<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
--- Of the Securities Exchange Act of 1934
For the quarter ended July 29, 2000
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)
<TABLE>
<S> <C>
Delaware 58-2151061
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
311 Smith Industrial Boulevard, Dalton, Georgia 30721
(Address of principal executive offices) (Zip Code)
</TABLE>
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 September 11, 2000.
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - For The
Thirteen Weeks And Twenty-Six Weeks Ended July 31, 1999
And July 29, 2000............................................. 3
Condensed Consolidated Statements of Comprehensive Income -
For the Thirteen Weeks And Twenty-Six Weeks Ended
July 31, 1999 And July 29, 2000............................... 4
Condensed Consolidated Balance Sheets - As of January 29, 2000
And July 29, 2000............................................. 5
Condensed Consolidated Statements of Cash Flows - For the
Thirteen Weeks And Twenty-Six Weeks Ended July 31, 1999 And
July 29, 2000................................................. 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
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS
ENDED JULY 31, 1999 AND JULY 29, 2000
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
------------------------------------ --------------------------------
July 31, July 29, July 31, July 29,
1999 2000 1999 2000
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
NET SALES........................................ $ 67,341 $ 95,050 $ 106,520 $ 167,968
------------- ------------- ------------- -------------
COST OF GOODS SOLD............................... 39,336 57,893 62,415 104,408
SELLING, GENERAL & ADMINISTRATIVE EXPENSES...... 14,331 20,304 25,998 39,113
------------- ------------- ------------- --------------
53,667 78,197 88,413 143,521
------------- ------------- ------------- --------------
OPERATING INCOME................................. 13,674 16,853 18,107 24,447
MINORITY INTEREST IN INCOME OF SUBSIDIARY........ 7 31 12 33
EQUITY IN EARNINGS OF AFFILIATE.................. 134 625 134 1,230
NET INTEREST EXPENSE............................. 3,821 4,552 7,218 8,945
------------- ------------- ------------- --------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 9,980 12,895 11,011 16,699
INCOME TAX EXPENSE............................... 3,949 5,653 4,338 7,559
------------- ------------- ------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEM............. 6,031 7,242 6,673 9,140
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT, NET OF TAX................................ -- -- -- 69
------------- ------------- ------------- --------------
NET INCOME....................................... $ 6,031 $ 7,242 $ 6,673 $ 9,071
============= ============= ============= ==============
</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 TWENTY-SIX WEEKS
ENDED JULY 31, 1999 AND JULY 29, 2000
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
------------------------------------ -------------------------------
July 31, July 29, July 31, July 29,
1999 2000 1999 2000
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
NET INCOME........................................ $ 6,031 $ 7,242 $ 6,673 $ 9,071
OTHER COMPREHENSIVE INCOME
(EXPENSE) NET OF TAX:
Foreign Currency Translation Adjustments..... 33 (78) (150) (57)
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME.............................. $ 6,064 $ 7,164 $ 6,523 $ 9,014
============= ============= ============= =============
</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 29, 2000 AND JULY 29, 2000
(In Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
January 29, July 29,
2000 2000
---------------------- ---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents........................................... $ 4,114 $ 1,691
Due From Factor..................................................... 4,813 --
Accounts Receivable, Net............................................ 33,572 59,069
Inventories......................................................... 32,137 37,313
Deferred Tax Assets................................................. 2,831 3,288
Prepaid Expenses and Other.......................................... 1,377 1,144
----------------- ------------------
Total Current Assets...................................... 78,844 102,505
PROPERTY, PLANT AND EQUIPMENT, NET..................................... 47,720 48,427
DEFERRED TAX ASSETS.................................................... 276 --
GOODWILL AND OTHER INTANGIBLE ASSETS, NET.............................. 154,096 150,412
OTHER ASSETS........................................................... 7,352 6,906
----------------- ------------------
$ 288,288 $ 308,250
================= ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable.................................................... $ 13,945 $ 18,355
Accrued Expenses.................................................... 13,052 18,674
Revolving Line of Credit............................................ 4,673 3,164
Current Portion of Long Term Debt................................... 7,857 11,309
----------------- ------------------
Total Current Liabilities................................. 39,527 51,502
OTHER LIABILITIES, INCLUDING POSTRETIREMENT BENEFIT OBLIGATION......... 4,180 3,878
DEFERRED TAX LIABILITIES............................................... -- 634
LONG TERM DEBT......................................................... 173,671 172,279
MINORITY INTEREST...................................................... 214 247
COMMITMENTS AND CONTINGENCIES..........................................
STOCKHOLDER'S EQUITY:
Common Stock ($.01 Par Value per Share, 1,000 Shares Authorized,
Issued and Outstanding at January 29, 2000 and July 29, 2000).... -- --
Paid-in Capital..................................................... 51,576 51,576
Retained Earnings................................................... 18,912 27,983
Accumulated Other Comprehensive Income.............................. 208 151
----------------- ------------------
70,696 79,710
----------------- ------------------
$ 288,288 $ 308,250
================= ==================
</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 THIRTEEN WEEKS AND TWENTY-SIX WEEKS
ENDED JULY 31, 1999 AND JULY 29, 2000
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
------------------------------------ --------------------------------
July 31, July 29, July 31, July 29,
1999 2000 1999 2000
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................... $ 6,031 $ 7,242 $ 6,673 $ 9,071
Adjustments to reconcile net income to net
cash
Provided by operating activities:
Depreciation and leasehold amortization.. 1,686 2,475 3,225 4,841
Amortization of goodwill & other
intangible assets....................... 1,662 2,011 3,324 4,034
Amortization of deferred financing fees.. 329 339 658 667
Deferred income tax expense.............. (15) 105 264 453
Equity in earnings of affiliate.......... (134) (625) (134) (1,230)
Minority interest in income of
subsidiary.............................. 7 31 12 33
Extraordinary loss on early
extinguishment of debt.................. -- -- -- 115
Changes in operating assets and liabilities
net of effects of acquisitions:
Due from factor.......................... (675) -- (675) 4,813
Accounts receivable...................... (9,971) (13,630) (10,581) (25,262)
Inventories.............................. 3,149 1,522 (4,626) (5,176)
Accounts payable......................... (3,522) 690 798 4,410
Accrued expenses......................... 3,137 1,302 4,503 5,622
Other, net............................... (111) (218) (188) (670)
------------ ------------- ------------ -------------
Total adjustments and changes.......... (4,458) (5,998) (3,420) (7,350)
------------ ------------- ------------ -------------
Net cash provided by operating
activities............................ 1,573 1,244 3,253 1,721
------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired...................................... (53,999) -- (53,999) --
Equity Distribution From Affiliate............. 152 166 152 794
Additions to Property, Plant & Equipment....... (1,006) (3,315) (2,131) (5,944)
------------ ------------- ------------ -------------
Net cash used in investing activities.. (54,853) (3,149) (55,978) (5,150)
------------ ------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds From Revolving Credit Facilities.. 14,000 2,304 14,000 7,660
Proceeds From Long Term Borrowings............. 41,032 -- 41,032 --
Repayments of Long Term Debt................... (435) (91) (2,381) (6,654)
------------ ------------- ------------ -------------
Net cash provided by financing
activities............................ 54,597 2,213 52,651 1,006
------------ ------------- ------------ -------------
NET CHANGE IN CASH............................... 1,317 308 (74) (2,423)
CASH, Beginning of Period........................ 820 1,383 2,211 4,114
------------ ------------- ------------ -------------
CASH, End of Period.............................. $ 2,137 $ 1,691 $ 2,137 $ 1,691
============ ============= ============ =============
</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. (the "Company") 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"), a corporation sponsored by Quad-C, Inc.
("Quad-C"), a Virginia merchant banking firm.
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 29, 2000 consolidated financial statements of the Company
included in the Company's 1999 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>
(Unaudited)
January 29, July 29,
2000 2000
------------- -----------
<S> <C> <C>
Raw materials................... $ 13,347 $ 14,960
Work in process................. 4,815 6,000
Finished goods.................. 13,975 16,353
--------- ---------
$ 32,137 $ 37,313
========= =========
</TABLE>
3. Acquisitions
On June 28, 1999, pursuant to an Agreement and Plan of Merger dated June 4,
1999, 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. Based in California, Monterey is a manufacturer of high-
style tufted broadloom carpet. 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 amounted to approximately $34.4 million which
is being accounted for as goodwill and is being amortized over 20 years using
the straight-line method.
7
<PAGE>
On July 30, 1999, the Company acquired all the outstanding capital stock of
Crossley Carpet Mills Limited ("Crossley") for $22.1 million (the "Crossley
Acquisition") including assumed debt of $17.5 million and an agreement to pay
the seller $2.0 million over the next four years, subject to certain conditions,
at an effective interest rate of 7.5%. Based in Nova Scotia, Canada, Crossley
is a manufacturer of tufted and woven broadloom carpet. 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 amounted to
approximately $3.9 million, which is being accounted for as goodwill and is
being amortized over 20 years using the straight-line method. Approximately
$9.5 million of the assumed long-term debt is sinking fund bonds held and issued
by the Nova 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.
The following summary presents unaudited pro forma results of operations of
the Company as if these acquisitions occurred as of January 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ------------------------
July 31, July 31,
1999 1999
---------------------- ------------------------
<S> <C> <C>
Net Sales................................................... $ 86,528 $ 147,244
Income Before Extraordinary Item, Net of Tax................ $ 5,932 $ 6,705
Net Income.................................................. $ 5,932 $ 6,705
</TABLE>
These pro forma results neither purport to represent what the Company's
results of operations would have been if these acquisitions had occurred as of
such date, nor what results will be for any future period.
4. Long Term Debt
During February 2000, the Company repurchased $6.5 million of its 10.0%
Senior Subordinated Notes (the "Senior Notes") due January 15, 2000 in the open
market. In connection with this transaction, the Company recorded an
extraordinary loss of approximately $69,000, net of tax benefit, which included
the write off of a pro rata share of deferred financing costs associated with
the issuance of the Senior Notes.
5. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). Additionally, on June 15,
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - an Amendment of FASB Statement No. 133". Since
the Company does not hold any derivative instruments, neither SFAS 133 or 138
will 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. ("CAF" or the "Company"), a Delaware
corporation, is a leading manufacturer of vinyl-backed specified commercial
floorcovering and high-style specified commercial broadloom carpet. The
Company designs, manufactures and markets its C&A, Monterey and Crossley brands
to a wide variety of commercial end-markets, including corporate offices,
education, healthcare and government facilities and retail stores. The
specified commercial market tends to be less price sensitive than the
residential and "off the shelf" commercial markets. In addition, because of the
Company's diversity of end-use markets, its business tends to be less cyclical
than its competitors, which rely heavily on the corporate office market. All
three of the Company's brands have developed leading positions in niche segments
of the floorcovering market. The ability to offer a "package of product
offerings" in various forms, coupled with the Company's flexible distribution
channels, allows the Company to provide a wide array of floorcovering solutions
for its customers. Another key distinction is the Company's differentiation
from the competition by offering superior product technologies, leading design
capabilities, a broad product offering, exceptional customer-focused services,
flexible distribution channels and the most advanced recycling program in the
industry.
On July 30, 1999, the Company acquired all the outstanding capital stock of
Crossley Carpet Mills Limited ("Crossley") for $22.1 million (the "Crossley
Acquisition") including $17.5 million in assumed debt. Based in Nova Scotia,
Canada, Crossley is a manufacturer of tufted and woven broadloom carpet. 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
amounted to approximately $3.9 million, which is being accounted for as goodwill
and is being amortized over 20 years using the straight line method. Of the
$17.5 million in debt assumed in this acquisition, approximately $9.5 million of
the assumed long-term debt is sinking fund bonds held and issued by the Nova
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, dependent upon certain factors. The remaining balance will
become repayable over five years once the forgiveness has expired.
On June 28, 1999, pursuant to an Agreement and Plan of Merger, dated June
4, 1999, 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 $34.4 million which is being
accounted for as goodwill and is being amortized over 20 years using the
straight line method.
RESULTS OF OPERATIONS
---------------------
Thirteen Weeks Ended July 29, 2000 ("Second Quarter 2000") As Compared with
---------------------------------------------------------------------------
Thirteen Weeks Ended July 31, 1999 ("Second Quarter 1999")
----------------------------------------------------------
Net Sales. Net sales for the Second Quarter 2000 were $95.1 million, an
increase of 41.1% from the $67.3 million for the Second Quarter 1999. The
increase in net sales in the Second Quarter 2000 was due to the inclusion of
product sales of Monterey and Crossley, which accounted for 89.1% of the sales
growth, and sales growth in the education, corporate and government end-use
markets. The Company also experienced overall volume increases and average
selling price increases.
9
<PAGE>
Cost of Goods Sold. Cost of goods sold increased to $57.9 million for
the Second Quarter 2000 from $39.3 million in the Second Quarter 1999, an
increase of 47.2%. As a percentage of sales, these costs were 60.9% and 58.4%,
respectively. The cost increase was due to the inclusion of product sales of
Monterey and Crossley, which accounted for 90.6% of the cost increase, and
increased sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill and other intangible assets
amortization of $2.0 million, for the Second Quarter 2000 increased to $20.3
million, an increase of 41.7% from $14.3 million in the Second Quarter 1999
which included goodwill and other intangible assets amortization of $1.7
million. As a percentage of sales, these expenses remained flat at 21.4%
compared to 21.3% in the prior year. These higher costs are due to the
inclusion of Monterey and Crossley expenses, which accounted for 84.0% of the
cost increase.
Interest Expense. Net interest expense for the Second Quarter 2000
increased to $4.6 million from $3.8 million in the Second Quarter 1999. This
increase is due to higher indebtedness incurred relating to the Monterey and
Crossley Acquisitions.
Income Taxes. The Company's overall tax rate for the Second Quarter 2000
increased to 43.8% from 39.6% in the Second Quarter 1999. The increase was
primarily due to the Monterey Acquisition as the amortization of the goodwill
resulting from that acquisition is nondeductible for income tax purposes.
Net Income. Net income for the Second Quarter 2000 increased to $7.2
million from $6.0 million in the Second Quarter 1999, an increase of 20.1%. 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 less minority interest in
income of subsidiary. EBITDA increased to $21.9 million in the Second Quarter
2000 from $17.2 million in the Second Quarter 1999, an increase of 27.9%. Of
this increase, Monterey and Crossley accounted for 87.7%. As a percentage of
sales, EBITDA was 23.1% in the Second Quarter 2000 compared to 25.5% in the
Second Quarter 1999. 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
---------------------
Twenty-Six Weeks Ended July 29, 2000 ("Six Months 2000") As Compared with
-------------------------------------------------------------------------
Twenty-Six Weeks Ended July 31, 1999 ("Six Months 1999")
--------------------------------------------------------
Net Sales. Net sales for the Six Months 2000 were $168.0 million, an
increase of 57.7% from the $106.5 million for the Six Months 1999. This sales
increase was attributable to the addition of Monterey and Crossley, which
accounted for 84.3% of the increase sales, augmented by a sales increase in the
Company's education end-use market.
Cost of Goods Sold. Cost of goods sold increased to $104.4 million for
the Six Months 2000 from $62.4 million in the Six Months 1999, an increase of
67.3%. As a percentage of sales, these costs were 62.2% and 58.6%,
respectively. The cost increase was due to the inclusion of products sales of
Monterey and Crossley, which accounted for 84.1% of the cost increase and
increased sales volume.
10
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill and other intangible assets
amortization of $4.0 million, for the Six Months 2000 increased to $39.1
million, an increase of 50.4% from $26.0 million in the Six Months 1999 which
included goodwill and other intangible assets amortization of $3.3 million. As
a percentage of sales, these expenses decreased to 23.3% from 24.4%. These
higher costs principally related to the addition of Monterey and Crossley, which
accounted for 87.5% of the increase, and sales support expenses.
Interest Expense. Net interest expense for the Six Months 2000 increased
to $8.9 million from $7.2 million in the Six Months 1999. This increase is due
to higher indebtedness incurred relating to the Monterey and Crossley
Acquisitions.
Extraordinary Loss. In the Six Months 2000, the Company experienced a net
extraordinary loss of approximately $0.1 million, net of tax benefit, related to
the purchase of senior notes with a face amount of $6.5 million.
Income Taxes. The Company's overall tax rate for the Six Months 2000
increased to 45.3% from 39.4% in the Six Months 1999. The increase was
primarily due to the Monterey Acquisition as the amortization of the goodwill
resulting from that acquisition is nondeductible for income tax purposes.
Net Income. Net income for the Six Months 2000 increased to $9.1
million from $6.7 million in the Six Months 1999, an increase of 36.0%. 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 less minority interest in
income of subsidiary. EBITDA for the Six Months 2000 was $34.5 million, an
increase of $9.7 million from Six Months 1999 of $24.8 million. Inclusion of
Monterey and Crossley results accounted for 81.2% of the increase. As a
percentage of sales, EBITDA was 20.6% in the Six Months 2000 and 23.3% in the
Six Months 1999. 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 Second Quarter 2000 was
$1.2 million compared to $1.6 million in the Second Quarter 1999. The change
is primarily due to a negative $2.3 million swing in net working capital offset
by an increase of $1.2 million in net income and $1.1 million in depreciation
and amortization. Net cash provided by operating activities in the Six Months
2000 was $1.7 million compared to $3.3 million in the Six Months 1999. The
change is primarily due to a negative $5.5 million swing in net working capital,
offset by the $2.4 million increase in net income and $2.3 million increase in
depreciation and amortization.
The Company has significant indebtedness which consists of $85.0 million in
Senior Subordinated Notes due 2007 (the "Senior Notes"); a $125.0 million credit
facility (the "Credit Facility") which, at July 29, 2000 had outstanding
balances of $28.0 million ("A-1 Term Loan Facility") and $40.0 million ("A-2
Term Loan Facility") in term loan borrowings and $17.4 million in revolving
credit borrowings; $4.1 million in seller's notes from the June 1998 acquisition
of Advance Carpet Tiles and the July 1999 Crossley acquisition; $1.4 million in
purchase money indebtedness; $3.2 million in revolving line of credit borrowings
and $7.7 million in sinking funds bonds under Crossley.
11
<PAGE>
The A-1 Term Loan facility of the Credit Facility will mature on June 30,
2002 and, as of July 29, 2000, will require 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 principal payments (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 1999, the Company voluntarily prepaid $12.1 million and $1.9 million,
respectively, of the term loan borrowings. As of July 29, 2000, there was $7.5
million (net of $17.4 million in borrowings and $5.1 million in letters of
credit outstanding) available under the revolving credit portion of the Credit
Facility.
Concurrent with the consummation of the Crossley Acquisition, the Company
agreed to pay the seller $2.0 million over the next four years, subject to
certain conditions, at an effective interest rate of 7.5%. In addition, the
Company assumed debt of approximately $17.5 million. Of this amount, term loans
associated with financing of equipment purchases and other specific needs
totaled $1.1 million. At July 29, 2000, $0.8 million was outstanding. These
term loans are payable monthly according to set schedules of repayment with the
lenders. Approximately $6.9 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. At July 29, 2000, $3.2 million
was outstanding and $2.8 million was available under this line of credit.
Approximately $9.5 million of long-term debt assumed was sinking fund bonds held
and issued by the Nova Scotia Business Development Corporation (the "Bond
Holder"). The Bond Holder agreed to forgive principal amount of these bonds up
to a maximum of $6.3 million at various rates, dependant upon certain factors.
For the year ended January 29, 2000, $2.1 million was forgiven. The remaining
balance will become repayable over five years once the forgiveness has expired.
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 AND SEASONALITY
-----------------------------------
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.
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<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
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 11, 2000
COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Registrant)
By: /s/ Darrel V. McCay
----------------------
Darrel V. McCay
Vice-President, Chief Financial Officer
and Director
(Duly authorized Officer and Principal
Financial and Accounting Officer)
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