<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 28, 1999
Commission File Number 333-24699
COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2151061
(State or other jurisdiction IRS Employer Identification
of incorporation or organization) No.)
311 Smith Industrial Boulevard, Dalton, Georgia 30721
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 259-9711
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC.
Amendment No.1 on Form 8-K/A
to
Current Report on Form 8-K
Introduction
This Amendment No. 1 on Form 8-K/A ("Amendment") is being filed by Collins
& Aikman Floorcoverings, Inc. (the "Registrant") to amend Item 7 of the
Company's Current Report on Form 8-K dated June 28, 1999 (the "Initial Report")
relating to the acquisition on June 28, 1999 of Monterey Carpets, Inc. (the
"Monterey Acquisition"). Pursuant to the instructions to Item 7 of Form 8-K, the
Registrant is filing this Amendment (not later than 60 days after the date that
the Initial Report was required to be filed) in order to include the financial
statements and pro forma financial information required with respect to Monterey
Carpets, Inc. Pursuant to Rule 12b-15 of the SEC Rules, the complete text of
Item 7, as amended, is set forth herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
<TABLE>
<S> <C>
Report of Independent Public Accountants......................................... 3
Consolidated Balance Sheets as of July 25, 1998 and June 26, 1999................ 4
Consolidated Statements of Operations for the Year Ended July 25,
1998 and the Eleven Months Ended
June 26, 1999.................................................................... 6
Consolidated Statements of Changes in Stockholders' Equity for
the Year Ended July 25, 1998 and the
Eleven Months Ended June 26, 1999................................................ 7
Consolidated Statements of Cash Flows for the Year Ended July 25,
1998 and the Eleven Months Ended
June 26, 1999.................................................................... 8
Notes to Consolidated Financial Statements....................................... 9
</TABLE>
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of Monterey Carpets, Inc.:
We have audited the accompanying consolidated balance sheets of MONTEREY
CARPETS, INC. (a Delaware Corporation) and subsidiary as of July 25, 1998 and
June 26, 1999 and the related consolidated statements of operations,
shareholders' equity and cash flows for the year and eleven-month period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Chroma Systems Partners, the investment in which is reflected in the
accompanying consolidated financial statements using the equity method of
accounting. The investment in Chroma Systems Partners represents 9 percent of
total assets and the equity in its net income represents 29 percent and 26
percent of pre-tax net income as of the year ended July 25, 1998 and for the
eleven-month period ended June 26, 1999, respectively. The statements of Chroma
Systems Partners were audited by other auditors whose report has been furnished
to us and our opinion, insofar as it relates to the amounts included for Chroma
Systems Partners, is based on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Monterey Carpets, Inc. and subsidiary as of July 25,
1998 and June 26, 1999, and the results of their operations and their cash flows
for the year and for the eleven-month period then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
September 10, 1999
3
<PAGE>
MONTEREY CARPETS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JULY 25, 1998 AND JUNE 26, 1999
(In thousands)
<TABLE>
<CAPTION>
July 26, June 26,
1998 1999
----------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash........................................................ $ 406 $ 1
Due From Factor............................................. 4,109 6,192
Accounts Receivable, Less Allowance For Doubtful Accounts
of $14 and $11, respectively............................... 650 502
Inventories................................................. 4,285 6,192
Prepaid Expenses And Other Current Assets................... 104 207
Deferred Income Taxes....................................... 731 799
----------- -----------
Total Current Assets....................................... 10,285 13,893
----------- -----------
EQUITY INVESTMENT IN CHROMA SYSTEMS PARTNERS................. 1,323 1,793
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION............................... 3,237 3,356
DEFERRED INCOME TAXES........................................ 182 85
----------- ------------
$ 15,027 $ 19,127
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE>
MONTEREY CARPETS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JULY 25, 1998 AND JUNE 26, 1999
(In thousands, except share amounts)
<TABLE>
<CAPTION>
July 25, June 26,
1998 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Notes Payable, Current Portion......................... $ 586 $ 372
Accounts Payable....................................... 2,132 2,054
Due To Related Party................................... 233 272
Accrued Liabilities.................................... 2,076 2,848
------------ ------------
Total Current Liabilities............................. 5,027 5,546
------------ ------------
NOTES PAYABLE, NET OF CURRENT PORTION................... 396 41
------------ ------------
Total Liabilities..................................... 5,423 5,587
------------ ------------
COMMITMENTS AND CONTINGENCIES...........................
STOCKHOLDERS' EQUITY:
Preferred Stock, Series A, $.01 Par Value;
205,000 Shares Authorized, Issued, And
Outstanding; Stated At Cost, $3.9 And $4.1
Million Aggregate Liquidation Value As Of
July 25, 1998 And June 26, 1999, Respectively......... 2,050 2,050
Common Stock, $.01 Par Value; 1,000,000 Shares
Authorized, 352,900 And 601,514 Shares
Issued And Outstanding As Of July 25, 1998
And June 26, 1999, Respectively....................... 4 6
Additional Paid-In Capital............................. 628 1,127
Retained Earnings...................................... 6,940 10,625
Notes Receivable For Shares Sold....................... -- (250)
Treasury Stock, At Cost - 6,736 Shares................. (18) (18)
------------ ------------
9,604 13,540
------------ ------------
$ 15,027 $ 19,127
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
5
<PAGE>
MONTEREY CARPETS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 25, 1998
AND THE ELEVEN MONTHS ENDED JUNE 26, 1999
(In thousands)
<TABLE>
<CAPTION>
July 25, June 26,
1998 1999
----------------------- ----------------------
<S> <C> <C>
NET SALES....................................................... $ 41,108 $ 46,718
COST OF SALES................................................... 26,651 29,451
----------------------- ----------------------
GROSS PROFIT.................................................... 14,457 17,267
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 10,710 12,582
----------------------- ----------------------
INCOME FROM OPERATIONS.......................................... 3,747 4,685
EQUITY IN EARNINGS OF CHROMA SYSTEMS PARTNERS
OPERATIONS................................................... 1,477 1,645
----------------------- ----------------------
INCOME FROM OPERATIONS AND EQUITY IN EARNINGS
OF CHROMA SYSTEMS PARTNERS OPERATIONS........................ 5,224 6,330
OTHER (INCOME) EXPENSE:
Net Interest Expense......................................... 138 60
Other (Income) Expense....................................... (18) 6
----------------------- ----------------------
Total Other Expense....................................... 120 66
----------------------- ----------------------
INCOME BEFORE PROVISION FOR INCOME TAXES........................ 5,104 6,264
PROVISION FOR INCOME TAXES...................................... 2,115 2,579
----------------------- ----------------------
NET INCOME...................................................... $ 2,989 $ 3,685
======================= ======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MONTEREY CARPETS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JULY 25, 1998 AND THE ELEVEN MONTHS ENDED JUNE 26, 1999
(In thousands, except share amounts)
<TABLE>
<CAPTION>
PREFERRED STOCK ADDITIONAL
A SERIES COMMON STOCK PAID IN RETAINED
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------------------- -------------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 26, 1997....... 205,000 $ 2,050 325,918 $ 4 $ 559 $ 3,951
Issuance of Common Stock
Upon Exercise of Stock
Options................... -- -- 26,982 -- 69 --
Net Income................... -- -- -- -- -- 2,989
------------------- -------------------- ------------- ----------
BALANCE, JULY 25, 1998....... 205,000 2,050 352,900 4 628 6,940
------------------- -------------------- ------------- ----------
Issuance of Common Stock
Upon Exercise of Stock
Options And Warrants...... -- -- 248,614 2 499 --
Net Income................... -- -- -- -- -- 3,685
------------------- -------------------- ------------- ----------
Balance, June 26, 1999....... 205,000 $ 2,050 601,514 $ 6 $ 1,127 $ 10,625
=================== ==================== ============= ==========
<CAPTION>
NOTES
RECEIVABLE
FOR TREASURY STOCK
-----------------------
SHARES SOLD SHARES AMOUNT TOTAL
------------- ----------------------- --------------
<C> <C> <C> <C>
BALANCE, JULY 26, 1997....... $ -- 6,736 $ (18) $ 6,546
Issuance of Common Stock
Upon Exercise of Stock
Options................... -- -- -- 69
Net Income................... -- -- -- 2,989
--------------- --------------------- --------------
BALANCE, JULY 25, 1998....... -- 6,736 (18) 9,604
--------------- --------------------- --------------
Issuance of Common Stock
Upon Exercise of Stock
Options And Warrants...... (250) -- -- 251
Net Income................... -- -- -- 3,685
------------- ----------------------- ---------------
Balance, June 26, 1999....... $ (250) 6,736 $ (18) $ 13,540
============= ======================= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
MONTEREY CARPETS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JULY 25, 1998
AND THE ELEVEN MONTHS ENDED JUNE 26, 1999
(In thousands)
<TABLE>
<CAPTION>
July 25, June 26,
1998 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income..................................................... $ 2,989 $ 3,685
Adjustments To Reconcile Net Income To Net Cash
Provided By Operating Activities:
Depreciation And Amortization................................ 660 945
Loss on Sale of Fixed Assets................................. - 6
Equity In Earnings Of Chroma Systems Partners................ (1,477) (1,645)
Increase/Decrease In Assets And Liabilities:
Due From Factor............................................ (561) (2,083)
Accounts Receivable........................................ (438) 148
Inventories................................................ (659) (1,907)
Prepaid Expenses And Other Current Assets.................. 21 (103)
Deferred Income Taxes...................................... (392) 29
Accounts Payable........................................... (68) (78)
Due To Related Party....................................... 122 39
Accrued Liabilities........................................ 974 772
----------- -----------
Net Cash Provided By (Used In) Operating Activities...... 1,171 (192)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases Of Equipment......................................... (1,949) (1,085)
Proceeds from Sale of Fixed Assets............................. - 15
Distributions From Chroma Systems Partners..................... 1,492 1,175
----------- -----------
Net Cash (Used In) Provided By Investing Activities...... (457) 105
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments Under Notes Payable......................... (378) (569)
Proceeds From Exercise Of Stock Options And Warrants........... 69 251
----------- -----------
Net Cash Used In Financing Activities.................... (309) (318)
----------- -----------
NET INCREASE (DECREASE) IN CASH................................ 405 (405)
CASH, BEGINNING OF YEAR........................................ 1 406
----------- ------------
CASH, END OF YEAR.............................................. $ 406 $ 1
----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income Taxes Paid.......................................... $ 2,301 $ 1,850
Interest Paid.............................................. 137 85
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
MONTEREY CARPETS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 26, 1999
1. COMPANY
-------
Monterey Carpets, Inc. (the "Company"), a Delaware corporation, is engaged
in the manufacture of commercial carpeting and sells to flooring contractors and
carpet end-users. The Company's subsidiary, Monterey Color Systems, Inc. holds a
one-third interest in a general partnership, Chroma Systems Partners, which
operates a dye house that provides carpet dyeing and finishing services to
Monterey and other carpet manufacturers.
Effective June 4, 1999, the Company entered into a merger agreement (the
"Merger") with a wholly owned subsidiary of Collins & Aikman Floorcoverings,
Inc ("Floorcoverings"). The consideration of $50.0 million is subject to
adjustment based on the Company's level of net working capital as of the closing
date of the agreement (see Note 15).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Monterey Color Systems, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over estimated useful lives of the
assets, ranging from three to eight years. Leasehold improvements are amortized
using the straight-line method over the shorter of their estimated useful lives
or the term of the related lease.
e. Investment in Chroma Systems Partners
The Company's one-third share in Chroma Systems Partners ("Chroma") is
reflected at the aggregate of the investment cost and the Company's share in
Chroma's earnings since its inception. Distributions received are recorded as a
reduction of the investment balance.
9
<PAGE>
f. Income Taxes
Deferred income taxes are provided for temporary differences between the
accounting for financial statement purposes and the accounting for income tax
purposes. Deferred income taxes represent amounts that will be paid or received
in future periods based on enacted tax rates that are expected to be in effect
when temporary differences reverse.
g. Fiscal Year
The Company has adopted a fiscal year ending on the closest Saturday to
July 31. Fiscal 1998 included 52 weeks and ended on July 25.
Due to the effective date of the Merger discussed in Notes 1 and 15,
these financial statements have been prepared as of the end of the Company's
fiscal period ended June 26, 1999. This period, referred to herein as fiscal
1999, included 48 weeks.
h. Revenue Recognition
Revenues are recognized as products are shipped. The Company provides for
anticipated costs of warranty in the period in which revenues are recognized.
3. DUE FROM FACTOR
---------------
Substantially all of the Company's receivables are factored primarily on a
nonrecourse basis with respect to collection of approved accounts. For
nonfactored receivables, the Company performs ongoing credit evaluations and
maintains reserves for potential losses.
In March 1995, the Company entered into 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 (7.8
percent at June 26, 1999) less 0.5 percent. The Company pays service charges of
0.45 or 0.55 percent of factored receivables, based on the creditworthiness of
the customer. The Company's credit and factoring agreement provides for receipt
of funds utilizing an Average Due Date computation wherein the Company receives
the net invoice amount of the previous month's shipments on an adjusted dollar-
weighted average maturity date. Any advances taken on the Due From Factor
balance under the credit facility during the period are offset against the
subsequent proceeds received from the bank under the factoring facility. At July
25, 1998 and June 26, 1999, factored receivables included approximately $113,000
and $44,000, respectively, of receivables factored with recourse. Due from
factor balance represents receivables assigned to the bank.
Total monies received from the factor aggregated $35.8 million and $41.0
million for fiscal 1998 and 1999, respectively.
4. INVENTORIES
-----------
Inventories consist of the following (in thousands):
July 25, June 26,
1998 1999
------------ ------------
Finished Products............ $ 2,083 $ 2,941
Work In Process.............. 1,023 1,637
Raw Materials................ 1,179 1,614
------------ ------------
$ 4,285 $ 6,192
============ ============
10
<PAGE>
5. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following (in thousands):
July 25, June 26,
1998 1999
---------- ----------
Equipment............................... $ 6,469 $ 7,490
Leasehold Improvements.................. 631 637
---------- ----------
7,100 8,127
Less - Accumulated Depreciation And
Amortization..................... (3,863) (4,771)
---------- ----------
$ 3,237 $ 3,356
========== ==========
6. ACCRUED LIABILITIES
-------------------
Accrued liabilities are summarized below (in thousands):
July 25, June 26,
1998 1999
---------- ----------
Accrued Taxes........................... $ 832 $ 1,648
Accrued Salaries And Wages.............. 460 622
Accrued Warranty Reserve................ 211 241
Customer Deposits....................... 201 156
Other................................... 372 181
---------- ----------
$ 2,076 $ 2,848
========== ==========
7. EQUITY INVESTMENT
-----------------
On May 25, 1989, the Company acquired the operations and equipment of a
carpet dyeing and finishing plant and operated the business under the name of
South Coast Dyeing and Finishing ("South Coast"). Effective January 4, 1993, the
Company sold certain assets and the operations of South Coast and assigned
certain term note obligations to Chroma. The other Chroma partners are carpet
manufacturers who have provided additional business volume thus allowing it to
operate profitably. In accordance with Chroma's partnership agreement, Chroma's
net income is allocated equally among its three partners.
11
<PAGE>
Summarized balance sheet information of Chroma is as follows (in
thousands):
<TABLE>
<CAPTION>
July 25, June 26,
1998 1999
(Unaudited) (Unaudited)
-------------------------- ------------------------
<S> <C> <C>
Current Assets............................................... $ 1,652 $ 2,112
Noncurrent Assets............................................ 7,457 8,346
-------------------------- ------------------------
Total Assets.............................................. 9,109 10,458
-------------------------- ------------------------
Current Liabilities.......................................... 1,184 1,255
Noncurrent Liabilities....................................... 3,940 3,806
-------------------------- ------------------------
Total Liabilities......................................... 5,124 5,061
-------------------------- ------------------------
Net Assets................................................... $ 3,985 $ 5,397
========================== ========================
</TABLE>
The fiscal year of Chroma ends on December 31. Accordingly, the audited
financial statements of Chroma are for the years ended December 31. The
following summarizes the income statements of Chroma for the year ended July 25,
1998 and the eleven months ended June 26, 1999 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 25, 1998 ELEVEN MONTHS ENDED JUNE 26, 1999
--------------------------------------- --------------------------------------
JULY 27 JANUARY 1 - JULY 26 JANUARY 1 -
DECEMBER 31, JULY 25, DECEMBER 31, JUNE 26,
1997 1998 TOTAL 1998 1999 TOTAL
------------ ------------ ------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales...... 6,904 9,772 16,676 7,799 9,909 17,708
Net Income..... 1,862 2,569 4,431 2,130 2,806 4,936
</TABLE>
8. NOTES PAYABLE
-------------
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
July 25, June 26,
1998 1999
------------------ ---------------------
<S> <C> <C>
Subordinated note payable to shareholder,
payable in monthly principal payments of $34
commencing January 1, 1997 through December
1, 1998, payable in monthly payments of $34 plus
interest at 9 percent commencing January 1, 1999, maturing
December 1, 1999, net of
discount of $21 and $0 at July 25, 1998 and
June 26, 1999, respectively..................................... $ 550 $ 168
Note payable to a bank bearing interest at the
bank's prime rate (7.8 percent as of June 26,
1999) less 0.5 percent, payable in monthly
installments of $17 plus interest, originally
maturing June 2002, secured by certain
equipment....................................................... 432 245
------------------ ---------------------
Total........................................................... 982 413
Less - current portion.......................................... (586) (372)
------------------ ---------------------
$ 396 $ 41
================== =====================
</TABLE>
12
<PAGE>
On the effective date of the Merger (see Note 15), all outstanding
debt of the Company was repaid by Floorcoverings. Accordingly, subsequent to
the effective date of the Merger, the Company has no future principal
payments.
9. INCOME TAXES
------------
The tax effects of significant items comprising the Company's net deferred
income tax assets at July 25, 1998 and June 26, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
July 25, June 26,
1998 1999
----------------------- ------------------------
<S> <C> <C>
Current Deferred Income Tax Assets:
Allowance for doubtful accounts................................ $ 99 $ 5
Vacation accrual............................................... 21 25
Inventory reserve.............................................. 196 339
Capitalized inventory costs.................................... 123 101
Accrued taxes.................................................. 327 327
Other items.................................................... (35) 2
----------------------- ------------------------
Total current deferred income tax assets.................... 731 799
----------------------- ------------------------
Long-Term Deferred Income Tax Assets:
Fixed assets - basis........................................... 58 58
Depreciation and amortization.................................. 124 27
----------------------- ------------------------
Long-term portion of net deferred income
tax assets.................................................. 182 85
----------------------- ------------------------
Net Deferred Income Tax Assets.................................... $ 913 $ 884
======================= ========================
</TABLE>
The tax provision (benefit) for fiscal 1998 and 1999 consist of the
following (in thousands):
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
-----------------------------------------------------
July 25, June 26,
1998 1999
----------------------- ------------------------
<S> <C> <C>
Current Tax Expense:
Federal........................................................ $ 1,810 $ 1,956
State.......................................................... 495 594
----------------------- ------------------------
Total current income tax expense............................ 2,305 2,550
Deferred Tax (Benefit) Expense:
Federal........................................................ (147) (10)
State, net..................................................... (43) 39
----------------------- ------------------------
Total deferred income tax (benefit) expense................. (190) 29
----------------------- ------------------------
Total income tax expense.................................... $ 2,115 $ 2,579
======================= ========================
</TABLE>
The difference between the effective income tax rate for fiscal 1998 and
1999 and the statutory federal tax rate of 34 percent is primarily due to state
income taxes net of federal benefit.
13
<PAGE>
10. PREFERRED STOCK
---------------
Redemption Features
The Company may redeem at its option, all, or any portion thereof,
preferred stock of Series A shares, at $10 per share plus accumulated unpaid
and/or undeclared dividends.
Voting Rights
- -------------
Holders of shares of Series A preferred stock have no voting rights.
Dividends
Each share of Series A preferred stock entitles its holder to a 10 percent
cumulative dividend per year. The cumulative dividend becomes due and payable
upon redemption of the related share or dissolution, consolidation, merger,
sale, or disposition of more than 50 percent of the Company's voting power,
whichever occurs earlier. Cumulative dividends of $1.8 million and $2.0 million
on the Series A preferred stock have not been declared nor accrued as of July
25, 1998 and June 26, 1999, respectively.
Other Restrictions, Limitations and Liquidating Priorities
So long as any shares of Series A preferred stock remain outstanding or any
accumulated dividends remain unpaid, Monterey has agreed not to redeem,
purchase, or otherwise acquire any shares of common stock, except as noted in
the certificate of incorporation, or pay any related dividends.
11. COMMON STOCK
------------
Options to Purchase Common Stock
In August 1993, Monterey adopted the Incentive Stock Option and
Nonqualified Stock Option Plan - 1993 (the 1993 Plan) to replace a previously
existing plan. Incentive stock options under the 1993 plan were issued at an
option price of not less than the fair market value of the shares at the date of
grant (or not less than 110 percent of the fair market value in the case of
options granted to an individual owning 10 percent or more of the total
outstanding stock). Incentive stock options granted to an individual owning
less than 10 percent of the total outstanding stock could have been granted for
a period up to 10 years from the date of grant. Incentive stock options granted
to an individual owning up to 10 percent or more of the total outstanding stock
could have been granted for a period up to 5 years from the date of grant.
Nonqualified stock options and rights to purchase restricted stock were
issuable at an option price of not less than the fair market value of the shares
at the date of grant. Nonqualified stock options could have been granted for a
period of up to 10 years from date of grant. At July 25, 1998, 5,012 such
options or rights had been granted and were outstanding.
As of June 26, 1999, all options have been exercised. A summary of option
plan activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
----------------- -----------------------
<S> <C> <C>
Exercisable And Outstanding At July 25, 1998........................... 46,938 $ 3.67
Vested.............................................................. 35,766 4.55
Exercised........................................................... (82,704) 4.05
----------------- -----------------------
Exercisable And Outstanding At June 26, 1999........................... -- $ --
================= =======================
</TABLE>
14
<PAGE>
In the exercising of some of the options during fiscal 1999, notes
receivable were issued to the Company by certain shareholders. At June 26,
1999, the outstanding principal balances of these notes amounted to
approximately $250,000 which is included as a component of stockholders' equity
in the accompanying consolidated balance sheet. These notes were satisfied in
full commensurate with the consummation of the Merger (See Note 15).
Warrants to Purchase Common Stock
During fiscal year 1989 through fiscal year 1991, Monterey granted certain
shareholders and their affiliates warrants to purchase 165,810 shares of common
stock at $1 per share. The warrants were exercisable for up to 10 years
expiring on various dates through 1999, and were subject to antidilutive
provisions. In October 1998, all the outstanding warrants were exercised.
12. EMPLOYEE BENEFIT PLAN
---------------------
The Company sponsors a defined contribution plan (the Plan) under which
employees who have completed one year of service are eligible to participate.
The Plan is intended to meet the qualifications of Internal Revenue Code
Sections 401(a) and 401(k). Company contributions are determined annually by
the Board of Directors. Vesting in Company contributions is at a rate of 20
percent per year beginning after the second year of participation in the Plan.
The Company's contribution to the Plan was approximately $87,000 and $131,000
during fiscal 1998 and 1999, respectively.
13. CONCENTRATION OF CREDIT RISK - MAJOR SUPPLIERS
----------------------------------------------
During fiscal 1998 and 1999, the Company had significant purchases from
four major suppliers, who individually represent 10 percent or more of total
purchases, approximating $17.3 million and $22.5 million, respectively. Amounts
payable to these suppliers at July 25, 1998 and June 26, 1999 approximated
$747,000 and $897,000, respectively.
14. COMMITMENTS AND CONTINGENCIES
-----------------------------
Lease Commitments
Monterey is obligated under various leases for manufacturing facilities,
office space, machinery and equipment.
At June 26, 1999 future minimum lease payments under operating leases are
as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
Year Ending:
--------------
<S> <C>
2000 $ 1,143
2001 1,112
2002 1,053
2003 654
2004 654
------------
$ 4,616
============
</TABLE>
Certain lease agreements are subject to escalation clauses. Total rent
expense for fiscal 1998 and 1999 was approximately $396,000 and $433,000,
respectively.
15
<PAGE>
Commitments With Chroma
Concurrent with the sale of South Coast's assets to Chroma in January
1993 (Note 7), the Company and Chroma agreed to the following:
. The Company and the other two Chroma partners are obligated to purchase
carpet dyeing and finishing services exclusively from Chroma. These
purchases can be cancelled by any or all of the Chroma partners with a
one year cancellation notice. Chroma's charges for such services are
expected to equal prevailing market prices for comparable services.
Chroma charged the Company $5.2 million and $5.9 million for carpet
dyeing and finishing services for fiscal 1998 and 1999, respectively.
Chroma has received a cancellation notice from one of its partners.
Effective March 1, 2000, the Company and the other remaining partner in
Chroma will each hold a one-half interest in the general partnership.
. The Company will provide Chroma certain executive management and
operational services at cost. During fiscal 1998 and 1999, the Company
charged Chroma approximately $288,000 and $224,000, respectively, for
such services.
. Chroma will provide the Company certain maintenance and utility services
at cost. During fiscal 1998 and 1999, Chroma charged the Company
approximately $106,000 and $97,000, respectively, for such services.
Litigation
The Company is involved in various claims arising in the ordinary course of
business. None of these claims, in the opinion of management, is expected to
have a material adverse impact on the financial position, cash flows or overall
results of the Company's operations.
Environmental
The Company is subject to federal, state and local laws and regulations
concerning the environment. At June 26, 1999, management concluded that no
environmental reserves were required. In the opinion of the Company's
management, based on the facts presently known to it, the ultimate outcome of
any environmental matters is not expected to have a material adverse effect on
the Company's consolidated financial condition or results of operations.
15. SUBSEQUENT EVENT
----------------
As discussed in Note 1, on June 28, 1999, pursuant to an agreement and plan
of merger, dated June 4, 1999, Floorcoverings, through its wholly owned
subsidiary, Monterey Merger Company, Inc. ("Merger Sub"), acquired all the
outstanding capital stock and redeemed the preferred stock at the stated
liquidation preference of the company for total consideration of $50.0 million,
subject to a working capital adjustment. Simultaneous with the consummation of
the Merger, Merger Sub was merged with and into the Company with the Company as
the surviving corporation in the merger. In addition, all outstanding
indebtedness of the Company was extinguished by Floorcoverings commensurate with
the Merger.
16
<PAGE>
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet as of May 1,
1999 was prepared as if the Monterey Acquisition had occurred on such date. The
following Unaudited Pro Forma Consolidated Statements of Operations give effect
to the Monterey Acquisition as if it had occurred at the beginning of each
respective period. The Unaudited Pro Forma Consolidated Statements do not
purport to represent what the Company's results of operations actually would
have been if the transaction had occurred as of such dates or what such results
will be for any future periods.
The Unaudited Pro Forma Consolidated Balance Sheet reflects the preliminary
allocation of the purchase price to Monterey's assets and liabilities. The final
allocation of such purchase price, and the resulting depreciation and
amortization expense in the accompanying Unaudited Pro Forma Consolidated
Statements of Operations, will differ from the preliminary estimates primarily
due to the final allocation being based on actual closing date amounts of assets
and liabilities.
The unaudited pro forma financial data is based on the historical financial
statements of the Company and Monterey and the assumptions and adjustments
described in the accompanying notes. The Company believes that such assumptions
are reasonable. The unaudited pro forma financial data should be read in
conjunction with the Consolidated Financial Statements of the Company included
in the Company's Form 10-K for the year ended January 30, 1999 and the
consolidated financial statements of Monterey for the year ended July 25, 1998
and for the eleven months ended June 26, 1999 and the accompanying notes thereto
appearing elsewhere in this Form 8-K/A.
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MAY 1, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
COLLINS &
AIKMAN MONTEREY
FLOORCOVERINGS CARPETS ACQUISITION CONSOLIDATED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS TOTAL
---------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash And Cash Equivalents............... $ 820 $ 1 $ (308) (a) $ 513
Due From Factor......................... -- 5,106 -- 5,106
Accounts Receivable, Net................ 24,075 425 -- 24,500
Inventories............................. 25,118 6,188 -- 31,306
Deferred Tax Assets..................... 1,181 731 -- 1,912
Prepaid Expenses And Other.............. 689 230 -- 919
-------------- ------------- ----------- --------------
Total Current Assets.................. 51,883 12,681 (308) 64,256
PROPERTY, PLANT AND EQUIPMENT, NET......... 39,625 3,447 -- 43,072
GOODWILL AND OTHER INTANGIBLE ASSETS....... 121,703 -- 37,704 (b) 159,407
DEFERRED TAX ASSETS........................ -- 182 (182) (c) --
EQUITY INVESTMENT IN CHROMA SYSTEMS
PARTNERS.................................. -- 1,652 -- 1,652
OTHER ASSETS............................... 6,781 -- 300 (d) 7,081
-------------- ------------- ----------- --------------
$ 219,992 $ 17,962 $ 37,514 $ 275,468
============== ============= =========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable.......................... $ 12,762 $ 2,459 $ -- $ 15,221
Accrued Expenses.......................... 10,068 2,199 -- 12,267
Current Portion Of Long Term Debt......... 160 473 (473) (e) 160
------------- ------------- ----------- --------------
Total Current Liabilities................ 22,990 5,131 (473) 27,648
LONG-TERM DEBT............................. 130,286 75 50,925 (f) 181,286
DEFERRED TAX LIABILITIES................... 1,525 -- (182) (c) 1,343
OTHER, INCLUDING POST-RETIREMENT BENEFIT
OBLIGATION................................ 4,041 -- -- 4,041
MINORITY INTEREST.......................... 158 -- -- 158
COMMITMENTS AND CONTINGENCIES..............
STOCKHOLDERS' EQUITY:
Common Stock............................ -- 5 (5) (g) --
Series A Preferred Stock................ -- 2,050 (2,050) (g) --
Additional Paid-In Capital.............. 51,576 878 (878) (g) 51,576
Retained Earnings....................... 9,486 9,841 (9,841) (g) 9,486
Treasury Stock.......................... -- (18) 18 (g) --
Accumulated Other Comprehensive Income.. (70) -- -- (70)
------------- ------------- ----------- --------------
60,992 12,756 (12,756) 60,992
------------- ------------- ----------- --------------
$ 219,992 $ 17,962 $ 37,514 $ 275,468
============= ============= =========== ==============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated balance sheet.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
The Pro Forma Consolidated Balance Sheet reflects the Monterey Acquisition as if
it had occurred as of May 1, 1999.
(a) Reflects cash, net of debt incurred and amounts paid to former shareholders
of Monterey, fees paid for the Monterey Acquisition, repayment of
Monterey's existing debt, and fees for the amendment to the Company's
credit facility.
(b) The Monterey Acquisition was accounted for using the purchase method of
accounting. The total purchase cost was allocated, first to assets and
liabilities based upon their respective fair values, with the remainder
allocated to goodwill. The allocation of the purchase price is based on
estimated fair value of the assets and liabilities of Monterey.
Management's preliminary allocation may differ from the final allocation.
Purchase price is as follows:
Consideration to former Monterey Shareholders.............. $ 50,000
Acquisition expenses....................................... 460
----------
50,460
Net fair value of assets acquired.......................... 12,756
----------
Goodwill................................................... $ 37,704
==========
(c) Reflects reclassification of Monterey's deferred tax assets to the
consolidated position of the Company's deferred tax assets and liabilities.
(d) Reflects the capitalization of $300 in debt financing costs.
(e) Reflects the repayment of Monterey's outstanding debt.
(f) Reflects proceeds of borrowing under the Company's amended credit facility
less the repayment of existing Monterey debt of $75.
(g) Reflects elimination of historical equity balances.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MAY 1, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
COLLINS &
AIKMAN MONTEREY
FLOORCOVERINGS CARPETS ACQUISITION CONSOLIDATED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS TOTAL
---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
NET SALES............................ $ 39,179 $ 13,191 $ -- $ 52,370
COST OF GOODS SOLD................... 23,079 8,250 -- 31,329
---------------- -------------- ------------- --------------
GROSS PROFIT......................... 16,100 4,941 -- 21,041
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 11,667 3,483 489 (a) 15,639
---------------- -------------- ------------- --------------
OPERATING INCOME..................... 4,433 1,458 (489) 5,402
INCOME FROM CHROMA INVESTMENT........ -- 449 -- 449
NET INTEREST EXPENSE................. 3,397 12 869 (b) 4,278
---------------- -------------- ------------- --------------
INCOME BEFORE INCOME TAXES........... 1,036 1,895 (1,358) 1,573
INCOME TAX EXPENSE................... 389 773 (339) (c) 823
MINORITY INTEREST.................... 5 -- -- 5
---------------- -------------- ------------- --------------
NET INCOME........................... $ 642 $ 1,122 $ (1,019) $ 745
================ ============= ============= ==============
OTHER DATA:
EBITDA (d)....................... $ 7,629 $ 2,159 $ -- $ 9,788
================= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated statement of operations.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
The Pro Forma Consolidated Statement of Operations reflects the Monterey
Acquisition as if it occurred on January 31, 1999.
(a) Reflects amortization of the Goodwill from the Monterey Acquisition over 20
years.
(b) Reflects the following:
<TABLE>
<S> <C>
Interest expense on the additional debt incurred under the Company's
amended credit facility at 7.0%............................................. $ 893
Reduction of unused commitment fees........................................... (13)
----------
Total cash interest expense................................................. 880
Amortization of deferred financing costs...................................... 14
----------
Total additional interest expense........................................... 894
Elimination of interest expense on Monterey's existing debt................... (25)
----------
Total interest expense adjustment........................................... $ 869
==========
</TABLE>
(c) Reflects adjustment for tax effect of pro forma adjustments.
(d) EBITDA represents earnings before deductions for interest expense, income
tax expense, depreciation and amortization. Because of certain of these
adjustments, the measure presented may not be comparable to similarly
titled measures reported by other companies. The Company understands that
certain investors believe EBITDA reflects a company's ability to satisfy
principal and interest obligations with respect to its indebtedness and to
utilize cash for other purposes. EBITDA does not represent and should not
be considered as an alternative to net income or cash flow from operations
as determined by generally accepted accounting principles.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
COLLINS &
AIKMAN MONTEREY
FLOORCOVERINGS CARPETS ACQUISITION CONSOLIDATED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS TOTAL
------------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C>
NET SALES.................................... $ 175,662 $ 46,777 $ -- $ 222,439
COST OF GOODS SOLD........................... 103,739 30,277 -- 134,016
------------------ ------------- ------------ ---------------
GROSS PROFIT................................. 71,923 16,500 88,423
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES.................................. 45,889 12,609 2,111 (a) 60,609
------------------ ------------- ------------ ---------------
OPERATING INCOME............................. 26,034 3,891 (2,111) 27,814
INCOME FROM CHROMA INVESTMENT................ -- 1,621 -- 1,621
NET INTEREST EXPENSE......................... 14,715 105 3,456 (b) 18,276
------------------ ------------- ----------- ---------------
INCOME BEFORE INCOME TAXES................... 11,319 5,407 (5,567) 11,159
INCOME TAX EXPENSE........................... 4,871 2,238 (1,348) (c) 5,761
MINORITY INTEREST............................ 10 -- -- 10
------------------ ------------ ------------ ---------------
NET INCOME................................... $ 6,438 $ 3,169 $ (4,219) $ 5,388
================== ============ ============ ===============
OTHER DATA:
EBITDA (d)................................ $ 39,268 $ 6,353 $ -- $ 45,621
================== ============ ============ ===============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated statement of operations.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
The Pro Forma Consolidated Statement of Operations reflects the Monterey
Acquisition as if it occurred on February 1, 1998.
(a) Reflects amortization of the Goodwill from the Monterey Acquisition over 20
years.
<TABLE>
(b) Reflects the following:
<S> <C>
Interest expense on the additional debt incurred under the Company's
amended credit facility at 7.0%................................................... $ 3,570
Reduction of unused commitment fees................................................. (50)
------------
Total interest expense............................................................ 3,520
Amortization of deferred financing costs............................................ 55
------------
Total additional interest expense................................................. 3,575
Elimination of interest expense on Monterey's existing debt......................... (119)
------------
Total interest expense adjustment................................................. $ 3,456
============
</TABLE>
(c) Reflects adjustment for tax effect of pro forma adjustments.
(d) EBITDA represents earnings before deductions for interest expense, income
tax expense, depreciation and amortization. Because of certain of these
adjustments, the measure presented may not be comparable to similarly
titled measures reported by other companies. The Company understands that
certain investors believe EBITDA reflects a company's ability to satisfy
principal and interest obligations with respect to its indebtedness and to
utilize cash for other purposes. EBITDA does not represent and should not
be considered as an alternative to net income or cash flow from operations
as determined by generally accepted accounting principles.
23
<PAGE>
(c) The exhibits furnished in connection with this Report are as follows:
Exhibit
Number Description
- ------ -----------
2.2 Agreement and Plan of Merger among Collins & Aikman Floorcoverings, Inc.,
Monterey Merger Company, Inc. and Monterey Carpets, Inc. dated June 4,
1999 is hereby incorporated by reference to Exhibit 2.2 of the Company's
Current Report on Form 8-K dated June 28, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: September 10, 1999
COLLINS & AIKMAN FLOORCOVERINGS, INC.
By: /s/ Darrel V. McCay
--------------------------------
Darrel V. McCay
Vice-President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
25
