<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
--
of the Securities Exchange Act of 1934
For the quarter ended July 26, 1997
___ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File Number 333-24699
COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2151061
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
311 Smith Industrial Boulevard, Dalton, Georgia 30721
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (706) 259-9711
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -----
The Registrant has 1,000 shares of Common Stock, par value $.01 per share,
issued and outstanding.
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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Thirteen Weeks
and Twenty-Six Weeks ended July 26, 1997 and July 27, 1996 3
Condensed Consolidated Balance Sheets - As of July 26, 1997 and
January 25, 1997 4
Condensed Consolidated Statements of Cash Flows - Thirteen Weeks
and Twenty-Six Weeks ended July 26, 1997 and July 27, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY (COMPANY)
COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARY (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------- --------------------------------
(COMPANY) (PREDECESSOR) (COMPANY) (PREDECESSOR)
JULY 26, JULY 27, July 26, JULY 27,
1997 1996 1997 1996
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales $ 46,886 $ 41,859 $ 79,520 $ 68,726
--------- --------- --------- ---------
Cost of goods sold 27,536 25,042 49,396 41,274
Selling, general and administrative
expenses 10,593 7,697 20,335 14,001
Corporate, general and administrative
allocated costs 167 425 391 849
--------- --------- --------- ---------
38,296 33,164 70,122 56,124
--------- --------- --------- ---------
Operating income 8,590 8,695 9,398 12,602
Loss on sale of receivables -- 1,174 -- 1,884
Interest expense, net 3,985 764 7,536 1,694
--------- --------- --------- ---------
Income before income taxes 4,605 6,757 1,862 9,024
Income tax expense 1,900 2,588 775 3,456
--------- --------- --------- ---------
Net income $ 2,705 $ 4,169 $ 1,087 $ 5,568
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY (COMPANY)
COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARY (PREDECESSOR)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 26, 1997 AND JANUARY 25, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited)
(COMPANY) (PREDECESSOR)
JULY 26, JANUARY 25,
1997 1997
-----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,088 $ 144
Accounts receivable, net 26,104 1,577
Inventories 18,516 16,172
Deferred tax assets 1,566 1,433
Prepaid expenses and other 625 488
-------- --------
Total current assets 52,899 19,814
Property, plant and equipment, net 32,354 19,521
Goodwill and intangible assets 133,954 --
Deferred tax assets 1,278 259
Other assets 8,732 20
-------- --------
$229,217 $ 39,614
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,681 $ 8,659
Accrued expenses 9,402 4,670
Current maturities of long-term debt 4,500 --
-------- --------
Total current liabilities 23,583 13,329
Long-term debt 149,500 --
Allocated debt of Collins & Aikman Products Co. -- 25,400
Other, including post-retirement benefit obligation 3,296 4,665
Commitments and contingencies -- --
Stockholder's Equity (Deficit):
Common stock ($.01 par value per share,
1,000 shares authorized, issued and
outstanding) -- --
Additional paid-in-capital 51,576 7,821
Retained earnings 1,087 18,940
Investment and advances to C&A Products Co. -- (30,386)
Foreign currency translation adjustment 175 222
Pension equity adjustment -- (377)
-------- --------
52,838 (3,780)
-------- --------
$229,217 $ 39,614
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
4
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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY (COMPANY)
COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARY (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- ----------------------------
(COMPANY) (PREDECESSOR) (COMPANY) (PREDECESSOR)
JULY 26, JULY 27, JULY 26, JULY 27,
1997 1996 1997 1996
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATIONS
Net income for the period $ 2,705 $ 4,169 $ 1,087 $ 5,568
Items not affecting cash:
Depreciation of capital assets 1,417 567 2,416 1,097
Amortization of goodwill and intangible assets 2,709 -- 4,154 --
Amortization of deferred financing fees 332 -- 625 --
Intercompany interest charges -- 764 1,694
Deferred income tax (benefit) expense 555 346 (570) 433
Changes in operating assets and liabilities:
Accounts receivable (5,435) 419 (7,588) 1,204
Inventory (138) 10 (148) (5,715)
Accounts payable 2,832 1,697 2,893 1,997
Accrued liabilities 1,055 544 5,577 (399)
Other 133 (16) (315) (571)
--------- -------- -------- -------
6,165 8,500 8,131 5,308
--------- -------- -------- -------
INVESTING
Acquisition of C & A Floorcoverings 79 -- (197,733) --
Purchase of capital assets (735) (2,636) (988) (4,532)
--------- -------- -------- -------
(656) (2,636) (198,721) (4,532)
--------- -------- -------- -------
FINANCING
Proceeds from bank financing -- -- 57,000 --
Issuance of senior notes -- -- 100,000 --
Repayment of bank financing (1,000) -- (3,000) --
Capital contribution from CAF Holdings, Inc. 576 -- 51,576 --
Financing costs -- -- (9,042) --
Changes in investments and advances from Products Co. -- (5,740) -- (655)
--------- -------- -------- -------
(424) (5,740) 196,534 (655)
--------- -------- -------- -------
INCREASE IN CASH DURING THE PERIOD 5,085 124 5,944 121
CASH - BEGINNING OF PERIOD 1,003 130 144 133
--------- -------- -------- --------
CASH - END OF PERIOD $ 6,088 $ 254 $ 6,088 $ 254
========== ======== ======== ========
NON-CASH SUPPLEMENTAL DISCLOSURE:
Acquisition of business assets by assuming liabilities $ 14,131
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Collins & Aikman Floorcoverings, Inc. (a Delaware Corporation), together
with its wholly owned subsidiary, Collins & Aikman United Kingdom Limited
(collectively referred to as the "Company"), is a leading manufacturer of
floorcoverings for the specified commercial sector of the floorcoverings market.
Prior to February 6, 1997, the Company was a wholly owned subsidiary of
Collins & Aikman Floor Coverings Group, Inc. ("C&A Group"). C&A Group is a
wholly owned subsidiary of Collins & Aikman Products Co. ("C&A Products"), which
is a wholly owned subsidiary of Collins & Aikman Corporation ("C&A
Corporation"). On February 6, 1997 (January 26, 1997 for accounting purposes),
pursuant to an agreement dated December 9, 1996 entered into by C&A Products,
C&A Group, the Company, CAF Holdings, Inc. ("Holdings") , and CAF Acquisition
Corporation ("CAF"), a wholly owned subsidiary of Holdings, CAF acquired from
C&A Group all the outstanding capital stock of the Company (the "Acquisition")
for $197.0 million which was reduced to $195.6 million after a $1.4 million
working capital adjustment, plus transaction costs. Simultaneous with the
consummation of the Acquisition, CAF was merged with and into the Company (see
Note 3) and the Company changed its name from Collins & Aikman Floor Coverings,
Inc. to Collins & Aikman Floorcoverings, Inc.
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased amortization and depreciation reported in future periods. In
addition, the 1996 results include accruals and costs allocated by C&A Products.
Accordingly, the accompanying condensed consolidated financial statements of the
Company and of Collins & Aikman Floor Coverings, Inc. and subsidiary
(collectively referred to as the "Predecessor") are not comparable in all
material respects.
2. BASIS OF PRESENTATION
At January 27, 1996, Collins & Aikman Floor Coverings, Inc. and Collins &
Aikman United Kingdom Limited ("C&A UK") were separate indirect subsidiaries of
C&A Products. In preparation for the sale of the Company, on August 3, 1996,
C&A Products contributed its ownership in C&A UK to Collins & Aikman Floor
Coverings, Inc., making C&A UK a wholly owned subsidiary. Accordingly, the
results of Collins & Aikman Floor Coverings, Inc. and subsidiary have been
consolidated and treated as a single reporting entity for all periods presented.
Prior to the Acquisition, transfers of operating funds between C&A Products
and the Company were on a noninterest-bearing basis, with the net amounts of
these transfers reflected in investments and advances to C&A Products in the
accompanying condensed consolidated financial statements. The net balance in
investments and advances to C&A Products at January 25, 1997 of $30.4 million is
classified as a component of stockholder's deficit in the accompanying condensed
consolidated balance sheet as the net balance was forgiven at the time of the
Acquisition.
As indicated above, the accompanying condensed consolidated financial
statements present the financial position, results of operations, and cash flows
of the Company as if it were a separate entity for all periods presented. These
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of financial
position and results of operations. These condensed consolidated financial
statements should be read in conjunction with the January 25, 1997 consolidated
6
<PAGE>
financial statements of the Company presented in the Registration Statement on
Form S-4 (as amended) filed with the Securities and Exchange Commission.
Results of operations for interim periods are not necessarily indicative of
results for the full year.
3. ACQUISITION
Financing for the Acquisition was provided by (i) borrowings of $57.0
million under an $85.0 million senior secured credit facility among the Company,
Holdings, certain lenders, and Bankers Trust Company, as agent, (ii) proceeds
from an offering by CAF of $100.0 million aggregate principal amount of 10%
Senior Subordinated Notes due in 2007, and (iii) capital investments of $51.0
million by affiliates of Quad-C, Inc., Paribas Principal Partners, management of
the Company and certain other investors in Holdings.
The Acquisition was accounted for by the purchase method of accounting,
pursuant to which the purchase price, which includes $27.0 million in
consideration for a trade name license agreement, was allocated among the
acquired assets and liabilities in accordance with estimates of fair market
value on the date of acquisition. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $72.1
million, which is being accounted for as goodwill and is being amortized over 40
years using the straight line method. This allocation was based on preliminary
estimates and may be revised at a later date.
The following summary presents unaudited pro forma results of operations as
if the Acquisition occurred as of January 28, 1996 (in thousands):
FOR THE TWENTY-SIX WEEKS
ENDED JULY 27, 1996
-----------------------------
Net Sales $ 68,726
Operating income 8,154
Net income 94
These pro forma results do not purport to represent what the Company's
results of operations would have been if the Acquisition had occurred as of such
date nor what results will be for any future period.
4. INVENTORIES
Net inventory balances are summarized below (in thousands):
(COMPANY) (PREDECESSOR)
JULY 26, JANUARY 25,
1997 1997
----------------------------------
Raw materials $ 10,350 $ 7,376
Work in process 2,340 2,843
Finished goods 5,826 5,953
-------- --------
$ 18,516 $ 16,172
======== ========
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
- -------
The Company is the leading U.S. manufacturer of six-foot roll carpet and
the third largest manufacturer of modular carpet tiles within the specified
commercial carpet market. This niche market is highly competitive and is
impacted by fluctuations in the commercial new construction market and, to a
lesser degree, the commercial renovation market. The Company believes its sales
to a number of diverse end markets softens the impact of economic downturns in a
particular market.
Prior to February 6, 1997, the Company was a wholly owned subsidiary of
Collins & Aikman Floor Coverings Group, Inc. ("C&A Group"), a wholly owned
subsidiary of Collins & Aikman Products Co. ("C&A Products"), a wholly owned
subsidiary of Collins & Aikman Corporation. On February 6, 1997, CAF
Acquisition Corporation ("CAF") purchased all of the issued and outstanding
capital stock of Collins & Aikman Floor Coverings, Inc. from C&A Group for
$197.0 million (including $27.0 million in consideration of the Tradename
License Agreement) which was reduced to $195.6 million after a $1.4 million
working capital adjustment (the "Acquisition"). Immediately subsequent to the
Acquisition, CAF was merged with Collins & Aikman Floor Coverings, Inc. with the
Company as the successor company. Financing for the Acquisition was provided by
(i) $57.0 million of borrowings under an $85.0 million senior secured credit
facility, (ii) $100.0 million of proceeds from an offering by CAF of its 10%
Senior Subordinated Notes due in 2007, and (iii) $51.0 million in contributed
capital. In connection with the Acquisition, the Company will be making an
election under Section 338(h)(10) of the Internal Revenue Code which provides
for the Acquisition to be treated as a purchase of assets for federal income tax
purposes. As a result of this election, the Company's tax basis in its assets
was increased to the respective fair market values of such assets. The newly
allocated basis is amortizable for tax purposes over the respective useful lives
of the assets. The balance of the purchase price was allocated to goodwill and
other intangibles which is amortizable for tax purposes over fifteen years.
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased amortization and depreciation reported in periods subsequent to the
Acquisition. In addition, the 1996 results include accruals and costs allocated
by C&A Products. Accordingly, results of the Company and Collins & Aikman Floor
Coverings, Inc. and subsidiary (collectively referred to as the "Predecessor")
are not comparable in all material respects.
RESULTS OF OPERATIONS
- ---------------------
THIRTEEN WEEKS ENDED JULY 26, 1997 ("SECOND QUARTER 1997") AS COMPARED WITH
- ---------------------------------------------------------------------------
THIRTEEN WEEKS ENDED JULY 27, 1996 ("SECOND QUARTER 1996")
- ----------------------------------------------------------
NET SALES. Net sales for the Second Quarter 1997 were $46.9 million, an
increase of 12.0% from the $41.9 million for the Second Quarter 1996. This
sales increase was attributable to continued strength in all end use markets
served, particularly in the education and corporate office space markets. Both
volume and average selling prices increased.
GROSS PROFIT. The Company's gross profit increased to $19.4 million for
the Second Quarter 1997 from $16.8 million in the Second Quarter 1996, an
increase of 15.1%. Gross margin increased to 41.3% in the Second Quarter 1997
from 40.2% in the Second Quarter 1996. This was due to increases in sales
volume and average selling prices, as well as improved manufacturing
efficiencies on the higher volume levels offset by increased depreciation due to
the Acquisition previously mentioned.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including goodwill and intangible assets amortization
of $2.7 million, for the Second Quarter 1997 increased to $10.6 million, an
increase of 37.6% from the Second Quarter 1996 of $7.7 million. As a percentage
of sales, these expenses increased to 22.6% from 18.4%. This increase is
primarily due to increased costs related to (i) increased depreciation and
amortization due to the Acquisition previously mentioned, (ii) continued
investment in the company's segmentation marketing strategy, (iii) higher sales
commissions related to the higher sales volume, and (iv) increased marketing
expenses to capitalize on the finishing capacity expansion project completed at
the end of 1996.
CORPORATE, GENERAL AND ADMINISTRATIVE ALLOCATED COSTS. Corporate general
and administrative allocated costs include costs associated with services
provided by C&A Products, the former parent of the Company. 1997 costs also
include a consulting fee to Quad-C, Inc. for the period subsequent to the
Acquisition. Services provided by C&A Products included tax, treasury, risk
management, employee benefits administration, legal, data processing,
application of cash receipts and general corporate services. The Company has
utilized its option to continue these services under a Management Services
Agreement with C&A Products for up to one year. Allocated costs in the Second
Quarter 1997 decreased to $0.2 million from $0.4 million in the Second Quarter
1996. As a percentage of sales, the allocated costs decreased to 0.4% from
1.0%.
LOSS ON SALE OF RECEIVABLES. Effective July 13, 1994, C & A Products, the
former parent of the Company, entered into a Receivables Sale Agreement with
Carcorp, a wholly-owned bankruptcy-remote subsidiary of C&A Products. Under the
terms of the Receivables Sale Agreement, Carcorp purchased on a revolving basis,
without recourse, virtually all trade accounts receivable generated by C&A
Products and its subsidiaries, including the Company. The accounts receivable
were purchased by Carcorp at the face amount of the accounts receivable less a
defined discount. As of February 6, 1997 (the date of the Acquisition), the
Company was terminated as a Seller under the Receivables Sale Agreement and, as
a result, no longer incurs losses on the sale of its accounts receivable
related thereto.
INTEREST EXPENSE, NET. Prior to the Acquisition, the Company was a
guarantor of certain debt of C&A Products. Therefore, in 1996, interest expense
was allocated to the Company based upon the ratio of the Company's net assets to
the consolidated invested capital of C&A Products. As of February 6, 1997, the
Company was released from all guarantees. Interest expense for the Second
Quarter 1997 increased to $4.0 million from $0.8 million for the Second Quarter
1996. This increase is a result of the acquisition financing incurred at
February 6, 1997 as previously discussed.
NET INCOME. As a result of the purchase accounting charges previously
discussed and interest expense related to the Acquisition, the Company reported
decreased net income of $2.7 million in the Second Quarter 1997 compared to net
income of $4.2 million for the Second Quarter 1996.
EBITDA. EBITDA is defined as operating income plus depreciation,
amortization, the effect of the write-up of inventory to fair market value and,
additionally for 1996, the loss on sale of receivables and items retained by the
seller. EBITDA of $12.7 million in the Second Quarter 1997 was $2.7 million or
27.4% higher than the $10.0 million for the Second Quarter 1996. As a
percentage of sales, EBITDA increased to 27.1% in the Second Quarter 1997 from
23.8% in the Second Quarter 1996. The increase in EBITDA and EBITDA margin was
the combined result of the factors described above. EBITDA is provided as
certain investors commonly use it as a measure of a company's ability to service
its indebtedness. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity.
9
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TWENTY-SIX WEEKS ENDED JULY 26, 1997 ("SIX MONTHS 1997") AS COMPARED WITH
- -------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED JULY 27, 1996 ("SIX MONTHS 1996")
- --------------------------------------------------------
NET SALES. Net sales for the Six Months 1997 were $79.5 million, an
increase of 15.7% from the $68.7 million for the Six Months 1996. This sales
increase was attributable to continued strength in all end use markets served,
particularly in the corporate office space market. Both volume and average
selling prices increased.
GROSS PROFIT. The Company's gross profit increased to $30.1 million for
the Six Months 1997 from $27.5 million in the Six Months 1996, an increase of
9.7%. Gross margin decreased to 37.9% in the Six Months 1997 from 39.9% in the
Six Months 1996. While sales volume and average selling prices increased and
manufacturing efficiencies improved due to higher volume, the effect of a $2.6
million inventory write-up during the first quarter 1997 partially offset this
impact. This inventory charge is a result of writing-up inventory to fair
market value, under purchase accounting rules, as of February 6, 1997, the date
of Acquisition, and expensing the write-up amount during the First Quarter 1997
as the inventory completely turned. Excluding the $2.6 million inventory
effect, gross profit for Six Months 1997 increased to $32.7 million compared to
$27.5 million for Six Months 1996, an increase of 19.2% and gross margin
increased to 41.1% for Six Months 1997 compared to 39.9% for Six Months 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including goodwill and intangible assets amortization
of $4.2 million, for the Six Months 1997 increased to $20.3 million, an increase
of 45.2% from the Six Months 1996 of $14.0 million. As a percentage of sales,
these expenses increased to 25.6% from 20.4%. This increase is primarily due to
increased costs related to (i) increased depreciation and amortization due to
the Acquisition previously mentioned, (ii) continued investment in the company's
segmentation marketing strategy, (iii) higher sales commissions related to the
higher sales volume, and (iv) increased marketing expenses to capitalize on the
finishing capacity expansion project recently completed.
CORPORATE, GENERAL AND ADMINISTRATIVE ALLOCATED COSTS. Corporate general
and administrative allocated costs include costs associated with services
provided by C&A Products, the former parent of the Company. 1997 costs also
include a consulting fee to Quad-C, Inc. for the period subsequent to the
Acquisition. Services provided by C&A Products included tax, treasury, risk
management, employee benefits administration, legal, data processing,
application of cash receipts and general corporate services. The Company has
utilized its option to continue these services under a Management Services
Agreement with C&A Products for up to one year. Allocated costs in the Six
Months 1997 decreased to $0.4 million from $0.8 million in the Six Months 1996.
As a percentage of sales, the allocated costs decreased to 0.5% from 1.2%.
LOSS ON SALE OF RECEIVABLES. Effective July 13, 1994,C & A Products, the
former parent of the Company, entered into a Receivables Sale Agreement with
Carcorp, a wholly-owned bankruptcy-remote subsidiary of C&A Products. Under the
terms of the Receivables Sale Agreement, Carcorp purchased on a revolving basis,
without recourse, virtually all trade accounts receivable generated by C&A
Products and its subsidiaries, including the Company. The accounts receivable
were purchased by Carcorp at the face amount of the accounts receivable less a
defined discount. As of February 6, 1997 (the date of the Acquisition), the
Company was terminated as a Seller under the Receivables Sale Agreement and, as
a result, no longer incurs losses on the sale of its accounts receivable
related thereto.
INTEREST EXPENSE, NET. Prior to the Acquisition, the Company was a
guarantor of certain debt of C&A Products. Therefore, in 1996, interest expense
was allocated to the Company based upon the ratio of the Company's net assets to
the consolidated invested capital of C&A Products. As of February 6, 1997, the
Company was released from all guarantees. Interest expense for the Six Months
1997 increased to $7.5 million from $1.7 million for the Six Months 1996. This
increase is a result of the acquisition financing incurred at February 6, 1997
as previously discussed.
10
<PAGE>
NET INCOME. As a result of the purchase accounting charges previously
discussed and interest expense related to the Acquisition, the Company reported
decreased net income of $1.1 million in the Six Months 1997 compared to net
income of $5.6 million for the Six Months 1996.
EBITDA. EBITDA is defined as operating income plus depreciation,
amortization, the effect of the write-up of inventory to fair market value, the
loss on sale of receivables, and, additionally in 1996, items retained by the
seller. EBITDA of $18.6 million in the Six Months 1997 was $4.2 million or
28.7% higher than the $14.4 million for the Six Months 1996. As a percentage of
sales, EBITDA increased to 23.3% in the Six Months 1997 from 21.0% in the Six
Months 1996. The increase in EBITDA and EBITDA margin was the combined result
of the factors described above. EBITDA is provided as certain investors
commonly use it as a measure of a Company's ability to service its indebtedness.
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net income
as a measure of performance or to cash flow as a measure of liquidity.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary cash needs have historically been for operating
expenses, working capital and capital expenditures. The Company has financed
its cash requirements primarily through internally-generated cash flows and,
prior to the Acquisition, inter-company advances from C&A Products, the
Company's former parent.
Net cash provided by operating activities in the Second Quarter 1997 was
$6.2 million compared to $8.5 million in the Second Quarter 1996. Net cash
provided by operating activities in the Six Months 1997 was $8.1 million
compared to $5.3 million in the Six Months 1996, an increase of $2.8 million,
primarily as a result of $3.9 million improvement in working capital components.
Capital expenditures totaled $0.7 million during the Second Quarter 1997
compared to $2.6 million during the Second Quarter 1996. For the Six Months
1997, capital expenditures totaled $1.0 million compared to $4.5 million for the
Six Months 1996. The decreases of $1.9 million in the Second Quarter 1997 and
the $3.5 million in the Six Months 1997 are due to the heavy capacity expansion
costs incurred during 1996. Capital expenditures are focused on cost
reduction/maintenance measures, efficiency improvements and capacity
enhancements. The Company expects to spend approximately $5.0 million during
the fiscal year 1997.
The Company incurred significant indebtedness in connection with the
Acquisition. At February 6, 1997, the Company incurred $157.0 million of
indebtedness, consisting of $100.0 million of Senior Subordinated Notes, $55.0
million in term loan borrowings and $2.0 million in revolving credit borrowings
under the Credit Agreement, with no other debt or capital lease obligations.
Immediately after the Acquisition, the Company had approximately $26.5 million
(net of $2.0 million in revolver borrowings and $1.5 million in letter of
credits outstanding) in availability under the revolving credit portion of the
Credit Agreement and $2.1 million of cash. The term loan portion of the Credit
Agreement will mature on June 30, 2002 and will require annual principal
payments (payable in quarterly installments) totaling $3.0 million in 1997, $5.0
million in 1998, $9.0 million in 1999, $15.0 million in each of 2000 and 2001,
and $8.0 million in 2002. The revolving credit portion of the Credit Agreement
will mature on June 30, 2002 and may be repaid and reborrowed from time to time.
No principal payments are required on the Senior Subordinated Notes prior to
their scheduled maturity in 2007. As of July 26, 1997, there was $28.5 million
available under the revolver and $154.0 million of indebtedness.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Senior Subordinated
Notes), depends on its future performance, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. Based upon the current level of operations
11
<PAGE>
and anticipated growth, management of the Company believes that cash flow from
operations, together with available borrowings under the Credit Agreement, will
be adequate to meet the Company's anticipated future requirements for capital
expenditures and debt service.
IMPACT OF INFLATION
- -------------------
The impact of inflation on the Company's operations has not been
significant in recent years. In the past the Company has received inflationary
price increases in its primary raw material, nylon fiber. This increase has
generally been passed on to the Company's customers.
SEASONALITY
- -----------
The Company experiences seasonal fluctuations, with generally lower sales
and gross profit in the first quarter of the fiscal year and higher sales and
gross profit in the second and third quarters of the fiscal year. This is
primarily due to higher education market sales during the summer months while
schools generally are closed and floorcovering can be installed.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(C) INFORMATION REQUIRED BY ITEM 701 OF REGULATION S-K
(1) SECURITIES SOLD. On June 2, 1997, the Company sold 57,600 of its
Common Shares, no par value, and 5,184 of its Series A $10 Cumulative
Preferred Shares, no par value.
(2) UNDERWRITERS AND OTHER PURCHASERS. The Company offered the securities
to selected employees pursuant to a 1997 Employee Share Purchase
Plan.
(3) CONSIDERATION. The aggregate offering price for the securities sold
was $576,000.
(4) EXEMPTION FROM REGISTRATION CLAIMED. The Company relied upon Rule 701
Exemptions for Offers and Sales of Securities Pursuant to Certain
Compensatory Benefit Plans and Contracts Relating to Compensation,
which provides an exemption from the registration requirements of the
Securities Act of 1933, as amended, for offers and sales of an
issuer's securities pursuant to a written compensatory benefit plan
for the participation of its employees for bona fide services.
(5) TERMS OF CONVERSION OR EXERCISE. N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
During the quarter for which this Report on Form 10-Q is filed, the
Company did not file any Reports on Form 8-K.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 5, 1997
COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Registrant)
By: /s/ Darrel V. McCay
--------------------
Darrel V. McCay
Chief Financial Officer
(Duly authorized Officer and Principal
Financial and Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the period ended July 26, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JUL-26-1997
<CASH> 6,088
<SECURITIES> 0
<RECEIVABLES> 26,421
<ALLOWANCES> 317
<INVENTORY> 18,516
<CURRENT-ASSETS> 52,899
<PP&E> 34,770
<DEPRECIATION> 2,416
<TOTAL-ASSETS> 229,217
<CURRENT-LIABILITIES> 23,583
<BONDS> 149,500
0
0
<COMMON> 0
<OTHER-SE> 52,838
<TOTAL-LIABILITY-AND-EQUITY> 229,217
<SALES> 79,520
<TOTAL-REVENUES> 79,520
<CGS> 49,396
<TOTAL-COSTS> 49,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34
<INTEREST-EXPENSE> 7,536
<INCOME-PRETAX> 1,862
<INCOME-TAX> 775
<INCOME-CONTINUING> 1,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,087
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
