<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 27, 1999
-----------------
THE IMPERIAL HOME DECOR GROUP INC.
23645 MERCANTILE ROAD, CLEVELAND, OHIO 44122
(216) 464-3700
-----------------
INCORPORATED IN DELAWARE REGISTRATION NO.: 333-58913
I. R. S. NO.: 51-0370302
SECURITIES SUBJECT TO THE REPORTING REQUIREMENTS OF SECTION 15(d) OF THE ACT:
11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
---------------
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.
Number of shares outstanding of common stock at May 7, 1999: 5,937,500 Common
Shares
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<TABLE>
<CAPTION>
Part I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE IMPERIAL HOME DECOR GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
MAR. 27, DEC. 26,
1999 1998
--------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and equivalents ....................................................... $ 1,806 $ 1,238
Accounts receivable, less allowance for doubtful accounts
of $4,268 and $3,950, respectively ...................................... 105,796 96,495
Inventories ................................................................ 106,058 103,577
Other current assets ....................................................... 7,124 7,158
--------- ---------
Total Current Assets ............................................................ 220,784 208,468
Property, plant and equipment, net of accumulated depreciation of $63,716
and $68,496, respectively ................................................. 110,071 111,225
Assets held for resale .......................................................... 4,190 4,190
Goodwill ........................................................................ 10,140 10,516
Other non-current assets ........................................................ 65,553 66,341
--------- ---------
Total ........................................................................... $ 410,738 $ 400,740
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term debt ......................................... $ 1,250 $ 1,250
Notes payable under revolving credit facilities ........................... 43,312 30,170
Accounts payable .......................................................... 63,370 52,903
Other current liabilities ................................................. 64,577 65,975
--------- ---------
Total Current Liabilities ....................................................... 172,509 150,298
Long-term debt .................................................................. 348,750 348,750
Deferred income taxes ........................................................... 6,867 7,494
Other long-term liabilities ..................................................... 10,632 10,456
Commitments and contingencies (Note 8)
--------- ---------
Total Liabilities ............................................................... 538,758 516,998
--------- ---------
Shareholders' Equity (Deficiency):
Common stock .............................................................. 59 59
Paid in capital ........................................................... (63,108) (63,108)
Retained earnings (deficit) ............................................... (57,979) (47,578)
Accumulated other comprehensive loss ...................................... (6,992) (5,631)
--------- ---------
Total Shareholders' Equity (Deficiency) ......................................... (128,020) (116,258)
--------- ---------
Total ........................................................................... $ 410,738 $ 400,740
========= =========
</TABLE>
2
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<TABLE>
<CAPTION>
THE IMPERIAL HOME DECOR GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------------
MAR. 27, MAR. 28,
1999 1998
--------- ---------
<S> <C> <C>
Net sales ................................................................. $ 106,371 $ 95,934
Cost of goods sold (including amortization of
inventory step-up of $1,275 and an additional
write-off of excess inventories of $4,559 for the
three months ended March 28, 1998) ...................................... 65,096 67,353
--------- ---------
Gross margin .............................................................. 41,275 28,581
Operating expenses:
Distribution .......................................................... 7,558 6,091
Marketing ............................................................. 20,638 16,488
General and administrative ............................................ 9,276 8,960
Restructuring charges and other integration costs ..................... 5,383 6,886
--------- ---------
Operating loss ............................................................ (1,580) (9,844)
Merger costs .............................................................. 4,000
Interest expense, net (including amortization of
deferred financing costs of $629 and $100 for
the three months ended March 27, 1999 and
March 28, 1998, respectively) ......................................... 9,585 1,347
--------- ---------
Loss before income taxes .................................................. (11,165) (15,191)
Income tax benefit ........................................................ (763) (133)
--------- ---------
Net loss .................................................................. $ (10,402) $ (15,058)
========= =========
</TABLE>
3
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<TABLE>
<CAPTION>
THE IMPERIAL HOME DECOR GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
MAR. 27, MAR. 28,
1999 1998
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................................. $ (10,402) $ (15,058)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................. 3,799 2,614
Amortization of deferred financing costs ...................... 629 100
Deferred foreign income taxes ................................. (977) 347
Change in operating assets and liabilities, net of acquisition:
Accounts receivable ........................................... (9,785) (21,503)
Inventories, net .............................................. (2,711) 6,961
Accounts payable .............................................. 11,131 7,562
Other assets .................................................. 143 6,272
Other liabilities ............................................. (1,103) 11,308
--------- ---------
Cash used in operating activities ............................. (9,276) (1,397)
--------- ---------
Cash flows from investing activities:
Capital expenditures .................................................. (3,588) (3,708)
Acquisition of Imperial Wallcoverings, Inc., including
direct costs ........................................................ (73,800)
--------- ---------
Cash used in investing activities ............................. (3,588) (77,508)
--------- ---------
Cash flows from financing activities:
Net borrowings under revolving credit facility ........................ 13,077 5,071
Borrowings under long-term debt arrangements .......................... 323,000
Debt issuance fees .................................................... (19,220)
Equity contribution and issuance of common stock ...................... 84,553
Borden recapitalization cash distribution ............................. (314,432)
Dividends paid ........................................................ (2,635)
Changes in owners' investment ......................................... 6,835
--------- ---------
Cash provided by financing activities ......................... 13,077 83,172
--------- ---------
Effect of exchange rate changes on cash ....................................... 355
Increase in cash and equivalents ............................................. 568 4,267
Cash and equivalents at beginning of period ................................... 1,238 3,795
--------- ---------
Cash and equivalents at end of period ......................................... $ 1,806 $ 8,062
========= =========
</TABLE>
4
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of The Imperial Home Decor Group Inc., ("IHDG" or "the Company") formerly known
as Borden Decorative Products Holdings, Inc. ("BDPH"), have been prepared in
accordance with generally accepted accounting principles for interim financial
statement information and Article 10 of Regulation S-X and therefore do not
include all of the information and footnotes required by generally accepted
accounting principles of complete annual financial statements. In the opinion of
management, all adjustments (consisting only of usual recurring adjustments)
considered necessary for a fair presentation are reflected in the condensed
consolidated financial statements. The condensed consolidated financial
statements and notes thereto should be read in conjunction with the combined
financial statements and notes thereto for the year ended December 26, 1998. The
results of operations for the three months ended March 27, 1999 and March 28,
1998 are not necessarily indicative of the results to be expected for the full
year.
Certain prior year amounts have been reclassified to conform to the
presentation utilized in the three months ended March 27, 1999. Investments in
design, engraving and sample books of $21,110 and $20,624 as of March 27, 1999
and December 26, 1998, respectively, that are deferred and amortized over the
respective useful lives have been reclassified from other current assets to
other non-current assets. The reclassification has no effect on operating
results.
2. THE TRANSACTIONS
The Initial Offering - The Imperial Home Decor Group Inc. issued 11%
Senior Subordinated Notes due 2008, for an aggregate principal amount of $125.0
million (the "Initial Offering"). The Initial Offering was made in connection
with (i) the recapitalization (the "Recapitalization") of BDPH pursuant to a
Recapitalization Agreement, dated as of October 14, 1997, as amended (the
"Recapitalization Agreement") , among BDPH, BDPI Holdings Corporation
("MergerCo") and Borden and (ii) the acquisition of Imperial (the "Imperial
Acquisition") pursuant to an Acquisition Agreement, dated as of November 4,
1997, as amended (the "Imperial Acquisition Agreement"), among Collins & Aikman
Corporation ("C&A"), Imperial Wallcoverings, Inc. ("Imperial U.S.") and
MergerCo.
The closing of the transactions contemplated by the Recapitalization
Agreement, the initial borrowings under the Company's senior credit facilities
(the "Senior Credit Facilities") and the consummation of the Initial Offering
took place immediately prior to, but substantially simultaneously with, the
closing of the Imperial Acquisition, which occurred on March 13, 1998
(collectively, the "Closing").
The Recapitalization - The principal components of the Recapitalization were:
- The transfer of substantially all the assets and liabilities of
Sunworthy (the Canadian wallcoverings business of Borden) to a wholly
owned subsidiary of BDPH;
- The equity contribution of $84.6 million in cash to MergerCo by
Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners III L.P. and Blackstone Family Investment
Partnership III L.P. (collectively, "Blackstone");
- The merger of MergerCo with and into BDPH;
- The conversion of all the preferred stock and certain common stock of
BDPH, except for 11% of BDPH common stock which was retained by
Borden, into the right to receive a total of $314.4 million in cash,
and
- The cancellation and settlement of existing stock options for $1.3
million which was paid from such $314.4 million and resulted in a
charge to operations of $0.7 million for the excess of the amount paid
over that previously accrued.
5
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
Following the Recapitalization, Blackstone and its affiliates owned 89% and
Borden retained 11% of the outstanding BDPH common stock. This merger is
accounted for as a recapitalization of BDPH which has no impact on the
historical carrying value of BDPH's assets and liabilities. Transaction costs of
$4.0 million related to this merger, comprised primarily of professional fees
and expenses, are reported as merger costs.
The Imperial Acquisition - The principal components of the Imperial Acquisition
were:
- The acquisition of all the outstanding capital stock of Imperial
Wallcoverings, Inc. by BDPH;
- The acquisition of substantially all the assets and liabilities of
Imperial Wallcoverings (Canada), Inc. by a wholly owned subsidiary of
BDPH;
- The payment by BDPH to C&A of the cash purchase price for the Imperial
Acquisition of $72.8 million; and
- The grant to C&A by BDPH of an option to purchase newly issued shares
of BDPH's common stock equal to 6.7% of BDPH's common stock
outstanding as of the Closing, which was valued at $6.0 million after
arm's length purchase price negotiations between MergerCo and C&A and
was generally based on a five-year discounted cash flow analysis.
Following the Recapitalization and the Imperial Acquisition, BDPH
changed its name to The Imperial Home Decor Group Inc.
The Imperial Acquisition is accounted for using purchase accounting in
which the total purchase cost was allocated to the Imperial assets acquired and
liabilities assumed, based on their respective fair values. The total purchase
price of $79.8 million consisted of $72.8 million of cash, an option valued at
$6.0 million and $1.0 million of direct acquisition costs. The historical book
value of the net assets acquired exceeded the purchase price by $22.8 million.
This excess was allocated first to adjust the assets and liabilities acquired to
their estimated fair values and then as a proportionate reduction of property
and equipment and other non-current assets. The principal components of this
allocation were (1) a net increase of $5.4 million in inventories, (2) the
recording of $4.2 million in assets held for resale, $15.1 million in accruals,
and $5.0 million in deferred tax liabilities, and (3) a reduction of $17.7
million in property and equipment.
The resulting purchase price allocation was as follows:
<TABLE>
<S> <C>
Cash $ 206
Accounts receivable 37,894
Inventories 60,152
Other current assets 1,980
Property and equipment 33,522
Assets held for resale 4,190
Other non-current assets 2,521
Accounts payable and accrued expenses (47,772)
Deferred income taxes (5,474)
Other long-term liabilities (7,419)
------------
Total $ 79,800
============
</TABLE>
The following unaudited pro forma consolidated results of operations for
the three months ended March 28, 1998 have been prepared as if the Imperial
Acquisition had occurred as of the beginning of 1998:
6
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
<S> <C>
Net sales $ 128,900
Net loss (19,600)
</TABLE>
These unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
The Financings - The Recapitalization, the Imperial Acquisition and the
payment of related fees and expenses have been financed by: (i) the equity
contribution of $84.6 million; (ii) the initial borrowings of $198.0 million
under the Senior Credit Facilities; and (iii) the net proceeds of $125.0 million
from the 11% Senior Subordinated Notes due 2008, series B (the "Old Notes"). The
Old Notes were exchanged in a registered offering for a like amount of notes
(the "Notes") having identical terms but that are freely transferrable, subject
to certain restrictions.
The Notes mature on March 15, 2008 and the Company may not redeem these
Notes prior to March 15, 2003. On or after that date, the Company may redeem
these Notes, in whole or in part, at the redemption prices set forth in the
Initial Offering. Interest on these Notes is payable on March 15 and September
15 of each year. These Notes are unsecured and are subordinated to the Senior
Credit Facilities.
The Senior Credit Facilities consist of (i) a six-year revolving credit
facility in an aggregate principal amount not to exceed $75 million ($43.3
million borrowed since the closing date and outstanding at March 27, 1999) and
(ii) term loans consisting of (a) a $65.0 million six-year tranche A term loan
facility, (b) a $115.0 million seven-year tranche B term loan facility and (c) a
$45.0 million eight-year tranche C loan facility, (collectively, the "Term
Loans"). The Term Loans require principal payments on a semi-annual basis.
Interest rates for the Revolving Credit Facilities and the Term Loans
are variable with each calculated using one of several interest rate options. At
March 27, 1999, the weighted average interest rates were as follows: Revolving
Credit Facility - 7.75%; Term Loans - 7.79%. A commitment fee of .5% is paid on
the unused portion of the revolving credit facility.
The Senior Credit Facilities contain covenants that, among other things,
limit the Company's ability to incur additional indebtedness, pay dividends,
dispose of certain assets, create liens, make capital expenditures, make certain
investments or acquisitions and otherwise restrict corporate activities. The
Senior Credit Facilities also require the Company to comply with certain
financial ratios and tests, under which the Company will be required to achieve
certain financial and operating results.
3. RESTRUCTURING CHARGES AND OTHER INTEGRATION COSTS
In conjunction with the Imperial Acquisition, a plan (the "Integration
Plan") to integrate the Company and Imperial in North America has been adopted
that includes the closing of inefficient manufacturing and warehouse facilities,
consolidating the Company's finishing and distribution facilities, substantially
reducing the North America hourly and salary workforce and consolidating the
Company's administrative, marketing and sales functions.
As it relates to the Imperial Acquisition, the Integration Plan includes
closure of facilities in Plattsburgh, New York and Ashaway, Rhode Island,
disposition of certain assets, and reduction of the salary and hourly workforce
by approximately 530 employees. As of March 27, 1999, the Ashaway facility
closure was
7
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
substantially complete, manufacturing at the Plattsburgh facility had ceased and
approximately 470 employees had been severed. These closures are expected to be
substantially complete by the end of 1999. The liabilities accrued under
purchase accounting relating to the Integration Plan for the Imperial
Acquisition were $11.1 million.
Additionally, as part of the consolidation and rationalization of
operations, the Company recorded restructuring charges and other integration
costs of $5.4 million and $6.9 million for the three months ended March 27, 1999
and March 28, 1998, respectively. Since the inception of the Integration Plan in
March 1998, $26.5 million in restructuring charges and other integration costs
have been reported in the Company's statements of operations. Of these charges,
$24.1 million relates to the closure of two distribution centers and the
consolidation of the Company's finishing and bookmaking operations,
administrative, marketing and sales functions. These charges also provided for
the write-down of certain assets to be disposed of to net realizable value,
lease and other contractual agreement buyouts, and a reduction in the salary and
hourly workforce by approximately 320 employees. The Plan is expected to be
substantially complete by the end of 2000.
In 1998, a charge of $2.0 million was recorded to provide for severance
costs relating to 110 employees in the U.K. due to poor market conditions in
Eastern Europe and Russia, which was substantially complete by the end of 1998.
Additionally, a charge of $0.4 million was recorded related to permanent
impairment of long-lived assets at a non-core facility that the Company will
close in 1999. In April 1999, the Company announced plans to close this facility
and will record a restructuring charge of approximately $1.6 million including
costs to sever approximately 70 employees and close the facility. The closure is
expected to be complete by the end of 1999.
The liabilities accrued under purchase accounting and for the IHDG
restructuring and other integration costs are as follows (in thousands):
<TABLE>
<CAPTION>
ANTICIPATED
ANTICIPATED LEASE AND
SEVERANCE AND OTHER
OTHER RELATED ANTICIPATED CONTRACTUAL
ASSET EMPLOYEE FACILITY AGREEMENT
WRITE-DOWNS BENEFITS CLOSURE COSTS BUYOUTS OTHER TOTAL
-------- ------------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
IMPERIAL PURCHASE ACCOUNTING:
Liabilities accrued under purchase
accounting at December 26, 1998 ......... $ 1,519 $ 2,668 $ 1,300 $ 91 $ 5,578
Cash expenditures ......................... (738) (118) (30) (886)
-------- -------- -------- -------- --------
Balance at March 27, 1999 ................. $ 781 $ 2,550 $ 1,270 $ 91 $ 4,692
======== ======== ======== ======== ========
IHDG RESTRUCTURING CHARGES AND
OTHER INTEGRATION COSTS:
Liabilities accrued at December 26, 1998... $ 3,256 $ 648 $ 50 $ 3,954
Expensed in 1999 .......................... 66 5,317 5,383
Cash expenditures ......................... (805) (5,317) (6,122)
-------- -------- -------- -------
Balance at March 27, 1999 ................. $ 2,517 $ 648 $ 50 $ 3,215
======== ======== ======== ========
</TABLE>
4. CERTAIN NON-CASH CHARGES
The Company incurred non-cash charges of $5.9 million for the three
months ended March 28, 1998. The charges consisted of $1.3 million for the
amortization of the inventory step-up and $4.6 million for an inventory
write-down both of which were reported with cost of goods sold in the
accompanying condensed consolidated statements of operations. There were no
non-cash charges in the 1999 period.
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
5. SUPPLEMENTAL INFORMATION
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MAR. 27, DEC. 26,
1999 1998
--------- ---------
<S> <C> <C>
Finished and in-process goods, net ............. $ 96,575 $ 94,145
Raw materials and supplies, net ................ 9,483 9,432
-------- --------
Inventories, net ............................... $106,058 $103,577
======== ========
</TABLE>
6. INCOME TAXES
A valuation allowance of approximately $19.1 million has been recognized
as management determined that it is more likely than not that the deferred tax
assets for the U.S. and Canadian operations will not be realized.
7. NEW ACCOUNTING PRONOUNCEMENTS
In 1999, the Company adopted Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed for or Obtained for
Internal Use. The SOP requires the capitalization of certain costs incurred
after the date of adoption in connection with developing or obtaining software
for internal use. Prior to the adoption of the SOP, the Company capitalized
certain external costs and expensed all other costs as incurred. The effect of
adopting the SOP was not material to operating results.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local laws and regulations
concerning the environment, and it has received notices that it is a potentially
responsible party ("PRP") in administrative proceedings at two sites. It is
difficult to estimate the total cost of remediation due to the complexity of the
environmental laws and regulations, the uncertainty regarding the extent of the
environment risks and the Company's responsibility, and the selection of
alternative compliance approaches. A liability is recorded when it is possible
to reasonably estimate the Company's liability with respect to environmental
matters. The Company has recorded an accrual of $1.5 million for potential
exposures as of March 27, 1999, including $.9 million for the Solvents Recovery
Service of New England superfund site in Southington, Connecticut and other
superfund sites, $.3 million for the Ashaway facility and $.3 million for the
Haverhill facility. The amount for the Ashaway facility pertains to a release
from an underground storage tank that had been removed which was discovered in
December of 1998. The Haverhill facility amount relates to the Company's
investigation and remediation of releases of phthalate compounds from
above-ground storage tanks into soil and groundwater beneath the facility. In
the opinion of the Company's Management, based on the facts presently known to
it, the ultimate outcome of environmental matters will not have, individually or
in the aggregate, a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
Additionally, the Company is party to various litigation matters arising
in the ordinary course of business. The ultimate legal and financial liability
of the Company with respect to litigation cannot be estimated with certainty,
but Management believes, based on its examination of such matters, experience to
date and discussions with counsel, that such liability will not have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
9
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
9. COMPREHENSIVE INCOME
Comprehensive income/(loss) for the three months ended March 27, 1999
and March 28, 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MAR. 27, MAR. 28,
1999 1998
---------- ----------
<S> <C> <C>
Net loss $(10,402) $(15,058)
Foreign currency translation adjustments (1,361) 1,684
-------- --------
Comprehensive loss $(11,763) $(13,374)
======== ========
</TABLE>
10. OPERATING SEGMENTS AND GEOGRAPHIC REPORTING
The Company has two primary operating segments: wallcovering products and
flexible vinyl films and sheeting. The wallcovering products segment includes
residential and commercial wallcoverings and heat transfer paper. This segment
operates worldwide but primarily in the United States, Canada, the United
Kingdom and other parts of Western and Eastern Europe. The flexible vinyl films
and sheetings product segment includes calendered, flexible PVC sheeting,
printed sheeting and laminated products. This segment operates in the United
States and Canada.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MAR. 27, MAR. 28,
1999 1998
------------ -----------
<S> <C> <C>
Net Sales:
Wallcoverings products $ 94,463 $ 83,918
Vinyl films and sheetings 11,908 12,016
--------- ---------
$ 106,371 $ 95,934
========= =========
Operating Income (Loss): $ (2,353) $ (9,533)
Wallcovering products 773 (311)
Vinyl films and sheetings --------- ---------
$ (1,580) $ (9,844)
========= =========
Identifiable Assets: $ 381,755 $ 374,634
Wallcovering products 28,983 26,106
Vinyl films and sheetings --------- ---------
$ 410,738 $ 400,740
========= =========
</TABLE>
10
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THE IMPERIAL HOME DECOR GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
11. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Guarantees") by the Company's domestic subsidiaries (The Imperial Home Decor
Group (US) LLC, Vernon Plastics Inc. and WDP Investments, Inc.) and Imperial
Home Decor Group Holdings I Limited, a U.K. Company, (collectively the
"Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is a direct
wholly-owned subsidiary of the Company. The obligations of each Guarantor
Subsidiary under its Guarantee are subordinated to such subsidiary's obligations
under the Senior Credit Facilities. Presented below is condensed consolidating
financial information for the Company, the Guarantor Subsidiaries, and the
Company's other subsidiaries (the "Non-Guarantor Subsidiaries"). Such financial
information is consolidated in the presentation below because (i) the Guarantor
Subsidiaries have fully and unconditionally guaranteed the Notes on a joint and
several basis and (ii) management of the Company believes that separate
financial statements and other disclosures concerning each of the Guarantor
Subsidiaries would not provide additional information that is material to
investors in the Notes.
Investments in subsidiaries are accounted for by the Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Company's investments in subsidiaries account and equity income. The
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. The intercompany payable and receivable balances are
netted in the owner's investment account.
11
<PAGE> 12
<TABLE>
<CAPTION>
THE IMPERIAL HOME DECOR GROUP INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 27, 1999
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents ................ $ 1,108 $ 698 $ 1,806
Accounts receivable ................. 57,775 48,021 105,796
Inventories ......................... 59,843 48,104 $ (1,889) 106,058
Other current assets ................ 2,994 4,130 7,124
--------- --------- --------- ---------
Total current assets .............. 121,720 100,953 (1,889) 220,784
Property and equipment, net ............... 42,125 69,247 (1,301) 110,071
Assets held for resale .................... 4,190 4,190
Goodwill .................................. 1,128 9,012 10,140
Other non-current assets .................. $ 16,473 18,647 30,613 65,553
Investment in subsidiaries ................ 86,258 (86,258)
--------- --------- --------- --------- ---------
TOTAL ..................................... $ 102,731 $ 187,630 $ 209,825 $ (89,448) $ 410,738
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term debt ... $ 1,250 $ 1,250
Notes payable under revolving
credit facilities ................ 25,000 $ 18,312 43,312
Accounts payable .................... 11 $ 23,152 40,207 63,370
Other current liabilities ........... 4,429 25,964 34,184 64,577
Intercompany payable/(receivable) ... (38,065) 42,256 (4,251) $ 60
--------- --------- --------- --------- ---------
Total current liabilities ...... (7,375) 91,372 88,452 60 172,509
Long-term debt............................. 348,750 348,750
Deferred income taxes...................... 6,867 6,867
Other long-term liabilities................ 10,109 496 27 10,632
Shareholders' equity (deficiency) ......... (238,644) 86,149 114,010 (89,535) (128,020)
--------- --------- --------- --------- ---------
TOTAL ..................................... $ 102,731 $ 187,630 $ 209,825 $ (89,448) $ 410,738
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
THE IMPERIAL HOME DECOR GROUP INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 26, 1998
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents ................. $ 774 $ 464 $ 1,238
Accounts receivable .................. 50,641 45,854 96,495
Inventories .......................... 58,821 46,855 $ (2,099) 103,577
Other current assets ................. 3,209 3,949 7,158
--------- --------- --------- ---------
Total current assets ............. 113,445 97,122 (2,099) 208,468
Property and equipment, net ................. 41,255 71,297 (1,327) 111,225
Assets held for resale ...................... 4,190 4,190
Goodwill .................................... 1,148 9,368 10,516
Other non-current assets .................... $ 17,102 17,754 31,485 66,341
Investment in subsidiaries .................. 93,508 (93,508)
--------- --------- --------- --------- ---------
TOTAL ....................................... $ 110,610 $ 177,792 $ 209,272 $ (96,934) $ 400,740
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long term debt .... $ 1,250 $ 1,250
Notes payable under
revolving credit facilities ......... 20,000 $ 10,170 30,170
Accounts payable ..................... 11 $ 17,822 35,070 52,903
Other current liabilities ............ 7,409 24,147 34,201 $ 218 65,975
Intercompany payable/(receivable) .... (38,897) 43,605 (4,643) (65) --
--------- --------- --------- --------- ---------
Total current liabilities ........ (10,227) 85,574 74,798 153 150,298
Long-term debt .............................. 348,750 348,750
Deferred income taxes........................ 7,494 7,494
Other long-term liabilities ................. 9,943 486 27 10,456
Shareholders' equity (deficiency) ........... (227,913) 82,275 126,494 (97,114) (116,258)
--------- --------- --------- --------- ---------
TOTAL ....................................... $ 110,610 $ 177,792 $ 209,272 $ (96,934) $ 400,740
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
THE IMPERIAL HOME DECOR GROUP INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 27, 1999
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales ..................................... $ 62,358 $ 70,800 $ (26,787) $ 106,371
Cost of goods sold ............................ 33,914 58,298 (27,116) 65,096
--------- --------- --------- ---------
Gross margin .................................. 28,444 12,502 329 41,275
Operating expenses:
Distribution ............................. 3,110 4,448 7,558
Marketing ................................ 11,700 8,938 20,638
General and administrative ............... 4,207 5,069 9,276
Restructuring charges and
other integration costs ................ 4,459 924 5,383
--------- --------- --------- ---------
Operating income (loss) ....................... 4,968 (6,877) 329 (1,580)
Equity (income) loss ..........................$ 7,250 (7,250)
Interest expense, net ......................... 3,481 1,062 5,042 9,585
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............. (10,731) 3,906 (11,919) 7,579 (11,165)
Income tax benefit ............................ (763) (763)
--------- --------- --------- --------- ---------
Net income (loss) .............................$ (10,731) $ 3,906 $ (11,156) $ 7,579 $ (10,402)
========= ========= ========= ========= =========
<CAPTION>
THREE MONTHS ENDED MARCH 28, 1998
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales ............................ $ 75,007 $ 39,585 $(18,658) $ 95,934
Cost of goods sold ................... 53,180 32,831 (18,658) 67,353
-------- -------- -------- --------
Gross margin ......................... 21,827 6,754 28,581
Operating expenses:
Distribution ...................... 4,390 1,701 6,091
Marketing ......................... 8,923 7,565 16,488
General and administrative ........ 6,846 2,114 8,960
Restructuring charges and
other integration costs .......... 2,012 4,874 6,886
-------- -------- -------- --------
Operating loss ....................... (344) (9,500) (9,844)
Merger costs ......................... $ 4,000 4,000
Equity (income) loss ................. 9,624 (9,624)
Interest (income) expense, net ....... 1,434 (53) (34) 1,347
-------- -------- -------- -------- --------
Income (loss) before income taxes .... (15,058) (291) (9,466) 9,624 (15,191)
Income tax benefit ................... (133) (133)
-------- -------- -------- -------- --------
Net loss ............................. $(15,058) $ (158) $ (9,466) $ 9,624 $(15,058)
======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
THE IMPERIAL HOME DECOR GROUP INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 27, 1999
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities: ................... $ (5,000) $ 2,786 $ (7,062) $ (9,276)
-------- -------- -------- --------
Cash flows used in investing activities:
Capital expenditures .............................. (2,420) (1,168) (3,588)
-------- -------- -------- --------
Cash flows provided by financing activities:
Net borrowings under revolving credit
facilities...................................... 5,000 8,077 13,077
-------- -------- -------- --------
Effect of exchange rate changes on cash.................. (32) 387 355
Increase in cash and equivalents ........................ 334 234 568
Cash and equivalents at beginning of period.............. 774 464 1,238
-------- -------- -------- -------- --------
Cash and equivalents at end of period ................... $ -- $ 1,108 $ 698 $ -- $ 1,806
======== ======== ======== ======== ========
<CAPTION>
THREE MONTHS ENDED MARCH 28, 1998
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities: ................. $ (10,901) $ 3,565 $ 5,939 $ (1,397)
--------- --------- --------- ---------
Cash flows used in investing activities:
Capital expenditures ............................ (2,457) (1,251) (3,708)
Acquisition of Imperial Wallcoverings, Inc.,
including direct costs ....................... (73,800) (73,800)
--------- --------- --------- ---------
Cash used in investing activities ..................... (73,800) (2,457) (1,251) (77,508)
--------- --------- --------- ---------
Cash flows provided by (used in)
financing Activities:
Repayment of borrowing on bank loan ........... (1,529) (1,529)
Net borrowings under
revolving credit facilities .............. 6,600 6,600
Borrowings under long-term
debt arrangements ............................. 323,000 323,000
Debt issuance fees ............................ (19,220) (19,220)
Equity contribution ........................... 84,553 84,553
Borden recapitalization cash
distribution ................................. (314,432) (314,432)
Dividends paid ................................ (2,635) (2,635)
Change in owner's investment .................. 6,835 6,835
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities .............................. 84,701 (1,529) 83,172
--------- --------- --------- ---------
Increase in cash and equivalents....................... 1,108 3,159 4,267
Cash and equivalents at beginning of period............ 229 3,566 3,795
--------- --------- --------- --------- ---------
Cash and equivalents at end of period ................. $ -- $ 1,337 $ 6,725 $ -- $ 8,062
========= ========= ========= ========= =========
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In this section, we will discuss the financial condition and results of
operations of the Company. This discussion includes explanations of:
- The factors that affect our business;
- What our earnings and costs were for the three months ended March 27,
1999 and March 28, 1998;
- Why the earnings for the periods presented differed;
- The sources of our earnings;
- How and why this affects the general financial condition of the
Company;
- Capital expenditures and future sources of funds for capital
expenditures and liquidity; and
- Which of the charges and expenses included in the Company's financial
results are one-time charges relating to the Integration Plan and
restructuring and other integration costs.
We encourage you to refer to the Condensed Consolidated Statements of
Operations included as part of quarterly report. These statements of operations
present the results of the Company's operations for the three months ended March
27, 1999 and March 28, 1998. In this section we discuss changes in specific
statement of operations line items from period to period. By reading this
section and by referring to the financial statement as you do so, we believe you
will better understand information which may be helpful to you in making
decisions about your investments in the Company.
The Company as it currently exists is the result of the recapitalization
of the Company and the combination of its residential wallcoverings and PVC
sheeting businesses with the wallcoverings businesses of Imperial. Before the
recapitalization and combination, the Company was substantially wholly owned by
a subsidiary of Collins & Aikman. The Company's results of operations for the
three months ended March 28, 1998 include approximately 2 weeks of Imperial's
results of operations due to the acquisition of Imperial in March 1998. Because
of the recapitalization and Imperial acquisition, the Company's results of
operations and financial condition discussed in this Report are generally not
comparable period-to-period and are not necessarily indicative of the Company's
future results of operations.
In 1998, the Company adopted a plan to integrate the Company's and
Imperial's operations in North America. For a description of the elements of the
Integration Plan, the progress in completing the various elements of the
Integration Plan and the related cost to effect the Integration Plan (see
Footnote 3 to the Condensed Consolidated Financial Statements under Item 1). As
described in greater detail below, costs incurred in 1998 and 1999 in connection
with the implementation of the Integration Plan and other restructuring and
integration costs and transaction costs substantially impacted the Company's
results of operations.
FOR THE THREE MONTHS ENDED MARCH 27, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 27, 1998.
RESULTS OF OPERATIONS
NET SALES. Net sales increased by 10.9% in the three months ended
March 27, 1999 to $106.4 million from $95.9 million in the same period a year
ago. This increase reflects the inclusion in our results of a full three months
of Imperial sales in 1999, an increase of $21.1 million. This increase was
partially offset by lower export sales due to poor economic conditions in
Eastern Europe and Russia, a weaker U.K. domestic wallcoverings market and lower
sales to independent North American dealers.
Vernon Plastics' sales of flexible vinyl films and sheeting were $11.9
million for the three months ended March 27, 1999, a 0.8% decline compared to
the $12.0 million reported in the same period a year ago.
16
<PAGE> 17
GROSS MARGIN. Our gross margin was 38.8% and 29.8% for the three months
ended March 27, 1999 and March 28, 1998, respectively. This increase in margin
was principally due to the operating improvements resulting from the Integration
Plan and change in product mix resulting from the Imperial acquisition. In the
1998 period, our gross margin was adversely affected by a $4.6 million charge
for excess inventories and $1.3 million of amortization related to the step-up
of Imperial's inventory to fair market value. We recorded excess inventory
charges during the first three months of 1998 as a result of actions related to
the Integration Plan. Without these charges our margins would have been 35.9%
for the three months ended March 28, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses (which are the sum of distribution expense, marketing
expense and general, administrative and other expense) were 34.8% of net sales
for the three months ended March 27, 1999 (or $37.0 million) and 32.9% of net
sales for the three months ended March 28, 1998 (or $31.5 million). This
increase was primarily attributable to inclusion in the 1999 period of the full
three months of Imperial expenses of $16.7 million, partially offset by reduced
overall corporate administrative functions of $5.2 million and other expense
reductions in North America resulting from the Integration Plan.
RESTRUCTURING AND OTHER INTEGRATION COSTS. We recorded restructuring
charges and other integration costs totaling $5.4 million and $6.9 million in
the three months ended March 27, 1999 and March 28, 1998, respectively.
The restructuring and other integration costs were the result of our
planned closing of two distribution centers, consolidation of the finishing and
bookmaking operations at one manufacturing facility and the consolidation of the
Company's and Imperial's administrative functions, marketing activities and
business systems. This charge also included a write-down of assets to be
disposed of to their net realizable value, buyouts of leases and other
contractual agreements, and a reduction in the salary and hourly workforce by
approximately 320 employees. These closings and consolidations were part of the
Integration Plan.
MERGER COSTS. We incurred costs of approximately $4.0 million in the
three months ended March 28, 1998 relating to the Recapitalization, which
consisted primarily of legal and underwriting fees.
TAXES. Income tax benefit was $0.8 million for the three months ended
March 27, 1999 compared to $0.1 million for the three months ended March 28,
1998. The income tax benefit between the periods is not proportional to the
reduction in income before taxes primarily due to a valuation allowance which
reduced the income tax benefit of the loss on operations in both periods.
NET LOSS. As a result of the factors set forth above, we recorded a net
loss of $10.4 million for the three months ended March 27, 1999 compared to a
net loss of $15.1 million in the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Our Senior Credit Facilities provide up to $300.0 million in loans to
the Company. The Senior Credit Facilities consist of aggregate principal amount
of $225.0 million of term loans and a $75.0 million six-year credit facility.
The Senior Credit Facilities contain covenants requiring the Company to
maintain a minimum interest coverage ratio and a maximum net leverage ratio. In
the calculation of these ratios we may give effect, subject to certain
limitations, to certain cost savings expected to result from the implementation
of the Integration Plan. Under the Senior Credit Facilities, we could be
required to repay our loans or take other actions if the minimum interest
coverage ratio and maximum net leverage ratio are not maintained. At March 27,
1999 we were in compliance with the minimum interest coverage ratio and maximum
net leverage ratio covenants of the Senior Credit Facilities. The Indenture for
the Notes contains covenants that, among other things, limit our ability to make
additional borrowings; notwithstanding such limitation, we are permitted under
the Indenture to incur additional borrowings available under the Senior Credit
Facilities, to refinance existing indebtedness, to incur certain transactional
indebtedness and to incur up to an additional $10.0 million of indebtedness
outstanding at any time above the additional borrowings otherwise permitted.
17
<PAGE> 18
We need liquidity primarily for the following reasons:
- To make required principal and interest payments on debt outstanding
under the Senior Credit Facilities and the Notes;
- Working capital;
- Product development such as sample books and design and engraving; and
- Capital expenditures.
In the past, we met our liquidity needs by relying on cash flow from
operations. Imperial, in contrast, depended on money it borrowed under the
credit facilities and advances from its previous owner. During the period from
March 13, 1998 through March 27, 1999, we met our liquidity needs by borrowing
under the Senior Credit Facilities and by the issuance of the Notes. As of March
27, 1999, our consolidated indebtedness was $393.3 million consisting of:
- $225.0 million in Term Loans;
- $43.3 million under the Revolving Credit Facility; and
- $125.0 million of the Notes.
Our capital expenditures for three months ended March 27, 1999 totaled
$3.6 million. We estimate that the Company's capital expenditures for 1999 will
be approximately $24.0 million. This will be used primarily to continue to carry
out the Integration Plan, increase the Imperial Gallery program and maintain our
facilities. We revised our capital expenditure plan for 1999 in light of current
market conditions and the progress already made on the Integration Plan. Our
ability to make capital expenditures is subject to some restrictions in the
Senior Credit Facilities and the Indenture.
Our main sources of cash to meet our liquidity needs will be net cash
from operating activities and funds borrowed under the Revolving Credit
Facility. As of March 27, 1999, the Revolving Credit Facility would have
provided $30.6 million of additional funds. The Company's ability to draw on the
Revolving Credit Facility is subject to certain customary conditions. The funds
available under the Revolving Credit Facility may be used for working capital
and general corporate purposes, subject to certain limitations under the Senior
Credit Facilities. We believe that these sources of cash will be sufficient to
meet our current and foreseeable future financial obligations, assuming we
successfully carry out the Integration Plan and continue at current levels of
operations. The Company's future operating performance and ability to meet its
obligations under or refinance the Notes and to borrow and to repay, extend or
refinance borrowings and maintain compliance of its financial covenants under
the Senior Credit Facilities depends on many factors beyond the Company's
control. These factors may include future economic and competitive conditions
and financial, business and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1999, the Company adopted SOP 98-1, Accounting for the Costs of
Computer Software Developed for or Obtained for Internal Use. The SOP requires
the capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. Prior to the
adoption of the SOP, the Company capitalized certain external costs and expensed
all other costs as incurred.
YEAR 2000 COMPLIANCE
Many existing computer programs in use throughout the world identify the
year and perform time calculations based on only the last two digits of the
year. These programs could fail or create errors before or at the Year 2000 if
not corrected. This "Year 2000" issue is believed to affect almost all companies
and organizations, including us.
We rely on a significant number of computer programs and computer
technology for our key operations, including:
18
<PAGE> 19
- Product design;
- Sales order processing;
- Manufacturing;
- Inventory management;
- Distribution;
- Finance; and
- Various administrative functions.
Our sales order processing and production planning systems generally use
proprietary applications. In contrast, we use third party applications for our
manufacturing, finance and other administrative functions.
We have been carrying out a comprehensive study of all of our computer
systems to identify Year 2000 compliance and other operating issues. This
includes programs developed internally and software purchased from outside
vendors. As part of our Integration Plan, we selected the computer systems
utilized by Sunworthy, (the wallcoverings business formerly owned by Borden) for
our critical business functions. We are currently in the process of converting
our primary computer systems to those used by Sunworthy, which we believe are
Year 2000 compliant based on our testing procedures performed. The conversion of
the Company's computer systems is on schedule and should be completed for the
U.K. operations and for Vernon Plastics by the end of the third quarter of 1999
and for the North American operations by the end of the fourth quarter of 1999.
We do not expect any material costs for software purchases related to this
conversion.
We also conducted a comprehensive Year 2000 study of our other computer
systems and technologies. This study identified Year 2000 issues as well as
strategies for addressing those that affect third-party software or equipment
applications and processing and manufacturing systems. We have also contacted
third-party providers and have sought appropriate representations that Year 2000
issues associated with the software they provide to us have been addressed on
time. Costs incurred through March 27, 1999 related to the systems conversion as
discussed above amounted to approximately $2.0 million including hardware and
software for systems integration projects which would have occurred
notwithstanding the Year 2000 issues. We estimate future costs of resolving
Year 2000 issues of approximately $.7 million, including costs incurred to
enhance functionality and increase capacity for our business systems.
We are implementing our own Year 2000 compliance program as described
above. However, our inability or the inability of our material suppliers and
customers to find and put into place solutions to their respective Year 2000
issues on time and on a cost effective basis could have a material adverse
effect on us. We are in the process of developing formal contingency plans for
dealing with the Year 2000 issue.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are subject to a number of risks and uncertainties, many of which are beyond our
control. These risks and uncertainties include:
- The risk that the integration Plan may not be fully implemented;
- Competitive factors and pricing pressures;
- General economic conditions in the U.S. and abroad;
- Market demand for home decorating products;
- Impact of present and future laws;
19
<PAGE> 20
- Adverse changes in governmental rules or policies;
- Availability of financing or equity investments to fund operations or
capital expenditures; and
- Fluctuations in raw materials prices and availability of supply.
For further discussions of risks and uncertainties, see Item 7 under the heading
"Risk Factors" in the Company's Annual Report on Form 10-K for the year ended
December 26, 1998. All statements other than statements of historical facts
included in this Report, including the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations - - General,"
"- -Liquidity and Capital Resources," and "- -Year 2000 Compliance" and located
elsewhere in this report regarding the Company's financial position, and any
statements regarding other future events or future prospects of the Company are
forward-looking statements. When used in this report, the words "believe,"
"anticipate," "intend," "estimate," "expect," "project" and similar expressions
are intended to identify forward-looking statements, although not all
forward-looking statements contain such words. These undertaking any obligation
to update or revise publicly any forward-looking statements, whether as a result
of new information, future events or otherwise. Although management believes
that the expectations reflected in these forward-looking statements are
reasonable, it can give no assurance that these expectations will prove to be
corrector that savings or other benefits anticipated in the forward-looking
statements will be achieved. Holders of the Company's securities are cautioned
not to place undue reliance on these forward-looking statements. All subsequent
written and oral forward-looking statements attributable to the Company or
person acting on its behalf are expressly qualified in their entirety by the
cautionary statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- None
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
- None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- None
ITEM 5. OTHER INFORMATION.
- None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- None
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- None
20
<PAGE> 21
SIGNATURES
THE IMPERIAL HOME DECOR GROUP INC.
Date: By: /s/Scott R. Levin
----------------------------------
Scott R. Levin
Executive Vice President--Administration and
Chief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-27-1999
<EXCHANGE-RATE> 1
<CASH> 1,806
<SECURITIES> 0
<RECEIVABLES> 110,064
<ALLOWANCES> 4,268
<INVENTORY> 106,058
<CURRENT-ASSETS> 220,784
<PP&E> 177,977
<DEPRECIATION> (63,716)
<TOTAL-ASSETS> 410,738
<CURRENT-LIABILITIES> 172,509
<BONDS> 393,312
0
0
<COMMON> 59
<OTHER-SE> (128,079)
<TOTAL-LIABILITY-AND-EQUITY> 410,738
<SALES> 106,371
<TOTAL-REVENUES> 106,371
<CGS> 65,096
<TOTAL-COSTS> 65,096
<OTHER-EXPENSES> 42,855
<LOSS-PROVISION> 493
<INTEREST-EXPENSE> 9,585
<INCOME-PRETAX> (11,165)
<INCOME-TAX> (763)
<INCOME-CONTINUING> (11,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,402)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
