<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 October 25, 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 of (IRS Employer Identification No.)
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.
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Thirty-Nine Weeks ended
October 25, 1997 and October 26, 1996 3
Condensed Consolidated Balance Sheets - As of
October 25, 1997 and January 25, 1997 4
Condensed Consolidated Statements of Cash Flows -
Thirteen Weeks and Thirty-Nine Weeks ended
October 25, 1997 and October 26, 1996 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 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
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 THIRTY-NINE WEEKS ENDED
------------------------------ ---------------------------
(COMPANY) | (PREDECESSOR) (COMPANY) | (PREDECESSOR)
OCTOBER 25, | OCTOBER 26, OCTOBER 25, | OCTOBER 26,
1997 | 1996 1997 | 1996
------------- | -------------- ------------ | ------------
<S> <C> | <C> <C> | <C>
| |
Net sales $41,262 | $34,721 $120,782 | $103,447
------------- | -------------- ------------ | ------------
| |
Cost of goods sold 24,303 | 20,303 73,699 | 61,577
Selling, general and administrative expenses 10,571 | 7,601 30,906 | 21,602
Corporate, general and administrative allocated | |
costs 165 | 424 556 | 1,273
------------- | -------------- ------------ | ------------
35,039 | 28,328 105,161 | 84,452
------------- | -------------- ------------ | ------------
Operating income 6,223 | 6,393 15,621 | 18,995
| |
Loss on sale of receivables - | 782 - | 2,666
Interest expense, net 3,761 | 558 11,297 | 2,252
------------- | -------------- ------------ | ------------
| |
Income before income taxes 2,462 | 5,053 4,324 | 14,077
Income tax expense 963 | 1,935 1,738 | 5,392
------------- | -------------- ------------ | ------------
| |
Net income $ 1,499 | $ 3,118 $ 2,586 | $ 8,685
============= | ============== ============ | ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARY (COMPANY)
COLLINS & AIKMAN FLOOR COVERINGS, INC. AND SUBSIDIARY (PREDECESSOR)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 25, 1997 AND JANUARY 25, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited) |
(COMPANY) | (PREDECESSOR)
OCTOBER 25, | JANUARY 25,
1997 | 1997
------------------|------------------
<S> <C> | <C>
ASSETS |
Current assets: |
Cash $ 10,077 | $ 144
Accounts receivable, net 21,937 | 1,577
Inventories 17,830 | 16,172
Deferred tax assets 1,566 | 1,433
Prepaid expenses and other 730 | 488
------------------|----------------
Total current assets 52,140 | 19,814
|
Property, plant and equipment, net 32,023 | 19,521
Goodwill and intangible assets 131,884 | -
Deferred tax assets 1,278 | 259
Other assets 8,741 | 20
------------------|----------------
$226,066 | $ 39,614
==================|================
|
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) |
Current liabilities: |
Accounts payable $ 8,312 | $ 8,659
Accrued expenses 14,197 | 4,670
Current maturities of long-term debt - | -
------------------|----------------
Total current liabilities 22,509 | 13,329
|
Long-term debt 146,000 | -
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 2,586 | 18,940
Investment and advances to C&A Products Co. - | (30,386)
Foreign currency translation adjustment 99 | 222
Pension equity adjustment - | (377)
------------------|----------------
54,261 | (3,780)
------------------|----------------
$226,066 | $ 39,614
==================|================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
4
<PAGE>
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 THIRTY-NINE WEEKS ENDED
------------------------------ -----------------------------
(COMPANY) | (PREDECESSOR) (COMPANY) | (PREDECESSOR)
OCTOBER 25, | OCTOBER 26, OCTOBER 25, | OCTOBER 26,
1997 | 1996 1997 | 1996
--------------|--------------- ---------------|-------------
<S> <C> | <C> <C> | <C>
CASH PROVIDED BY (USED IN) | |
| |
OPERATIONS | |
Net income for the period $ 1,499 | $ 3,118 $ 2,586 | $ 8,685
Items not affecting cash: | |
Depreciation of capital assets 1,352 | 626 3,768 | 1,723
Amortization of goodwill and intangible assets 2,077 | - 6,230 | -
Amortization of deferred financing fees 332 | - 957 | -
Intercompany interest charges - | 558 - | 2,252
Deferred income tax (benefit) expense - | 59 (570)| 492
Changes in operating assets and liabilities: | |
Accounts receivable 4,167 | (766) (3,421)| 438
Inventory 686 | 170 538 | (5,545)
Accounts payable (1,369)| (2,116) 1,524 | (119)
Accrued liabilities 4,795 | (526) 10,372 | (925)
Other (199)| 221 (513)| (349)
--------------|--------------- ---------------|-------------
13,340 | 1,344 21,471 | 6,652
--------------|--------------- ---------------|-------------
INVESTING | |
Acquisition of C & A Floorcoverings (7)| - (197,740)| -
Purchase of capital assets (1,020)| (1,963) (2,008)| (6,495)
--------------|--------------- ---------------|-------------
(1,027)| (1,963) (199,748)| (6,495)
--------------|--------------- ---------------|-------------
FINANCING | |
Proceeds from bank financing - | - 57,000 | -
Issuance of senior notes - | - 100,000 | -
Repayment of bank financing (8,000)| - (11,000)| -
Capital contribution from CAF Holdings, Inc. - | - 51,576 | -
Financing costs (324)| - (9,366)| -
Changes in investments and advances from Products Co. - | 725 - | 70
--------------|--------------- ---------------|-------------
(8,324)| 725 188,210 | 70
--------------|--------------- ---------------|-------------
| |
INCREASE IN CASH DURING THE PERIOD 3,989 | 106 9,933 | 227
CASH - BEGINNING OF PERIOD 6,088 | 254 144 | 133
--------------|--------------- ---------------|-------------
| |
CASH - END OF PERIOD $10,077 | $ 360 $ 10,077 | $ 360
============================== =============================
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
<PAGE>
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
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.
6
<PAGE>
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):
<TABLE>
<CAPTION>
FOR THE THIRTY-NINE WEEKS
ENDED OCTOBER 26, 1996
-------------------------
<S> <C>
Net Sales $103,447
Operating income 13,403
Net income 855
</TABLE>
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):
<TABLE>
<CAPTION>
(COMPANY) | (PREDECESSOR)
OCTOBER 25,| JANUARY 25,
1997 | 1997
--------------|---------------
<S> <C> | <C>
Raw materials $ 8,970 | $ 7,376
Work in process 2,986 | 2,843
Finished goods 5,874 | 5,953
--------------|---------------
$17,830 | $16,172
==============|===============
</TABLE>
7
<PAGE>
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 made 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 OCTOBER 25, 1997 ("THIRD QUARTER 1997") AS COMPARED WITH
- -----------------------------------------------------------------------------
THIRTEEN WEEKS ENDED OCTOBER 26, 1996 ("THIRD QUARTER 1996")
- ------------------------------------------------------------
NET SALES. Net sales for the Third Quarter 1997 were $41.3 million, an
increase of 18.8% from the $34.7 million for the Third Quarter 1996. This sales
increase was attributable to continued strength in all end use markets served,
particularly in the healthcare, government and corporate office space markets.
Both volume and average selling prices increased.
COST OF GOODS SOLD. Cost of goods sold increased to $24.3 million for the
Third Quarter 1997 from $20.3 million in the Third Quarter 1996, an increase of
19.7%. As a percentage of sales, these costs were 58.9% and 58.5%,
respectively. This increase was due to increased sales volume and higher
depreciation due to the Acquisition offset by improved manufacturing
efficiencies on the higher volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including goodwill and intangible assets amortization
of $2.1 million, for the Third Quarter 1997 increased to $10.6 million, an
increase of 39.1% from the Third Quarter 1996 of $7.6 million. As a percentage
of sales, these expenses increased to 25.6% from 21.9%. This increase is
primarily due to increased costs related to (i) increased depreciation and
amortization due to the Acquisition previously mentioned, (ii) continued
8
<PAGE>
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 Third
Quarter 1997 decreased to $0.2 million from $0.4 million in the Third Quarter
1996. As a percentage of sales, the allocated costs decreased to 0.4% 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 Third
Quarter 1997 increased to $3.8 million from $0.6 million for the Third 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 $1.5 million in the Third Quarter 1997 compared to net
income of $3.1 million for the Third 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 items retained by the seller. EBITDA of $9.7 million
in the Third Quarter 1997 was $2.5 million or 34.6% higher than the $7.2 million
for the Third Quarter 1996. As a percentage of sales, EBITDA increased to 23.4%
in the Third Quarter 1997 from 20.7% in the Third 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
<PAGE>
THIRTY-NINE WEEKS ENDED OCTOBER 25, 1997 ("NINE MONTHS 1997") AS COMPARED
- -------------------------------------------------------------------------
WITH THIRTY-NINE WEEKS ENDED OCTOBER 26, 1996 ("NINE MONTHS 1996")
- ------------------------------------------------------------------
NET SALES. Net sales for the Nine Months 1997 were $120.8 million, an
increase of 16.8% from the $103.4 million for the Nine 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.
COST OF GOODS SOLD. Cost of goods sold increased to $73.7 million for the
Nine Months 1997 from $61.6 million in the Nine Months 1996, an increase of
19.7%. As a percentage of sales, these costs were 61.0% and 59.5%,
respectively. This increase was due to increased sales volume, the effect of a
$2.6 million inventory write-up charge during the first quarter 1997, higher
depreciation due to the Acquisition, offset by improved manufacturing
efficiencies on the higher volume. This inventory charge is a result of
writing-up inventory to fair market value as of the date of the Acquisition and
expensing the write-up during the first quarter of 1997 as the inventory
completely turned. Excluding the $2.6 million inventory effect, cost of goods
sold increased to $71.1 million compared to $61.6 million for Nine Months 1996,
an increase of 15.5%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including goodwill and intangible assets amortization
of $6.2 million, for the Nine Months 1997 increased to $30.9 million, an
increase of 43.1% from the Nine Months 1996 of $21.6 million. As a percentage
of sales, these expenses increased to 25.6% from 20.9%. 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 Nine
Months 1997 decreased to $0.6 million from $1.3 million in the Nine 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 Nine Months
1997 increased to $11.3 million from $2.3 million for the Nine Months 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 $2.6 million in the Nine Months 1997 compared to net
income of $8.7 million for the Nine Months 1996.
10
<PAGE>
EBITDA. EBITDA is defined as operating income plus depreciation,
amortization, the effect of the write-up of inventory to fair market value and,
additionally in 1996, the items retained by the seller. EBITDA of $28.2 million
in the Nine Months 1997 was $6.6 million or 30.6% higher than the $21.6 million
for the Nine Months 1996. As a percentage of sales, EBITDA increased to 23.4%
in the Nine Months 1997 from 20.9% in the Nine 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 Third Quarter 1997 was
$13.3 million compared to $1.3 million in the Third Quarter 1996 primarily due
to $11.1 million improvements in working capital components. Net cash provided
by operating activities in the Nine Months 1997 was $21.5 million compared to
$6.7 million in the Nine Months 1996, an increase of $14.8 million, primarily as
a result of $15.0 million improvement in working capital components.
Capital expenditures totaled $1.0 million during the Third Quarter 1997
compared to $2.0 million during the Third Quarter 1996. For the Nine Months
1997, capital expenditures totaled $2.0 million compared to $6.5 million for the
Nine Months 1996. The decreases of $0.9 million in the Third Quarter 1997 and
the $4.5 million in the Nine 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 $4.5 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. On September 30, 1997, the Company paid $7.0
million in voluntary prepayments and $1.0 million in required payments against
the term loan borrowings. As of October 25, 1997, there was $28.5 million
available under the revolver and $146.0 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
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.
11
<PAGE>
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 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: December 10, 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 OCTOBER 25, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> OCT-25-1997
<CASH> 10,077
<SECURITIES> 0
<RECEIVABLES> 22,274
<ALLOWANCES> 337
<INVENTORY> 17,830
<CURRENT-ASSETS> 52,140
<PP&E> 35,791
<DEPRECIATION> 3,768
<TOTAL-ASSETS> 226,066
<CURRENT-LIABILITIES> 22,509
<BONDS> 146,000
0
0
<COMMON> 0
<OTHER-SE> 54,261
<TOTAL-LIABILITY-AND-EQUITY> 226,066
<SALES> 120,782
<TOTAL-REVENUES> 120,782
<CGS> 73,699
<TOTAL-COSTS> 73,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> 11,297
<INCOME-PRETAX> 4,324
<INCOME-TAX> 1,738
<INCOME-CONTINUING> 2,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,586
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
