Wickes Cos. said Wednesday that it has learned that some carpet produced by one of its new subsidiaries does not meet certain flammability standards set by some building codes and major customers such as the U.S. government, and that the costs of resolving the problem are "likely to be a material amount."
Because Wickes is "unable at this time to quantify the costs," the Santa Monica-based company said that its auditor, Arthur Andersen & Co., has indicated that the company's 1986 financial statements "will likely contain a statement to the effect that its opinion is subject to the resolution of this event."
An auditor's opinion is an important certification to investors and lenders, and a "qualified" opinion issued by a company's auditor could indicate that there is some uncertainty that could change the company's financial condition.
The carpet in question is a polyvinyl chloride-backed floor covering produced by Collins & Aikman, a New York textile firm bought by Wickes last January for $1.16 billion.
The carpet is sold primarily to commercial and industrial markets, Wickes said. Collins & Aikman's broadloom and other carpeting products are not involved.
Wickes spokesman Michael Sitrick declined to say how the company learned of the problem or what further action will be taken. He said he could not comment beyond the company's two-page press release issued Wednesday evening.
In its release, Wickes said it has learned that an "indeterminate" amount of the vinyl-backed carpeting sold during the past decade did not meet "radiant panel flammability tests" or smoke density tests of "some building codes" and "certain of its customers," including the U.S. government.
"After consultation with outside consultant-experts, the company believes that such carpeting does not pose safety risks," Wickes said. But the company has temporarily halted shipments of the carpeting "pending further independent testing and analysis."
Collins & Aikman has sold more than 30 million yards of the carpeting during the past 10 years, with sales totaling about $360 million at current prices, Wickes said.
No Injuries Reported
Wickes said it believes that the carpeting complies with the Federal Flammable Fabrics Act standards. Moreover, the company said, Collins & Aikman has been delivering the carpet for about 18 years "without any known incidence of fire-related injuries related to the carpeting."
"We are in the process of notifying all appropriate regulatory agencies and intend to assure all of Collins & Aikman's carpeting customers that Collins & Aikman will work with them to resolve any questions or difficulties that may arise," Wickes said.
For the year ended Feb. 28, 1986, Collins & Aikman had sales of $1.1 billion. Wickes recorded net income of $83.8 million on sales of $4.8 billion for the year ended last Jan. 31.