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May 18, 2005

2 Min Read
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Shortly after its CEO resigned, questions regarding accounting increased, S&P relegated its corporate debt to junk status, and the New York Stock Exchange delisted its shares, Tier One automotive supplier Collins & Aikman (C&A; Troy, MI) succumbed to the grips of a death spiral that resulted in it declaring bankruptcy on May 17th. By many estimates the largest North American injection molder in terms of revenue, C&A gained that status following the 2001 acquisition of Textron Automotive''s Trim Div. for $1 billion cash and 18 million C&A shares. That purchase''s 38 molding facilities and 13,000 employees added interior and exterior trim to C&A''s floor, fabric, and acoustic systems, setting the company up as a one-stop-shop for cockpit and interior subassemblies.

The deal also more than doubled annual sales from 2001 to 2002, taking them $1.8 to $3.8 billion, but it did nothing to stem losses in annual net income, which rose over 2001 to 2003 from $46.2 to $53 to $57.5 million.

C&A ties much of those losses to increased exposure to skyrocketing resin prices, which the company cited in a recent report as the highest the company has ever seen. In all, it estimated its total annual material expenses as $2.1 billion, a 30-year high based on its own index, with $300 million in increased exposure to PP, TPO, PC, ABS, and PC/ABS, along with more than $100 million in the polyester and nylon fibers linked to its interior flooring business.

In an attempt to protect itself from those rising costs, C&A announced last November that it had completed a three-year integration and rightsizing program, closing 25 facilities (15 manufacturing, 10 sales, R&D, support) and reducing headcount by 25% from 32,000 to 24,000.

Part of this plan, however, included accelerated insourcing and vertical integration of capabilities as it attempted to add leverage to its resin buying, reduce supply chain logistics, and use up existing machine capacity and fixed overhead.

The company even opened seven new facilities (Elmdon and Coleshill, UK; Hermosillo, Mexico; Port Huron, MI; Montgomery, AL; Brampton, ON; and Kocaeli, Turkey) while bringing portions of its blowmolding, appliqués, die cutting, and compounding requirements in house. In a presentation to investors, the company called for "internal production (in user plant if feasible) of all injection molded parts."

Analysts estimated C&A''s debt at $2 billion with $13.4 million in cash on hand as of May 11. It had interest payments of $26.9 and $26.7 million coming due on June 30 and August 15, respectively, and with no new credit available, it had little if any options. Charles Becker, founder of Becker Group Inc. an interior components supplier, has agreed to serve as acting CEO, following the resignation prior to the bankruptcy of former head David Stockman. Before they were delisted, C&A shares were trading at around $.11, with the 52-week high of $6.21 occurring last summer.

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