Collins & Aikman (NYSE:CKC)
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Collins & Aikman Announces Delay in Form 10-K Filing, Restatement
and Unaudited Summary Results for 2004
TROY, Mich., March 17 /PRNewswire-FirstCall/ -- Collins & Aikman Corporation
(NYSE:CKC) announced today the following:
-- The Company did not file its Annual Report on Form 10-K containing
fiscal 2004 audited financial statements by its due date yesterday
since it requires additional time to complete the review of the
accounting issues referred to below, the financial reporting process,
and the Company's assessment of controls over financial reporting. As
permitted by Rule 12b-25 under the Securities Exchange Act of 1934,
the Company today filed a notification providing that, among other
things, its Form 10-K filing will nonetheless be timely filed if it is
filed no later than 15 calendar days after its original due date. The
audit, and other necessary work required for the Form 10-K to be
filed, may not be completed within that extended time frame.
-- During the course of finalizing its financial statements for its
fiscal year ended December 31, 2004, the Company identified certain
accounting for supplier rebates that led to premature or
inappropriate revenue recognition or that was inconsistent with
relevant accounting standards and the Company's policies and
practices. The Company immediately initiated an internal review of
these matters and expects to restate its results for the nine months
ended September 30, 2004 to reflect the correct accounting for these
rebates. The Company is continuing to evaluate whether a restatement
of its 2003 results will be necessary. The Company presently expects
to reduce its previously reported operating income by $10 - $12
million for the nine months ended September 30, 2004. The Company's
outside auditors have not reviewed these conclusions, and additional
adjustments may be required.
Preliminary Summary Results
The Company further announced today anticipated summary results for 2004, which
reflect the Company's present assessment of the impact of the accounting issues
referred to above, and are subject to change. The Company announced fourth
quarter 2004 net sales of $937 million compared to $1.013 billion in the fourth
quarter of 2003, a 7.5% decrease which mainly reflects reduced volumes in the
fourth quarter on several key North American programs and the delay in new
program launches that were scheduled for the fourth quarter. For the full-year
2004, the Company reported sales of $3.904 billion compared to $3.983 billion
for 2003. Additional information regarding the Company's results of operations
will be available via the teleconference and related slide presentation
referred to elsewhere in this press release.
During the fourth quarter 2004, the Company continued to achieve solid
marketing progress by adding more than $175 million of annual newly booked
business. This brings the last-twelve-months' total to over $880 million. These
programs begin with model years incepting 2005 to 2008. A significant win for
the quarter included an instrument panel, cockpit and console program for a
valued European customer. Additionally, the Company secured numerous contracts
for our instrument panel, carpet and acoustic, accessory mat and plastic
interior trim products.
The Company has completed its annual impairment test as required by SFAS 142 as
of November 1, 2004 and took into consideration, among other factors, the
impact of increased raw material prices in 2004, increased pricing pressure
from customers, general economic conditions, the state of the automotive
industry, and other factors beyond management's control. The Company
determined that the fair values of its U.S. and Mexico Plastics reporting unit
and its Global Fabrics reporting unit were less than the respective units'
carrying values. As a result, the Company expects to recognize an impairment
charge of approximately $500 million, which will reduce U.S. and Mexico
Plastics' goodwill by approximately $325 million and Global Fabrics' goodwill
by approximately $175 million.
The Company has also performed an analysis of future taxable income and
believes that there is now sufficient negative evidence and uncertainty as to
the timing of when the appropriate level of taxable income will be generated in
the U.S. to recover the deferred tax assets, necessitating a full valuation
allowance against those deferred tax assets. As a result, the Company's
provision for income taxes for the fourth quarter of 2004 includes a write down
of the U.S. and Italian net deferred tax assets of $175 million. In addition,
the impact of the valuation allowance on the 2004 operating results for the
U.S. and Italy was approximately $25 million.
The above preliminary results have not been audited or reviewed by the
Company's outside auditors and may be impacted by our continuing review of the
accounting matters referred to herein, any expansion in the number of
transactions under review and new information or situations that may arise
prior to completion of the audit. These results are summary and a complete
disclosure of financial statements would necessarily reveal additional
information that the Company is not presently in a position to provide.
EBITDA before Restructuring and Impairment Charges
EBITDA before restructuring and impairment charges is expected to be
approximately $72 - $73 million for the fourth quarter of 2004. The fourth
quarter 2003 EBITDA before restructuring and impairment charges was $91
million. EBITDA before restructuring and impairment charges for the full year
2004 is expected to be approximately $320 - $321 million. The comparable
result for 2003 was $311 million. Due to the status of the accounting
investigation and the pending audit, we are not presenting net income at this
time. A reconciliation of our EBITDA before restructuring and impairment
charges, a non-GAAP financial measure, to U.S. GAAP operating income, our most
comparable GAAP figure, is set out in the attached reconciliation schedule. The
Company believes that EBITDA is a meaningful measure of performance as it is
commonly utilized in the industry to analyze operating performance. EBITDA
should not be construed as income from operations, net income (loss) or cash
flow from operating activities as determined by generally accepted accounting
principles. Other companies may calculate EBITDA differently.
Net Debt and Liquidity
The Company's net debt, including outstandings under an off-balance sheet
accounts receivable facility, was $1.613 billion at December 31, 2004. As of
December 31, 2004 the Company had undrawn commitments under its revolver and
accounts receivable facility, along with cash equivalents, of $86 million. The
liquidity available to the Company in the ordinary course is impacted by
seasonal factors, the timing of cash inflows and outflows and the general level
and timing of industry build volumes. In general, the Company's cash
requirements are highest during the first two to three weeks of a month. In
the first quarter, the Company's cash requirements increased due primarily to
slow industry build volumes, the timing of interest payments and the
termination of certain accelerated pay programs. The Company has taken several
actions to enhance its liquidity position, including agreements with customers,
and modifying its accounts receivable securitization facility to increase the
advance rate and availability. Continued access to credit facilities in
satisfactory amounts is essential to the Company. Adverse developments in our
cash flows or credit terms could materially impact us.
Certain impacts of the delay in our Form 10-K filing and the accounting matters
under our facilities are discussed below.
Internal Accounting Investigation and Related Matters
In the ordinary course, the Company has received and continues to receive
rebates as a result of arms length transactions with its vendors. Depending
upon the terms of the rebate agreement, these rebates are either recognizable
in the quarter in which the rebate agreement is reached or recognized over an
appropriate future period. In the course of finalizing the Company's 2004
financial results, the Company identified certain issues related to accounting
for supplier rebates that led to premature or inappropriate income recognition
or that was inconsistent with relevant accounting standards and the Company's
policies and practices. The Company immediately initiated a review of all
vendor rebates it received from 2002 through 2004 to ensure that it has
properly recognized the rebates in the appropriate quarterly period. The
Company has completed its accounting review of these rebates, but expects to
undertake a thorough review of its controls, procedures and other circumstances
that led to the premature or inappropriate income recognition and that was
inconsistent with relevant accounting standards and the Company's policies and
practices. The nature and scope of that review is under consideration. The
Company's Audit Committee and outside auditors have been informed of these
issues and are evaluating an appropriate course of action.
The Company's internal review of vendor rebates covered an aggregate of
approximately $88 million of vendor transactions in fiscal years 2002 through
2004. Of such amount, the Company believes that net adjustments of
approximately $10 - $12 million, are required primarily occurring during fiscal
2004. The Company expects to restate its results for the nine months ended
September 30, 2004 to reflect these revisions. The Company is continuing to
evaluate whether a restatement of its 2003 results will be necessary. We have
not taken into account this impact in our preliminary report of 2004 results.
These preliminary results remain subject to material change and have not been
reviewed by our outside auditors.
The Company is working towards completion of its assessment of internal
controls over financial reporting required under Section 404 of the Sarbanes-
Oxley Act and has concluded that certain material weaknesses, in addition to
the matters leading to the restatement described above, existed at December 31,
2004, but its assessment of the effectiveness of the Company's control over
financial reporting is ongoing and the extent of those material weaknesses
remains under review. The Company's outside auditor is in the process of
completing its audit of internal controls over financial reporting and has
communicated the existence of material weaknesses. The potential material
weaknesses identified include the following: (i) the adequacy of the Company's
resources with appropriate accounting expertise to address accounting and
reporting matters in certain areas, including revenue recognition, vendor
arrangements and post-retirement benefits, and to supervise the Company's
decentralized and disparate accounting environment and ensure an appropriate
segregation of duties; (ii) the adequacy of the Company's internal audit
function's resources and ability to monitor compliance with established
policies and procedures; (iii) the effectiveness of certain information
technology controls and the sufficiency of documentation to assess the
effectiveness of such controls including embedded system application controls;
(iv) the adequacy of procedures to consistently identify and reconcile fixed
assets and periodically review assets for impairment; and (v) the completeness
and consistent adherence to Company policies and procedures. These issues
include a range of documentation- related issues and reconciliation issues.
Other material weaknesses may be identified as a result of further
investigation of the circumstances surrounding the expected restatement arising
from vendor rebates. Our review and the audit is ongoing.
While the Company has implemented remediation steps with respect to certain
significant deficiencies and material weaknesses, a number of issues still need
to be addressed. The Company's remediation plans include the assignment of
specific resources with given timelines for each finding. Measurement criteria
have also been established to monitor the progress of these remediation
efforts. To ensure that the Company addresses these issues thoroughly,
effectively, and timely, the internal audit department has been supplemented
with the services of several outside specialists. Further required remediation
will be identified and undertaken as a result of the internal accounting
investigation.
Impact on Financing Arrangements
The Company intends to operate in the ordinary course, but it cannot presently
comment upon the timing for completion of, or the ultimate scope or outcome of,
the internal accounting investigation, the audit and the restatements. Until
the audit and any restatements are complete, it will be difficult to determine
the full scope of any financial restatement or prior period adjustments arising
from these irregularities. Consequently, the Company is still evaluating its
financial covenant compliance under its senior credit facility, as well as
other compliance issues under other financing arrangements. If necessary or
desirable, the Company will seek a waiver of relevant provisions.
The Company is obligated to provide audited financial statements under a number
of its debt, receivables facility, operating lease and other agreements within
prescribed periods. The Company relies upon its receivables facility with GE
Capital Corporation for its liquidity and the unavailability of funds
thereunder would be material and adverse. The Company has received waivers of
various provisions of its receivables financing facility and its Hermosillo,
Mexico funding arrangements, both of which are held by GE Capital Corporation,
so that it will continue to provide the Company with access to financing under
those facilities in the ordinary course of business until May 20, 2005, absent
certain new adverse developments. The Company also intends to seek waivers and
amendments of its bank credit facilities and of various lease agreements, as
required or desirable. There can be no assurance that any other required or
desirable waivers will be received on a timely basis and the failure to obtain
waivers could be material and adverse.
Heartland Investment in Preferred Stock held by Textron
The Company also announced today that it has been informed that its largest
shareholder, Heartland Industrial Partners, L.P., has entered into an agreement
with Textron Inc. that gives Heartland and its designees the right to acquire
all of the Series A-1 and B-1 Preferred Stock currently outstanding. It is
presently anticipated that Heartland will acquire a majority of the outstanding
preferred stock itself and will seek co-investors for the balance, although
such co-investment may not occur.
Public Briefing
As previously announced, the Company will hold a briefing with automotive
institutional investors and security analysts, news media representatives and
other interested parties, including its security holders, at 10:00 a.m. EST on
Thursday, March 17, 2005 to discuss the matters described in this press
release.
To participate by phone, please dial (973) 582-2745. The briefing will also be
audio webcast, on our website at:
http://www.collinsaikman.com/investor/confcalls.html. A slide presentation
will also be used in conjunction with this teleconference and will be available
on the Company's website.
Collins & Aikman Corporation, a Fortune 500 company, is a global leader in
cockpit modules and automotive floor and acoustic systems and is a leading
supplier of instrument panels, automotive fabric, plastic-based trim, and
convertible top systems. Headquartered in Troy, Michigan, we have a workforce
of approximately 23,000 and a network of more than 100 technical centers, sales
offices and manufacturing sites in 17 countries throughout the world.
Information about Collins & Aikman is available on the Internet at
http://www.collinsaikman.com/.
Cautionary Statement Concerning Forward-Looking Information
The foregoing reflects the Company's views about the accounting investigation,
its financial condition, performance and other matters that constitute
"forward-looking" statements, as that term is defined by the federal securities
laws. You can find many of these statements by looking for words such as
"may," "will," "expect," "anticipate," "believe," "estimate," "should,"
"continue," "predict," "preliminary" and similar words used herein. These
forward-looking statements are intended to be subject to the safe harbor
protection provided by the federal securities laws. These forward-looking
statements are subject to numerous assumptions, risks and uncertainties.
Because the statements are subject to risks and uncertainties, actual
developments and results may differ materially from those expressed or implied
by the forward-looking statements. Readers are cautioned not to place undue
reliance on the statements, which speak only as of the date hereof.
Various factors that may affect actual outcomes and performance and results
include, but are not limited to, general economic conditions in the markets in
which the Company operates, declines in North American, South American and
European automobile and light truck builds; labor costs and strikes at the
Company's major customers and at the Company's facilities; fluctuations in the
production of vehicles for which we are a supplier; changes in the popularity
of particular car models, particular interior trim packages or the loss of
programs on particular vehicle models; dependence on significant automotive
customers; the level of competition in the automotive supply industry and
pricing pressure from automotive customers; risks associated with conducting
business in foreign countries; and fluctuation in the price of certain raw
materials, including resins and other petroleum-based products. In addition,
the following may have a material impact on actual outcomes and performance and
results: the results of the pending investigation; the Company's ability to
maintain satisfactory relations with its sources of liquidity, suppliers,
customers and creditors; the Company's high leverage and ability to service its
debt; and the impact of any defaults under its material agreements and debt
instruments.
The cautionary statements set forth above should be considered in connection
with any subsequent written or oral forward-looking statements that the Company
or persons acting on its behalf may issue. The Company does not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events.
COLLINS & AIKMAN
SUPPLEMENTAL DATA -- PRELIMINARY EBITDA RECONCILIATION SCHEDULE
(unaudited)
Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
(In millions)
Operating income ....... $(475) $ 30 $(409) $102
Depreciation and
amortization ........... 42 39 155 140
EBITDA ................. $(433) $ 69 $(254) $242
Memo:
Goodwill Impairment .... $ 500 $ 500
Restructuring charges... 1 $ 14 30 $ 41
Impairment of
long-lived assets ...... 5 7 45 28
Total restructuring
and impairment charges.. $ 506 $ 21 $ 575 $ 69
This supplemental data presented above is a reconciliation of a certain
financial measure which is intended to facilitate analysis of Collins & Aikman
Corporation's business and operating performance.
EBITDA is defined as operating income plus depreciation and amortization. The
Company believes that EBITDA is a meaningful measure of performance as it is
commonly utilized in the industry to analyze operating performance. EBITDA
should not be construed as income from operations, net income (loss) or cash
flow from operating activities as determined by generally accepted accounting
principles. Other companies may calculate EBITDA differently.
DATASOURCE: Collins & Aikman Corporation
CONTACT: Bryce Koth, Chief Financial Officer, +1-248-824-1520,
; David A. Youngman, Director Corporate Communications,
+1-248-733-4355,
Web site: http://www.collinsaikman.com/
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