CKC Collins & Aikman Corp

Collins & Aikman Announces Stockman Resignation and Appointment of Becker as Acting Chief Executive Officer; Company Further Announces Receipt of Receivables Facility Waiver and Amendment and Need for Senior Credit Facility Waiver Due to Lower Than Expected First Quarter Performance TROY, Mich., May 12 /PRNewswire-FirstCall/ -- Collins & Aikman Corporation (NYSE:CKC) today announced that its Board of Directors has accepted the resignation of David A. Stockman as Chief Executive Officer, Chairman of the Board and a director of the company. Charles E. Becker, a former director of the company, has agreed to serve as acting Chief Executive Officer of the company. In addition, the Board has asked three directors, Anthony Hardwick, Timothy D. Leuliette and Daniel P. Tredwell, to support Mr. Becker as a Temporary Steering Committee of the Board while it spearheads a search for a full time replacement to serve as Chief Executive Officer of the company. In addition, Marshall Cohen, a current director of the company, was named as non-executive interim Chairman of the Board of Directors. Mr. Becker was Vice Chairman of the Board from July 2001 until July 2002 and ceased to serve as a director in May 2004. For over 25 years, through 1998, Mr. Becker was the Chief Executive Officer and co-owner of Becker Group, Inc., a global automotive interior components supplier. Mr. Becker is the owner and Chairman of Becker Ventures, which was established in 1998 to invest in a variety of business ventures, including the manufacturing, real estate and service industries, and which is a lessor of properties to the company. Mr. Becker is also a director of Metaldyne Corporation and TriMas Corporation. Mr. Hardwick has been a director since September 2004 and is currently Executive Vice President and Chief Financial Officer of Easley Custom Plastics, Inc. He was employed by the company from 1976 through 1995, when he served as Vice President, Administration and Control of the company's automotive group and then Vice President and Controller of the company. Messrs. Leuliette and Tredwell are each Senior Managing Directors and co-founders of Heartland Industrial Partners, the company's largest shareholder. Mr. Leuliette is currently the Chief Executive Officer of Metaldyne Corporation, and also serves on a number of corporate and charitable boards, and served as a director of The Federal Reserve Bank of Chicago, Detroit Branch. In 1996, Mr. Leuliette joined Penske Corporation as President and Chief Operating Officer to address operational and strategic issues. From 1991 to 1996, he served as President and Chief Executive Officer of ITT Automotive. Mr. Tredwell also serves on a number of corporate boards and has two decades of leveraged financing and buyout experience. Prior to co-founding Heartland, he served as a Managing Director at Chase Securities Inc. and had been with Chase Securities since 1985. The company further announced today that it had obtained an amendment and waiver of its accounts receivables facility to address immediate liquidity issues arising from the recent simultaneous credit ratings downgrades of Ford Motor Company and General Motors Corporation by Standard & Poor's Corporation to below investment grade status. In addition, the company obtained a conditional waiver of a financial covenant relating to first quarter 2005 performance in its accounts receivable facility and the company also intends to seek a waiver under its senior credit facility for a breach of the same financial covenant. The company is cautioning all investors and its creditors that any previous forecasts, guidance or outlook concerning financial information for all or any part of 2005 should not be relied on at this time. Under the terms of the company's receivables facility, the downgrades of Ford and General Motors resulted in a change in receivables concentration limits relative to these customers and, consequently, required a partial paydown of the receivables facility and reduced ongoing availability under the receivables facility. The amendment phases in modified customer concentration limits that take account of the changed credit ratings of Ford and General Motors and also increases the margins applicable to both base rate and LIBOR- based advances by 0.75% per annum. Based on receivables balances on the day following the downgrades, the company would have been obligated to reduce its receivables balances by approximately $70 million. An amendment and waiver was required since the company lacked the financial resources to timely make the paydown and availability would otherwise have been clearly inadequate for the company's ongoing operating obligations. As a result of the amendment, no immediate paydown was required. If the final phased-in terms that go into effect on May 23, 2005 were immediately in effect, the required reduction would have been approximately $15 million. The company is seeking more favorable payment terms from the downgraded customers to further benefit the company's liquidity prior to the final phase-in. With or without more favorable terms from these customers, the modified terms of the receivables facility will remain a challenge for the company. The waiver and amendment of the accounts receivable facility also provides relief for a financial covenant breach related to first quarter 2005 performance. The covenant at issue is the consolidated leverage ratio, or consolidated debt to EBITDA, as defined in the covenant. This covenant is the same under both the company's senior credit facility and receivables facility and was recently modified. The company is still reviewing its first quarter 2005 performance and is not yet in a position to comfortably disclose estimated first quarter 2005 results. However, it expects EBITDA to be materially lower than previously provided guidance and to not satisfy the covenant requirement. The financial covenant waiver under the receivables facility expires if similar relief is not timely obtained from lenders under the company's senior credit facility. The amendment also extends the previously granted waiver for financial statement delivery requirements until June 15, 2005, absent certain adverse events prior to that date (such as termination events). If the company is unable to obtain further necessary waivers or modifications, the company, its financial condition and performance will be materially and adversely impacted. The company continues to face significant near term liquidity challenges. The company is currently fully drawn under its senior credit facility and relies upon timely access to its receivables facility, foreign receivables factoring arrangement and fast pay financing programs to fund ongoing operations. In addition to the receivables facility, the company has a significant foreign factoring arrangement, under which outstanding factored balances were approximately $96 million at March 31, 2005. These are generally terminable on short notice. A material European factoring arrangement that relates principally to one customer is due to expire at the end of this month. If this facility is not extended or renewed on acceptable terms, the company will seek more favorable payment terms from the customer. As a general matter, the company has sought with some success and will continue to seek earlier collections or more favorable payment terms from customers or through third party fast pay programs. The company is in the process of transitioning the General Motors fast pay program administered by GECC to one administered by GMAC that will provide a commitment to October 2005. In addition, the company is continuing to work with its largest customers and suppliers to enhance commercial terms to improve operating results, cost recovery and liquidity. There can be no assurance that the company will be successful in these or any other efforts to improve results or enhance liquidity. As of May 11, 2005, the company had cash and availability under its financing arrangements of approximately $13.4 million. Taking account of the amended terms of the receivables facility, depending upon many factors, the company expects to operate for the near future on a global basis with approximately $15 million or less of daily available liquidity. The company's near term cash requirements, apart from financing its ongoing operating obligations, include capital expenditures and a scheduled interest payment on debt securities of approximately $26.9 million on June 30, 2005 and $26.7 million on August 15, 2005. Capital expenditures for 2005 may be higher than previous guidance and, for the first quarter, capital expenditures were approximately $50 million. The company continues to expect that the first quarter will be the highest quarter for capital expenditures in 2005. During this period of difficult liquidity, the company has extended payables to ensure adequate cash balances to support its operations and may continue to do so as it works with customers, suppliers and creditors. The company's ability to meet its obligations and to make necessary capital expenditures will depend on a number of factors, including, without limitation, its continuing cash flow from operations, its ability to address financial covenant defaults, continued compliance with its debt instruments generally and sufficient continuing availability to the previously mentioned financing arrangements. The company will also be impacted by the mounting competitive challenges facing its customers and the continuing pressure being placed upon it by rising raw material and other costs in the face of lower demand. Due to the previously announced and ongoing investigation into certain accounting matters, the company has not completed its 2004 audited financial statements and is still in the process of reviewing results for the first quarter 2005. Its first quarter financial results continue to be subject to some uncertainty due to a number of issues, including the impact of the ongoing accounting investigation. As noted above, the company expects to initiate a process with its senior lenders to seek a similar waiver under the senior credit facilities and the failure to obtain such a waiver will terminate its receivables facility waiver period and permit a termination of the receivables facility. The company cannot predict whether it will receive the relief it is requesting from its senior lenders. The existence of an event of default under the senior credit agreement permits the acceleration of amounts outstanding thereunder and foreclosure by the senior lenders on the company's assets securing their obligations. In addition, this may have adverse consequences under the company's material lease agreements. The company's existing waivers of financial statement delivery requirements have a limited duration (June 15, 2005) and are premised on certain conditions, including continued compliance with financial covenants and no material adverse developments. The continued effectiveness of these waivers and the ability to timely obtain any further necessary waivers or amendments cannot be assured. The company further commented on the status of the ongoing investigation by the Board's audit committee into the company's accounting for certain supplier rebates. The company previously reported that it had 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. While the investigation is ongoing, the audit committee has preliminarily indicated that it believes that the company's previously announced estimated adjustments to reported periods to correct the accounting for these rebates will likely be understated, but it has not yet quantified the extent of this and has not submitted its findings to management for review at this time. In addition to vendor rebates, the audit committee's investigation also is reviewing the company's forecasts for the first quarter of 2005 and related matters, as well as other matters that have arisen in the course of its investigation. The company cannot currently comment upon the timing for completion of, or the ultimate scope or outcome of, the audit committee investigation, the audit or any necessary restatements. As previously discussed, the company has not yet filed its annual report on Form 10-K for 2004 due to this accounting matter and the need for additional time for completion of the 2004 audit and the review of internal controls over financial reporting under Section 404 under Sarbanes-Oxley, and it does not expect to make its first quarter 2005 filing on a timely basis. 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 increases 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 change in leadership at the Company, the Company's ability to maintain access to its receivables facility and other financing arrangements, the Company's ability to otherwise maintain satisfactory relations with its creditors, suppliers, customers and creditors; the Company's ability to maintain current trade credit terms and manage its cash and liquidity, the Company's high leverage and ability to service its debt; and the impact of 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. DATASOURCE: Collins & Aikman Corporation CONTACT: Bryce Koth, Chief Financial Officer, +1-248-824-1520, or David A. Youngman, Director of Corporate Communications, +1-248-733-4355, , both of Collins & Aikman Corporation Web site: http://www.collinsaikman.com/

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