<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 30, 1999
___ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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 as of December 9, 1999.
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - For The Thirteen
Weeks and Thirty-Nine Weeks Ended October 31, 1998 and October 30, 1999 3
Condensed Consolidated Statements of Comprehensive Income - For The
Thirteen Weeks and Thirty-Nine Weeks Ended October 31, 1998 and
October 30, 1999 4
Condensed Consolidated Balance Sheets - As of January 30, 1999 and
October 30, 1999 5
Condensed Consolidated Statements of Cash Flows - For The Thirty-Nine
Weeks Ended October 31, 1998 and October 30, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THIRTEEN WEEKS AND THIRTY-NINE WEEKS
ENDED OCTOBER 31, 1998 AND OCTOBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
----------------------------------- -------------------------------------
October 31, October 30, October 31, October 30,
1998 1999 1998 1999
--------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
NET SALES........................................ $45,055 $71,785 $139,159 $178,305
COST OF GOODS SOLD............................... 27,277 45,413 81,798 107,828
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES...................................... 11,506 18,417 35,209 44,415
--------------- --------------- ----------------- ---------------
OPERATING INCOME................................. 6,272 7,955 22,152 26,062
MINORITY INTEREST IN INCOME OF
SUBSIDIARY.................................... -- 14 -- 26
EQUITY IN EARNINGS OF AFFILIATE.................. -- 522 -- 656
NET INTEREST EXPENSE............................. 3,712 4,362 11,089 11,580
--------------- --------------- ----------------- ---------------
INCOME BEFORE INCOME TAXES....................... 2,560 4,101 11,063 15,112
INCOME TAX EXPENSE............................... 1,096 1,933 4,429 6,271
--------------- --------------- ----------------- ---------------
NET INCOME BEFORE EXTRAORDINARY
ITEM........................................... 1,464 2,168 6,634 8,841
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, NET OF TAX............. -- 31 -- 31
--------------- --------------- ----------------- ---------------
NET INCOME....................................... $ 1,464 $ 2,137 $ 6,634 $ 8,810
=============== =============== ================= ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
FOR THE THIRTEEN WEEKS AND THIRTY-NINE WEEKS
ENDED OCTOBER 31, 1998 AND OCTOBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------------- -------------------------------
October 31, October 30, October 31, October 30,
1998 1999 1998 1999
--------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET INCOME............................... $ 1,464 $ 2,137 $ 6,634 $ 8,810
OTHER COMPREHENSIVE INCOME
(EXPENSE) NET OF TAX:
Foreign Currency Translation
Adjustments.......................... (17) 126 (14) (24)
--------------- ----------------- --------------- ---------------
COMPREHENSIVE INCOME..................... $ 1,447 $ 2,263 $ 6,620 $ 8,786
=============== ================= =============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 30, 1999 AND OCTOBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
January 30, October 30,
1999 1999
------------------------ ------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash And Cash Equivalents........................................... $ 2,211 $ 2,313
Due From Factor..................................................... -- 6,746
Accounts Receivable, Net............................................ 23,465 32,961
Inventories......................................................... 17,343 35,663
Deferred Tax Assets................................................. 1,098 2,207
Prepaid Expenses And Other.......................................... 752 1,490
----------------------- -----------------------
Total Current Assets............................................. 44,869 81,380
PROPERTY, PLANT AND EQUIPMENT, NET..................................... 40,085 46,358
GOODWILL AND OTHER INTANGIBLE ASSETS................................... 123,365 160,870
OTHER ASSETS........................................................... 7,095 7,808
----------------------- -----------------------
$ 215,414 $ 296,416
======================= =======================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable.................................................... $ 8,442 $ 10,077
Accrued Expenses.................................................... 8,704 15,851
Revolving Line of Credit............................................ -- 6,610
Current Portion of Long-Term Debt................................... 162 3,420
----------------------- -----------------------
Total Current Liabilities........................................ 17,308 35,958
OTHER, INCLUDING POST-RETIREMENT BENEFIT
OBLIGATION.......................................................... 4,041 3,941
DEFERRED TAX LIABILITIES............................................... 1,163 2,082
LONG-TERM DEBT......................................................... 132,220 184,941
MINORITY INTEREST...................................................... 153 179
COMMITMENTS AND CONTINGENCIES..........................................
STOCKHOLDER'S EQUITY:
Common Stock ($.01 Par Value Per Share, 1,000 Shares
Authorized, Issued & Outstanding)................................ -- --
Additional Paid-In Capital.......................................... 51,576 51,576
Retained Earnings................................................... 8,840 17,650
Accumulated Other Comprehensive Income.............................. 113 89
----------------------- -----------------------
60,529 69,315
----------------------- -----------------------
$ 215,414 $ 296,416
======================= =======================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
5
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THIRTY-NINE WEEKS
ENDED OCTOBER 31, 1998 AND OCTOBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
--------------------------------------------------------
October 31, October 30,
1998 1999
------------------------ ------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATIONS:
Net Income For The Period.......................................... $ 6,634 $ 8,810
Items Not Affecting Cash:
Depreciation of capital assets.................................. 4,258 5,241
Amortization of goodwill and other intangible assets............ 5,515 5,702
Amortization of deferred financing fees......................... 987 759
Deferred income tax expense..................................... 614 863
Equity in earnings of affiliate................................. -- (656)
Minority interest in income of subsidiary....................... -- 26
Extraordinary loss on extinguishment of debt.................... -- 51
Changes In Operating Assets And Liabilities,
Net of Assets Acquired:
Due from factor................................................. -- (554)
Accounts receivable............................................. (6,003) (3,540)
Inventory....................................................... (1,623) (4,319)
Accounts payable................................................ (260) (2,185)
Accrued liabilities............................................. 3,461 3,073
Other operating activities...................................... 483 (257)
------------------------ -------------------------
Net cash provided by operating activities.................... 14,066 13,014
------------------------ -------------------------
INVESTING:
Acquisition of Businesses, Net of Cash Acquired.................... (3,101) (53,957)
Equity Distribution From Affiliate................................. -- 719
Purchase of Capital Assets......................................... (6,214) (4,391)
------------------------ -------------------------
Net cash used in investing activities........................ (9,315) (57,629)
------------------------ -------------------------
FINANCING:
Net Proceeds From Revolving Credit Facilities...................... -- 10,745
Proceeds From Long Term Borrowings................................. -- 41,032
Repayments of Long Term Debt....................................... (3,090) (7,060)
------------------------ -------------------------
Net cash provided by (used in) financing activities.......... (3,090) 44,717
------------------------ -------------------------
INCREASE IN CASH DURING THE PERIOD................................. 1,661 102
CASH - BEGINNING OF PERIOD......................................... 5,699 2,211
------------------------ -------------------------
CASH - END OF PERIOD............................................... $ 7,360 $ 2,313
======================== =========================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS0
1. Organization and Basis of Presentation
Collins & Aikman Floorcoverings, Inc. (a Delaware corporation) is a leading
manufacturer of floorcoverings for the specified commercial sector of the
floorcoverings market offering vinyl-backed six foot and modular tiles and
tufted and woven broadloom products. The Company is a wholly owned subsidiary of
CAF Holdings, Inc. ("Holdings").
On February 6, 1997, CAF Acquisition Corporation ("CAF"), a wholly owned
subsidiary of Holdings, acquired from an indirect wholly owned subsidiary of
Collins & Aikman Corporation all the outstanding capital stock of the Company
(the "Floorcoverings Acquisition"). Simultaneous with the consummation of the
Floorcoverings Acquisition, CAF was merged with and into the Company.
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 the Company's financial position and results of operations.
These condensed consolidated financial statements should be read in conjunction
with the January 30, 1999 consolidated financial statements of the Company
included in the Company's 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Results of operations for interim periods
are not necessarily indicative of results for the full year.
2. Acquisitions
On June 28, 1999, pursuant to an Agreement and Plan of Merger, dated June
4, 1999 ("the Merger"), the Company acquired all the outstanding capital stock
of Monterey Carpets, Inc. ("Monterey") for $50.0 million, subject to a working
capital adjustment (the "Monterey Acquisition"). In addition, approximately $0.4
million of indebtedness of Monterey was extinguished by the Company commensurate
with the acquisition. The Monterey Acquisition has been accounted for by the
purchase method, pursuant to which the purchase price has been allocated among
the acquired assets and liabilities. The excess of the purchase price over the
fair value of the net assets acquired amounted to approximately $37.0 million
which is being accounted for as goodwill and is being amortized over 20 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 Monterey Acquisition occurred as of February 1, 1998 and January 31, 1999
(in thousands):
<TABLE>
<CAPTION>
October 31, October 30,
1998 1999
-------------------- ---------------------
<S> <C> <C>
Net Sales................................................ $ 173,954 $ 200,966
Net Income............................................... $ 5,813 $ 9,053
</TABLE>
These pro forma results do not purport to represent what the Company's
results of operations would have been if the Monterey Acquisition had occurred
as of such date, nor what results will be for any future period.
7
<PAGE>
On July 30, 1999, the Company acquired all the outstanding capital stock of
Crossley Carpet Mills Limited (the "Crossley Acquisition"). The Crossley
Acquisition has been accounted for by the purchase method, to which the purchase
price has been allocated among the acquired assets and liabilities. The excess
of the purchase price over the fair value of the net assets acquired is being
accounted for as goodwill and is being amortized over 20 years using the
straight line method. As a result of this acquisition, the Company assumed
approximately $17.6 million in short term and long term debt. Approximately
$9.5 million of the assumed long-term debt is sinking fund bonds held and issued
by the Novia Scotia Business Development Corporation (the "Bond Holder"). The
Bond Holder agreed to forgive principal amount of the bonds up to a maximum of
$6.3 million at various rates, dependant upon certain factors. The remaining
balance will become repayable over five years once the forgiveness has expired.
3. Investment in Affiliate
In 1993, Monterey entered into an agreement with two other parties in a
partnership which operates a carpet dyeing and finishing plant. All partners
are carpet manufacturers who supply business volume to the facility. Upon
entering the partnership agreement, Monterey and the other partners each agreed
to purchase carpet dyeing and finishing services exclusively from the
partnership. These service agreements can be canceled with a one-year notice.
Charges for these services are expected to equal prevailing market prices for
comparable services. In addition, Monterey agreed to provide certain executive
management and operational services at cost while the partnership agreed to
provide Monterey with certain maintenance and utility services at cost. The
partnership has received a cancellation notice from one of its partners.
Effective March 1, 2000, Monterey and the other remaining partner will each hold
a one-half interest in the general partnership.
4. Factoring of Receivables
Monterey is party to a credit and factoring agreement with a commercial
bank. The bank provides ongoing cash advances limited to 90 percent of eligible
accounts receivable sold to the bank on a factoring basis. The agreement may be
terminated by the Company or the bank with a 30 day written notice. Advances
are subject to interest computed at the bank's prime rate less 0.5 percent.
Monterey pays service charges based on the creditworthiness of the customer of
an agreed upon percentage of factored receivables.
5. Inventories
Net inventory balances are summarized below (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
January 30, October 30,
1999 1999
------------------------- --------------------------
<S> <C> <C>
Raw materials............................................. $ 8,951 $ 14,278
Work in process........................................... 2,440 5,182
Finished goods............................................ 5,952 16,203
------------------------- --------------------------
$ 17,343 $ 35,663
========================= ==========================
</TABLE>
8
<PAGE>
6. Long Term Debt
In September 1999, the Company amended its credit facility (sixth
amendment) to allow the purchase of up to $10.0 million of its 10.0% Senior
Subordinated Notes due 2007 (the "Senior Notes").
During October 1999 the Company acquired $5.0 million of the Senior Notes
in the open market. These notes were subsequently retired. In connection with
this transaction, the Company recorded an extraordinary loss of approximately
$31,000, net of a tax benefit, which included the write off of a pro rata share
of deferred financing costs associated with the issuance of the Senior Notes.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
- -------
Collins & Aikman Floorcoverings, Inc. (a Delaware corporation) (the
"Company"), is a leading U.S. manufacturer of vinyl-backed six-foot roll carpet,
and a leading manufacturer of vinyl-backed modular carpet tiles, and, through
Monterey Carpets, Inc. ("Monterey"), is a leading U.S. broadloom (twelve-foot)
high-end design brand within the specified commercial carpet market.
Additionally, the Company, through Crossley Carpet Mills Limited ("Crossley"),
is a leading Canadian tufted and woven broadloom manufacturer with a well-
respected brand name in both the U.S. and Canada serving the specified
commercial and residential carpet markets. The ability to offer a "package of
product offerings" in various forms, coupled with flexible distribution
channels, allows the Company to provide a wide array of floor covering solutions
for its customers. The specified commercial carpet market is a niche market
that is highly competitive and impacted by fluctuations in the commercial new
construction market and, to a lesser degree, the commercial renovation market.
The Company believes the impact of economic downturns is softened because its
sales are to five diverse end use markets and it has a balanced sales mix
between commercial new construction and renovation projects.
On June 28, 1999, pursuant to an Agreement and Plan of Merger, dated June
4, 1999 (the "Merger"), the Company, through its wholly owned subsidiary,
Monterey Merger Company, Inc. ("Merger Sub"), acquired all the outstanding
capital stock of Monterey for $50.0 million, subject to a working capital
adjustment (the "Monterey Acquisition"). Simultaneous with the consummation of
the Merger, Merger Sub was merged with and into Monterey, with Monterey as the
surviving corporation in the merger. In addition, approximately $0.4 million of
indebtedness of Monterey was extinguished by the Company commensurate with the
acquisition. The consideration paid was financed through the Company's existing
credit facility, as amended. The Monterey Acquisition has been accounted for by
the purchase method, to which the purchase price has been allocated among the
acquired assets and liabilities. The excess of the purchase price over the fair
value of the net assets acquired was approximately $37.0 million which is being
accounted for as goodwill and is being amortized over 20 years using the
straight line method.
On July 30, 1999, the Company acquired all the outstanding capital stock of
Crossley. The Crossley acquisition has been accounted for by the purchase
method, to which the purchase price has been allocated among the acquired assets
and liabilities. The excess of the purchase price over the fair value of the net
assets acquired is being accounted for as goodwill and is being amortized over
20 years using the straight line method.
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks Ended October 30, 1999 ("Third Quarter 1999") As Compared with
- -----------------------------------------------------------------------------
Thirteen Weeks Ended October 31, 1998 ("Third Quarter 1998")
- ------------------------------------------------------------
Net Sales. Net sales for the Third Quarter 1999 were $71.8 million, an
increase of 59.3% from $45.1 million in the Third Quarter 1998. This sales
increase was attributable to the addition of Monterey and Crossley, as well as,
increased sales of vinyl-backed products in the education and government end use
markets.
Cost of Goods Sold. Cost of goods sold increased to $45.4 million for the
Third Quarter 1999 from $27.3 million in the Third Quarter 1998, an increase of
66.5%. As a percentage of sales, these costs were 63.3% and 60.5%, respectively.
This cost increase was due to the inclusion of product sales of Monterey and
Crossley.
10
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill and other intangible assets
amortization of $2.4 million, for the Third Quarter 1999 increased to
$18.4 million, an increase of 60.1% from $11.5 million in the Third Quarter 1998
which included goodwill and intangible assets amortization of $1.8 million. As a
percentage of sales, these expenses remained constant at 26.0%. These higher
costs are principally due to the acquisition of Monterey and Crossley.
Interest Expense. Net interest expense for the Third Quarter 1999
increased to $4.4 million from $3.7 million in the Third Quarter 1998. This
increase is due to higher indebtedness due to the Monterey and Crossley
acquisitions.
Net Income. Net income for the Third Quarter 1999 increased to $2.1 million
from $1.5 million in the Third Quarter 1998. This was due to the combined result
of the factors described above.
EBITDA. EBITDA is defined as operating income plus depreciation,
amortization and equity in earnings of affiliate. EBITDA for the Third Quarter
1999 was $13.0 million, an increase of $3.3 million from $9.7 million in the
Third Quarter 1998. As a percentage of sales, EBITDA was 18.1% in the Third
Quarter 1999 and 21.5% in the Third Quarter 1998. 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.
RESULTS OF OPERATIONS
- ---------------------
Thirty-Nine Weeks October 30, 1999 ("Nine Months 1999") As Compared with Thirty-
- -------------------------------------------------------------------------------
Nine Weeks Ended October 31, 1998 ("Nine Months 1998")
- ------------------------------------------------------
Net Sales. Net sales for the Nine Months 1999 were $178.3 million, an
increase of 28.1% from $139.2 million for the Nine Months 1998. This sales
increase was primarily attributable to the addition of Monterey and Crossley, as
well as, increased sales of the Company's vinyl-backed products in the
education, corporate and government end use markets.
Cost of Goods Sold. Cost of goods sold increased to $107.8 million
for the Nine Months 1999 from $81.8 million in the Nine Months 1998, an increase
of 31.8%. As a percentage of sales, these costs were 60.5% and 58.8%,
respectively. This cost increase and increase as a percentage of sales was due
to the addition of Monterey and Crossley.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill and other intangible assets
amortization of $5.7 million, for the Nine Months 1999 increased to $44.4
million, an increase of 26.1% from $35.2 million in the Nine Months 1998 which
included goodwill and intangible assets amortization of $5.5 million. As a
percentage of sales, these expenses decreased to 24.9% from 25.3%. These higher
costs principally related to the addition of Monterey and Crossley.
Interest Expense. Net interest expense for the Nine Months 1999 increased
to $11.6 million from $11.1 million in the Nine Months 1998. This increase was
due to higher indebtedness due to the Monterey and Crossley acquisitions
partially offset by debt reductions prior to the acquisitions.
Net Income. Net income for the Nine Months 1999 increased to $8.8 million
from $6.6 million in the Nine Months 1998, an increase of 32.8%. This was due to
the combined result of the factors described above.
11
<PAGE>
EBITDA. EBITDA is defined as operating income plus depreciation,
amortization and equity in earnings of affiliate. EBITDA for the Nine Months
1999 was $37.6 million and the Nine Months 1998 was $31.9 million. As a
percentage of sales, EBITDA was 21.1% in the Nine Months 1999 and 22.9% in the
Nine Months 1998. 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, capital expenditures and debt service. The Company
has historically financed its operating cash requirements primarily through
internally generated cash flows.
Net cash provided by operating activities in the Nine Months 1999 was
$13.0 million compared to $14.1 million in the Nine Months 1998. The change is
primarily due to a negative $4.5 million swing in net working capital, offset by
the $2.1 million increase in net income.
For the Nine Months 1999, capital expenditures totaled $4.4 million
compared to $6.2 million for the Nine Months 1998. The decrease in capital
expenditures for the fiscal 1999 period is primarily due to heavier spending in
1998 for expansions in the Company's Dalton, Georgia tufting and finishing
plants. Fiscal 1999 capital expenditures are focused on cost
reduction/maintenance measures, efficiency improvements and capacity
enhancements. The Company expects to incur capital expenditures of approximately
$7.8 million during the fiscal year 1999.
The Company has significant indebtedness which consisted of $95.0 million
in Senior Subordinated Notes due 2007 (the "Senior Notes"); a $125.0 million
credit facility (the "Credit Facility") which, at October 30, 1999 included
$28.0 million ("A-1 Term Loan Facility") and $40.0 million ("A-2 Term Loan
Facility") in term loan borrowings and $11.0 million in revolving credit
borrowings; $3.0 million in seller's notes from the June 1998 acquisition of
Advance Carpet Tiles and the Crossley acquisition; $1.5 million in purchase
money indebtedness; $6.6 million in revolving line of credit borrowings under
Crossley and $9.8 million in sinking funds bonds also under Crossley.
The Company amended the Credit Facility in October 1999 to allow the
Company to repurchase up to $10.0 million of the Senior Notes. The A-1 Term Loan
facility of the Credit Facility will mature on June 30, 2002 and, as of October
30, 1999, will require annual principal payments (payable in quarterly
installments) totaling $1.3 million in the third quarter of fiscal 2000, $3.7
million in the fourth quarter of fiscal 2000, $15.0 million in fiscal 2001 and
$8.0 million in fiscal 2002. The A-2 Term Loan Facility will mature on December
31, 2003 and requires annual principal payments (also payable in quarterly
installments) totaling $12.0 million in fiscal 2002 and $28.0 million in fiscal
2003. The revolving credit portion of the Credit Facility will mature on June
30, 2002 and may be repaid and reborrowed from time to time. During fiscal 1998
and 1997, the Company voluntarily prepaid $23.1 million of the term loan
borrowings. Additionally, on February 18, 1999, the Company prepaid an
additional $1.9 million of the term loan borrowings. As of October 30, 1999,
there was $13.9 million (net of $11.0 million in borrowings and $5.1 million in
letters of credit outstanding) available under the revolving credit portion of
the Credit Facility.
Of the indebtedness discussed above, the Company assumed approximately
$17.5 million during the Crossley acquisition. Of this amount, term loans
associated with financing of equipment purchases and other specific needs
totaled $1.1 million. These term loans are payable monthly according to set
schedules of repayment with the lenders. Approximately $6.6 million of short
term debt was assumed which relates to Crossley's revolving line of credit
agreement with a Canadian bank which is used to finance working capital
requirements. Approximately $9.8 million of long-term debt is sinking fund
bonds held and issued by the Novia Scotia Business Development Corporation (the
"Bond Holder"). The Bond Holder agreed to forgive principal amount of the bonds
up to a maximum of $6.3 million at various rates, dependant upon certain
factors. The remaining balance will become repayable over five years once the
forgiveness has expired.
12
<PAGE>
The Company's ability to make scheduled payments of principal, interest, or
to refinance its indebtedness (including the Senior 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 facilities, will be adequate to meet the
Company's anticipated future requirements for capital expenditures, working
capital and debt service. However, there can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable the Company to
service its indebtedness or to make necessary capital expenditures.
IMPACT OF INFLATION
- -------------------
The impact of inflation on the Company's operations has not been
significant in recent years. Historically, when the Company has received
inflationary price increases in its primary raw material, nylon fiber, it has
generally been passed on to the Company's customers. However, there can be no
assurance that a high rate of inflation in the future would not have an adverse
effect on the Company's operating results.
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.
YEAR 2000
- ---------
The Company has evaluated its Year 2000 risk in three separate categories,
information technology systems ("IT"), non-IT systems ("Non-IT") and material
third party relationships ("Third Party Risk"). The Company has developed a
plan in which the risks in each of these categories are being addressed and
reviewed by the appropriate level of management as follows:
The Company's review of its IT systems were completed during the first
quarter of 1999. Due to conversions already completed, the Company considers
its IT systems risk to be minimal and will only formulate contingency plans
should it become necessary. These conversions were planned outside of the
Company's Year 2000 review.
The Company's review of Non-IT systems has been completed. Non-IT systems
involve embedded technologies such as microcontrollers or microprocessors.
Examples of Non-IT systems include telephones, security systems and computer
controlled manufacturing equipment. Any costs of addressing Non-IT risks are
included in normal upgrade and replacement expenditures, which were planned
outside of the Company's Year 2000 review. Management believes its Non-IT risks
are minimal and will formulate contingency plans only should it become
necessary.
The Company's review of its Third Party Risk includes detailed reviews of
critical relationships with suppliers and business partners, such as banking
institutions, with broader reviews of less critical relationships. The Third
Party Risk review with critical relationships has been completed. The Company
considers its Third Party Risk with critical relationships to be minimal. In
regard to its noncritical relationships, the Company's reviews are ongoing.
Based upon information available and the noncritical nature of the
relationships, the Company considers the Third Party Risk from these noncritical
relationships to be minimal and will handle any failure presented by a
noncritical relationship as it happens. The Company presently does not expect
the risk associated with or costs of addressing the Company's Third Party Risk
to be material.
13
<PAGE>
The Company's most likely Year 2000 worst case scenario would be a critical
third party's system malfunction where the Company would suffer business
interruption until the supplier corrected the problem or an alternative supply
was found. At this point in the Company's review, it is not aware of any
potential situations which may cause this scenario to occur, but will formulate
a contingency plan should it be necessary to do so.
There can be no assurance that these conclusions will be achieved and
actual results could differ from those anticipated. Specific factors that might
cause differences include, but are not limited to, the ability of the third
parties with which the Company has material relationships to modify or convert
their systems to be Year 2000 compliant and similar uncertainties.
14
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
10.1(e) Sixth Amendment to the Credit Agreement among CAF Holdings, Inc.,
Collins & Aikman Floorcoverings, Inc., various lending
institutions and Bankers Trust Company as Agent.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
1. On September 9, 1999, the Company filed on Form 8-K/A information
to amend Item 7 of the Company's current report on Form 8-K dated
July 9, 1999.
15
<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 9, 1999
COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Registrant)
By: /s/ Darrel V. McCay
-------------------------------------
Darrel V. McCay
Vice-President and Chief Financial Officer
(Duly authorized Officer and Principal
Financial and Accounting Officer)
16
<PAGE>
EXHIBIT 10.1E
SIXTH AMENDMENT
---------------
SIXTH AMENDMENT (this "Amendment"), dated as of October 7, 1999, among
CAF HOLDINGS, INC. ("Holdings"), COLLINS & AIKMAN FLOORCOVERINGS, INC. (the
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (each, a "Bank" and, collectively, the "Banks"), and BANKERS TRUST
COMPANY, as Agent for the Banks (in such capacity, the "Agent"). All capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings provided such terms in the Credit Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties
to a Credit Agreement, dated as of February 6, 1997 (as amended, modified or
supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Borrower has requested a certain amendment to the Credit
Agreement as described below; and
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendment to Credit Agreement.
-----------------------------
1. Section 8.13 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of subclause (x) of the proviso
appearing in clause (i) of said Section and inserting a comma in lieu thereof
and (ii) inserting the following text at the end of clause (i) of said Section:
"and (z) the Borrower may repurchase Senior Subordinated Notes on
the open-market in an aggregate principal amount for all
purchases made after the Sixth Amendment Effective Date (as
defined in the Sixth Amendment to this Agreement, dated as of
October 7, 1999) pursuant to this clause (z) not to exceed
$10,000,000, so long as (I) no Default or Event of Default then
exists or would result therefrom and (II) the purchase price for
such Senior Subordinated Notes does not exceed $1,000 per $1,000
principal amount thereof".
<PAGE>
II. Miscellaneous Provisions.
------------------------
1. In order to induce the Banks to enter into this Amendment, each
of Holdings and the Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Sixth Amendment
Effective Date (as defined below), both before and after giving effect to
this Amendment; and
(b) all of the representations and warranties contained in the Credit
Agreement or the other Credit Documents are true and correct in all
material respects on the Sixth Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Sixth
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Sixth
Amendment Effective Date") when Holdings, the Borrower and the Required Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office.
6. From and after the Sixth Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
CAF HOLDINGS, INC.
By________________________________________________
Title:
COLLINS & AIKMAN FLOORCOVERINGS, INC.
By________________________________________________
Title:
BANKERS TRUST COMPANY,
Individually and as Agent
By________________________________________________
Title:
FIRST SOURCE FINANCIAL LLP
By________________________________________________
Title:
HELLER FINANCIAL, INC.
By________________________________________________
Title:
LASALLE NATIONAL BANK
By________________________________________________
Title:
-3-
<PAGE>
BANKBOSTON, N.A.
By________________________________________________
Title:
FIRST UNION NATIONAL BANK
By________________________________________________
Title:
LTCB TRUST COMPANY
By________________________________________________
Title:
SANWA BUSINESS CREDIT CORPORATION
By________________________________________________
Title:
SENIOR DEBT PORTFOLIO
By________________________________________________
Title:
WACHOVIA BANK, N.A.
By________________________________________________
Title:
-4-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED OCTOBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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