February 29, 1996, to the Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.20 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 27, 1996. 10.23 - Amendment No. 1, dated February 29, 1996, to the Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, Societe Generale, as agent, and Chemical Bank, as Trustee, is hereby incorporated by reference to Exhibit 10.21 of Collins & Aikman Corporation's Report on Form 10-K for the fiscal year ended January 27, 1996. 10.24 - Master Equipment Lease Agreement dated as of September 30, 1994, between NationsBanc Leasing Corporation of North Carolina and Collins & Aikman Products Co. Is hereby incorporated by reference to Exhibit 10.27 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 29, 1994. 10.25 - Underwriting Agreement dated June 5, 1996 between Collins & Aikman Products Co., Collins & Aikman Corporation, Wasserstein Perella Securities, Inc., Chase Securities Inc. and BA Securities, Inc. is hereby incorporated by reference to Exhibit 1.1 of Collins & Aikman Corporation's Current Report on Form 8-K dated June 3, 1996. 10.26 - Second Amendment, dated as of October 3, 1996, to the Employment Agreement, dated as of July 22, 1992, as amended, between Collins & Aikman Products Co. and an executive officer is hereby incorporated by reference to Exhibit 10.26 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 26, 1996.* 11 - Computation of Earnings Per Share. 21 - Subsidiaries of the Registrant. 23 - Consent of Arthur Andersen LLP 27 - Financial Data Schedule. 99 - Voting Agreement between Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. is hereby incorporated by reference to Exhibit 99 of Amendment No. 4 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed June 27, 1994. * 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.
33 (b) REPORTS ON FORM 8-K. During the last quarter of the fiscal year for which this report on Form 10-K was filed, the Company filed a report on Form 8-K dated December 10, 1996, reporting (i) under Item 2 thereof, the acquisition on December 11, 1996 by the Company of JPS Automotive L.P. and Perstorp AB's automotive supply and related operations in North America, the United Kingdom and Spain and (ii) under Item 5 thereof, the execution on December 10, 1996 of a definitive agreement to sell the Company's Floorcoverings subsidiary and the execution on December 11, 1996 of a joint venture agreement with Perstorp AB (which closed on December 17, 1996) relating to automotive components supply facilities in Sweden, Belgium and France. In connection with this filing, the Company filed on February 24, 1997, by amendment to Form 8-K, the following financial statements under Item 7 of Form 8-K: Independent Auditors' Report dated February 9, 1996. Consolidated Balance Sheets of JPS Automotive L. P. and Subsidiaries as of December 31, 1995 and January 1, 1995 (Audited) Consolidated Statements of Operations of JPS Automotive L. P. and Subsidiaries for the year ended December 31, 1995, and the period from June 29, 1994 to January 1, 1995 (Audited). Consolidated Statements of Owners' Equity of JPS Automotive L. P. and Subsidiaries (Audited). Consolidated Statements of Cash Flows of JPS Automotive L. P. and Subsidiaries for the year ended December 31, 1995, and the period from June 29, 1994 to January 1, 1995 (Audited). Notes to Consolidated Financial Statements. Consolidated Balance Sheets of JPS Automotive L. P. and Subsidiaries as of September 29, 1996 (Unaudited). Consolidated Statements of Operations of JPS Automotive L. P. and Subsidiaries for the Nine Months Ended September 29, 1996 (Unaudited). Consolidated Statements of Cash Flows of JPS Automotive L. P. and Subsidiaries for the Nine Months Ended September 29, 1996 (Unaudited). Notes to Consolidated Condensed Financial Statements of JPS Automotive L. P. and Subsidiaries. Pro Forma Consolidated Statement of Operations of Collins & Aikman Corporation and Subsidiaries for the fiscal year ended January 27, 1996 (Unaudited). Pro Forma Consolidated Statement of Operations of Collins & Aikman Corporation and Subsidiaries for the Nine Months ended October 26, 1996 (Unaudited). Pro Forma Consolidated Balance Sheet of Collins & Aikman Corporation and Subsidiaries at October 26, 1996 (Unaudited). 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of March, 1997. COLLINS & AIKMAN CORPORATION By: /s/ David A. Stockman By: /s/ Randall J. Weisenburger --------------------------------- ----------------------------------- DAVID A. STOCKMAN RANDALL J. WEISENBURGER CO-CHAIRMAN OF THE BOARD OF DIRECTORS CO-CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ---------------------------------------------- ------------------------------- /s/ David A. Stockman Co-Chairman of the March 27, 1997 - -------------------------------- DAVID A. STOCKMAN Board of Directors /s/ Randall J. Weisenburger Co-Chairman of the March 27, 1997 - ----------------------------- RANDALL J. WEISENBURGER Board of Directors /s/ Thomas E. Hannah Director and Chief Executive Officer March 27, 1997 - -------------------------------- THOMAS E. HANNAH (Principal Executive Officer) /s/ J. Michael Stepp Executive Vice President and Chief March 27, 1997 - ----------------------------------- J. MICHAEL STEPP Financial Officer (Principal Financial and Accounting Officer) /s/ Robert C. Clark Director March 27, 1997 - ------------------------------------ ROBERT C. CLARK /s/ George L. Majoros, Jr. Director March 27, 1997 - -------------------------------- GEORGE L. MAJOROS, JR. /s/ James J. Mossman Director March 27, 1997 - -------------------------------- JAMES J. MOSSMAN /s/ Warren B. Rudman Director March 27, 1997 - ------------------------------ WARREN B. RUDMAN /s/ Stephen A. Schwarzman Director March 27, 1997 - --------------------------- STEPHEN A. SCHWARZMAN /s/ W. Townsend Ziebold, Jr. Director March 27, 1997 - ------------------------------ W. TOWNSEND ZIEBOLD, JR.
35 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Collins & Aikman Corporation: We have audited the accompanying consolidated balance sheets of Collins & Aikman Corporation (a Delaware Corporation) and subsidiaries as of December 28, 1996 and January 27, 1996 and the related consolidated statements of operations, cash flows, and common stockholders' deficit for each of the three fiscal years in the period ended December 28, 1996. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Collins & Aikman Corporation and subsidiaries as of December 28, 1996 and January 27, 1996 and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Charlotte, North Carolina, February 19, 1997. F-1 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- ---------------- --------------- (48 WEEKS) (52 WEEKS) (52 WEEKS) Net sales....................................................... $ 1,055,931 $ 902,017 $ 906,997 ---------------- ------------ ------------ Cost of goods sold.............................................. 867,257 740,092 734,510 Selling, general and administrative expenses.................... 86,625 66,266 68,304 ---------------- ------------ ------------ 953,882 806,358 802,814 ---------------- ------------ ------------ Operating income................................................ 102,049 95,659 104,183 Interest expense, net of interest income of $3,987, $1,556, and $6,374............................................ 39,850 22,150 44,440 Loss on sale of receivables..................................... 4,533 6,246 6,124 Dividends on preferred stock of subsidiary...................... - - 2,258 Other expense 113 - - ---------------- ------------ ------------ Income from continuing operations before income taxes........... 57,553 67,263 51,361 Income tax expense (benefit).................................... 24,442 (139,959) 10,031 ---------------- ------------ ------------ Income from continuing operations............................... 33,111 207,222 41,330 Income (loss) from discontinued operations, net of income taxes of $9,317, $844 and $1,506....................... 14,323 (781) 34,416 ---------------- ------------ ------------ Income before extraordinary loss................................ 47,434 206,441 75,746 Extraordinary loss, net of income taxes of $4,709 and $0........ (6,610) - (106,528) ---------------- ------------ ------------ Net income (loss)............................................... $ 40,824 $ 206,441 $ (30,782) ================= ============ ============ Dividends and accretion on preferred stock...................... - - (14,408) Excess of redemption cost over book value of preferred stock............................................... - - (82,022) ---------------- ------------ ------------ Income (loss) applicable to common stockholders.................................................. $ 40,824 $ 206,441 $ (127,212) ================= ============ ============ Net income (loss) per primary and fully diluted common share: Continuing operations....................................... $ .47 $ 2.91 $ (1.04) Discontinued operations..................................... .20 (.01) .65 Extraordinary item.......................................... (.09) - (2.01) ---------------- ------------ ------------ Net income (loss)........................................... $ .58 $ 2.90 $ (2.40) ================= ============== ============== Average common shares outstanding: Primary..................................................... 69,908 71,194 52,905 ================= ============== ============== Fully diluted............................................... 69,938 71,234 52,905 ================= ============== ==============
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-2 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 28, JANUARY 27, 1996 1996 ------------------- --------------- ASSETS Current Assets: Cash and cash equivalents.................................................... $ 14,316 $ 977 Accounts and other receivables, net of allowances of $10,601 and $3,381................................................................. 210,263 127,376 Inventories.................................................................. 129,860 96,928 Net assets of discontinued operations........................................ 212,039 161,025 Other........................................................................ 129,065 70,666 ------------------ -------------- Total current assets..................................................... 695,543 456,972 Property, plant and equipment, net.............................................. 375,974 193,438 Deferred tax assets............................................................. 92,011 132,294 Goodwill, net................................................................... 298,239 159,347 Other assets.................................................................... 74,713 49,310 ------------------ -------------- $ 1,536,480 $ 991,361 ================= ============= LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT Current Liabilities: Notes payable................................................................ $ 1,920 $ 2,101 Current maturities of long-term debt......................................... 38,190 49,228 Accounts payable............................................................. 126,927 93,603 Accrued expenses............................................................. 177,462 87,001 ------------------ -------------- Total current liabilities................................................ 344,499 231,933 Long-term debt.................................................................. 1,138,029 710,738 Other, including postretirement benefit obligation.............................. 248,530 276,542 Commitments and contingencies................................................... Common Stockholders' Deficit: Common stock (150,000 shares authorized, 70,521 shares issued and 67,723 shares outstanding at December 28, 1996 and 70,521 shares issued and 69,074 shares outstanding at January 27, 1996).... 705 705 Other paid-in capital........................................................ 585,207 585,469 Accumulated deficit.......................................................... (729,315) (770,139) Foreign currency translation adjustments..................................... (20,798) (23,719) Pension equity adjustment.................................................... (10,165) (9,090) Treasury stock, at cost (2,798 shares at December 28, 1996 and 1,447 shares at January 27, 1996))......................................... (20,212) (11,078) ------------------ -------------- Total common stockholders' deficit....................................... (194,578) (227,852) ------------------ -------------- $ 1,536,480 $ 991,361 ================= =============
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-3 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- ---------------- --------------- (48 WEEKS) (52 WEEKS) (52 WEEKS) OPERATING ACTIVITIES Income from continuing operations...................................... $ 33,111 $ 207,222 $ 41,330 Adjustments to derive cash flow from continuing operating activities: Deferred income tax expense (benefit)............................... 12,228 (149,822) (105) Depreciation and leasehold amortization............................. 24,568 24,146 24,648 Goodwill amortization............................................... 3,898 270 - Amortization of other assets and liabilities........................ 7,545 5,995 5,277 (Increase) decrease in accounts and other receivables............... (22,575) 2,762 (89,898) (Increase) decrease in inventories.................................. (486) 5,593 (16,312) Increase (decrease) in interest and dividends payable............... 7,784 1,353 (14,479) Increase (decrease)in accounts payable.............................. (10,608) 2,136 14,445 Other, net.......................................................... 359 (21,548) (20,730) ------------------ -------------- ------------- Net cash provided by (used in) continuing operating activities...................................................... 55,824 78,107 (55,824) ------------------ -------------- ------------- Cash provided by (used in) Wallcoverings, Floorcoverings and the Mastercraft Group discontinued operations............................ (1,342) 24,861 106,331 Cash used in other discontinued operations............................. (6,160) (22,886) (30,925) ------------------ -------------- ------------- Net cash provided by (used in) discontinued operations............ (7,502) 1,975 75,406 ------------------ -------------- ------------- INVESTING ACTIVITIES Additions to property, plant and equipment............................. (78,454) (93,698) (84,423) Sales of property, plant and equipment................................. 4,119 2,733 805 Proceeds from sale-leaseback arrangements.............................. - 32,818 30,365 Acquisitions of businesses, net of cash acquired....................... (225,256) (190,338) - Net proceeds from disposition of discontinued operations............... - - 68,861 Other, net............................................................. (10,198) (5,507) 1,915 __________________ ______________ _____________ Net cash provided by (used in) investing activities............... (309,789) (253,992) 17,523 ------------------ -------------- ------------- FINANCING ACTIVITIES Issuance of common stock............................................... - - 232,436 Issuance of long-term debt............................................. 453,475 213,658 675,234 Proceeds from (reduction of) participating interests in accounts receivable, net of redemptions............................. 7,000 (17,000) 145,000 Redmption of preferred stock........................................... - - (219,110) Repayment and defeasance of long-term debt............................. (286,406) (18,979) (884,908) Net borrowings (repayments) on revolving credit facilities, excluding the Recapitalization................................................. 127,804 5,000 (60,000) Net borrowings (repayments) on notes payable........................... (163) 214 (2,066) Purchases of treasury stock............................................ (9,594) (11,736) - Proceeds from exercise of stock options................................ 138 382 - Other, net............................................................. (17,448) 31 (1,747) ------------------ -------------- ------------- Net cash provided by (used in) financing activities............... 274,806 171,570 (115,161) Decrease in cash and cash equivalents.................................. 13,339 (2,340) (78,056) Cash and cash equivalents at beginning of year......................... 977 3,317 81,373 ------------------ -------------- ------------- Cash and cash equivalents at end of year............................... $ 14,316 $ 977 $ 3,317 ================== ============== =============
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-4 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT (IN THOUSANDS)
FOREIGN OTHER CURRENCY PENSION COMMON PAID-IN ACCUMULATED TRANSLATION EQUITY TREASURY STOCK CAPITAL DEFICIT ADJUSTMENTS ADJUSTMENT STOCK TOTAL --------- ---------- ----------- ------------ ----------- --------- --------- BALANCE AT JANUARY 29, 1994 $ 282 $ 160,317 $(849,337) $ (5,735) $ (7,747) $ - $ (702,220) Issuance of shares through the Recapitalization.................. 423 426,759 - - - - 427,182 Compensation expense adjustment..... - (795) - - - - (795) Net loss............................ - - (30,782) - - - (30,782) Redeemable preferred stock dividends........................ - - (12,380) - - - (12,380) Accretion of redeemable preferred stock............................ - - (2,028) - - - (2,028) Excess of redemption cost over book value of redeemable preferred stock............................ - - (82,022) - - - (82,022) Foreign currency translation adjustments...................... - - - (7,920) - - (7,920) Pension equity adjustment........... - - - - (1,657) - (1,657) BALANCE AT JANUARY 28, 1995 $ 705 $ 586,281 $(976,549) $ (13,655) $ (9,404) $ - $ (412,622) Compensation expense adjustment..... - (567) - - - - (567) Net income.......................... - - 206,441 - - - 206,441 Purchase of treasury stock (1,542 shares).......................... - - - - - (11,736) (11,736) Exercise of stock options (95 shares) - (245) (31) - - 658 382 Foreign currency translation adjustments...................... - - - (10,064) - - (10,064) Pension equity adjustment........... - - - - 314 - 314 BALANCE AT JANUARY 27, 1996......... $ 705 $ 585,469 $(770,139) $ (23,719) $ (9,090) $ (11,078) $ (227,852) Compensation expense adjustment..... - 60 - - - - 60 Net income.......................... - - 40,824 - - - 40,824 Purchase of treasury stock (1,420 shares).......................... - - - - - (9,594) (9,594) Exercise of stock options (69 shares) - (322) - - - 460 138 Foreign currency translation adjustments...................... - - - 2,921 - - 2,921 Pension equity adjustment........... - - - - (1,075) - (1,075) BALANCE AT DECEMBER 28, 1996 $ 705 $ 585,207 $(729,315) $ (20,798) $ (10,165) $ (20,212) $ (194,578)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-5 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION: Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman Holdings Corporation) is a Delaware corporation. Prior to July 13, 1994, the Company was a wholly-owned subsidiary of Collins & Aikman Holdings II Corporation ("Holdings II"). In connection with an initial public offering of common stock and a recapitalization (the "Recapitalization") (described below), Holdings II was merged into the Company. Concurrently, Collins & Aikman Group, Inc., a wholly-owned subsidiary of the Company ("Group"), was merged into its wholly-owned subsidiary, Collins & Aikman Corporation, which changed its name to Collins & Aikman Products Co. ("C&A Products"). On July 7, 1994, the Company changed its name from Collins & Aikman Holdings Corporation to Collins & Aikman Corporation. Prior to the Recapitalization, the Company was jointly owned by Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their respective affiliates. As of December 28, 1996, Blackstone Partners and WP Partners and their respective affiliates collectively own approximately 80% of the common stock of the Company. The Company conducts all of its operating activities through its wholly-owned C&A Products subsidiary. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION - The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany items have been eliminated in consolidation. Certain prior year items have been reclassified to conform with the fiscal 1996 presentation and are primarily related to the reclassification of Wallcoverings, the Mastercraft Group and the Floorcoverings subsidiary as discontinued operations. See Note 15. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FISCAL YEAR - During fiscal 1996, the Company changed its fiscal year to end on the last Saturday of December. Fiscal 1996 was a 48-week year which ended on December 28, 1996. Fiscal 1995 and fiscal 1994 were 52-week years which ended on January 27, 1996 and January 28, 1995, respectively. See Note 6. EARNINGS (LOSS) PER SHARE - Earnings (loss) per common share is based on the weighted average number of shares of common stock outstanding during each period and the assumed exercise of employee stock options less the number of treasury shares assumed to be purchased from the proceeds, including applicable compensation expense. In connection with the merger of Holdings II into the Company, the 35,035,000 shares of common stock of the Company outstanding prior to the Recapitalization were canceled and approximately 28,164,000 shares of common stock were issued in exchange for the common stock of Holdings II. All historical amounts and earnings (loss) per share computations have been adjusted to reflect the merger. Net losses have been adjusted by dividends and accretion requirements on preferred stock and the excess of redemption cost over book value of preferred stock to compute the losses applicable to common stockholders. FOREIGN CURRENCY - Foreign currency activity is reported in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS No. 52"). SFAS No. 52 generally F-6 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 adjustments arising from foreign currency translations are accumulated as a separate component of common stockholders' deficit. Translation adjustments during fiscal 1996, 1995 and 1994 were $2.9 million, ($10.1)million, and ($7.9) million, respectively. Gains and losses resulting from foreign currency transactions are recognized in income. Recorded balances that are denominated in a currency other than the Company's functional currency are adjusted to reflect the exchange rate at the balance sheet date. 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. ACCOUNTS AND OTHER RECEIVABLES - Accounts and other receivables consist primarily of the Company's trade receivables and the retained interest in the Receivables Facility. See Note 12. The Company has provided an allowance against uncollectible accounts. At December 28, 1996, $10.6 million of allowance existed of which $6.7 million related to JPS Automotive and Perstorp Components. See Note 3. INVENTORIES - Inventories are valued 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 as of December 28, 1996 and January 27, 1996 included $.5 million and $.5 million, respectively, which were on deposit with an Insurer to cover a portion of the self-insured portion of the Company's workers' compensation, automotive and general liabilities. During fiscal 1995, the Company replaced certain of these deposits with letters of credit. The Company's reserves for these claims were determined based upon actuarial analyses and aggregated $18.0 million and $21.9 million at December 28, 1996 and January 27, 1996, respectively. Of these reserves, $4.7 million and $5.1 million, respectively, were classified in current liabilities. 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 lives of the improvements. LONG LIVED ASSETS - In the fourth quarter of fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and that certain long-lived assets and identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The adoption of SFAS No. 121 did not have a material impact on the Company's consolidated results of operations. GOODWILL - Goodwill, representing the excess of purchase price over the fair value of net assets of the acquired entities, is being amortized on a straight-line basis over the period of forty years. Amortization of goodwill applicable to continuing operations for fiscal years 1996 and 1995 was $3.9 million and $.3 million, respectively. Accumulated amortization at December 28, 1996 was $4.2 million. The carrying value of goodwill will be reviewed periodically based on the nondiscounted cash flows and pretax income of the entities acquired over the remaining amortization periods. Should this review indicate that the goodwill F-7 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) balance will not be recoverable, the Company's carrying value of the goodwill will be reduced. At December 28, 1996, the Company believes the goodwill of $298.2 million was fully recoverable. See Note 3. ENVIRONMENTAL - The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. Accruals for environmental liabilities are generally included in the consolidated 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. NEWLY ISSUED ACCOUNTING STANDARDS - In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125") which was amended by Statement of Financial Accounting Standards No. 127, "Amendment to SFAS No. 125". SFAS No. 125, as amended, establishes standards of accounting for transfers of assets in which the transferor has some continuing involvement with the assets transferred or with the transferee. It also clarifies the accounting for arrangements whereby assets are set aside for the extinguishment of a liability. SFAS No. 125 is generally effective for transactions occurring after December 31, 1996, with early or retroactive application prohibited. The Company does not expect adoption of this standard will have a material impact on its, consolidated financial position or results of operations. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP 96-1"). SOP 96-1 provides authoritative guidance on specific accounting issues related to the recognition, measurement, display and disclosure of environmental remediation liabilities. SOP 96-1 addresses only those actions undertaken in response to a threat of litigation or assertion of a claim. It does not address accounting for pollution control costs with respect to current operations or for costs of future site restoration or closure required upon cessation of operations. SOP 96-1 is effective for fiscal years beginning after December 15, 1996. The Company does not expect adoption of this standard will have a material impact on its consolidated financial position or results of operations. In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") was issued. SFAS No. 128 requires presentation of basic earnings per share and diluted earnings per share and supersedes or amends all previous earnings per share presentation requirements. Basic earnings per share will be based on income available to common shareholders divided by the weighted average number of common shares outstanding. Diluted earnings per share is also based on income available to common shareholders divided by the sum of the weighted average number of common shares outstanding and all diluted potential common shares. SFAS No. 128 is effective for fiscal years ending after December 15, 1997. Earlier adoption is not allowed and the Company has not determined the impact on its future earnings per share presentations. 3. ACQUISITIONS: During fiscal 1996 and 1995, the Company acquired the entities described below, which were accounted for by the purchase method of accounting. The results of operations of the acquired companies are included in the Company's consolidated statements of operations for the periods in which they were owned by the Company. On December 11, 1996 the Company acquired JPS Automotive L. P. ("JPS Automotive") for $220 million, subject to post-closing adjustment, consisting of approximately $195 million of indebtedness of JPS Automotive and approximately $25 million of cash. The Company also acquired the minority interest in a JPS F-8 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Automotive subsidiary for $10 million. JPS Automotive has seven manufacturing locations located in the United States and Mexico which serve the North American automotive industry. JPS Automotive's significant product lines include molded floor carpet, bodycloth and headliner fabric. The purchase price allocation related to the JPS Automotive acquisition established certain reserves related to management's preliminary plans to rationalize certain acquired manufacturing facilities. See Note 16 for additional information. On December 11, 1996 the Company acquired Perstorp AB's automotive supply operations (primarily acoustical products) in North America, the United Kingdom and Spain (collectively referred to as "Perstorp Components") for $108 million, subject to adjustment. In addition, the Company and Perstorp AB entered into a joint venture agreement relating to Perstorp AB's automotive supply operations (primarily acoustical and plastic components) in Sweden, Belgium and France. On May 1, 1996, the Company acquired the business of BTR Fatati Limited ("Fatati"), a manufacturer and supplier of molded floor carpets and luggage compartment trim for the European automotive market. Fatati's manufacturing operations are located in the United Kingdom. On January 3, 1996, the Company completed the acquisition of Manchester Plastics for a purchase price of approximately $184.0 million, including $40.4 million of debt extinguished in connection with the acquisition. The acquisition, related fees and expenses and estimated Manchester Plastics working capital requirements were financed with the proceeds from a $197 million term loan facility. Manchester Plastics is a designer and manufacturer of high quality plastic-based automotive door panels, headrests, floor console systems and instrument panel components used in the interior of automobiles, light trucks, sport utility vehicles and minivans. It serves the North American automakers from seven manufacturing plants in the United States and Canada. In November 1995, the Company acquired certain assets of Amco Manufacturing Corporation and its Mexican affiliate Omca, Inc. (collectively "Amco") for approximately $7 million. The assets acquired are used in the manufacture and design of convertible tops and related parts for the automotive manufacturers in the United States and Mexico as well as the automotive aftermarket. The excess of the purchase price for each acquisition over the estimated fair value of the tangible and identifiable intangible net assets acquired is being amortized over a period of forty years on a straight line basis. In determining the amortization period of goodwill assigned to these automotive industry acquisitions, management assessed the impact of these acquisitions on the Company's ability to strategically position itself with the long term trends in the design and manufacture of automotive products. The trends that management has identified are the increased use of plastic components, the increased sourcing of interior systems and U.S. automotive manufacturers' movement to fewer suppliers and to suppliers with engineering and design capabilities. The Company anticipates the reduction in the supply chain will result in integration whereby the complete interior of an automobile will be co-designed and developed with fewer supplies who will manufacture and deliver required components. The Company anticipates these capabilities will be essential to its long term strategic positioning as a key supplier within the automotive industry and with its customers. 4. RECAPITALIZATION: On July 13, 1994, the Company completed an initial public offering (the "Offering") of 15,000,000 shares of its common stock. The Offering provided net proceeds to the Company of $145.4 million. In addition, the Company sold to its principal stockholders, Blackstone Partners and WP Partners, and their respective affiliates an additional 8,810,000 shares for $87 million. These proceeds were combined with $720 million of proceeds from new credit facilities and existing cash to redeem all outstanding shares of preferred stock issued by the Company and Group as well as virtually all their outstanding indebtedness totaling approximately $983.1 F-9 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) million. The redemption of this indebtedness resulted in a loss of $106.5 million consisting of premiums paid of $9.6 million, unamortized debt discounts and deferred debt expenses of $79.7 million and $11.8 million, respectively, and post-defeasance interest of $5.4 million. In a noncash transaction, approximately 18,500,000 shares were issued by the Company in exchange for outstanding indebtedness in an amount of $194.7 million. 5. PRO FORMA INFORMATION: Set forth below are unaudited pro forma consolidated results from continuing operations assuming (i) the fiscal 1996 acquisitions of JPS Automotive and Perstorp Components had occurred as of the beginning of fiscal 1996 and 1995 (see Note 3), (ii) the application of net proceeds of the sale of Floorcoverings had occurred as of the beginning of fiscal 1996 and 1995 (see Note 15), (iii) the issuance of the Subordinated Notes, the application of the net proceeds to pay down indebtedness and the amendment to the Bank Credit Facilities (as defined in Note 11) had occurred as of the beginning of fiscal 1996 and 1995 and (iv) the fiscal 1995 acquisitions of Manchester Plastics and Amco had occurred as of the beginning of the 1995 fiscal year (in thousands, except per share amounts):
FISCAL YEAR ENDED --------------------------- DECEMBER 28, JANUARY 27, 1996 1996 -------------- ------------ (48 WEEKS) (52 WEEKS) Net sales......................................... $1,474,642 $1,554,114 Operating income.................................. 127,224 136,547 Interest expense, net............................. 66,994 73,786 Loss on the sale of receivables................... 4,533 6,246 Income from continuing operations................. 31,900 196,457 Income from continuing operations per common share................................... .46 2.76 Average shares outstanding........................ 69,908 71,194
After giving effect to the adjustments above, net income for fiscal 1996 and 1995 on a pro forma basis would have been $37.2 million and $177.0 million, respectively. In addition to the adjustments to income from continuing operations, income from discontinued operations for fiscal 1996 would have decreased as a result of (i) additional interest being allocated to the Mastercraft Group relating to the increased consolidated interest expense of the Company and (ii) the operating results for Floorcoverings being excluded because of the assumption that the sale would have occurred at the beginning of the year. Fiscal 1995 loss from discontinued operations would have increased for the same reasons identified for fiscal 1996. The extraordinary loss in fiscal 1996 would have been eliminated because the pro forma adjustments are based as if the transaction that created the extraordinary loss would have occurred at the beginning of the year. F-10 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Set forth below are unaudited pro forma consolidated results from continuing operations assuming (i) the fiscal 1995 acquisitions of Manchester Plastics and Amco had occurred as of the beginning of the 1995 and 1994 fiscal years and (ii) the Offering and Recapitalization had occurred as of the beginning of the 1994 fiscal year (in thousands, except per share amounts): FISCAL YEAR ENDED JANUARY 27, JANUARY 28, 1996 1995 --------------- ---------------- (52 WEEKS) (52 WEEKS) Net sales............................. $1,084,080 $1,084,094 Operating income...................... 99,947 127,305 Interest expense, net................. 37,050 39,713 Loss on the sale of receivables....... 6,246 7,799 Income from continuing operations..... 196,362 65,729 Income from continuing operations per common share................... 2.76 .91 Average shares outstanding............ 71,194 72,166 After giving effect to the adjustments above, net income for fiscal 1995 and 1994 would have been $195.6 million and $118.5 million, respectively. The pro forma adjustments identified above for fiscal 1995 would not impact the results from discontinued operations as presented. The income from discontinued operations for fiscal 1994 after giving effect for the pro forma adjustments would have increased as a result of reduced allocated interest expense. The extraordinary loss in fiscal 1994 would have been eliminated as a result of the Recapitalization occurring at the beginning of fiscal 1994. The pro forma data above excludes all interest and other charges related to the preferred stock and indebtedness redeemed as part of the Offering and Recapitalization. F-11 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. CHANGE IN FISCAL YEAR During fiscal 1996, the Company changed its fiscal year-end to the last Saturday in December. As a result of this change, fiscal 1996 was a 48-week period. The following information presents comparative data for the periods ended December 28, 1996 and December 23, 1995 (amounts in thousands, except per share data): PERIOD ENDED ------------------------------- DECEMBER 23, DECEMBER 28, 1995 1996 (UNAUDITED) ---------------- -------------- (48 WEEKS) (47 Weeks) Net sales.............................. $ 1,055,931 $ 815,811 Operating income....................... 102,049 88,767 Income from continuing operations...... 33,111 55,180 Income from discontinued operations.... 14,323 20,440 Extraordinary loss..................... (6,610) - Net income............................. 40,824 75,620 Net income per primary and fully diluted share: Continuing operations................ $ .47 $ .77 Discontinued operations.............. .20 .29 Extraordinary items.................. (.09) - ------------- ------------ Net income........................... $ .58 $ 1.06 ============= ============ 7. INTEREST RATE PROTECTION PROGRAM: The Company maintains a program designed to reduce its exposure to changes in the cost of its variable rate borrowings by the use of interest rate collar agreements. The Company has limited its exposure through April 2, 1998 on $80 million of notional principal amount utilizing zero cost collars with 4.75% floors and a weighted average cap of 7.86%. Payments to be received, if any, as a result of these agreements are accrued as a reduction of interest expense. Amortization of certain interest rate protection agreements that expired during October 1996 amounted to $.7 million, $.7 million and $.1 million, respectively, during fiscal 1996, 1995 and 1994. 8. INVENTORIES: Inventory balances are summarized below (in thousands): DECEMBER 28, JANUARY 27, 1996 1996 ------------------- ---------------- Raw materials................ $ 62,413 $ 48,702 Work in process.............. 29,069 15,450 Finished goods............... 38,378 32,776 ------------------- ---------------- $ 129,860 $ 96,928 ==================== ================ F-12 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. PROPERTY, PLANT AND EQUIPMENT, NET: Property, plant and equipment, net, are summarized below (in thousands): DECEMBER 28, JANUARY 27, 1996 1996 ------------------- ---------------- Land and improvements.......... $ 26,887 $ 17,210 Buildings...................... 108,707 81,246 Machinery and equipment........ 324,825 170,202 Leasehold improvements......... 1,253 1,188 Construction in progress....... 19,766 9,054 ------------------- ---------------- 481,438 278,900 Less accumulated depreciation and amortization......... (105,464) (85,462) ------------------- ---------------- $ 375,974 $ 193,438 =================== ================ Depreciation and leasehold amortization of property, plant and equipment applicable to continuing operations was $24.6 million, $24.1 million, and $24.6 million for fiscal 1996, 1995 and 1994, respectively. 10. ACCRUED EXPENSES: Accrued expenses are summarized below (in thousands): DECEMBER 28, JANUARY 27 1996 1996 ------------------- --------------- Payroll and employee benefits.... $ 52,542 $ 27,545 Interest......................... 15,023 7,239 Other............................ 109,897 52,217 ------------------- --------------- $ 177,462 $ 87,001 =================== =============== F-13 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. LONG-TERM DEBT: Long-term debt is summarized below (in thousands): DECEMBER 28, JANUARY 27 1996 1996 ------------- ----------- Bank Credit Facilities: Revolving Credit Facility............. $ 204,000 $ 75,000 Term Loan Facility.................... 190,333 461,806 Term Loan B Facility.................. 193,250 197,000 Delayed Draw Term Loan................ 53,000 - Public Indebtedness: 11-1/2% Senior Subordinated Notes..... 400,000 - JPS Automotive 11-1/8% Senior Notes... 117,221 - Other.................................... 18,415 26,160 ------------- ----------- Total debt............................... 1,176,219 759,966 Less current maturities.................. (38,190) (49,228) ------------- ----------- $1,138,029 $710,738 ============= =========== BANK CREDIT FACILITIES The Company's Bank Credit Facilities consist of a (i) $250 million Revolving Credit Facility due July 2001, (ii) $195 million Term Loan Facility due in quarterly installments through July 2002, (iii) Term Loan B Facility in the principal amount of $195.8 million due in quarterly installments through December 2002 and (iv) $200 million Delayed Draw Term Loan Facility which was entered into in December 1996 payable in quarterly installments through March 2002. In June 1996, the Company amended and restated the Revolving Credit, Term Loan, and Term Loan B Facilities in connection with the sale of $400 million in Senior Subordinated Notes (discussed below). The amendment resulted in the use of proceeds from such sale to repay various outstanding amounts under the Revolving and Term Loan Facilities. In connection with such amendment and repayment, the Company recognized a non-cash extraordinary charge of $6.6 million, net of income taxes of $4.7 million. In December 1996, the Company, in connection with the acquisition of JPS Automotive, amended the Revolving Credit, Term Loan and Term Loan B Facilities to allow for the existence of the JPS Automotive 11-1/8% Senior Notes ("JPS Automotive Senior Notes") and to allow the Company to retain proceeds from the sale of its Floorcoverings subsidiary. Additionally, in December 1996, the Company entered into the $200 million Delayed Draw Term Loan Facility to finance or refinance the purchase of JPS Automotive Senior Notes. The Company may draw $20 million of the facility for general corporate purposes. The Delayed Draw Term Loan Facility will be available until December 11, 1997. As of December 28, 1996, the Company had drawn $53 million under the Delayed Draw Term Loan to refinance and repurchase a portion of the $68 million of JPS Automotive Senior Notes purchased by the Company prior to its acquisition of JPS Automotive and subsequently retired by JPS Automotive. F-14 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Bank Credit Facilities, which are guaranteed by the Company and its U.S. subsidiaries (subject to certain exceptions), contain restrictive covenants including maintenance of EBITDA (i.e. earnings before interest, taxes, depreciation, amortization and other non-cash charges) and interest coverage ratios, leverage and liquidity tests and various other restrictive covenants which are customary for such facilities. In addition, C&A Products is generally prohibited from paying dividends or making other distributions to the Company except for the Company's expenses and for permitted dividends or stock repurchases and in certain other circumstances. In addition, the Bank Credit Facilities provide for mandatory prepayments with certain excess cash flows of the Company and certain other transactions. The Company's obligations under the Bank Credit Facilities are secured by a pledge of the stock of C&A Products and its significant subsidiaries. Indebtedness under the Term Loan Facility, Revolving Credit Facility and the Delayed Draw Term Loan bears interest at a per annum rate equal to the Company's choice of (i) Chase Manhattan Bank's ("Chase's") Alternate Base Rate plus a margin (the "ABR Margin") ranging from 0% to .75% or (ii) the offered rates for Eurodollar deposits ("LIBOR") plus a margin (the "LIBOR Margin") ranging from 1% to 1.75%. Pursuant to the terms of the Term Loan Facility, the Revolving Credit Facility and the Delayed Draw Term Loan at December 28, 1996, the ABR Margin is .75% and the LIBOR Margin is 1.75%. Indebtedness under the Term Loan B Facility bears interest at a per annum rate equal to the Company's choice of (i) Chase's Alternate Base Rate plus a margin of 1.25% or (ii) the offered rates for LIBOR plus a margin of 2.25%. The weighted average rate of interest on the balances outstanding under the Bank Credit Facilities at December 28, 1996 was 7.54%. The Company had a total of $66.1 million of borrowing availability under the Bank Credit Facilities and other credit lines as of December 28, 1996. The total is comprised of approximately $20.1 million under the Revolving Facility, $35.0 million under the Delayed Draw Term Loan and approximately $11.0 million under demand lines of credit in Canada and Austria. An additional $112.0 million was available at that date under the Delayed Draw Term Loan to finance the purchase of JPS Automotive Senior Notes in the future. At December 28, 1996, the Company had approximately $25.9 million outstanding in letters of credit. PUBLIC INDEBTEDNESS: In June 1996, the Company's wholly-owned subsidiary, C&A Products, issued at face value $400 million principal amount of 11-1/2% Senior Subordinated Notes due 2006 (the "Subordinated Notes"), which are guaranteed by the Company. The Company used approximately $356.8 million of the total net proceeds of $387.0 million to repay $348.2 million principal amount of outstanding bank borrowings plus accrued interest on such borrowings and related fees and expenses and used the remainder for general corporate purposes. The indenture governing the Subordinated Notes generally prohibits the Company, C&A Products and any Restricted Subsidiary (as defined) from making certain payments and investments unless a certain financial test is satisfied and the aggregate amount of such payments and investments since the issue date is less than a specified amount. The prohibition is subject to a number of significant exceptions, including dividends to stockholders of the Company or stock repurchases not exceeding $10 million in any fiscal year or $20 million in the aggregate until the maturity of the Subordinated Notes and dividends to the Company to permit it to pay its operating and administrative expenses. The Subordinated Notes indenture also contains other restrictive covenants (including, among others, limitations on the incurrence of indebtedness, asset dispositions and transactions with affiliates) which are customary for such securities. These covenants are also subject to a number of significant exceptions. On the JPS Automotive acquisition date, $180 million principal amount of JPS Automotive Senior Notes were outstanding. Of this amount, $68 million had been purchased by the Company in the open market and were subsequently contributed to or repurchased by JPS Automotive. The remaining $112 million face value of JPS Automotive Senior Notes were recorded at a market value of $117.2 million on the date of the F-15 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) acquisition. Holders of the JPS Automotive Senior Notes had the right to put their notes to JPS Automotive at a price of 101% of their principal amount plus accrued interest as a result of the JPS Automotive acquisition. Approximately $3.9 million principal amount of JPS Automotive Senior Notes were so put to JPS Automotive and then repurchased by JPS Automotive on March 10, 1997. The indenture governing the JPS Automotive Senior Notes generally prohibits JPS Automotive from making certain payments and investments (generally, dividends and distributions on its equity interests; purchases or redemptions of its equity interests; purchases of any indebtedness subordinated to the JPS Automotive Senior Notes; and investments other than as permitted) unless a certain financial test is satisfied and the aggregate amount of such payments and investments since the issue date is less than a specified amount (the "JPS Automotive Restricted Payments Tests"). These conditions were satisfied immediately following the closing of the JPS Automotive Acquisition. The JPS Automotive Restricted Payments Tests are subject to a number of significant exceptions. The indenture governing the JPS Automotive Senior Notes also contains other restrictive covenants (including, among others, limitations on the incurrence of indebtedness and preferred stock, asset dispositions and transactions with affiliates including the Company and C&A Products) which are customary for such securities. These covenants are also subject to a number of significant exceptions. At December 28, 1996, the scheduled annual maturities of long-term debt are as follows (in thousands): FISCAL YEAR ENDING December 1997.................... $ 38,190 December 1998.................... 53,150 December 1999.................... 62,074 December 2000.................... 67,535 December 2001.................... 187,935 Later Years...................... 767,335 ------------- $ 1,176,219 ============= Total interest paid by the Company on all indebtedness was $60.0 million, $45.8 million, and $77.9 million for fiscal 1996, 1995 and 1994, respectively. 12. RECEIVABLES FACILITY: In connection with the Recapitalization, C&A Products and certain of its subsidiaries (the "Sellers") sold approximately $190.0 million of customer trade receivables to Carcorp, Inc. ("Carcorp"), a wholly-owned, bankruptcy remote subsidiary of C&A Products which, in turn, sold an undivided senior interest in the receivables pool for $136.8 million to Chase pursuant to a Receivables Transfer and Servicing Agreement with Chase, as administrative agent (the "Bridge Receivables Facility"). Carcorp purchases on a revolving basis virtually all trade receivables generated by the Sellers. On March 31, 1995, C&A Products entered, through the trust formed by Carcorp, into the Receivables Facility, comprised of (i) term certificates, which were issued on March 31, 1995, in an aggregate face amount of $110 million and have a term of five years and (ii) variable funding certificates, which represent revolving commitments of up to an aggregate of $75 million and have a term of five years. Carcorp purchases on a revolving basis and transfers to the trust virtually all trade receivables generated by C&A Products and certain of its subsidiaries (the "Sellers"). The certificates represent the right to receive payments generated by the receivables held by the trust. F-16 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In connection with the proposed spin-off of Wallcoverings (see Note 15), Wallcoverings was terminated as a seller of receivables under the Receivables Facility on September 21, 1996. Receivables sold by Wallcoverings prior to the termination will remain in the trust until their collection. As of December 28, 1996, the trust had not been required to redeem the term certificates resulting from the trust's collection of Wallcoverings receivables. The Company also terminated Floorcoverings as of February 6, 1997 as a seller of receivables under the Receivables Facility in connection with the Company's sale of Floorcoverings. The Company believes that approximately $30 million face value of term certificates will be redeemed as the trust collects the Floorcoverings and Wallcoverings receivables. Availability under the variable funding certificates at any time depends primarily on the amount of receivables generated by the Sellers from sales to the auto industry, the rate of collection on those receivables and other characteristics of those receivables that affect their eligibility (such as bankruptcy or downgrading below investment grade of the obligor, delinquency and excessive concentration). Based on these criteria, at December 28, 1996 approximately $28.3 million was available under the variable funding certificates, of which $25.0 million was utilized. In connection with the receivables sales, a loss of $4.5 million, $6.2 million and $6.1 million was incurred for continuing operations in fiscal 1996, 1995 and 1994, respectively. Of the fiscal 1994 loss, $1.0 million related to initial fees and expenses associated with the sales and $5.1 million related to discounts on the receivables sold. As of December 28, 1996, Carcorp's total receivables pool was $178.0 million net of reserves for doubtful accounts. As of December 28, 1996, the holders of term certificates and variable funding certificates collectively had invested $135 million to purchase an undivided senior interest (net of settlements in transit) in the trust's receivables pool and, accordingly, such receivables were not reflected in the Company's accounts receivable balance as of that date. 13. 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. On September 30, 1994, the Company entered into a master equipment lease agreement. Pursuant to that agreement, during fiscal 1995 and 1994 the Company sold and leased back equipment utilized in its manufacturing operations. During fiscal 1995 and 1994, equipment of its continuing operations having aggregate net book values totaling $18.8 million and $22.6 million, respectively, were removed from the balance sheet and gains realized on the sales totaling approximately $.1 million and $.5 million, respectively, were deferred and are being recognized as adjustments to rent expense over the lease terms. Payments under the lease began in 1995 and the Company made lease payments related to continuing operations of approximately $4.0 million and $4.6 million for fiscal 1996 and 1995, respectively. The Company has a purchase option on the equipment at the end of the lease term based on the fair market value of the equipment and has additional options to cause the sale of some or all of the equipment or to purchase some or all of the equipment at prices determined under the agreement. The Company has classified the leases as operating. The Company may sell and lease back additional equipment in the future under the same master lease agreement, subject to lessors' approval. F-17 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 28, 1996, future minimum lease payments under operating leases for continuing operations are as follows (in thousands): FISCAL YEAR ENDING December 1997......................................... $ 16,863 December 1998......................................... 14,472 December 1999......................................... 13,591 December 2000......................................... 12,684 December 2001......................................... 12,196 Later years........................................... 16,540 --------- $ 86,346 ========= Rental expense of continuing operations under operating leases was $15.2 million, $13.2 million, and $11.4 million for fiscal 1996, 1995 and 1994, respectively. Obligations under capital leases are not significant. 14. EMPLOYEE BENEFIT PLANS: DEFINED BENEFIT PLANS Subsidiaries of the Company have defined benefit pension plans covering substantially all employees who meet eligibility requirements. Plan benefits are generally based on years of service and employees' 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 invested primarily in equity and fixed income securities. The net periodic pension cost of continuing operations for fiscal 1996, 1995 and 1994 includes the following components (in thousands): DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- ------------- (48 WEEKS) (52 WEEKS) (52 WEEKS) Service cost....................... $ 4,043 $ 3,341 $ 3,382 Interest cost on projected benefit obligation and service cost..... 6,905 6,218 5,326 Actual loss (gain) on assets....... (11,066) (9,446) 2,207 Net amortization and deferral...... 4,773 4,922 (6,477) -------- ------- ------- Net periodic pension cost.......... $ 4,655 $ 5,035 $ 4,438 ======== ======= ======= F-18 COLLINS & AIKMAN CORPORATION 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, excluding Wallcoverings, Floorcoverings and the Mastercraft Group at December 28, 1996 and January 27, 1996 (in thousands):
DECEMBER 28, 1996 JANUARY 27, 1996 ---------------------------------- ------------------------------------ ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ---------------- ----------------- ---------------- ----------------- Actuarial present value of benefit obligations: Vested benefit obligation..................... $ (14,833) $ (81,272) $ (22,462) $ (64,266) ================ ================ =============== =============== Accumulated benefit obligation................ (15,417) (90,230) (23,043) (69,879) ================ ================ =============== =============== Projected benefit obligation.................. (16,968) (96,376) (24,552) (73,499) Plan assets at fair value......................... 21,423 73,572 27,013 51,406 ---------------- ---------------- --------------- --------------- Projected benefit obligation less than (in excess of) plan assets......................... 4,455 (22,804) 2,461 (22,093) Unrecognized net loss (gain)...................... (1,401) 13,700 15 11,473 Prior service amounts not yet recognized in net periodic pension cost.......................... 907 (2,664) 942 (3,134) Adjustment required to recognize minimum liability...................................... - (7,359) - (7,255) ---------------- ---------------- --------------- --------------- Pension asset (liability) recognized in the consolidated balance sheets..................... $ 3,961 $ (19,127) $ 3,418 $ (21,009) ================ ================ =============== ===============
The weighted average discount rate used in determining the above actuarial present value of the projected benefit obligation of each of the Company's plans was 7.6% and 7.5% at December 28, 1996 and January 27, 1996, respectively. The weighted average expected rate of increase in future compensation levels is 5.4% and 5.5%, respectively, and the expected long-term rate of return on plan assets was 9% in fiscal 1996 and 1995. The provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS No. 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 No. 87, the consolidated balance sheets at December 28, 1996 and January 27, 1996 include an intangible pension asset of $.2 million; an additional minimum pension liability of $10.4 million and $9.3 million, respectively; and a contra-equity balance of $10.2 million and $9.1 million, respectively. These amounts relate to all operations of the Company and are reflected in the Company's consolidated balance sheets. DEFINED CONTRIBUTION PLANS Subsidiaries of the Company sponsor defined contribution plans covering employees who meet eligibility requirements. Subsidiary contributions are based on formulas or are at the Company's discretion as F-19 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) specified in the plan documents. Contributions related to continuing operations were $2.8 million, $2.7 million and $2.1 million for fiscal 1996, 1995 and 1994, respectively. POSTRETIREMENT BENEFIT PLANS Subsidiaries of the Company have provided postretirement life and health coverage for certain retirees under plans currently in effect. Many of the subsidiaries' domestic employees may be eligible for coverage if they reach retirement age while still employed by the Company. The net periodic postretirement benefit cost of continuing operations, determined on the accrual basis, includes the following components (in thousands): FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- ------------ (48 WEEKS) (52 WEEKS) (52 Weeks) Service cost................................ $ 769 $ 670 $ 817 Interest cost on accumulated postretirement benefit obligation....................... 1,756 1,884 1,869 Net amortization............................ (934) (1,206) (992) ------- ------- ------- Net periodic postretirement benefit cost.... $ 1,591 $ 1,348 $1,694 ======= ======= ======= The following table sets forth the amount of net postretirement benefit obligation included in the Company's consolidated balance sheets, excluding Wallcoverings, Floorcoverings and the Mastercraft Group (in thousands): DECEMBER 28, JANUARY 27, 1996 1996 ------------ ---------- Retirees............................................. $35,495 $32,700 Fully eligible active plan participants.............. 8,919 7,881 Other active plan participants....................... 10,333 9,438 ------- -------- Accumulated postretirement benefit obligation........ 54,747 50,019 Unrecognized prior service gain from plan amendments. 13,942 15,269 Unrecognized net gain................................ 11,701 9,349 ------- -------- Net postretirement benefit obligation................ $80,390 $74,637 ======= ======== The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% at December 28, 1996 and January 27, 1996. The Company does not fund its postretirement benefit plans. For purposes of the December 28, 1996 and January 27, 1996 valuations, a 10% and an 11%, respectively, annual rate of increase in the per capita cost of covered health care benefits was assumed; the rate was assumed to decrease 1 percentage point per year to 6% and remain at that level thereafter. The health care cost trend rate assumption has an impact on the amounts reported; however, the Company's obligation is limited by certain amended provisions of the various plans, as further described below. 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 December 28, 1996 by $.9 million and the F-20 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $.1 million. 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 inflation of health care costs will be limited to 6% per year through March 31, 1998. Subsequent to March 1998, the Company's portion of coverage costs will not be adjusted for inflation in health care costs. 15. DISCONTINUED OPERATIONS: On December 10, 1996, the Company announced that it entered into an agreement to sell its Floorcoverings subsidiary ("Floorcoverings") for $197 million, subject to adjustment. This sale occurred during February 1997 and the net proceeds of $195.6 million (subject to adjustment) were used to pay down debt incurred to finance the Company's automotive strategy. On December 4, 1996, the Company announced that it is considering the sale of the Mastercraft Group, a leading manufacturer of upholstery fabric. Based on determinations of value from potential purchasers, the Company has decided to pursue the sale of the Mastercraft Group and anticipates the sale to be completed by the summer of 1997. On April 9, 1996, the Company announced a plan to spin off its Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings") to the Company's stockholders in the form of a stock dividend. The proposed spin-off requires, among other things, the declaration of the dividend by the Company's Board of Directors. However, as a result of management changes at Wallcoverings and other factors, the Company currently expects the spin-off to occur in the second half of 1997. The Company has accounted for the financial results and net assets of the Mastercraft Group, Floorcoverings and Wallcoverings as discontinued operations. Accordingly, previously reported financial results for all periods have been restated to reflect these businesses as discontinued operations. The Mastercraft Group reported income of $6.4 million, $8.4 million and $19.4 million in fiscal 1996, 1995 and 1994, respectively. Floorcoverings reported income of $7.6 million, $14.1 million and $9.4 million in fiscal 1996, 1995 and 1994, respectively. Wallcoverings reported income of $.3 million during the first quarter of 1996. Wallcoverings' incurred operating losses subsequent to the first quarter which were charged to the Company's existing discontinued operations reserves. These operating losses were in excess of management's forecasted expectations as of the date of discontinuance but within previously established accruals. Wallcoverings incurred a $23.3 million loss in fiscal 1995 and income of $5.8 million in fiscal 1994. Included in Wallcoverings' fiscal 1995 loss were $9.9 million in charges related to the consolidation of distribution activities, and the closure of the segment's Hammond, Indiana facility. See Note 16 for further discussion on facility closings. Additionally, $3.0 million in charges related to the impairment of assets and $10.8 million related to a write-down of inventory were incurred in fiscal 1995. Net sales of discontinued operations in fiscal 1996, 1995, and 1994 aggregated approximately $441.2 million, $594.7 million, and $629.0 million, respectively. Subsequent to the first quarter of 1996, after which Wallcoverings' results were charged to existing discontinued operations reserves, Wallcoverings' sales aggregated $113.8 million. Net interest expense of discontinued operations (including amounts attributable to discontinued operations) was $26.7 million, $26.5 million and $31.2 million in fiscal 1996, 1995 and 1994, respectively. Interest expense of $26.5 million, $25.4 million and $30.0 million during fiscal 1996, 1995, and 1994, respectively, was 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. In addition, F-21 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) a portion of loss on sale of receivables has been allocated to discontinued operations based on the ratio of (x) receivables included in the trust's receivable pool related to Floorcoverings and the Mastercraft Group to (y) the total trust's receivables pool. For fiscal 1996, 1995 and 1994, amounts allocated to discontinued operations totaled $2.2 million, $2.4 million and $1.5 million, respectively. In connection with the retained lease liabilities of certain discontinued operations, the Company has future minimum lease payments and future sublease rental receipts at December 28, 1996 as follows (in thousands): Minimum Lease Sublease Rental Fiscal Years Ending Payments Receipts December 1997.................... $ 11,099 $ 2,755 December 1998.................... 8,740 2,487 December 1999.................... 7,055 2,139 December 2000.................... 5,848 1,423 December 2001.................... 4,573 494 Later years...................... 11,091 226 $ 48,406 $ 9,524 16. FACILITY CLOSING COSTS: In the fourth quarter of fiscal 1995, the Company in its continuing operations provided for the cost to rationalize one manufacturing facility affecting approximately 90 employees. Additionally, the Company provided for the cost to exit one manufacturing and three distribution centers in its discontinued Wallcoverings segment. The Wallcoverings closings affected approximately 200 employees. The closure of the three distribution centers was delayed into 1997 due to construction delays at the new Knoxville distribution center which became operational in 1997. The components of the reserves for these facility closings, which are expected to be completed during fiscal 1997, are as follows (in thousands):
REMAINING RESERVE ORIGINAL RESERVE CHANGES IN RESERVE DECEMBER 28,1996 ---------------------------- --------------------------- --------------------------- CONTINUING DISCONTINUED CONTINUING DISCONTINUED CONTINUING DISCONTINUED OPERATIONS OPERATIONS OPERATIONS OPERATIONS OPERATIONS OPERATIONS ------------ -------------- ----------- -------------- ------------ ------------- Anticipated losses associated with the disposal of property, plant and equipment..................... $ 385 $ 5,721 $ (385) $ (5,721) $ - $ - Anticipated expenditures to close and dispose of idled facilities....... 513 2,766 (107) (438) 406 2,328 Anticipated severance benefits....... 406 1,410 (318) (598) 88 812 ----------- ---------- --------- ---------- ---------- ---------- $ 1,304 $ 9,897 $ (810) $ (6,757) $ 494 $ 3,140 =========== ========== ========= ========== ========== ==========
In connection with the acquisition of JPS Automotive, the Company has developed preliminary plans for JPS Automotive to rationalize certain manufacturing locations as well as marketing and administrative functions. These plans have not been finalized. Costs accrued for the shutdown of facilities and severance and other personnel costs were $2.2 million and $7.0 million, respectively. F-22 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. COMMON STOCK AND PREFERRED STOCK: At January 29, 1994, 1,000 shares of $1.00 par value common stock were authorized, issued and outstanding. The Company's Certificate of Incorporation was amended on April 27, 1994 to authorize 150,000,000 shares of common stock, to reduce the par value of the common stock from $1.00 to $.01 per share and to authorize a 35,035 for 1 stock split of all outstanding shares of common stock. The stock split was effective April 27, 1994. In connection with the merger of Holdings II into the Company, the 35,035,000 shares of common stock of the Company outstanding prior to the Recapitalization were canceled and approximately 28,164,000 shares of common stock were issued in exchange for the common stock of Holdings II. All historical amounts and earnings (loss) per share computations have been adjusted to reflect the merger and the stock split. In connection with the 1989 merger of a wholly owned subsidiary of the Company into Group, approximately 4,250,000 shares of 15 1/2% Cumulative Exchangeable Redeemable Preferred Stock ("Merger Preferred Stock"), par value $.01 (authorized 16,000,000 shares), were issued. At January 29, 1994, approximately 6,268,000 shares were outstanding. Dividends payable in additional shares accrued during fiscal 1994, including accretion for the difference between redemption value and fair value at date of issuance, aggregated approximately $14.4 million. All of the shares of Merger Preferred Stock were redeemed in connection with the Recapitalization. At January 29, 1994, 30,000,000 shares of $.10 par value preferred stock of Group were authorized and approximately 1,806,000 shares of $2.50 Convertible Preferred Stock, Series A of Group ("Series A Preferred Stock") were outstanding. Each share of Series A Preferred Stock of Group had an annual dividend of $2.50 per share. All of the Series A Preferred Stock of Group was redeemed in connection with the Recapitalization. The Company has not declared or paid cash dividends on its common stock since its incorporation. The Bank Credit Facilities limit any dividends paid to a maximum of $12 million per fiscal year unless certain conditions are satisfied (in which case the Bank Credit Facilities limit dividends paid in any year to a maximum of 25% of net income for the prior fiscal year and amounts representing net proceeds from any sale of Wallcoverings in the event the proposed spin-off is not consummated). 18. STOCK OPTION PLANS: Effective on January 28, 1994, the Company adopted the 1993 Employee Stock Option Plan ("1993 Plan") for certain key employees. The 1993 Plan was created primarily 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. The 1993 Plan authorizes the issuance of 3,119,466 shares of common stock. Effective on January 28, 1994, the Company granted options to acquire 3,119,466 shares of the common stock. The majority of these options vested 40% in June 1995 and the remainder 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 fiscal 1993. In addition, effective in April 1994, the 1994 Employee Stock Option Plan ("1994 Plan") was adopted 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 vest, in each case, as specified by the Company's compensation committee, generally over three years after issuance. At December 28, 1996, options representing 2,391,152 shares of common stock were available for grants. Effective on February 23, 1995, the Company adopted the 1994 Directors Stock Option Plan ("the Directors Plan") which provides for the issuance of options to acquire a maximum of 600,000 shares of F-23 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) common stock to directors who are not part of management and are not affiliated with a major stockholder. As of December 28, 1996, 50,000 options had been granted. Stock option activity under the plans is as follows:
DECEMBER 28, 1996 JANUARY 27, 1996 JANUARY 28, 1995 -------------------------- -------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE PRICE PRICE PRICE ------------ ------------ ------------ ------------ ------------ ------------ Outstanding beginning of year............ 3,298,036 $ 5.12 3,096,802 $ 4.64 3,119,466 $ 4.57 Awarded.................................. 145,000 6.71 431,500 8.21 186,634 5.98 Cancelled................................ (19,492) 4.10 (135,003) 4.79 (209,298) 4.76 Exercised................................ (69,022) 3.99 (95,263) 3.99 - - Surrendered.............................. (67,416) 3.99 - - - --------- --------- --------- Outstanding at end of year............... 3,287,106 $ 5.25 3,298,036 $ 5.12 3,096,802 $ 4.64 ========= ========= =========
At December 28, 1996 and January 27, 1996, 2,709,094 and 1,251,887, respectively, of the outstanding options were exercisable at a weighted average price of $4.74 and $4.66, respectively. At January 28, 1995 none of the outstanding options were exercisable. Of the total options outstanding at December 28, 1996, 2,279,873 have an exercise price in the range of $3.99 and $4.43 with a weighted average exercise price of $4.01 and a weighted average contractual life of 7 years. 2,243,124 of these options are currently exercisable at a weighted average exercise price of $4.00. The remaining 1,007,233 of total options outstanding at December 28, 1996 have an exercise price in the range of $6.00 and $10.50 with a weighted average exercise price of $8.04 and a weighted average contractual life of 9 years. 465,970 of these options are currently exercisable at a weighted average exercise price of $8.27. Upon a change of control, as defined, all of the above options become fully vested and exercisable. F-24 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. SFAS No. 123 is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 encourages companies to adopt the fair value method for compensation expense recognition related to employee stock options. Existing accounting requirements of Accounting Principles Board Opinion No. 25 ("APB No. 25") use the intrinsic value method in determining compensation expense which represents the excess of the market price of the stock over the exercise price on the measurement date. The Company elected to remain under the APB No. 25 rules for stock options, and is required to provide pro forma disclosures of what net income and earnings per share would have been had the Company adopted the new fair value method for recognition purposes. The following information is presented as if the Company had adopted SFAS No. 123 and restated its results (in thousands, except per share data): FISCAL YEAR ENDED ------------------------------------ DECEMBER 28, JANUARY 27, 1996 1996 ------------------- --------------- Net income: As reported......... $ 40,824 $ 206,441 Pro forma........... $ 40,261 $ 206,148 Primary EPS: As reported......... $ .58 $ 2.90 Pro forma........... $ .58 $ 2.90 Fully diluted EPS: As reported......... $ .58 $ 2.90 Pro forma........... $ .58 $ 2.89 For the above information, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in fiscal 1996 and 1995: expected volatility of 40%, expected lives of 10 years which equals the lives of the grants, the risk free interest rate ranged from 5.94% to 7.82% and a zero expected dividend rate. The weighted average grant-date fair value of an option granted during fiscal 1996 and 1995 was $4.32 and $5.27, respectively. Because SFAS No. 123 method of accounting has not been applied to options granted prior to January 28, 1995, the above pro forma amounts may not be representative of the compensation costs to be expected in future years. F-25 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. INCOME TAXES: The provisions for income taxes applicable to continuing operations for fiscal 1996, 1995 and 1994 are summarized as follows (in thousands): FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 --------- --------- ---------- (48 WEEKS) (52 WEEKS) (52 WEEKS) Current Federal....................... $ 250 $ 1,330 $ 150 State......................... 2,006 2,293 3,592 Foreign....................... 9,958 6,240 6,394 -------- -------- --------- 12,214 9,863 10,136 Deferred Federal....................... 9,871 (140,705) - State......................... 1,811 (9,050) 162 Foreign....................... 546 (67) (267) -------- ---------- -------- 12,228 (149,822) (105) -------- ---------- -------- Income tax expense (benefit)..... $ 24,442 $(139,959) $10,031 ======== ========== ======== Domestic and foreign components of income from continuing operations before income taxes are summarized as follows (in thousands): FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- --------------- ---------------- (48 WEEKS) (52 WEEKS) (52 WEEKS) Domestic.........$ 26,050 $ 53,545 $ 32,238 Foreign........... 31,503 13,718 19,123 -------------- ------------ ----------------- $ 57,553 $ 67,263 $ 51,361 ============== ============ ================= A reconciliation between income taxes computed at the statutory Federal rate of 35% and the provisions for income taxes applicable to continuing operations is as follows (in thousands): FISCAL YEAR ENDED ------------------------------------- DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1996 ---------- --------- --------- (48 WEEKS) (52 WEEKS) (52 WEEKS) Amount at statutory Federal rate........ $ 20,144 $ 23,542 $ 17,976 State income taxes, net of Federal income tax....................... 2,481 1,490 2,440 Foreign tax more (less) than Federal tax at statutory rate...................... (522) 1,372 (566) Foreign dividend income.................. 410 800 21,965 Amortization of goodwill................. 1,243 95 - Other.................................... 686 1,250 2,898 Change in valuation allowance............ - (168,508) (34,682) -------- --------- -------- Income tax expense (benefit)............ $24,442 $(139,959) $ 10,031 ======= ========= ======= F-26 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 asset as of December 28, 1996 and January 27, 1996 for continuing operations were as follows (in thousands):
DECEMBER 28, JANUARY 27, 1996 1996 ------------------ ----------------- Deferred tax assets: Employee benefits, including postretirement benefits.......$ 54,908 $ 57,587 Net operating loss carryforwards........................... 101,099 101,984 Investment tax credit carryforwards........................ 4,200 6,900 Alternative minimum tax credits............................ 8,500 8,700 Other liabilities and reserves............................. 71,242 76,518 Valuation allowance........................................ (44,277) (51,573) ---------------- ---------------- Total deferred tax assets............................. 195,672 200,116 Deferred tax liabilities: Property, plant and equipment............................... (39,151) (30,655) Undistributed earnings of foreign subsidiaries.............. (7,600) (7,600) ---------------- --------------- Total deferred tax liabilities........................ (46,751) (38,255) ---------------- --------------- Net deferred tax asset .......................................$ 148,921 $ 161,861 =============== ===============
The valuation allowance at December 28, 1996 and January 27, 1996 provides for certain deferred tax assets that in management's assessment may not be realized due to tax limitations on the use of such amounts or that relate to tax attributes that are subject to uncertainty due to the long-term nature of their realization. During fiscal 1996 the valuation allowance decreased $7.3 million from fiscal 1995. This decrease resulted primarily from the expiration of tax credits and restricted net operating loss carryforwards. During fiscal 1995, the valuation allowance decreased $213.2 million from fiscal 1994. This decrease resulted primarily from the recognition of certain deferred tax assets discussed below as well as the utilization of deferred tax assets by continuing operations. An additional reduction of $44.7 million related primarily utilization of tax assets by discontinued operations, to changes in reserves for discontinued operations and certain other adjustments. The above amounts have been classified in the consolidated balance sheet as follows (in thousands):
DECEMBER 28, JANUARY 27, 1996 1996 ----------------- -------------- Deferred tax assets (liabilities): Current, included in other current assets........ $ 64,098 $ 29,567 Noncurrent....................................... 92,011 132,294 Noncurrent foreign, included in other noncurrent liabilities.................................... (7,188) - ------------------ -------------- $ 148,921 $ 161,861 ================== ==============
F-27 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In fiscal 1993 and prior years, the Company incurred significant financial reporting and tax losses principally as a result of a capital structure that contained a substantial amount of high interest rate debt. In addition, losses were incurred as the Company exited businesses which it did not consider to be consistent with its long-term strategy. Although substantial net deferred tax assets were generated during these periods, a valuation allowance was established because in management's assessment the historical operating trends made it uncertain whether the net deferred tax assets would be realized. During July 1994, the Company completed the Offering and Recapitalization, which reduced the Company's indebtedness, lowered interest expense and provided liquidity for operations and other general corporate purposes. As a result of the Recapitalization, the Company's annual financing costs were reduced from $115 million in fiscal 1993 to $57 million in fiscal 1995. In fiscal 1994, the Company reported taxable income and had net income before an extraordinary loss on the Recapitalization for financial reporting purposes; however, management determined, largely because of the Company's prior losses, that it remained uncertain whether the net deferred tax assets would be realized. In fiscal 1995, the Company's continuing business segments generated substantial operating income, consistent with historical trends, that, when combined with the post-Recapitalization capital structure, resulted in income for both tax and financial reporting purposes. The proposed spin-off of Wallcoverings that was announced in April 1996 further clarified management's assessment of the Company's likely future performance. Management considered these factors as well as the future outlook for its continuing businesses in concluding that it is more likely than not that net deferred tax assets of $148.9 million and $161.9 million at December 28, 1996 and January 27, 1996, respectively, will be realized. While continued operating performance at current levels is sufficient to realize these assets, the Company's ability to generate future taxable income is dependent on numerous factors, including general economic conditions, the state of the automotive industry and other factors beyond management's control. Therefore, there can be no assurance that the Company will meet its expectation of future taxable income. Deferred income taxes and withholding taxes have been provided on earnings of the Company's foreign subsidiaries to the extent it is anticipated that the earnings will be remitted in the future as dividends. Deferred income taxes and withholding taxes have not been provided on the remaining undistributed earnings of foreign subsidiaries as such amounts are deemed to be permanently reinvested. The cumulative undistributed earnings on which the Company has not provided deferred income taxes and withholding taxes are not significant. F-28 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 28, 1996, the Company had the following tax attributes carryforwards available for Federal income tax purposes (in thousands): EXPIRATION AMOUNT DATES ----------- ----------- Net operating losses - regular tax Preacquisition, subject to limitations............... $ 85,900 1997-2010 Postacquisition, unrestricted........................ 198,300 2006-2008 ---------- $ 284,200 ========== Net operating losses - alternative minimum tax Preacquisition, subject to limitations............... $ 66,900 1997-2010 Postacquisition, unrestricted........................ 145,400 2006-2008 ----------- $ 212,300 =========== Investment tax and other credits Preacquisition, subject to limitations............... $ 4,200 1997-2007 =========== Alternative minimum tax credits...................... .$ 8,500 No limit =========== The above amounts exclude $10.4 million of NOLs attributable to the discontinued Wallcoverings segment. In addition, approximately $28 million of future net Federal and state tax deductions have been excluded in determining the Company's net deferred tax assets. If the proposed spin-off occurs as expected, these Wallcoverings' deferred tax assets, which total $13.4 million of future tax benefits, will no longer be available to the Company. Because of the uncertainties regarding Wallcoverings' future performance, a valuation allowance offsetting this amount has been maintained. Accordingly, these net deferred tax assets had no impact on the net assets or operating results of discontinued operations presented in the accompanying consolidated financial statements. Approximately $85.9 million of the Company's NOLs and $4.2 million of the Company's unused Federal tax credits may be used only against the income and apportioned tax liability of the specific corporate entity that generated such losses or credits or its successors. The Company believes that a substantial portion of these tax benefits will be realized in the future. Future sales of common stock by the Company or its principal stockholders, or changes in the composition of its principal stockholders, could constitute a "change in control" that would result in annual limitations on the Company's use of its NOLs and unused tax credits. Management cannot predict whether such a "change in control" will occur. If such a "change in control" were to occur, the resulting annual limitations on the use of NOLs and tax credits would depend on the value of the equity of the Company and the amount of "built-in gain" or "built-in loss" in the Company's assets at the time of the "change in control", which cannot be known at this time. During 1995, the IRS completed the audit of the Company's Federal income tax returns for the period 1988 through 1991. The Company agreed to pay tax and interest of $1.4 million and to reduce its NOLs by $6.1 million. In fiscal 1995, the California Franchise Tax Board issued a notice of tax assessment for approximately $11.8 million related to the treatment of the sale of certain foreign subsidiaries during 1987. The Company disputes the assessment and has filed a protest with the Franchise Tax Board. If the Franchise Tax Board were to maintain its position and such position were to be upheld in litigation, the Company would also become liable for the payment of interest which is currently estimated to be $16.5 million. In the opinion of F-29 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) management, the final determination of any additional tax and interest liability related to this matter will not have a material adverse effect on the Company's consolidated financial condition or results of operations. Income taxes paid, net of refunds, were $10.4 million, $13.5 million, and $5.1 million for fiscal 1996, 1995 and 1994, respectively. 20. 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 fair value: CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM INVESTMENTS - Fair value approximates carrying value. INTEREST RATE PROTECTION AGREEMENTS - The fair value of interest rate cap and corridor agreements is based on quoted market prices as if the agreements were entered into on the measurement date. LONG-TERM DEBT - The fair value of the Subordinated Notes and JPS Automotive Senior Notes is based upon quoted market price. The fair value of the other long-term debt of the Company approximates the carrying value. The estimated fair values of the Company's continuing operations' financial instruments are summarized as follows (in thousands):
DECEMBER 28, 1996 JANUARY 27, 1996 --------------------------------- ---------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ---------------- -------------- --------------- --------------- Long-term investments....... $ 3,255 $ 3,255 $ 3,646 $ 3,646 Interest rate protection agreements............... - - 680 - Long-term debt.............. $1,176,219 $1,214,919 $ 759,966 $ 759,966
21. RELATED PARTY TRANSACTIONS: During fiscal 1996, the Company incurred fees for services performed by Blackstone Partners and WP Partners, or their respective affiliates, in connection with the 1996 acquisitions of JPS Automotive and Perstorp Components and the joint venture entered into with Perstorp of approximately $2.9 million, $1.4 million and $.9 million, respectively. In addition, the Company has agreed to reimburse Blackstone Partners and WP Partners for expenses incurred in connection with these transactions. These amounts were accrued and not yet paid as of December 28, 1996. During 1995, the Company incurred fees and expenses for services performed by Blackstone Partners and WP Partners, or their respective affiliates, in connection with the 1995 acquisition of Manchester Plastics totaling $2.5 million. In addition, Wasserstein Perella Securities, Inc., ("WP Securities") an affiliate of WP Partners, acted as the lead underwriter in the Subordinated Notes offering and was paid fees of approximately $5.4 million by C&A Products in connection therewith. Pursuant to the Stockholders' Agreement among the Company, Group, Blackstone Partners and WP Partners dated December 1988, the Company paid Blackstone Partners and WP Partners, or their respective affiliates, operating, management and advisory fees aggregating $5.0 million annually until the agreement's amendment in July 1994. Under the Amended and Restated Stockholders' Agreement among the Company, F-30 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) C&A Products, Blackstone Partners and WP Partners, the Company pays Blackstone Partners and WP Partners, or their respective affiliates, each an annual monitoring fee of $1.0 million, which is payable quarterly and which commenced in the quarter ended October 29, 1994. During the first quarter of fiscal 1994, the Company incurred expenses of $2.5 million in fees and expenses for services performed by affiliates of Blackstone Partners and WP Partners in connection with a comprehensive review of the Company's liabilities associated with discontinued operations, including surplus real estate, postretirement and workers' compensation liabilities. The Company also incurred during the first quarter of fiscal 1994 expenses of $2.75 million for services performed by affiliates of WP Partners and $3.25 million for services performed by affiliates of Blackstone Partners in connection with the Company's review of refinancing and strategic alternatives as well as other advisory services; these fees are included in "selling, general and administrative expenses" for the first quarter of fiscal 1994. The Company incurred fees during the first quarter of fiscal 1994 included $.1 million to an affiliate of Blackstone Partners for advisory services in connection with the sale of Builders Emporium's inventory, real estate and other assets. In September 1993, an affiliate of Blackstone Partners negotiated with a real estate consultant to receive 20% of the incentive fees payable to the consultant by the Company in connection with the resolution of lease liabilities of Builders Emporium. Such affiliate received approximately $.5 million in fees during fiscal 1994 pursuant to this arrangement. 22. INFORMATION ABOUT THE COMPANY'S OPERATIONS: The Company's continuing operations primarily supply automotive interior systems - textile and plastic trim, acoustics and convertible tops - to the global automotive industry. The Company performs periodic credit evaluations of its customers' financial condition and, although the Company does not generally require collateral, it does require cash payments in advance when the assessment of credit risk associated with a customer is substantially higher than normal. Receivables generally are due within 45 days, and credit losses have consistently been within management's expectations and are provided for in the consolidated financial statements. Direct and indirect sales to significant customers in excess of ten percent of consolidated net sales from continuing operations are as follows: 1996 1995 1994 ---- ---- ---- General Motors Corporation... 34.0% 33.3% 31.0% Ford Motor Company........... 15.4% 16.6% 20.5% Chrysler Corporation......... 21.1% 18.2% 17.4% F-31 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Information about the Company's continuing operations in different geographic areas for fiscal 1996, 1995 and 1994 is presented below (in thousands). These amounts have been restated to reflect Floorcoverings and the Mastercraft Group as discontinued operations follow (see Note 15):
UNITED OTHER DISCONTINUED STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED ----------- ------------ ------------ ------------- ---------------- -------------- FISCAL 1996 Net sales $ 718,820 $ 233,334 $ 74,287 $ 29,490 $ - $ 1,055,931 Operating income (a) 43,687 38,599 18,686 1,077 - 102,049 Depreciation and amortization (b) 28,999 3,734 2,133 1,145 - 36,011 Identifiable assets 964,950 235,064 38,771 85,656 212,039 1,536,480 Capital expenditures 24,570 6,141 1,763 2,526 43,454 78,454
UNITED OTHER DISCONTINUED STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED ----------- ------------ ------------ ------------- ---------------- ---------------- FISCAL 1995 Net sales $ 762,293 $ 123,958 $ 14,466 $ 1,300 $ - $ 902,017 Operating income (loss) (a)......... 75,083 20,426 (5) 155 - 95,659 Depreciation and amortization (b) 26,276 2,795 1,190 150 - 30,411 Identifiable assets 549,782 245,943 24,579 10,032 161,025 991,361 Capital expenditures 39,269 5,055 1,739 7,093 40,542 93,698
UNITED OTHER DISCONTINUED STATES CANADA MEXICO COUNTRIES OPERATIONS CONSOLIDATED ----------- ------------ ------------ ------------- -------------- ---------------- FISCAL 1994 Net sales $ 795,197 $ 107,845 $ 3,955 $ - $ - $ 906,997 Operating income (a) 83,777 20,406 - - - 104,183 Depreciation and amortization (b) 26,909 2,537 479 - - 29,925 Identifiable assets 369,295 40,084 13,471 2,145 153,905 578,900 Capital expenditures 44,336 4,498 5,907 1,452 28,230 84,423
(a) Operating income (loss) is determined by deducting all operating expenses, including goodwill write-off and other costs, from revenues. Operating expenses do not include interest expense. (b) Depreciation and amortization includes the amortization of goodwill and other assets and liabilities. Intersegment sales between geographic areas are not material. For fiscal years 1996, 1995 and 1994, export sales from the United States to foreign countries were $69.9 million, $77.8 million and $86.8 million, respectively. 23. COMMITMENTS AND CONTINGENCIES: ENVIRONMENTAL The Company is legally or contractually responsible or alleged to be responsible for the investigation and remediation of contamination at various sites. It also has received notices that it is a potentially responsible party ("PRP") in a number of proceedings. The Company may be named as a PRP at other sites in the future, including with respect to divested and acquired businesses. The Company is currently engaged in investigation or remediation at certain sites. In estimating the total cost of investigation and remediation, the Company has considered, among other things, the Company's prior experience in remediating F-32 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 theory of joint and several liability, the Company could be liable for the full costs of investigation and remediation even if additional parties are found to be responsible under the applicable laws. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRPs, uncertainty regarding the extent of environmental problems and the Company's share, if any, of liability for such problems, the selection of alternative compliance approaches, the complexity of environmental laws and regulations and changes in cleanup standards and techniques. When it has been possible to provide reasonable estimates of the Company's liability with respect to environmental sites, provisions have been made in accordance with generally accepted accounting principles. The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. In its assessment the Company makes its best estimate of the liability based upon information available to the Company at that time, including the professional judgment of the Company's environmental experts, outside environmental specialists and other experts. As of December 28, 1996, including sites relating to the acquisitions of Manchester Plastics, JPS Automotive and Perstorp Components and 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 22 sites where the Company is participating in the investigation or remediation of the site either directly or through financial contribution, and 9 additional sites where the Company is alleged to be responsible for costs of investigation or remediation. As of December 28, 1996, the Company's estimate of its liability for these 31 sites, which exclude sites related to Wallcoverings, is approximately $33.8 million. As of December 28, 1996, the Company has established reserves of approximately $46.1 million for the estimated future costs related to all its known environmental sites, excluding sites related to Wallcoverings. In the opinion of management, based on the facts presently known to it, the environmental costs and contingencies will not have a material adverse effect on the Company's consolidated financial condition or future results of operations. However, there can be no assurance that the Company has identified or properly assessed all potential environmental liability arising from the activities or properties of the Company, its present and former subsidiaries and their corporate predecessors. The Company is subject to Federal, state and local environmental laws and regulations that (i) affect ongoing operations and may increase capital costs and operating expenses and (ii) impose liability for the costs of investigation and remediation and 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 future results of operations. LITIGATION During 1991, a Fifth Consolidated Amended Complaint was filed in IN RE IVAN F. BOESKY SECURITIES LITIGATION, involving numerous claims against a variety of defendants including Group, among other things, alleging a conspiracy to manipulate the price of Group's common stock in 1986 for the purpose of triggering a redemption of certain outstanding preferred stock of Group. In November 1996, plaintiffs and C&A Products agreed to a settlement whereby plaintiffs released all claims relating to the litigation against Group and the individual Group-related defendants in exchange for payment by C&A Products of $4.25 million. In F-33 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) May 1995, C&A Products paid $4.25 million into an escrow account with the court pursuant to the terms of the settlement in principal. In December 1996, the Court preliminarily approved the final settlement. In March 1997, the Court ratified the settlement. The settlement was within previously established accruals. The Company and its subsidiaries also have other lawsuits and claims pending against them and have certain guarantees outstanding which were made in the ordinary course of business. 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 adverse effect on the Company's consolidated financial condition or future results of operations. OTHER COMMITMENTS 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 the Kayser-Roth Corporation, the Wickes Engineering Group and other divested businesses. Although Group has obtained releases from the lessors of certain properties, C&A Products, as successor by merger to Group, remains contingently liable under most of the leases. C&A Products' future liability for these leases, in management's opinion, based on the facts presently known to it, will not have a material adverse effect on the Company's consolidated financial condition or future results of operations. F-34 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. QUARTERLY FINANCIAL DATA (UNAUDITED): (in thousands, except for per share data) The quarterly data below is based on the Company's previous fiscal periods and has been restated to reflect Wallcoverings, Floorcoverings and the Mastercraft Group as discontinued operations.
FISCAL 1996 ------------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------------- ----------------- ----------------- ----------------- (3 MONTHS) (3 MONTHS) (3 MONTHS) (2 MONTHS) Net sales as previously reported..................... $ 373,611 $ 347,609 $ 371,027 $ 204,098 Less discontinued operations......................... 90,678 71,911 77,825 - ---------------- -------------- --------------- -------------- Net sales as restated................................ $ 282,933 $ 275,698 $ 293,202 $ 204,098 ============== ============== =============== ============== Gross margin as previously reported.................. $ 77,956 $ 69,739 $ 71,868 $ 30,817 Less discontinued operations......................... 25,460 16,900 19,346 - ---------------- -------------- --------------- -------------- Gross margin as restated............................. $ 52,496 $ 52,839 $ 52,522 $ 30,817 ============== ============== =============== ============== Income (loss) from continuing operations as previously reported.......................................... $ 14,786 $ 11,804 $ 13,697 $ (2,110) Less discontinued operations......................... 1,610 1,346 2,110 - ---------------- -------------- --------------- -------------- Income (loss) from continuing operations as restated........................................... $ 13,176 $ 10,458 $ 11,587 $ (2,110) ================ ============= =============== ============== Income before extraordinary loss..................... $ 15,142 $ 15,521 $ 15,922 $ 849 ============== ============== =============== ============== Net income .......................................... $ 15,142 $ 8,911 $ 15,922 $ 849 ============== ============== =============== ============== Primary and fully diluted earnings per share......... $ .22 $ .13 $ .23 $ .01 ============== ============== =============== ============== Common stock prices High............................................... $ 8-1/4 $ 7-1/8 $ 7 $ 6-5/8 ============== ============== =============== ============== Low................................................ $ 6-1/8 $ 5-1/2 $ 5-7/8 $ 5-3/4 ============== ============== =============== ============== FISCAL 1995 ------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------------- ----------------- ----------------- ----------------- (3 MONTHS) (3 MONTHS) (3 MONTHS) (3 MONTHS) Net sales as previously reported..................... $ 334,890 $ 265,160 $ 298,072 $ 226,909 Less discontinued operations......................... 92,148 60,885 69,981 - ---------------- ----------------- ----------------- ----------------- Net sales as restated................................ $ 242,742 $ 204,275 $ 228,091 $ 226,909 ============== ============== =============== ============== Gross margin as previously reported.................. $ 73,583 $ 49,211 $ 58,678 $ 40,079 Less discontinued operations......................... 27,841 14,029 17,756 - ---------------- ----------------- ----------------- ----------------- Gross margin as restated............................. $ 45,742 $ 35,182 $ 40,922 $ 40,079 ============== ============== =============== ============== Income from continuing operations as previously reported (a)......................................... $ 24,767 $ 9,398 $ 18,104 $ 161,809 Less discontinued operations......................... 3,691 (476) 3,641 - ---------------- ----------------- ----------------- ----------------- Income from continuing operations as restated........ $ 21,076 $ 9,874 $ 14,463 $ 161,809 ============== ============== =============== ============== Income before extraordinary loss..................... $ 28,901 $ 15,445 $ 20,640 $ 141,455 ============== ============== =============== ============== Net income .......................................... $ 28,901 $ 15,445 $ 20,640 $ 141,455 ============== ============== =============== ============== Primary and fully diluted earnings per share......... $ .40 $ .22 $ .29 2.01 ============== ============== =============== ============== Common stock prices High............................................... $ 8-3/8 $ 9 $ 9-1/4 $ 8-3/8 ============== ============== ============== ============== Low................................................ $ 7-1/2 $ 6-3/8 $ 7-1/2 $ 6-1/8 ============= ============== ============== ==============
F-35 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) (a) Income from continuing operations in the fourth quarter of fiscal 1995 includes a reduction in the valuation allowance against net deferred tax assets as discussed in Note 19. The Company's operations are not subject to significant seasonal influences. 25. SIGNIFICANT SUBSIDIARY: The Company conducts all of its operating activities through its wholly-owned subsidiary C&A Products. The following represents summarized consolidated financial information of C&A Products and its subsidiaries for the fiscal years ending (in thousands):
DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 -------------- ------------- ---------- Current assets.............................................. $ 694,796 $ 455,729 $ 373,009 Noncurrent assets........................................... 840,575 534,389 204,998 Current liabilities......................................... 344,487 231,898 200,588 Noncurrent liabilities...................................... 1,383,977 984,698 788,352 Net sales................................................... 1,055,931 902,017 906,997 Gross margin................................................ 188,674 161,925 172,487 Income from continuing operations........................... 32,913 207,900 56,486 Income before extraordinary item............................ 47,236 207,119 90,902 Net income (loss)........................................... 40,626 207,119 (15,626)
Separate financial statements of C&A Products are not presented because they would not be material to the holders of any debt securities of C&A Products that may be issued, there being no material differences between the financial statements of C&A Products and the Company. The absence of separate financial statements of C&A Products is also based upon the fact that any debt of C&A Products issued, and the assumption that any debt to be issued, under the Registration Statement on Form S-3 filed by the Company and C&A Products (Registration No. 33-62665) is or will be fully and unconditionally guaranteed by the Company. F-36 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Collins & Aikman Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Collins & Aikman Corporation and subsidiaries included in this Form 10-K, and have issued our report thereon dated February 19, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14 of this Form 10-K are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Charlotte, North Carolina, February 19, 1997. S-1 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (IN THOUSANDS) DECEMBER 28, JANUARY 27, ASSETS 1996 1996 ------------- ---------------- Current Assets: Cash $ 747 $ 977 Other - 266 ----------- ---------- Total current assets................... 747 1,243 Other assets................................ 362 - ----------- ---------- $ 1,109 $ 1,243 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities......................... $ 12 $ 35 Share of accumulated losses in excess of investments in subsidiaries............... 193,093 226,478 Other noncurrent liabilities................ 2,582 2,582 Commitments and contingencies (Note 1)...... Common stock................................ 705 705 Other stockholders' deficit................. (195,283) (228,557) ----------- ---------- Total stockholders' deficit............ (194,578) (227,852) =========== ========== $ 1,109 $ 1,243 =========== ========== S-2 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS) FISCAL YEAR ENDED ------------------------------------ DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------- -------- -------- Other expenses............................. $ (592) $(1,023) $ (349) Interest income (expense).................. 790 345 (12,549) ------- ------ ------- Loss from operations before equity in income (loss) of subsidiaries......... 198 (678) (12,898) Equity in income (loss) of subsidiaries.... 40,626 207,119 (17,884) ------- -------- -------- Net income (loss).......................... $40,824 $206,441 $(30,782) ======= ======== ======== S-3 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- --------------- --------------- OPERATING ACTIVITIES Net cash provided by (used in) operating activities.................. $ 122 $ (544) $ (405) -------------- -------------- -------------- INVESTING ACTIVITIES Investment in subsidiary............................................. - - (52,351) Other, net........................................................... - - 1,309 ------------- ------------- ------------ Net cash used in investing activities................................ - - (51,042) ------------- ------------- ------------ FINANCING ACTIVITIES Issuances of common stock............................................ - - 232,436 Redemption of preferred stock........................................ - - (173,367) Repayment of long-term debt.......................................... - - (9,757) Purchases of treasury stock.......................................... (9,594) (11,736) - Proceeds from exercise of stock options.............................. 138 382 - Intercompany transfers received from subsidiary...................... 6,104 - - Dividends received from subsidiary................................... 3,000 12,000 - ------------- ------------- ------------ Net cash provided by (used in) financing activities.................. (352) 646 49,312 ------------- ------------- ------------ Net increase (decrease) in cash...................................... (230) 102 (2,135) Cash at beginning of year............................................ 977 875 3,010 ------------- ------------- ------------ Cash at end of year.................................................. $ 747 $ 977 $ 875 ============= ============= ============
NOTES TO CONDENSED FINANCIAL STATEMENTS 1. PRESENTATION: These condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. For disclosures regarding redeemable preferred stock and commitments and contingencies, see Notes 17 and 23, respectively, to Consolidated Financial Statements. 2. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL DISCLOSURES. S-4 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (a) FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, JANUARY 27, 1996 AND JANUARY 28, 1995 (IN THOUSANDS)
BALANCE ADDITIONS CHARGE BALANCE AT RESULTING TO COSTS CHARGED AT DESCRIPTION BEGINNING FROM AND TO OTHER ADDITIONS/ END OF OF YEAR ACQUISITIONS EXPENSES ACCOUNTS (DEDUCTIONS) YEAR ---------- ------------- ---------- ---------- ------------ --------- FISCAL YEAR ENDED DECEMBER 28, 1996 Allowance for doubtful accounts $ 3,381 $ 6,682 $ 899 $ 37 (b) $ (398) (c) $ 10,601 FISCAL YEAR ENDED JANUARY 27, 1996 Allowance for doubtful accounts $ 5,102 $ 166 $ 432 $ 58 (b) $ (2,377) (c) $ 3,381 FISCAL YEAR ENDED JANUARY 28, 1995 Allowance for doubtful accounts $ 1,899 $ - $ 570 $ 10 (b) $ 2,623 (c) $ 5,102
(a) The fiscal years ended January 27, 1996 and January 28, 1995 have been restated to exclude amounts related to discontinued operations. (b) Reclassifications and collection of accounts previously written off. (c) Reclassifications to discontinued operations and uncollectible amounts written off. S-5 EX-11 2 EXHIBIT 11 EXHIBIT 11 COLLINS & AIKMAN CORPORATION COMPUTATION OF EARNINGS PER SHARE IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)
FISCAL YEAR ENDED DECEMBER 28, JANUARY 27, JANUARY 28, 1996 1996 1995 ------------------- ---------------- ------------- Average shares outstanding during the period................................ 68,789 70,015 51,338 ------------------- ---------------- -------------- Incremental shares under stock options computed under the issuer's stock during the period......................................... 1,119 1,179 1,567 ------------------- ---------------- ------------- Total shares for primary EPS........................................... 69,908 71,194 52,905 Additional shares under stock options computed under the treasury stock method using the ending price of issuer's stock.......... 30 40 - ------------------- ---------------- ------------- Total shares for fully diluted EPS..................................... 69,938 71,234 52,905 =================== ================ ============= Income (loss) applicable to common shareholders: Continuing operations.................................................. $ 33,111 $ 207,222 $ (55,100) Discontinued operations................................................ 14,323 (781) 34,416 ------------------- ---------------- ------------- Income before extraordinary loss....................................... 47,434 206,441 (20,684) Extraordinary loss..................................................... (6,610) - (106,528) ------------------- ---------------- ------------- Net income (loss)...................................................... $ 40,824 $ 206,441 $ (127,212) =================== ================ ============= Income (loss) applicable to common shareholders: Income (loss) per primary and fully diluted common share: Continuing operations.................................................. $ .47 $ 2.91 $ (1.04) Discontinued operations................................................ .20 (.01) .65 Extraordinary loss..................................................... (.09) - (2.01) ------------------- ---------------- ------------- Net income (loss)...................................................... $ .58 $ 2.90 $ (2.40) =================== ================ =============
EX-21 3 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF COLLINS & AIKMAN CORPORATION
COMPANY JURISDICTION Collins & Aikman Products Co. Delaware Ackerman Associates, Inc. New York Ack-Ti-Lining, Inc. New York The Akro Corporation Delaware Builders Emporium Payroll Services, Inc. Delaware Carcorp, Inc. Delaware Cepco, Incorporated Delaware Collins & Aikman Automotive Carpet Products (UK) Limited United Kingdom Collins & Aikman Automotive International, Inc. Delaware Collins & Aikman Carpet & Acoustics (MI), Inc. Delaware Collins & Aikman Carpet & Acoustics (TN), Inc. Tennessee Collins & Aikman Export Corporation U.S. Virgin Isles Collins & Aikman Holdings Canada Inc. Canada Collins & Aikman Canada Inc. Canada Collins & Aikman Carpet & Acoustics (Canada) Inc. Canada Imperial Wallcoverings (Canada) Inc. 1 Canada Collins & Aikman International Corporation Delaware Collins & Aikman Europe, Inc. Delaware Collins & Aikman Automotive Systems S.A.2 Spain Collins & Aikman Europe B.V. Netherlands Collins & Aikman Holdings Ltd. United Kingdom Collins & Aikman Automotive Systems Limited United Kingdom Collins & Aikman Europe Ltd. United Kingdom Collins & Aikman Holdings, S.A. de C.V. 3 Mexico Amco de Mexico, S.A. de C.V. 3 Mexico Collins & Aikman de Mexico, S.A. de C.V.4 Mexico Perstorp Components, S.A. de C.V. Mexico Dura Convertible Systems de Mexico, S.A. de C.V.5 Mexico - -------- 1 24% owned by Imperial Wallcoverings, Inc. 2 One share owned by J. Michael Stepp 3 One share owned by Habinus Trading Company 4 One share owned by The Akro Corporation 5 One share owned by Dura Convertible Systems, Inc. Collins & Aikman Products GmbH Austria Collins & Aikman Properties, Inc. Delaware Sequoia Pacific Development Company Delaware Dura Convertible Systems, Inc. Delaware Amco Convertible Fabrics, Inc. Delaware Gamble Development Company Minnesota Grefab, Inc. New York Hopkins Realty Company Minnesota Imperial Wallcoverings, Inc. Delaware Imperial Wallcoverings Limited United Kingdom Marketing Service, Inc. Delaware JPS Automotive L.P.6 Delaware Cramerton Automotive Products, L.P.7 Delaware Cramerton Management Corporation Delaware JPS Automotive Products Corp. Delaware JPS Mexico Corp. Delaware Manchester Plastics, Inc. Delaware Hughes Plastics, Incorporated Michigan Manchester Plastics, Ltd. Canada Ole's, Inc. California Ole's Nevada, Inc. Nevada PACJ, Inc. Delaware Simmons Universal Corporation Delaware Wickes Asset Management, Inc. Delaware Wickes Manufacturing Company Delaware Wickes ELCO Corporation Delaware Wickes Manufacturing Services Company, Inc. Delaware Wickes Products, Inc. Delaware Wickes Realty, Inc. Delaware
- -------- 6 General partner interest owned by PACJ, Inc. 7 General partner interest owned by Cramerton Management Corporation 2 EX-23 4 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the Company's previously filed Registration Statements File No. 33-53321, No. 33-53323 and No. 33-60997. ARTHUR ANDERSEN LLP Charlotte, North Carolina, March 25, 1997. EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996 AND SUCH IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-28-1996 DEC-28-1996 14,316 0 220,864 10,601 129,860 695,543 481,438 105,464 1,536,480 344,499 1,138,029 0 0 705 (195,283) 1,536,480 1,055,931 1,055,931 867,257 867,257 113 899 39,850 57,553 24,442 33,111 14,323 (6,610) 0 40,824 .58 .58
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