<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
--- Of the Securities Exchange Act of 1934
For the quarter ended October 28, 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)
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<CAPTION>
<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 December 12, 2000.
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - For The Thirteen Weeks
And Thirty-Nine Weeks Ended October 30, 1999 And October 28, 2000 ................... 3
Condensed Consolidated Statements of Comprehensive Income - For the
Thirteen Weeks And Thirty-Nine Weeks Ended October 30, 1999
And October 28, 2000 ................................................................ 4
Condensed Consolidated Balance Sheets - As of January 29, 2000 And
October 28, 2000 .................................................................... 5
Condensed Consolidated Statements of Cash Flows - For the Thirty-Nine Weeks
Ended October 30, 1999 And October 28, 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
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THIRTEEN WEEKS AND THIRTY-NINE WEEKS
ENDED OCTOBER 30, 1999 AND OCTOBER 28, 2000
(In Thousands)
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<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
-------------------------------- --------------------------------
October 30, October 28, October 30, October 28,
1999 2000 1999 2000
--------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
NET SALES .......................................... $ 71,785 $ 79,416 $ 178,305 $ 247,384
--------------- --------------- -------------- ------------
COST OF GOODS SOLD ................................. 45,413 49,577 107,828 153,985
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES ........................................ 18,417 19,641 44,415 58,754
--------------- --------------- -------------- ------------
63,830 69,218 152,243 212,739
--------------- --------------- -------------- ------------
OPERATING INCOME ................................... 7,955 10,198 26,062 1 34,645
MINORITY INTEREST IN INCOME OF SUBSIDIARY .......... 14 39 26 72
EQUITY IN EARNINGS OF AFFILIATE .................... 522 674 656 1,904
NET INTEREST EXPENSE ............................... 4,362 4,718 11,580 13,663
--------------- --------------- -------------- ------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM .............................. 4,101 6,115 15,112 22,814
INCOME TAX EXPENSE ................................. 1,933 2,779 6,271 10,338
--------------- --------------- -------------- ------------
NET INCOME BEFORE EXTRAORDINARY ITEM ............... 2,168 3,336 8,841 12,476
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF TAX ............................. 31 -- 31 69
--------------- --------------- -------------- ------------
NET INCOME ......................................... $ 2,137 $ 3,336 $ 8,810 $ 12,407
=============== ================ ============== ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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<TABLE>
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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
FOR THE THIRTEEN WEEKS AND THIRTY-NINE WEEKS
ENDED OCTOBER 30, 1999 AND OCTOBER 28, 2000
(In Thousands)
Thirteen Weeks Thirty-Nine Weeks
-------------------------------------- ----------------------------------------
October 30, October 28, October 30, October 28,
1999 2000 1999 2000
----------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C>
NET INCOME .............................. $ 2,137 $ 3,336 $ 8,810 $ 12,407
OTHER COMPREHENSIVE INCOME
(EXPENSE) NET OF TAX:
Foreign Currency Translation
Adjustments ....................... 126 (185) (24) (242)
--------------- ------------- ------------ ------------
COMPREHENSIVE INCOME .................... $ 2,263 $ 3,151 $ 8,786 $ 12,165
=============== ============= ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 29, 2000 AND OCTOBER 28, 2000
(In Thousands)
(UNAUDITED)
January 29, October 28,
ASSETS 2000 2000
-------------- -------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents................................................ $ 4,114 $ 1,642
Due From Factor ......................................................... 4,813 --
Accounts Receivable, Net ............................................... 33,572 45,794
Inventories.............................................................. 32,137 37,730
Deferred Tax Assets...................................................... 2,831 3,220
Prepaid Expenses and Other............................................... 1,377 1,211
-------------- ---------------
Total Current Assets........................................... 78,844 89,597
PROPERTY, PLANT AND EQUIPMENT, NET.......................................... 47,720 47,818
DEFERRED TAX ASSETS......................................................... 276 --
GOODWILL AND OTHER INTANGIBLE ASSETS, NET .................................. 154,096 148,653
OTHER ASSETS................................................................ 7,352 6,425
-------------- ---------------
$ 288,288 $ 292,493
============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable....................................................... $ 13,945 $ 16,947
Accrued Expenses......................................................... 13,052 21,727
Revolving Line of Credit ................................................ 4,673 1,233
Current Portion of Long Term Debt ....................................... 7,857 17,866
-------------- ---------------
Total Current Liabilities...................................... 39,527 57,773
OTHER LIABILITIES, INCLUDING POSTRETIREMENT BENEFIT OBLIGATION.............. 4,180 4,065
DEFERRED TAX LIABILITIES ................................................... -- 1,178
LONG TERM DEBT.............................................................. 173,671 146,330
MINORITY INTEREST .......................................................... 214 286
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 October 28, 2000) -- --
Paid-in Capital.......................................................... 51,576 51,576
Retained Earnings........................................................ 18,912 31,319
Accumulated Other Comprehensive Income .................................. 208 (34)
-------------- ---------------
70,696 82,861
-------------- ---------------
$ 288,288 $ 292,493
============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
5
<PAGE>
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THIRTY-NINE WEEKS
ENDED OCTOBER 30, 1999 AND OCTOBER 28, 2000
(In Thousands)
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Thirty-Nine Weeks
---------------------------------------
October 30, October 28,
1999 2000
--------------- -------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................................ $ 8,810 $ 12,407
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and leasehold amortization........................... 5,241 7,306
Amortization of goodwill & other intangible assets................ 5,702 6,047
Amortization of deferred financing fees........................... 759 972
Deferred income tax expense ..................................... 863 1,065
Equity in earnings of affiliate .................................. (656) (1,904)
Minority interest in income of subsidiary ........................ 26 72
Extraordinary loss on early extinguishment of debt ............... 51 115
Changes in operating assets and liabilities net of effects of
acquisitions:
Due from factor .................................................. (554) 4,813
Accounts receivable............................................... (3,540) (11,987)
Inventories ...................................................... (4,319) (5,593)
Accounts payable.................................................. (2,185) 3,002
Accrued expenses ................................................. 3,073 8,675
Other, net........................................................ (257) (623)
----------- -----------
Total adjustments and changes................................ 4,204 11,960
----------- -----------
Net cash provided by operating activities.................... 13,014 24,367
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired ........................ (53,957) (425)
Payment on Deferred Purchase Price of Acquired Business ................ -- (303)
Equity Distribution From Affiliate ..................................... 719 1,633
Additions to Property, Plant & Equipment................................ (4,391) (8,149)
----------- -----------
Net cash used in investing activities........................ (57,629) (7,244)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds From (Repayments of) Revolving Credit Facilities........... 10,745 (11,609)
Proceeds From Long Term Borrowings ..................................... 41,032 --
Repayments of Long Term Debt............................................ (7,060) (7,986)
----------- -----------
Net cash provided by (used in) financing activities.......... 44,717 (19,595)
----------- -----------
NET CHANGE IN CASH ....................................................... 102 (2,472)
CASH, Beginning of Period................................................. 2,211 4,114
----------- -----------
CASH, End of Period....................................................... $ 2,313 $ 1,642
=========== ===========
</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. See Note 6.
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):
(Unaudited)
January 29, October 28,
2000 2000
----------- -------------
Raw materials................................... $ 13,347 $ 14,340
Work in process................................. 4,815 6,861
Finished goods.................................. 13,975 16,529
----------- -------------
$ 32,137 $ 37,730
========== =============
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 $50.4 million (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 $34.8 million which is being accounted for as goodwill
and is being amortized over 20 years using the straight-line method.
7
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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):
Thirty-Nine Weeks Ended
-----------------------
October 30,
1999
----------------
Net Sales ................................................ $ 200,966
Income Before Extraordinary Item, Net of Tax ............. $ 9,053
Net Income ............................................... $ 9,053
As both acquisitions occurred prior to the quarter ended October 30,
1999, no pro forma results are presented for that period. 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.
6. Subsequent Event
On December 5, 2000, Holdings, Quad-C Management, Inc., the
shareholders of Holdings, Oaktree Capital Management, LLC. ("Oaktree") and Bank
of America Capital Investors ("BACI") entered into a definitive Recapitalization
Agreement. Upon consummation of the recapitalization, investment funds managed
by Oaktree and BACI will control a majority of Holdings' outstanding capital
stock.
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 December 5, 2000, Holdings, Quad-C Management, Inc., the
shareholders of Holdings and Oaktree Capital Management, LLC. ("Oaktree") and
Bank of America Capital Investors ("BACI") entered into a definitive
Recapitalization Agreement. Upon consummation of the recapitalization,
investment funds managed by Oaktree and BACI will control a majority of
Holdings' outstanding capital stock.
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 $50.4 million (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 $34.8
million which is being accounted for as goodwill and is being amortized over 20
years using the straight line method.
9
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RESULTS OF OPERATIONS
---------------------
Thirteen Weeks Ended October 28, 2000 ("Third Quarter 2000") As Compared with
-----------------------------------------------------------------------------
Thirteen Weeks Ended October 30, 1999 ("Third Quarter 1999")
----------------------------------------------------------
Net Sales. Net sales for the Third Quarter 2000 were $79.4 million, an
increase of 10.6% from the $71.8 million for the Third Quarter 1999. The
increase in net sales in the Third Quarter 2000 was due to sales growth in the
education and corporate end-use markets. The Company also experienced overall
volume increases and average selling price increases.
Cost of Goods Sold. Cost of goods sold increased to $49.6 million for
the Third Quarter 2000 from $45.4 million in the Third Quarter 1999, an increase
of 9.2%. As a percentage of sales, these costs were 62.4% and 63.3%,
respectively. The cost increase was due to the 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 Third Quarter 2000 increased to $19.6
million, an increase of 6.6% from $18.4 million in the Third Quarter 1999 which
included goodwill and other intangible assets amortization of $2.4 million. As a
percentage of sales, these expenses decreased to 24.7% compared to 25.7% in the
prior year. This increase was due to higher sales support expenses and higher
commissions on higher sales.
Interest Expense. Net interest expense for the Third Quarter 2000
increased to $4.7 million from $4.4 million in the Third Quarter 1999. This
increase is due to higher interest rates on the Company's bank facility
indebtedness offset by lower total indebtedness of the Company.
Income Taxes. The Company's overall tax rate for the Third Quarter 2000
decreased to 45.4% from 47.1% in the Third Quarter 1999. This decrease was due
to the reduced effect of the non-deductible goodwill amortization from the
Monterey acquisition.
Net Income. Net income for the Third Quarter 2000 increased to $3.3
million from $2.1 million in the Third Quarter 1999, an increase of 56.1%. 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 $15.3 million in the Third Quarter
2000 from $12.9 million in the Third Quarter 1999, an increase of 18.6%. This
was due to the combined result of the factors as described above. As a
percentage of sales, EBITDA was 19.3% in the Third Quarter 2000 compared to
17.9% in the Third 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
---------------------
Thirty-Nine Weeks Ended October 28, 2000 ("Nine Months 2000") As Compared with
------------------------------------------------------------------------------
Thirty-Nine Weeks Ended October 30, 1999 ("Nine Months 1999")
-------------------------------------------------------------
Net Sales. Net sales for the Nine Months 2000 were $247.4 million, an
increase of 38.7% from the $178.3 million for the Nine Months 1999. The majority
of this sales increase was attributable to the addition of Monterey and Crossley
augmented by sales increases in the Company's education and corporate end-use
markets.
10
<PAGE>
Cost of Goods Sold. Cost of goods sold increased to $154.0 million for
the Nine Months 2000 from $107.8 million in the Nine Months 1999, an increase of
42.8%. As a percentage of sales, these costs were 62.2% and 60.5%, respectively.
The majority of this cost increase was due to the inclusion of products sales of
Monterey and Crossley and increased sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill and other intangible assets
amortization of $6.0 million, for the Nine Months 2000 increased to $58.8
million, an increase of 32.3% from $44.4 million in the Nine Months 1999 which
included goodwill and other intangible assets amortization of $5.7 million. As a
percentage of sales, these expenses decreased to 23.8% from 24.9%. These higher
costs are principally related to the addition of Monterey and Crossley and sales
support expenses.
Interest Expense. Net interest expense for the Nine Months 2000
increased to $13.7 million from $11.6 million in the Nine Months 1999. This
increase is due to higher indebtedness incurred relating to the Monterey and
Crossley Acquisitions and higher interest rates on the Company's bank facility
indebtedness.
Income Taxes. The Company's overall tax rate for the Nine Months 2000
increased to 45.3% from 41.5% in the Nine 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.
Extraordinary Loss. In the Nine 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.
Net Income. Net income for the Nine Months 2000 increased to $12.4
million from $8.8 million in the Nine Months 1999, an increase of 40.8%. 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 Nine Months 2000 was $49.8 million, an
increase of $12.2 million from Nine Months 1999 of $37.6 million. This was due
to the combined result of the factors described above. As a percentage of sales,
EBITDA was 20.1% in the Nine Months 2000 and 21.1% in the Nine 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 Nine Months 2000 was
$24.4 million compared to $13.0 million in the Nine Months 1999. The change is
primarily due to a positive $6.1 million improvement in net working capital,
aided by the $3.6 million increase in net income and $2.4 million increase in
depreciation and amortization.
11
<PAGE>
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 October 28, 2000 had
outstanding balances of $26.7 million ("A-1 Term Loan Facility") and $40.0
million ("A-2 Term Loan Facility") in term loan borrowings; $3.8 million in
seller's notes from the June 1998 acquisition of Advance Carpet Tiles and the
July 1999 Crossley acquisition; $1.2 million in purchase money indebtedness;
$1.2 million in revolving line of credit borrowings and $7.5 million in sinking
funds bonds under Crossley.
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 $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
October 28, 2000, there was $24.9 million (net of $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 October 28, 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 October 28, 2000, $1.2 million
was outstanding and $4.7 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.
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.
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>
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: December 12, 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)
14
