<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 May 1, 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 chapter)
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 June 2, 1999.
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Three Months
Ended May 2, 1998 And May 1, 1999 3
Condensed Consolidated Statements of Comprehensive Income - Three
Months Ended May 2, 1998 And May 1, 1999 4
Condensed Consolidated Balance Sheets - As of January 30, 1999 And
May 1, 1999 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended May 2, 1998 And May 1, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 9
Part II. Other Information
Item 6. Exhibits And Reports on Form 8-K 13
</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 THREE MONTHS ENDED MAY 2, 1998 AND MAY 1, 1999
(In Thousands)
<TABLE>
<CAPTION> Three Months Ended
-----------------------------------------------
May 2, May 1,
1998 1999
-------------------- ---------------------
<S> <C> <C>
NET SALES........................................... $ 38,943 $ 39,179
COST OF GOODS SOLD.................................. 22,540 23,079
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ 11,965 11,667
-------------------- --------------------
34,505 34,746
-------------------- --------------------
OPERATING INCOME.................................... 4,438 4,433
NET INTEREST EXPENSE................................ 3,612 3,397
-------------------- --------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST.... 826 1,036
INCOME TAX EXPENSE.................................. 354 389
MINORITY INTEREST IN INCOME OF SUBSIDIARY........... -- 5
-------------------- --------------------
NET INCOME.......................................... $ 472 $ 642
==================== ====================
</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 THREE MONTHS ENDED MAY 2, 1998 AND MAY 1, 1999
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
May 2, May 1,
1998 1999
--------------------- --------------------
<S> <C> <C>
NET INCOME........................................... $ 472 $ 642
OTHER COMPREHENSIVE INCOME (EXPENSE) NET OF TAX:
Foreign Currency Translation Adjustments........ (51) (183)
--------------------- --------------------
COMPREHENSIVE INCOME................................. $ 421 $ 459
===================== ====================
</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 MAY 1, 1999
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
January 30, May 1,
1999 1999
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................................... $ 2,211 $ 820
Accounts Receivable, Net...................................................... 23,465 24,075
Inventories................................................................... 17,343 25,118
Deferred Tax Assets........................................................... 1,098 1,181
Prepaid Expenses And Other.................................................... 752 689
------------------- -------------------
Total Current Assets.................................................... 44,869 51,883
PROPERTY, PLANT AND EQUIPMENT, NET................................................. 40,085 39,625
GOODWILL AND OTHER INTANGIBLE ASSETS............................................... 123,365 121,703
OTHER ASSETS....................................................................... 7,095 6,781
------------------- -------------------
$ 215,414 $ 219,992
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable............................................................... $ 8,442 $ 12,762
Accrued Expenses............................................................... 8,704 10,068
Current Portion of Long-Term Debt.............................................. 162 160
------------------- -------------------
Total Current Liabilities............................................... 17,308 22,990
OTHER, INCLUDING POST-RETIREMENT BENEFIT
OBLIGATION....................................................................... 4,041 4,041
DEFERRED TAX LIABILITIES........................................................... 1,163 1,525
LONG-TERM DEBT..................................................................... 132,220 130,286
MINORITY INTEREST.................................................................. 153 158
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 9,486
Accumulated Other Comprehensive Income........................................ 113 (70)
------------------- -------------------
60,529 60,992
------------------- -------------------
$ 215,414 $ 219,992
=================== ===================
</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 THREE MONTHS MAY 2, 1998 AND MAY 1, 1999
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
May 2, May 1,
1998 1999
----------------------- -----------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATIONS:
Net Income For The Period.............................................. $ 472 $ 642
Items Not Affecting Cash:
Depreciation of capital assets.................................... 1,327 1,539
Amortization of goodwill and other intangible assets.............. 1,836 1,662
Amortization of deferred financing fees........................... 329 329
Deferred income tax expense (benefit)............................. (134) 279
Minority interest in income of subsidiary......................... -- 5
Changes In Operating Assets And Liabilities, Net of Assets Acquired:
Accounts receivable............................................... (2,629) (610)
Inventory......................................................... (5,226) (7,775)
Accounts payable.................................................. 1,837 4,320
Accrued liabilities............................................... 2,924 1,366
Other operating activities........................................ (458) (77)
----------------------- -----------------------
Net cash provided by operating activities...................... 278 1,680
----------------------- -----------------------
INVESTING:
Purchase of Capital Assets............................................. (1,464) (1,125)
----------------------- -----------------------
Net cash used in investing activities............................ (1,464) (1,125)
----------------------- -----------------------
FINANCING:
Proceeds From Bank Financing........................................... 4,000 --
Repayments of Long Term Debt........................................... (3,000) (1,946)
----------------------- -----------------------
Net cash provided by (used in) financing activities.............. 1,000 (1,946)
----------------------- -----------------------
INCREASE (DECREASE) IN CASH DURING THE PERIOD......................... (186) (1,391)
CASH - BEGINNING OF PERIOD............................................. 5,699 2,211
----------------------- -----------------------
CASH - END OF PERIOD................................................... $ 5,513 $ 820
======================= =======================
</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 STATEMENTS
1. Organization and Basis of Presentation
Collins & Aikman Floorcoverings, Inc. (a Delaware corporation) is a leading
manufacturer of vinyl-backed floorcoverings for the specified commercial sector
of the floorcoverings market. 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 a wholly owned subsidiary of Collins &
Aikman Corporation all the outstanding capital stock of the Company (the
"Floorcoverings Acquisition") for $195.6 million, plus transaction costs.
Financing for the Floorcoverings Acquisition was provided by (i) borrowings of
$57.0 million under an $85.0 million Senior Secured Credit Facility (the "Credit
Facility"), (ii) proceeds from an offering by the Company of $100.0 million
aggregate principal 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. 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. Inventories
Net inventory balances are summarized below (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
January 30, May 1,
1999 1999
--------------------- ---------------------
<S> <C> <C>
Raw materials............................................ $ 8,951 $ 13,209
Work in process.......................................... 2,440 3,812
Finished goods........................................... 5,952 8,097
--------------------- ---------------------
$ 17,343 $ 25,118
===================== =====================
</TABLE>
7
<PAGE>
3. Long Term Debt
In the first quarter of 1999, the Company amended a restrictive covenant of
the Credit Facility, which increased flexibility of the amount of capital
expenditures permitted to be spent in Fiscal 1998.
4. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). Since the Company does not hold any
derivative instruments, SFAS 133 will not have any impact on the Company's
results from operations or financial position.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
- -------
Collins & Aikman Floorcoverings, Inc. (a Delaware corporation), is the
leading U.S. manufacturer of six-foot roll carpet and a leading 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 the impact of economic downturns is softened
because its sales are to five diverse end markets and a higher percentage of the
Company's sales are derived from commercial renovation projects.
On February 6, 1997, CAF Acquisition Corporation ("CAF"), a wholly owned
subsidiary of CAF Holdings, Inc., purchased all of the issued and outstanding
capital stock of Collins & Aikman Floor Coverings, Inc. from a wholly owned
subsidiary of Collins & Aikman Corporation (the "Floorcoverings Acquisition").
Simultaneous with the consummation of the Floorcoverings Acquisition, CAF was
merged with and into the Company.
In June 1998, Collins & Aikman Floorcoverings UK Limited acquired all
outstanding capital stock of Advanced Carpet Tiles, Ltd. ("ACT") from Headlam
Group PLC ("Headlam") for $5.8 million, including assumed debt of $0.6 million.
Financing for the acquisition was provided under the existing Credit Facility
and an agreement to pay $1.9 million to Headlam in September 2000, at an
effective interest rate of 8.5%. The ACT acquisition was accounted for using the
purchase method of accounting. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $1.9
million 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.
In August 1998, the Company entered into a joint venture with a group of
individuals to form Collins & Aikman Floorcoverings Asia Pte. Ltd. Based in
Singapore, the newly formed company will market and distribute the Company's
products throughout the Asia Pacific region. The Company obtained a 51.0%
ownership in the new company.
RESULTS OF OPERATIONS
- ---------------------
Quarter Ended May 1, 1999 ("First Quarter 1999") As Compared with Quarter Ended
- -------------------------------------------------------------------------------
May 2, 1998 ("First Quarter 1998")
- ----------------------------------
Net Sales. Net sales for the First Quarter 1999 were $39.2 million, an
increase of 0.6% from the $38.9 million for the First Quarter 1998. This slight
sales increase was attributable to the addition of ACT offset by lower average
selling prices.
Cost of Goods Sold. Cost of goods sold increased to $23.1 million for the
First Quarter 1999 from $22.5 million in the First Quarter 1998, an increase of
2.4%. As a percentage of sales, these costs were 58.9% and 57.9%, respectively.
This cost increase was due to increased sales volume partially offset by
improved manufacturing efficiencies on the higher volume. The increase in cost
of goods sold as a percentage of sales was due to lower average selling prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill and other intangible assets
amortization of $1.7 million, for the First Quarter 1999 decreased to $11.7
million, a decrease of 2.5% from $12.0 million in the First Quarter 1998 which
included goodwill and intangible assets amortization of $1.8 million. As a
percentage of sales, these expenses decreased to 29.8% from 30.7%. These lower
costs related to reduced amortization of intangible assets and cost improvement
measures by the Company.
9
<PAGE>
Interest Expense. Net interest expense for the First Quarter 1999
decreased to $3.4 million from $3.6 million in the First Quarter 1998. This
slight decrease was due to lower total indebtedness during the period.
Net Income. Net income for the First Quarter 1999 increased to $0.6
million from $0.5 million in the First Quarter 1998. This was due to the
combined result of the factors described above.
EBITDA. EBITDA is defined as operating income plus depreciation and
amortization. EBITDA for the First Quarter 1999 and the First Quarter 1998 was
$7.6 million. As a percentage of sales, EBITDA was 19.5% in the First Quarter
1999 and First 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.
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 cash requirements primarily through internally
generated cash flows.
Net cash provided by operating activities in the First Quarter 1999 was
$1.7 million compared to $0.3 million in the First Quarter 1998. The change is
primarily due to a positive $0.8 million swing in net working capital and an
increase in net income and deferred income tax expense.
Capital expenditures totaled $1.1 million during the First Quarter 1999
compared to $1.5 million during the First Quarter 1998. The $0.4 million
decrease from the First Quarter 1998 was primarily due to increased spending in
the First Quarter 1998 for expansions in the Company's 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
$6.3 million during the fiscal year 1999.
Concurrent with the consummation of the Floorcoverings Acquisition, the
Company incurred significant indebtedness, which consisted of $100.0 million of
10% Senior Subordinated Notes due 2007 (the "Senior Notes"), $55.0 million in
term loan borrowings and $2.0 million in revolving credit borrowings under the
Credit Facility. 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. The
term loan portion of the Credit Facility will mature on June 30, 2002 and, as of
January 30, 1999, will require annual principal payments (payable in quarterly
installments) totaling $1.3 million in the third quarter of fiscal 2000 and $3.7
million in the fourth quarter of fiscal 2000, $15.0 million in fiscal 2001 and
$8.0 million in fiscal 2002. The revolving credit portion of the Credit Facility
will mature on June 30, 2002 and may be repaid and reborrowed from time to time.
As of May 1, 1999, there was $26.3 million (net of $3.7 million in letters of
credit outstanding) available under the revolving credit portion of the Credit
Facility.
The Company has made four amendments to the Credit Facility. The first
amendment related to certain restrictive covenants of the Credit Facility
allowing increased flexibility for foreign acquisitions and increased annual
limits for capital expenditures over the next four years. The second amendment
provided better interest rates based on the Company's leverage ratio for the
immediately preceding twelve months. The third amendment provided for the
ability to purchase up to $5.0 million of the Company's Senior Subordinated
Notes on open markets. The fourth amendment increased the limit for capital
expenditures during fiscal 1998.
10
<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 Facility, will be adequate to meet the
Company's anticipated future requirements for capital expenditures 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 was substantially completed in
conjunction with the systems review for the Floorcoverings Acquisition while
remaining reviews were completed during the first quarter of 1999. Due to
conversions already completed to address the separation from its former parent
and conversions completed in the first quarter of 1999, the Company considers
its IT systems risk to be minimal and will only formulate contingency plans
should it become necessary. Costs associated with these conversions were planned
outside of the Company's Year 2000 review.
The Company's review of Non-IT systems is ongoing with expected completion
by June 1999. 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 as 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 is ongoing and is expected to be completed by June 1999.
Contingency plans for critical relationships are being developed and are
expected to be in place by August 1999. The Company presently does not expect
the risk associated with or costs of addressing the Company's Third Party Risk
to be material.
11
<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 its review indicate it is 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.
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
None
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: June 2, 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)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MAY 1, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-1999
<PERIOD-START> JAN-31-1998
<PERIOD-END> MAY-01-1999
<CASH> 820
<SECURITIES> 0
<RECEIVABLES> 24,399
<ALLOWANCES> 324
<INVENTORY> 25,118
<CURRENT-ASSETS> 51,883
<PP&E> 51,794
<DEPRECIATION> 12,169
<TOTAL-ASSETS> 219,992
<CURRENT-LIABILITIES> 22,990
<BONDS> 130,446
0
0
<COMMON> 0
<OTHER-SE> 60,992
<TOTAL-LIABILITY-AND-EQUITY> 219,992
<SALES> 39,179
<TOTAL-REVENUES> 39,179
<CGS> 23,079
<TOTAL-COSTS> 23,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 3,397
<INCOME-PRETAX> 1,036
<INCOME-TAX> 389
<INCOME-CONTINUING> 642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 642
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
