As automotive supplier Collins & Aikman Corp. struggles to plug all the holes in its financial dike, industry watchers have questions. They wonder not only whether it can survive, but what shape it will be in if the current struggles strip it of the ability to develop new technology for future business.
Company officials have downplayed speculation that C&A's latest problems could send it into bankruptcy, noting that the firm has been the center of rumors of pending Chapter 11 filings for months, but still survives on its own.
David Stockman stepped down May 12 as chief executive officer and chairman of the nearly $4 billion interior specialist May 12, setting the company up for its fourth top executive in less than four years, Charles Becker took over as acting CEO and a trio of directors - Anthony Hardwick, Timothy Leuliette and Dan Tredwell - acts as a temporary steering committee while spearheading a search for Stockman's full-time replacement.
Current company director Marshall Cohen has taken over as nonexecutive interim chairman.
In addition, the injection molder had to win a waiver to its credit agreements that left it with an increase in its loan rate of three-quarters of a percent, but allowed it to dodge a $70 million payment it would have had to make otherwise.
And that is not all. The company's three-page announcement May 12 catalogued a series of woes, affecting past statements and future operating conditions.
``Any previous forecasts, guidance or outlook concerning financial information for all or part of 2005 should not be relied on at this time,'' the firm noted.
The company stated it still is reviewing its first-quarter results and is ``not yet in a position to comfortably disclose'' estimated results, but expects earnings to be ``materially lower'' than previously provided guidance, and does not expect to satisfy its loan covenants.
``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 receivables facility, foreign receivables ... and fast pay financing programs to fund ongoing operations.''
The New York Stock Exchange halted trading on C&A stock with the announcement, and is seeking to delist the company. Collins & Aikman, which traded at more than $25 in 2002, was trading May 11 at 78 cents. Its shares have not topped $1 since April 26.
New York-based ratings agency Standard & Poor's downgraded C&A credit rating to CCC- from CCC+, and warned that the company risks falling even further behind. The supplier admitted it has $13.4 million in liquidity now and expects $15 million or less on daily available liquidity for the near future.
It has a $26.9 million interest payment due June 30 and another $26.7 million due Aug. 15.
``The downgrade reflects our belief that this supplier ... could be forced to seek bankruptcy protection in the near term because of severe liquidity pressures,'' analyst Martin King said.
The financial problems are coupled with increasing raw material prices that S&P estimated will add $80 million to C&A's costs, even as its customers cut production and demand pricing cuts from its suppliers.
Collins & Aikman is vulnerable to even slight changes in raw material prices or cutbacks. While it has some highly engineered products, it also molds a large amount of relatively low-technology commodity components. There is little financial reward built into those parts, and companies making them have fewer opportunities to leverage their goods for more money since so many firms can make them, said Jeff Mengel, a partner with Plante & Moran PLLC of Southfield, Mich.
The pressure to meet financial goals also has led to decreased emphasis on C&A's longer-term, high-technology prospects, analysts noted - the same programs that could provide an edge in winning new business, or could avoid some of the pricing pressures on current programs. The company has sold off some of its technology holdings and slowed development on others.
Engineering, design and technology executive Jeff Rose left the company last year, one of a series of key development-personnel departures. The attitude in the company in recent years has been to abandon research programs as quickly as possible, said one former C&A executive. The company cuts development engineers loose as soon as production begins, rather than pouring their energy into future programs.
``What they've done is look at all those attributes, those expenses for programs with a long gestation period, and put them on the back burner,'' Mengel said. ``They're looking at short-term operations. On the one hand, if I'm a stockholder, these are prospects that may see some return on long-term investments, but on the other hand, if cutting those keeps me out of bankruptcy, great.
``It certainly points to the position they've been in.''
Beyond its current fiscal problems, an audit is continuing involving C&A's accounting for ``certain supplier rebates.'' The company earlier estimated it would have to restate $10 million to $12 million because of those issues. The report is not complete, but preliminary results indicate that those earlier estimates probably will be understated.
The audit committee 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.''
While Stockman is out of day-to-day activities at C&A, he still is in touch with the firm as a partner of Heartland Industrial Partners LP, the private equity group that is the largest shareholder of the publicly traded firm.
Stockman, a one-time budget director for President Reagan, took over as CEO in 2003. He had extensive experience in the financial aspect of the business, but none in actual manufacturing.
His departure marks the third turnover in less than four years. Jerry Mosingo replaced Tom Evans in August 2002, then was replaced by Stockman a year later.
The latest management change places an experienced plastics executive at the helm. Becker built injection molder Becker Group Inc. into a $1.3 billion business before selling it to Johnson Controls Inc. in 1999. He then bought back eight of the plants and created Becker Group LLC, which he sold to C&A in 2001.
``The thing about Chuck Becker is that Chuck is an awesome commodity molder,'' Mengel said. ``He knows how to make money with shoot-and-ship product. He's done it before. It puts him in a tough position here because of the size of scope of what he's dealing with.''