UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-22138
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Triangle Pacific Corp.
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(Exact name of registrant as specified in its charter)
Delaware 94-2998971
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
16803 Dallas Parkway, Dallas, Texas 75248
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 887-2000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.01 per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 1, 1997, the aggregate market value of the registrant's common
stock held by non-affiliates was $402,239,546.
The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share, as of March 1, 1997: Common Stock - 14,712,083 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates certain information by reference
from the registrant's Proxy Statement to be issued in connection with its
Annual Meeting of Shareholders to be held May 7, 1997.
<PAGE>
PART I
Item 1. Business
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The Company is a Delaware corporation organized in February 1986 for the
purpose of acquiring Triangle Pacific Corp., a New York corporation ("Old
Triangle"), in a leveraged buyout transaction completed in May 1986. In
September 1988, TPC Holding Corp. ("Holding") acquired the Company in a second
leveraged buyout transaction pursuant to which the Company became a wholly-
owned subsidiary of Holding.
On June 8, 1992, the Company successfully completed a capital
restructuring (the "1992 Restructuring") pursuant to which substantially all
of the Company's outstanding long-term indebtedness, redeemable preferred
stock and common stock were exchanged for new debt with lower interest rates
and new common stock.
The Company filed two registration statements with the Securities and
Exchange Commission in 1993 and sold to the public 7,939,750 shares of the
Company's Common Stock and $160 million aggregate principal amount of
10-1/2% Senior Notes due 2003 (collectively, "the Offerings"). The net
proceeds of the Offerings together with borrowings under a new $90 million
credit facility were used (i) to repay the entire unpaid balance under the
Company's previously-existing senior debt financing agreements, redeem certain
previously outstanding debentures and pay related accrued interest, for a
total of approximately $227 million, and (ii) for working capital and general
corporate purposes.
The Company's operations are conducted through a single business segment
which consists of the manufacture and distribution of building products. The
Company, through its Flooring Division, produces and sells hardwood flooring
and other flooring and related products and, through its Cabinet Division,
manufactures and distributes kitchen and bathroom cabinets. The Company's
products are used primarily in residential new construction and remodeling.
The Company's products are also used for commercial applications such as
retail stores and restaurants. The Company's business is seasonal, with
demand for its products generally highest between April and November.
Presented below is a summary of sales results for each of the fiscal years
1991 through 1996.
1996 1995 1994 1993 1992 1991
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(in millions)
Net Sales:
Flooring Division $ 336.4 $ 261.8 $ 244.0 $ 202.0 $ 152.9 $ 117.2
Cabinet Division* 197.9 197.1 166.2 144.3 139.9 138.9
------ ------ ------ ------ ------ ------
Total Net Sales $ 534.3 $ 458.9 $ 410.2 $ 346.3 $ 292.8 $ 256.1
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*In 1996, Building Products financal results were combined with those of
the Cabinet Division. All previous years have been restated to reflect this
change.
Bruce, Premier, Coastal Woodlands, Crystalguard, Expressions, Flexform,
Herringstrip, Jewels Of Nature, Kennedale, Kingsford, Natural Reflections,
Pattern Plus,Plantation, Somerset, Traffic Zone, Wearmaster, Aspen, Hampton,
Quadric, Tiara, Tudor and Vantage are Trademarks or Registered Trademarks of
Triangle Pacific Corp.
<PAGE>
Flooring Division
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The Company's Flooring Division is the largest and best known manufacturer
of hardwood flooring in the world. The Company produces a complete line of
hardwood flooring products and believes that it is generally recognized for
its superior quality and service. The Company offers four distinct brand
names; Bruce, Hartco, Premier and Traffic Zone.
Industry Overview
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Hardwood flooring competes primarily with carpet, vinyl, tile and high
pressure laminate flooring in the floorcovering market. The Company believes
that the principal competitive factors in the floorcovering market are
aesthetic appeal, price, durability and ease of installation and maintenance.
Sales of hardwood flooring in the United States are growing at a rate of
8% per year, more than twice as fast as the entire floorcovering industry as a
whole. The Company believes that the growth of hardwood flooring sales is due
to increased consumer preference for the aesthetic appeal of hardwood flooring
and technological advances in the production, installation and maintenance of
hardwood flooring, which allows wood flooring to compete favorably in total
cost with other flooring products.
Products and Product Development
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The Company offers approximately 1200 varieties of hardwood flooring and
related products in a multitude of wood species, grades, sizes, styles and
finishes. The Company's hardwood flooring products are generally available in
various widths and lengths and are differentiated in terms of quality and
price based primarily on whether the product is finished or unfinished and on
the grade of the raw materials used to produce the product.
The Company has been a leader in developing a wide variety of new flooring
products, including (i) 5/16" thick solid parquet flooring, (ii) 3/8" thick
laminated flooring, (iii) 3/8" thick laminated, square-edge, pre-finished
flooring, (iv) 3/8" thick acrylic-impregnated flooring for commercial
applications (all of the above for glue-down installation), (v) 3/4" thick
square-edge, pre-finished flooring and (vi) most recently, 5/16" thick solid
strip flooring. The Company believes that new product development has enabled
it to increase its sales and has contributed to the overall growth of hardwood
flooring since the mid-1970s. The Company's product innovations have made
hardwood flooring a viable alternative for a variety of floorcovering
applications.
The Company has been instrumental in the development of thinner hardwood
flooring products which can be glued to the concrete slab foundations
increasingly used in new home construction. Installation of 3/4" thick
hardwood flooring over concrete slabs requires the construction of a false
floor above the slab to which the hardwood flooring can be nailed, thereby
increasing installation time and expense. The Company has developed 5/16"
thick flooring products, which can be glued to wood or concrete slab
foundations, eliminating the need for a false floor. The development of 3/8"
thick laminated flooring (consisting of multiple layers of oak veneer, glued
and pressed together), which can be glued to a wood or concrete sub-floor,
further expanded the uses for hardwood flooring. The dimensional stability of
laminated flooring permits its installation in kitchens and basements where
the presence of moisture had previously rendered hardwood flooring
impractical.
In 1995, the Company introduced Natural Reflections, a 5/16" thick solid
oak pre-finished strip. This was developed as an alternative to the
traditional 3/4" thick unfinished strip that is the primary commodity product
of the hardwood flooring industry. This thinner strip offers many benefits.
It approximately doubles the yield of product from raw material, saving
resources by using fewer trees in the manufacturing process. Because it
<PAGE>
contains less than half the wood in a traditional 3/4" thick strip, it is less
expensive to make, less expensive to ship, and easier and faster to install.
Also in 1995, the Company introduced a new product group, high pressure
laminate flooring. This product, which is called Traffic Zone, features a
CrystalGuard melamine wear-layer surface over a high-density fiberboard core.
It offers superior wear characteristics in a variety of overlays that simulate
fine wood finishes as well as marble, granite, and other materials. Traffic
Zone is designed for consumers who want highly durable, easy-care, hard
surface floorcovering as an alternative to sheet vinyl, vinyl tile and carpet.
In addition to a residential product line of 24 styles and colors, the Company
also offers a commercial-grade version called Traffic Zone Elite, which
provides even greater durability for high-traffic areas.
One of the benefits of the Hartco acquisition (see below) was a
sophisticated research and development center in Oneida, Tennessee, where the
Company has consolidated the Flooring Division's R & D efforts. The Company
believes this facility will further enhance its ability to stay on the leading
edge of product, manufacturing and engineering technology.
Manufacturing
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The Company manufactures its 3/4" thick solid oak hardwood flooring
products at its plants in Nashville and Jackson, Tennessee, Beverly, West
Virginia, West Plains, Missouri and Oneida, Tennessee. The Beverly, West
Virginia plant also produces 5/16" thick solid strip prefinished flooring.
The Company manufactures its 3/8" thick laminated hardwood flooring products
at its plants in Center, Texas, Port Gibson, Mississippi, Statesville, North
Carolina and Somerset, Kentucky. The Center plant produces sufficient 1/8"
thick oak veneer to supply approximately one-half of its veneer requirements.
The Port Gibson, Mississippi plant supplies most of the remainder of the
Center plant's veneer requirements and a portion of the veneer requirements
for the Statesville plant for the production of 3/8" thick laminated products.
The Company manufactures its 5/16" thick solid parquet products at its plants
in Jackson and Oneida, Tennessee in addition to its production of 3/4" thick
product.
The Company's continuous advances in the area of technology and
manufacturing are the basis for its ability to improve yields from raw
material and make products that are more appealing to consumers, easier to
install, and more cost competitive. This year again, the Company made even
greater improvements in labor efficiency and productivity as it sought ways to
counter the difficult economic and market conditions.
The 1994 expansion of its Beverly, West Virginia, and Port Gibson,
Mississippi, plants gave the Company additional manufacturing capacity, along
with the acquisition of Premier Wood Floors in Statesville, North Carolina.
Following the acquisition, the Company improved productivity in Premier's
operations and broadened the Premier product line to include 3/4" thick solid
strip and 5/16" thick solid parquet. Further efficiencies were achieved at
all plants.
In 1996, the Company acquired Hartco Flooring Company. This acquisition
added manufacturing capacity to the Company without incurring larger capital
expenditures required for new construction.
<PAGE>
The following table sets forth certain information concerning the
manufacturing facilities operated by the Flooring Division.
Owned/
Location Leased Product
- -------- ------ ------------------------
Nashville, TN Owned 3/4" thick strip and plank;
pre-finished, unfinished
West Plains, MO Owned 3/4" thick strip; pre-finished,
unfinished
Beverly, WV (1) Leased 5/16" thick solid strip;
pre-finished
and 3/4" thick strip;
pre-finished, unfinished
Jackson, TN (2) Owned 5/16" thick solid parquet;
pre-finished, unfinished
3/4" thick strip; unfinished
Center, TX (3) Owned 3/8" thick laminated strip,
plank and parquet; pre-finished,
unfinished
Port Gibson, MS (3) Owned 3/8" thick laminated strip,
plank and parquet; pre-finished,
unfinished
Statesville, NC Owned 3/8" thick laminated strip,
plank, pre-finished, unfinished
Oneida, TN Owned 5/16" thick solid parquet;
pre-finished, unfinished
3/4" thick strip; unfinished
Somerset, KY Owned 3/8" thick laminated strip,
plank, pre-finished, unfinished
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(1) During 1995, the operating lease agreement was amended to allow for a
purchase option of $1 until 2018. The Company recorded the present
value of the remaining future minimum lease payments as a capitalized
lease asset and related capitalized lease obligation.
(2) The Jackson plant also manufactures kitchen cabinet front frame parts
used by the Cabinet Division in cabinet production. See "- Cabinet
Division - Manufacturing" below.
(3) The Center and Port Gibson plants also produce 1/8" thick veneer,
which is used in the manufacture of 3/8" thick laminated products at
these plants and at the Statesville, N.C. plant.
Raw materials for the hardwood flooring products produced at the
Nashville, Jackson, Beverly, West Plains, Oneida and Somerset plants consist
primarily of rough cut oak lumber. Each plant obtains lumber from local
independent sawmill operators, purchasing entire truckloads of ungraded, mixed
specie lumber. The Company maintains an inventory of purchased lumber which
is sufficient for approximately three to four months of operations. The
quality and efficiency of lumber purchasing and grading operations are
important determinants of manufacturing yields and productivity.
Purchased lumber is stacked for drying in the open air for 90 to 120 days,
and then placed in dry kilns for approximately five to seven days to reduce
moisture content. Where necessary, the Company operates pre-drying kilns,
which shorten the required open-air drying time. The Company's drying
processes are another important determinant of satisfactory product yields.
Following drying, the flooring-grade lumber is cut into various sizes of
strip, plank and parquet flooring. The products are then sanded and, in most
<PAGE>
cases, beveled. A majority of the Company's products are pre-finished with a
urethane or combination stain and wax finish. Pre-finished products are more
durable and do not require a time-consuming sanding and finishing process at
the installation site. The Company also treats a portion of its 3/8" thick
laminated product with an acrylic impregnating process to produce its Wear
Master line of commercial flooring. Hartco produces Pattern Plus, an acrylic-
impregnated engineered product at its Oneida plant. The Statesville, N.C.
plant purchases veneer from outside sources and also obtains veneer from the
Port Gibson plant, which is converted into laminated products.
Raw materials for the laminated hardwood flooring products manufactured at
the Company's plants in Center, Texas and Port Gibson, Mississippi consist of
oak logs which are purchased primarily from independent loggers located within
about 100 miles of the respective plants. Purchased logs are stored in
soaking ponds until needed, and then debarked, soaked in hot water or steamed,
cut into five-foot lengths, loaded into a lathe, and peeled to produce sheets
of thin oak veneer. Layers of veneer are then pressed into plywood which is
cut into strip, plank and parquet hardwood flooring and pre-finished. The
Company employs advanced veneer manufacturing processes which substantially
increase material yields, thereby reducing costs. The total conversion time
for laminated products, from log to finished product, is approximately one
week.
Sales
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The Flooring Division sells its products to independent wholesale
floorcovering distributors located throughout the United States and a number
of other countries. Most distributors handle a diverse line of floorcovering
products in addition to hardwood flooring. The Company's distributors sell
their products to retail floorcovering dealers, installation contractors,
builders, remodelers and retail home center stores. The Company believes that
new home construction and remodeling account for approximately 40% and 60%,
respectively, of its hardwood flooring sales.
The Bruce trademark is a valuable asset because of its significant brand
name recognition. Based on independent surveys, the Company believes that the
Bruce name is one of the best recognized consumer brand names of any
floorcovering product. Sales and marketing efforts for Bruce flooring are
designed to heighten Bruce's brand name recognition among end users. The
Company advertises its Bruce flooring products in national and regional
publications including House Beautiful, Better Homes and Gardens, Sunset,
Southern Living and others.
The addition of Hartco's distributors in 1996 expanded our overall
presence in the marketplace. This expanded access to the market is
strengthened by our ability to offer four distinct brands - Bruce, Hartco,
Premier and Traffic Zone.
The Company has developed Bruce product displays, more than 55,000 of
which have been placed in floorcovering dealer showrooms across the U.S.
Additionally, Hartco, Premier and Traffic Zone have placed more than 1,800,
3,200, and 4,500 displays, respectively, in floor covering dealer showrooms.
These product displays are available in a variety of sizes designed to
accommodate the varying floor spaces available in dealer showrooms. The
Company has also developed marketing programs specifically tailored to retail
home center stores and commercial users and has developed displays to
demonstrate the ease of do-it-yourself installation of hardwood floors. The
do-it-yourself installation displays have been placed in floorcovering
retailers, lumber yards, home centers and other do-it-yourself specialty
stores. Management believes that both the product displays and the do-it-
yourself installation displays are important sales promotion devices.
The Company operates a Flooring Division training facility at its
Nashville plant to give its Bruce, Hartco, Premier and Traffic Zone
floorcovering distributors, dealers and contractors, training in the sale,
installation and maintenance of hardwood and high pressure laminate floors.
Providing this training results in better educated resellers and installers,
which the Company believes should enhance their ability to sell more Bruce
products and improve consumer satisfaction with the installed products.
<PAGE>
The Flooring Division currently has salespersons who are assigned
geographical sales territories. In addition to making direct sales to
independent distributors, the sales force assists distributors in broadening
their market penetration by making joint sales calls on dealers, conducting
installation training for distributors and their customers, and advising on
the use of advertising and special product promotions. Salespersons earn
bonuses, in addition to their salaries, based on volume and sales mix.
Competition
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While the Flooring Division is currently the largest manufacturer of
hardwood flooring in the world, it is a small part of the highly competitive
floor-covering market. The floor-covering market includes companies which are
substantially larger in sales and financial resources then the Company.
Also,the domestic floor-covering industry is facing greater competition from
imported flooring products.
The floorcovering industry, which includes carpet, sheet vinyl, vinyl
tile, hardwood, high pressure laminate, and ceramic tile, is highly
competitive. The principal competitive factors in floorcovering are aesthetic
appeal, price, durability and ease of installation and maintenance. Hardwood
flooring is generally more durable than other floorcoverings. Thus, although
the average selling price of hardwood flooring is higher than that of the
selling price of most other floorcoverings, the Company believes that the
overall cost is competitive after taking into account average product life,
maintenance expenses and removal and replacement costs.
The Company believes it competes favorably based on the high quality of
the Company's products and the additional product support services offered by
the Company and on the Company's network of independent distributors, its
production of a complete line of hardwood flooring products, its innovative
product development and manufacturing technology, and its well-known brand
names and trademarks.
Cabinet Division
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Industry Overview
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The Company estimates that new construction accounts for approximately
one-third of the total cabinet industry sales with remodeling generating the
remaining two-thirds. Residential new construction activity is more cyclical
than remodeling activity, which has historically been relatively stable.
Cabinet manufacturing is a highly fragmented industry with competitors of
widely varying production capacities, distribution capabilities and financial
resources. In recent years, contraction in the industry has resulted in
smaller competitors leaving the market and more aggressive cost controls and
marketing programs being implemented by the remaining participants. The
Kitchen Cabinet Manufacturing Association estimates that there are 8,000
manufacturers of kitchen and bathroom cabinets competing for approximately 50%
of the total cabinet market. The balance of the market is supplied by trim
carpenters and job-site cabinet makers. The market is dependent on new home
construction and remodeling activity.
The entire cabinet manufacturing industry is characterized by substantial
excess capacity. In the late 1970's, new construction expanded to meet the
demands of more than two million housing starts annually, plus remodeling.
Price competition is severe, due principally to the excess industry capacity.
Products and Product Development
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The Company manufactures kitchen and bathroom cabinets in approximately
100 different styles and colors. The Company continues to develop new product
styles. While the styles of the Company's cabinets vary from other
manufacturers' brands, kitchen and bathroom cabinet construction is
fundamentally the same throughout the industry. Differences in the price and
<PAGE>
quality of the Company's cabinets result from variations in basic materials
(e.g., solid oak, plywood, particleboard or fiberboard doors), the type and
quality of exterior and interior finish, the quality of the hardware and other
features such as adjustable shelves and interior storage aids.
During the latter part of 1994 and throughout 1995, the Company revamped
its product line to improve marketability and mix of offerings. Among the
many innovations that have emerged from this effort is a new line called
Coronet, which is made of Plantation hardwood from Malaysia. Months of
testing and research preceded the use of this new raw material, which produces
an end product of the same durability and styling as other woods, but which
can be sold at a lower price point. The Company also completed the
introduction of the Vantage Collection of melamine laminate products, aimed
primarily at the multi-family housing market. With 24 product choices and
five different price points, the Vantage Collection offers builders a wide
variety of styles and prices. In its continuing effort to offer more value to
builders and end-users, the Company introduced the Aspen Collection, a line of
thermofoil-process products which feature high-quality vinyl laminates applied
to fiberboard. Through innovative manufacturing techniques, the Company was
able to produce a lower-priced version of this popular line, available in
maple and white finishes, for the townhouse and single-family housing market.
In 1996, the Company introduced Quadric. Unlike most thermofoil cabinets,
Quadric features truly square corners in both doors and drawer fronts,
achieved by extra steps in milling that duplicate the look of fine custom
cabinetry at very competitive prices. Also introduced in 1996 were four new
door styles: Tiara, Tiara Arched, Tudor and Tudor Arched.
Manufacturing
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The Company operates seven cabinet manufacturing plants, generally located
within 500 miles of most major population centers in the United States. These
regional plants enable the Company to compete with local and regional
manufacturers on the basis of the cost of freight, speed of delivery and
service to customers.
The following table sets forth certain information concerning the
Company's cabinet manufacturing facilities:
Owned/
Location Leased Product
- -------- ------ --------------------
Auburn, NE Owned Kitchen and bathroom
cabinets
Jefferson City, TN Owned Kitchen and bathroom
frameless cabinets
McKinney, TX Owned Kitchen and bathroom
cabinets
Morristown, TN (1) Owned Kitchen and bathroom
cabinets
Morristown, TN Owned Kitchen and bathroom
cabinets
Thompsontown, PA Owned Kitchen and bathroom
cabinets
Union City, IN Owned Kitchen and bathroom
cabinets
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(1) This plant also produces finished end panels for certain other
cabinet plants.
<PAGE>
The plants are primarily cabinet assembly operations. The plant
inventories consist of raw materials, component parts and a limited amount of
work-in-process. Raw materials utilized by the plants consist of sheet stock
of plywood, particleboard or fiberboard, and component parts consist of
dimension parts (front frame parts, doors and drawer fronts), finished end
panels, finishing materials and hardware. In the cabinet assembly operations,
front frame parts, doors and drawer fronts are sanded smooth and color stained
and finished. Then, end panels, tops, bottoms and shelves are glued and
stapled to the front frames, drawers are assembled to drawer fronts and
hardware is attached. The completed cabinet is inspected, packed and staged
for shipment.
Sheet stock is a commodity product purchased from a variety of suppliers.
The Company obtains its dimension parts, consisting of front frame parts,
primarily from its manufacturing facility located at the hardwood flooring
plant in Jackson, Tennessee. See "- Flooring Division - Manufacturing" above.
The Company discontinued the production of cabinet doors and drawer fronts at
its Jackson dimension plant at the end of February, 1997. The Company
manufacturers finished end panels at its Morristown, Tennessee cabinet plants.
Finishing materials and hardware are purchased from several suppliers.
The Cabinet Division is not dependent on any single supplier for any of
its raw materials or component parts, other than the Jackson front frame parts
plant. The Company believes its sources of supply are adequate to meet its
needs. Imports from foreign suppliers, which account for less than ten
percent of the Company's cabinet materials, consist of wood veneer, laminated
veneer door panels and certain hardware items. While the Company maintains
insurance coverage on all of its properties, including the Jackson dimension
parts plant, the loss of that plant could have an adverse effect on the
Company's operations. See "- Properties" below.
Sales and Marketing
- -------------------
The Company distributes its cabinets directly from the factories and also
through Company-operated distribution centers in major markets across the
country. These centers, which cater largely to builders and remodeling
contractors, generate more than 50% of the Cabinet Division's total sales.
The Company-operated distribution centers are also used to support sales
to major builders and retail home centers by providing prompt replacements for
lost or damaged cabinets and delivery and storage for truckload quantities of
cabinets pending staged deliveries to job sites. The Company believes that its
distribution centers are an important factor in maintaining and increasing its
sales, and intends to open additional distribution centers in new geographic
markets as conditions warrant.
The Company provides personal computer software for use primarily by
retail home center stores to create complete kitchen floor plans, including
elevations and product specification lists, with related prices, based on room
measurements provided by customers. Management believes this software package
to be a significant sales aid.
The Cabinet Division has one of the largest sales forces in the cabinet
industry, currently employing approximately 225 salespersons. The sales force
makes direct sales and service calls on builders, independent distributors and
retail home center stores, and offers kitchen design, cabinet installation and
cabinet display and marketing advice to retail home center stores and
independent distributors. Most sales personnel are affiliated with one of the
Company's distribution centers and are responsible for sales to all customers
within their sales area including sales of cabinets directly by the plant.
The Cabinet Division maintains a competitive salary base and provides
performance incentives by compensating its sales force with bonuses tied to
volume and profitability.
Competition
- -----------
The Company is one of the largest manufacturers of kitchen and bathroom
cabinets in the U.S.
<PAGE>
The cabinet industry is a mature, highly competitive, regionalized and
highly fragmented industry with thousands of cabinet makers competing
primarily on a local basis. There is a relatively high manual labor content
in cabinet products. Because of the low capital requirements for cabinet
assembly, it is relatively easy and inexpensive for small cabinet makers to
enter the industry as manufacturing competitors. In addition, high
transportation costs limit the area to which a manufacturer can ship cabinets
and still remain competitive. This has led the Company, and more recently,
some of its larger competitors, to open regional manufacturing plants and
distribution centers. The Company's seven regional manufacturing plants and
48 Company-operated distribution centers are important factors in the
Company's ability to maintain cost and price competitiveness with local and
regional manufacturers.
Due to significant excess manufacturing capacity, the cabinet industry has
been subject to severe price competition. Other competitive factors include
quality of product, production capacity and speed of delivery. The Company
believes it competes favorably because of its breadth and quality of product
offerings, and its production capacity, regional manufacturing facilities,
national sales force and distribution capabilities.
Building Products Division
- --------------------------
As of January 1996, the Company elected to discontinue the sale of lumber,
which had remained a low-profit item, and to consolidate the building products
division into the Cabinet Division. Beginning with the first quarter of 1996,
the financial results of this operation has been combined with those of the
Cabinet Division. The Beltsville facility will continue to be a cabinet
distribution warehouse and showroom.
Backlog
- -------
The Company generally sells its flooring products from inventories on
hand. The Company produces its cabinets primarily in response to firm orders
and, to a lesser extent, to maintain a working inventory at distribution
centers operated by the Company. The Company generally ships its cabinets
within a short time (e.g., one week) after receipt of an order. Accordingly,
the dollar amount of backlog orders believed to be firm is not significant or
indicative of the Company's future sales and earnings.
Employees
- ---------
As of January 3, 1997, the Company employed approximately 4,967 persons,
of which 3,340 were employed by the Flooring Division, 1,568 by the Cabinet
Division, and the remainder in the Company's headquarters and other
operations. The Company has entered into collective bargaining agreements
with hourly employees at four of its nine hardwood flooring plants, and three
of its six cabinet plants covering in the aggregate approximately 1,998
employees. Management considers its employee relations to be satisfactory.
Environmental Matters
- ---------------------
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for certain of the Company's operations, and these permits are
subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violations may result in the payment of fines or the entry of
injunctions, or both. The Company does not believe it will be required under
existing environmental laws and enforcement policies to expend amounts which
will have a material adverse effect on its results of operations or financial
condition. However, the requirements of such laws and enforcement policies
have generally become stricter in recent years. Accordingly, the Company is
<PAGE>
unable to predict the ultimate cost of compliance with environmental laws and
enforcement policies.
ITEM 2. PROPERTIES
The Company's principal manufacturing facilities are described under "-
Flooring Division - Manufacturing" and "- Cabinet Division - Manufacturing"
above. Management believes that the Company's plants and properties are
generally well-maintained and in good operating condition.
The Company maintains blanket property insurance coverage on all its
properties with aggregate limits of $100 million. The Company is also insured
for losses arising from loss of inventory, business interruption and certain
extra expense.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
Set forth below as of March 1, 1997 are the names, ages and principal
occupations of the executive officers of the Company, as well as certain other
information concerning their business experience.
Name and Positions held Principal Occupation
with the Company and Other Information
----------------------- ---------------------
Floyd F. Sherman Mr. Sherman has served as Chairman
Chairman of the Board of of the Board and Chief Executive
Directors, and Chief Officer since July, 1992. Prior to
Executive Officer November, 1994 he served as
President of the Company since 1981.
Prior to 1981, he served as
Executive Vice President of the
Company. Mr. Sherman is 57 years
old and became a director of the
Company in 1982.
M. Joseph McHugh Mr. McHugh has served as President
Director, President and Chief Operating Officer of the
and Chief Operating Company since November, 1994.
Officer Prior thereto, he served as Senior
Executive Vice President and
Treasurer of the Company since 1981.
Prior to 1981, he served as
Executive Vice President of the
Company. He became a director of
the Company in 1986. Mr. McHugh is
also a director of Pillowtex
Corporation. He is 59 years old.
Robert J. Symon Mr. Symon has served as Executive
Executive Vice President, Vice President, Treasurer and
Treasurer and Chief Chief Financial Officer of the
Financial Officer Company since November, 1994. Prior
thereto, he served as Vice President
- Controller of the Company since
1978. Mr. Symon is 65 years old and
served as a director of the Company
from December 1988 to June 1992.
Darryl T. Marchand Mr. Marchand has served as Vice
Vice President, Secretary President, Secretary and General
and General Counsel Counsel of the Company since 1986.
Prior thereto, he served as Vice
President - Legal of the Company
from 1981 to 1986 and as Treasurer
from February to August, 1981. Mr.
Marchand is 54 years old.
Charles A. Engle Mr. Engle has served as President of
Vice President the Cabinet Division since January,
1996. Prior thereto, he served as Vice
President of the Company since 1979.
Mr. Engle is 53 years old.
John W. Esch Mr. Esch has served as a Vice
Vice President President of the Company since
November, 1994. He has been a
division Controller of the Cabinet
Division since 1977. Mr. Esch is
52 years old.
<PAGE>
James T. Fidler Mr. Fidler has served as a Vice
Vice President President of the Company since 1981.
He has been Vice President-Operations
since August, 1995. Prior thereto, he
was Director-Management Information
Operations for the Company. Mr. Fidler
is 54 years old.
Michael J. Kearins Mr. Kearins has served as a Vice
Vice President President of the Company since 1985.
He had been a divisional Vice
President of sales of the Bruce
Hardwood Floors Division from
December, 1983 to May, 1985. He is
primarily responsible for sales and
marketing in the Bruce Hardwood
Floors Division. Prior to 1983, he
had been a Regional Sales Manager of
the Company. Mr. Kearins is 50
years old.
E. Dwain Plaster Mr. Plaster has served as a Vice
Vice President President of the Company since
November, 1994. He has been a
divisional Controller of the Bruce
Hardwood Floors Division since 1977.
Mr. Plaster is 47 years old.
James E. Price Mr. Price has served as a Vice
Vice President President of the Company since
November, 1994. He has been Vice
President of manufacturing of the
Bruce Hardwood Floors Division since
March, 1993. Prior thereto, he was
General Manager of that division
since 1984. He had been a Plant
Manager of the Company since 1979.
Mr. Price is 54 years old.
Allen Silver Mr. Silver has served as a Vice
Vice President President of the Company since 1985.
Prior to that time he had been a
divisional Vice President of
manufacturing of the Cabinet
Division. Mr. Silver is 57 years
old.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A) Price range of common stock
The following table shows the range of market prices for the common stock
on the NASDAQ National Market System for each quarter during the past two
fiscal years.
Market Price
1995 High Low
---- ------ ------
First Quarter 14 11-7/8
Second Quarter 17-3/8 12-7/8
Third Quarter 19-1/8 14-5/8
Fourth Quarter 18-3/4 15-1/4
1996
----
First Quarter 18-1/8 15-3/4
Second Quarter 21-3/8 16-3/8
Third Quarter 22-3/4 19
Fourth Quarter 24-7/8 19-3/4
B) Approximate number of equity security holders (As of January
3, 1997)
Class of Security Number of Record Holders
----------------- ------------------------
Common Stock ($.01 par value) 4,100
C) Dividend Policy
The Company has not declared or paid any dividends on its Common Stock.
Management currently intends to retain future earnings for the operation and
expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. The payment of cash dividends is
restricted under the terms of the bank credit facility and the indenture
relating to the Company's 10 1/2% Senior Notes due 2003.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
The selected consolidated financial data of the Company presented
below for the five fiscal years ended January 3, 1997 was derived from
the consolidated financial statements of the Company and should be read
in conjunction with the consolidated financial statements and related
notes included herein.
<TABLE>
Fiscal Fiscal Fiscal Fiscal Seven Five
year year year year months months
ended ended ended ended ended ended
INCOME Jan. Dec. Dec. Dec. Jan. June
STATEMENT 3, 29, 30, 31, 1, 8,
DATA 1997 1995 1994 1993 1993 1992(1)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $534,261 $458,868 $410,159 $346,296 $173,426 $119,417
Cost of sales 402,759 342,348 300,160 269,360 137,413 90,991
----------------------------------------------------------
Gross profit 131,502 116,520 109,999 76,936 36,013 28,426
Selling,
general and
admin-
istrative 68,611 60,841 57,928 44,213 27,179 19,404
Gain on
insurance
settlement - - - - (1,350) (3,624)
Amortization
of goodwill 1,739 1,520 1,520 1,613 884 1,863
Interest 19,719 18,380 18,920 19,406 11,289 25,786
----------------------------------------------------------
Income (loss)
before income
taxes and
extra-
ordinary
items 41,433 35,779 31,631 11,704 (1,989) (15,003)
Provision
(benefit) for
income taxes 15,809 13,774 12,829 4,501 (940) -
-----------------------------------------------------------
Income (loss)
before extra-
ordinary
items 25,624 22,005 18,802 7,203 (1,049) (15,003)
Extraordinary
items - gain
from extin-
guishment
of debt - - - - - 201,308
- Loss from
repayment of
debt - - - (11,307) - -
-----------------------------------------------------------
Net income
(loss) $ 25,624 $ 22,005 $ 18,802 $ (4,104) $ (1,049) $186,305
===========================================================
Per share
data: (2)
Net income (loss)
before
extraordinary
items $ 1.71 $ 1.49 $ 1.28 $ 0.74 $ (0.16)
Net income
(loss) $ 1.71 $ 1.49 $ 1.28 $ (0.42) $ (0.16)
Weighted average
shares out-
standing 15,005 14,815 14,660 9,714 6,707
</TABLE>
<TABLE>
Jan. Dec. Dec. Dec. Jan. June
BALANCE 3, 29, 30, 31, 1, 8,
SHEET DATA 1997 1995 1994 1993 1993 1992(1)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working
capital $114,509 $113,397 $ 94,354 $ 74,082 $ 53,480 $ 79,421
Total assets 449,963 399,815 363,451 326,545 302,259 323,563
Long-term
debt, net
of current
portion 190,604 183,044 168,388 162,897 198,332 222,483
Common
shareholders'
investment 154,637 128,901 106,894 88,047 18,951 20,000
</TABLE>
[FN]
__________
(1) In connection with the Company's June 8, 1992 Restructuring, the
Company applied quasi-reorganization accounting procedures.
(2) As the Company was a whollyowned subsidiary of another company,
earnings per share for the periods prior to June 8, 1992, are not
meaningful.
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following table sets forth selected information concerning the
Company's results of operations for fiscal 1996, 1995 and 1994.
Fiscal Year
-------------------------------------
1996 1995 1994
-------------------------------------
(Dollars in millions)
Net sales:
Flooring $ 336.4 $ 261.8 $ 244.0
Cabinets 197.9 197.1 166.2
------ ------ ------
Total net sales 534.3 458.9 410.2
------ ------ ------
Gross profit 131.5 116.5 110.0
Selling, general and
administrative expenses 68.6 60.8 57.9
Amortization of goodwill 1.7 1.5 1.5
------ ------ ------
Operating income $ 61.2 $ 54.2 $ 50.6
====== ====== ======
As a percent of net sales:
Gross profit 24.6% 25.4% 26.8%
Selling, general and
administrative expenses 12.8 13.3 14.1
Operating income 11.4 11.8 12.3
Fiscal year 1996 compared to fiscal year 1995
- ---------------------------------------------
Net sales for fiscal 1996 were $534.3 million, an increase of 16.4% over
1995 net sales of $458.9 million.
Net sales for the Flooring Division increased 28.5% to $336.4 million from
$261.8 million in the prior year. These results benefited from the acquisition
of Hartco Flooring Company in June, 1996. Unit sales of hardwood flooring
increased 29.6%, and without Hartco the increase in units was 13.5%. The
National Oak Flooring Manufacturers Association (NOFMA) reported that 3/4"
thick flooring sales increased 11.3% in units in 1996. Without Bruce, NOFMA's
growth for 3/4" thick industry shipments increased 9.2%. The Bruce flooring
unit, which is the major producer of 3/4" thick flooring, increased 13.7% in
units in 1996. International sales were 11.5% of total flooring sales, which
represented an increase of 55.6% in 1996.
Cabinet Division net sales, without the impact of the decline in sales
from the discontinued sales of the Beltsville Building Products unit,
increased 8.0%, which represents a growth in unit sales of 5.1% and an average
unit selling price increase of 2.8%. Cabinet industry shipments in 1996, as
reported by the Kitchen Cabinet Manufacturers Association, were 74 million
units, an increase of 2.5% over 1995.
Consolidated gross profit for 1996 was $131.5 million, or 24.6% of net
sales, compared to $116.5 million, or 25.4% of net sales in 1995. The
decrease in gross profit percentage in 1996 was caused primarily by three
factors: lower prices in the Flooring Division which were down 1.1% for the
year; expenses incurred in the first half of 1996 related to the closing of
the Building Products Division; and higher lumber costs, primarily in the
fourth quarter.
Selling, general and administrative expenses were $68.6 million, or 12.8%
of net sales in 1996, compared to $60.8 million or 13.3% of net sales in 1995.
The total spending increase of $7.8 million was primarily due to marketing and
<PAGE>
selling expenses required to support the higher sales, and to the selling and
administrative expenses of Hartco since June 28, 1996.
Operating income was $61.2 million, or 11.4% of net sales in 1996,
compared to $54.2 million, or 11.8% of net sales in 1995.
Interest expense was $19.7 million in 1996, compared to $18.4 million in
1995. The higher interest expense is attributable to the cost of financing
the acquisition of Hartco Flooring Company in June, 1996.
Net income for 1996 was $25.6 million, compared to $22.0 million in 1995,
an increase of 16.4% on a 16.4% increase in net sales.
Fiscal year 1995 compared to fiscal year 1994
- ---------------------------------------------
Record net sales for 1995 were $458.9 million, or 11.9% greater than the
$410.2 million in net sales for fiscal 1994. This was in spite of a 7.8%
decline in housing starts in 1995. Single-family starts were lower by 11.9%.
Remodeling expenditures were flat and existing home sales were down 3.4%. Net
sales for the Flooring Division increased 7.3% to $261.8 million from $244.0
million in the prior year. Unit sales of hardwood flooring products were up
almost 10%. This compares to an increase in units of 7.3% reported by the
National Oak Flooring Manufacturers Association.
Cabinet Division net sales for 1995, excluding the Beltsville Building
Products unit, were $183.2 million, or an increase of 25.1% over 1994 net
sales of $146.5 million. This increase resulted primarily from an increase in
unit sales of 12.2% and higher priced mix of cabinets sold. During 1995, we
introduced many new Cabinet products and have completely revitalized the
kitchen cabinet product line, and increased the number of Company-operated
distribution centers and retail-remodeling showrooms. Cabinet sales to the
remodeling sector were $47 million, up 20.5% over 1994. We also had
significant increased sales to the single-family builder. In the government
sector, where we are one of three cabinet suppliers to the City Housing
Authorities, our sales were up 30.9%
Net sales of the Building Products Division, now included in the Cabinet
Division, decreased 25.1% in 1995 to $16.1 million compared to $21.5 million
in 1994. The Company has decided to discontinue the sale of lumber, which was
a low margin product, and to consolidate the Building Products Division into
the Cabinet Division.
Consolidated gross profit for 1995 was $116.5 million, or 25.4% of net
sales, compared to $110.0 million, or 26.8% of net sales in 1994. A major
factor impacting gross margins in 1995 was the incentive pricing and
promotional programs which were designed to increase sales in the Flooring
Division. In 1995, the LIFO charge for lumber primarily in the Flooring
Division, was $0.5 million. In 1994, we had a LIFO benefit of $2.7 million,
resulting in a net difference between the two years of $3.2 million.
Selling, general and administrative expenses were $60.8 million, or 13.2%
of net sales in 1995, compared to $57.9 million, or 14.1% of net sales in
1994.
Operating income was $54.2 million, or 11.8% of net sales in 1995,
compared to $50.6 million, or 12.3% of net sales in 1994.
Interest expense was $18.4 million in 1995 compared to $18.9 million in
1994. This decrease resulted primarily from an increase in short-term
investment interest income.
Net income for 1995 was $22.0 million compared to $18.8 million in 1994,
an increase of 17% on an 11.9% increase in net sales.
<PAGE>
Liquidity And Capital Resources
- -------------------------------
The Company has a Credit Facility which provides for up to $90 million of
revolving credit loans for working capital and for letters of credit.
Availability of borrowings under the Credit Facility is based upon a formula
related to inventory and accounts receivable. At January 3, 1997, there were
no borrowings under this facility.
For the year ended January 3, 1997, cash decreased by $12.9 million. Net
cash provided by operating activities was $40.5 million. Cash of $41.2
million was used for the acquisition of Hartco Flooring Company on June 28,
1996. In addition, cash of $12.4 million was used for additions to property,
plant and equipment less proceeds from certain sales of assets and long-term
debt payments.
At January 3, 1997, the Company had working capital of $114.5 million, or
25.4% of total assets, and $70.4 million of unused bank borrowing capacity.
The Company believes that borrowing availability under the Credit Facility
and cash generated from operations will be adequate to fund working capital
requirements, debt service payments and planned capital expenditures.
This report includes "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. All statements other than
statements of historical fact, including, without limitation, statements
contained in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Triangle Pacific Corp.:
We have audited the accompanying consolidated balance sheets of Triangle
Pacific Corp. and subsidiaries (a Delaware corporation) as of January 3, 1997,
and December 29, 1995, and the related consolidated statements of operations,
changes in shareholders' investment, and cash flows for the fiscal years ended
January 3, 1997, December 29, 1995 and December 30, 1994. These financial
statements and the schedule referred to below, are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Triangle
Pacific Corp. and subsidiaries as of January 3, 1997, and December 29, 1995,
and the results of their operations and their cash flows for the fiscal years
ended January 3, 1997, December 29, 1995 and December 30, 1994, in conformity
with general accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
January 29, 1997
<PAGE>
<TABLE>
Triangle Pacific Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
January 3, December 29,
1997 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,638 $ 32,581
Receivables (net of allowances of
$3,053 and $2,588, respectively) 59,236 50,406
Inventories 95,096 74,572
Prepaid expenses 3,713 4,735
-------- --------
Total current assets 177,683 162,294
-------- --------
Property, plant and equipment
Land 15,537 15,855
Buildings 56,274 49,808
Equipment, furniture and fixtures 133,197 110,719
-------- --------
205,008 176,382
Less: accumulated depreciation 40,258 30,540
-------- --------
164,750 145,842
Other assets:
Goodwill 70,986 55,090
Trademark 28,333 29,133
Deferred financing costs 5,290 5,988
Other 2,921 1,468
-------- --------
Total assets $ 449,963 $ 399,815
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current portion of long-term debt $ 2,437 $ 3,210
Accounts payable 18,520 17,086
Accrued liabilities 40,226 28,601
Income taxes payable 1,991 -
-------- --------
Total current liabilities 63,174 48,897
-------- --------
Long-term debt, net of current portion 190,604 183,044
Other long-term liabilities 2,331 -
Deferred income taxes 39,217 38,973
-------- --------
Total liabilities 295,326 270,914
-------- --------
Shareholders' investment:
Common stock - $.01 par value,
authorized shares - 30,000,000
issued and outstanding shares -
14,686,558 at January 3, 1997
and 14,663,365 at December 29, 1995 147 147
Additional paid-in capital 93,212 93,100
Retained earnings 61,278 35,654
-------- --------
Total shareholders' investment 154,637 128,901
-------- --------
Total liabilities and shareholders' investment $ 449,963 $ 399,815
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
<TABLE>
Triangle Pacific Corp. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Fiscal Years Ended
----------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Net sales $ 534,261 $ 458,868 $ 410,159
--------- --------- ---------
Costs and expenses:
Cost of sales 402,759 342,348 300,160
Selling, general and
administrative 68,611 60,841 57,928
Amortization of goodwill 1,739 1,520 1,520
Interest 19,719 18,380 18,920
-------- -------- --------
492,828 423,089 378,528
-------- -------- --------
Income before income taxes 41,433 35,779 31,631
Provision for income taxes 15,809 13,774 12,829
-------- -------- --------
Net income $ 25,624 $ 22,005 $ 18,802
======== ======== ========
Per share data:
Net income $ 1.71 $ 1.49 $ 1.28
Weighted average shares
outstanding 15,005 14,815 14,660
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
<TABLE>
Triangle Pacific Corp. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Investment
(In thousands)
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 146 $ 93,054 $ (5,153) $ 88,047
Net income - - 18,802 18,802
Exercise of stock options 1 44 - 45
- ----------------------------------------------------------------------------
Balance, December 30, 1994 $ 147 $ 93,098 $ 13,649 $106,894
Net income - - 22,005 22,005
Exercise of stock options - 2 - 2
- ----------------------------------------------------------------------------
Balance, December 29, 1995 $ 147 $ 93,100 $ 35,654 $128,901
Net income - - 25,624 25,624
Stock incentive bonus
shares issued - 18 - 18
Exercise of stock options - 94 - 94
- ----------------------------------------------------------------------------
Balance, January 3, 1997 $ 147 $ 93,212 $ 61,278 $154,637
============================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
<TABLE>
Triangle Pacific Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Fiscal Years Ended
------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 25,624 $ 22,005 $ 18,802
Adjustments:
Depreciation 11,946 9,439 8,217
Deferred income taxes (313) (507) 2,163
Amortization of goodwill
and trademark 2,539 2,320 2,320
Amortization of deferred
financing costs 898 1,432 1,432
Provision for doubtful
accounts 422 435 884
Changes in assets and
liabilities:
Receivables (1,562) (7,538) (3,936)
Inventories (6,306) (3,672) (6,328)
Prepaid expenses 1,291 (801) 364
Accounts payable (365) (637) 4,238
Accrued liabilities -
other 5,107 (197) 7,964
Accrued liabilities -
interest (204) (641) 1,197
Income taxes payable 1,991 - -
Other (575) 348 (278)
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 40,493 21,986 37,039
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 4,341 10 913
Additions to property, plant
and equipment (13,506) (11,624) (12,217)
Acquisition of Hartco Flooring (36,140) - -
Acquisition of KREDA Bonds (5,012) - -
Acquisition of Premier Wood Floors - - (5,123)
Construction deposits - - (2,073)
- ------------------------------------------------------------------------------
Net cash (used) in investing
activities (50,317) (11,614) (18,500)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt borrowings - - 7,000
Long-term debt payments (3,213) (3,767) (1,449)
Refinancing costs - (712) (14)
Exercise of stock options 94 2 45
Reimbursement of construction
deposits - 1,780 -
- ------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (3,119) (2,697) 5,582
- ------------------------------------------------------------------------------
Net increase (decrease) in cash $ (12,943) $ 7,675 $ 24,121
Cash and cash equivalents,
beginning of period 32,581 24,906 785
- ------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 19,638 $ 32,581 $ 24,906
==============================================================================
</TABLE>
<PAGE>
Triangle Pacific Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont'd)
(In Thousands)
<TABLE>
Fiscal Years Ended
------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest (net of amount
capitalized) $ 18,352 $ 18,603 $ 16,969
Income taxes 13,391 17,831 8,935
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
TRIANGLE PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Triangle Pacific Corp. ("The Company") conducts its operations through a
single business segment which consists of the manufacture and distribution of
building products. The Company, through its Flooring Division, produces and
sells hardwood flooring and other flooring and related products and, through
its Cabinet Division, manufactures and distributes kitchen and bathroom
cabinets. The Company's products are used primarily in residential new
construction and remodeling. The Flooring Division and the Cabinet Division
accounted for approximately 63% and 37%, respectively, of the Company's
revenues during 1996. The Company's products are sold throughout the U.S. and
a portion of the flooring products are sold worldwide.
Basis of Consolidation:
- -----------------------
The consolidated financial statements include the financial statements of
Triangle Pacific Corp. and its subsidiaries. All intercompany balances and
transactions have been eliminated. The Company maintains its records on a
52/53 week year.
Cash and Cash Equivalents:
- --------------------------
The Company considers all investments with an original maturity of less
than three months to be cash equivalents. All cash equivalents are investment
grade such as U.S. Government or A-1 or better securities rated by Standard &
Poor's Corporation.
Inventories:
- ------------
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method is used primarily for lumber and certain other
inventories and the first-in, first-out (FIFO) method is used for all other
inventories. Inventories valued by the LIFO method were $35,311,000 at
January 3, 1997 and $21,154,000 at December 29, 1995. Had all inventories
been valued by the FIFO method, which approximates current cost, inventories
would have been increased by $2,851,000 at January 3, 1997 and $2,071,000 at
December 29, 1995. Raw materials inventories include purchased parts and
supplies to be used in manufactured products. Work-in-process and finished
goods inventories include material, labor and overhead costs incurred in the
manufacturing process. The major components of inventories are as follows:
January 3, December 29,
1997 1995
--------------------------------
(in thousands)
Raw materials $ 50,873 $ 42,088
Work-in-process 7,259 3,625
Finished goods 36,964 28,859
------- -------
Total $ 95,096 $ 74,572
======= =======
Property, plant and Equipment:
- ------------------------------
Property, plant and equipment were restated to fair value as of June 8,
1992, when the Company successfully completed a capital restructuring. All
additions, subsequent thereto, are stated at acquisition or construction cost.
Expenditures for maintenance, repairs, renewals and improvements which do not
extend the useful lives of assets are charged to appropriate expense accounts
in the year incurred. Upon disposition of an asset, cost and accumulated
depreciation are removed from the accounts, and any gain or loss is included
in the results of operations. Depreciation and amortization are computed on
the straight-line basis using the following estimated useful lives:
<PAGE>
Buildings 10 to 50 years
Equipment, furniture and fixtures 3 to 22 years
Amortization of leasehold improvements is provided over the terms of the
leases or the useful lives of the assets, whichever is shorter. For income
tax purposes, all assets are depreciated under allowable tax depreciation
methods.
Intangible Assets:
- ------------------
The Company annually evaluates its carrying value and expected period of
benefit of trademark and goodwill in relation to results of operations. In
determining the recoverability of these assets the Company analyzes its
historical and future ability to generate earnings before interest and taxes
using the non-discounted method. Deferred financing costs are being amortized
on the straight-line method over the lives of the related debt. The trademark
and goodwill are being amortized over 40 years. Accumulated amortization of
trademark and goodwill is $3,667,000 and $7,281,000, respectively, at January
3, 1997 and $2,867,000 and $5,537,000, respectively, at December 29, 1995.
Fair Value of Financial Instruments:
- ------------------------------------
The Company's cash equivalents and long-term debt are recorded at cost,
which approximates fair market value at January 3, 1997.
Use of Estimates:
- -----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - LONG-TERM DEBT:
Long-term debt consists of the following:
January 3, December 29,
1997 1995
----------------------------
(in thousands)
Senior Notes, 10 1/2%
due 8-1-2003 $ 160,000 $ 160,000
Capitalized lease obligations 16,996 19,547
Industrial revenue bonds 16,045 6,707
-------- --------
193,041 186,254
Less: Current portion
of long-term debt (2,437) (3,210)
-------- --------
$ 190,604 $ 183,044
======== ========
Letters of credit outstanding were $15.0 million at January 3, 1997 and
$9.7 million at December 29, 1995 under a facility pursuant to which they can
be renewed or replaced.
Senior Notes:
- -------------
The Senior Notes are senior unsecured obligations of the Company with an
aggregate principal amount of $160 million. The Senior Notes mature on August
1, 2003 and bear interest at an annual rate of 10 1/2%, payable in two equal
semi-annual installments of $8,400,000 each, with each semi-annual period
deemed to have 180 days. The Senior Notes are issued under an Indenture (the
<PAGE>
"Indenture") between the Company and Comerica Bank, as the present Trustee
(the "Trustee"). The Senior Notes rank pari passu with all present and future
senior indebtedness of the Company and senior to all present and future
subordinated indebtedness of the Company. However, because borrowings under
the Credit Facility are secured by inventory and accounts receivable of the
Company and the proceeds thereof, the Senior Notes are effectively
subordinated to such borrowings to the extent of such security interest.
The Senior Notes are not redeemable prior to August 1, 1998. Thereafter,
the Senior Notes are redeemable at the option of the Company at redemption
prices specified in the Indenture. The Senior Notes are not subject to any
mandatory sinking fund requirements.
Upon a "change of control" (as defined in the Indenture), the Company is
required to offer to purchase all outstanding Senior Notes at 101% of the
principal amount thereof, plus accrued interest to the date of repurchase. In
addition, the Company may be required to offer to purchase the Senior Notes at
100% of the principal amount plus accrued interest with the net cash proceeds
of certain sales or other dispositions of assets.
The Indenture contains covenants which limit, among other things, the
incurrence of additional indebtedness by the Company and its subsidiaries, the
payment of dividends on, or the purchase of the capital stock of the Company
("Restricted Payments"), the creation of liens on the assets of the Company
and its subsidiaries, the creation of certain restrictions on the payment of
dividends and other distributions by the Company's subsidiaries, the issuance
of preferred stock by the Company's subsidiaries, and certain mergers, sales
of assets and transactions with affiliates.
Based on the Company's operations through January 3, 1997, the amount of
Restricted Payments that the Company could make under the Indenture was
$39,254,000.
The Indenture specifies a number of events of default including, among
others, the failure to make timely principal and interest payments or to
perform the covenants contained therein. The Indenture contains a cross-
default to other indebtedness of the Company aggregating more than $5,000,000
and certain customary bankruptcy and insolvency defaults. Upon the occurrence
of an event of default under the Indenture, the Trustee or the holders of not
less than 25% in principal amount of the outstanding Senior Notes may declare
all amounts thereunder immediately due and payable, except that such amounts
automatically become immediately due and payable in the event of a bankruptcy
or insolvency default.
Credit Facility:
- ----------------
In December 1995, the Company entered into a Credit Facility, which
provides for up to $90 million of revolving loans for working capital and
general corporate purposes and for letters of credit. Availability of
borrowings under the Credit Facility is based upon a formula related to
inventory and accounts receivable. At January 3, 1997, the Company had no
borrowings under the Credit Facility and had $70.4 million of borrowing
capacity under this facility. Borrowings under the Credit Facility bear
interest at the agent's prime rate plus 0.375% (8.625% at January 3, 1997) or,
at the Company's option, at certain alternate floating rates and are secured
by a pledge of the Company's inventory and accounts receivable. The Credit
Facility expires on December 21, 2000.
The Credit Facility contains covenants which restrict, among other
things, the incurrence of additional indebtedness and rental obligations by
the Company and its subsidiaries, the payment of dividends and other
distributions in respect to the capital stock of the Company, the creation of
liens on the assets of the Company and its subsidiaries, the creation of
certain restrictions on the payment of dividends and other distributions by
the Company's subsidiaries, the making of investments and capital expenditures
by the Company and its subsidiaries, the creation of new subsidiaries by the
Company, and certain mergers, sales of assets and transactions with
affiliates.
<PAGE>
The Credit Facility also contains certain financial covenants relating to
the consolidated financial condition of the Company and its subsidiaries,
including covenants relating to their net worth, the ratio of their earnings
to their fixed charges, the ratio of their earnings to their interest expense,
the ratio of their current assets to their current liabilities, and the ratio
of their indebtedness to their total capitalization. At January 3, 1997, the
Company was in compliance with all financial covenants.
The Credit Facility specifies a number of events of default including,
among others, the failure to make timely payments of principal, fees, and
interest, the failure to perform the covenants contained therein, the failure
of representations and warranties to be true, the occurrence of a "change of
control" (as defined in the Credit Facility, to include, among other things,
the ownership by any person or group of more than 25% (or, in case of The TCW
Group, Inc. and its affiliates, 50%) of the total voting securities of the
Company), and certain impairments of the security for the Credit Facility.
The Credit Facility also contains a cross-default to other indebtedness of the
Company aggregating more than $2,000,000 and certain customary bankruptcy,
insolvency and similar defaults. Upon the occurrence of an event of default
under the Credit Facility, at least three of the lenders holding at least 60%
in amount of the principal indebtedness outstanding under the Credit Facility
may declare all amounts thereunder immediately due and payable, except that
such amounts automatically become immediately due and payable in the event of
certain bankruptcy, insolvency or similar defaults.
The Credit Facility generally prohibits the Company from prepaying in
excess of $50.0 million of the Senior Notes whether the prepayment would
result from the redemption of the Senior Notes, an offer by the Company to
purchase the Senior Notes following a change of control or a sale or other
disposition of assets, or the acceleration of the due date for payment of the
Senior Notes.
Capitalized Lease Obligations:
- ------------------------------
During the fourth quarter of 1995, the operating lease agreement relating
to the Company's Beverly, West Virginia, plant and related equipment was
amended to allow for a purchase option of $1 until 2018. As a result, the
Company recorded the present value of the remaining future minimum lease
payments as a capitalized lease asset and related capitalized lease
obligation.
Industrial Revenue Bonds:
- -------------------------
On June 28, 1996, in connection with the acquisition of Hartco Flooring
Company, the Company acquired $10,000,000 floating interest rate, City of
Somerset, Kentucky, Industrial Revenue Bonds, due in full on August 1, 2009.
These bonds were used to finance the Somerset, Kentucky hardwood flooring
plant and are collateralized by a $10,000,000 letter of credit. At January 3,
1997, the various Industrial Revenue Bond (IRB) notes had interest rates that
ranged up to 7.87% and at December 29, 1995, the interest rates ranged up to
7.88%.
These IRB notes are payable through 2009 and are collateralized by the
related underlying assets.
Maturaties for all long-term debt are as follows:
(in thousands)
1997 $ 2,437
1998 2,408
1999 2,460
2000 5,009
2001 4,418
Thereafter 176,309
----------
Total $ 193,041
==========
<PAGE>
NOTE 3 - INCOME TAXES:
The components of the deferred tax liability and asset are as follows:
January 3, December 29,
1997 1995
------------------------------
(in thousands)
Deferred Tax Liability:
Property, plant and equipment $ 27,824 $ 24,229
Trademark 11,022 11,449
Other 7,338 7,250
------- -------
Total $ 46,184 $ 42,928
======= =======
Deferred Tax Asset:
Other $ 6,967 $ 3,955
------- -------
Total $ 6,967 $ 3,955
======= =======
The provision for income taxes consists of the following:
Fiscal Years Ended
--------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
--------------------------------------------
(in thousands)
Current:
Federal $ 12,338 $ 12,006 $ 10,015
State and local 2,625 1,689 651
------- ------- -------
$ 14,963 $ 13,695 $ 10,666
======= ======= =======
Deferred:
Federal $ 722 $ 22 $ 1,926
State and local 124 57 237
------- ------- -------
$ 846 $ 79 $ 2,163
------- ------- -------
Total $ 15,809 $ 13,774 $ 12,829
======= ======= =======
The tax provision for the periods ending January 3, 1997, December 29,
1995, and December 30, 1994 was 38.2%, 38.5%, and 40.6% of pre-tax income,
respectively. The factors causing the rate to vary from the U.S. Federal
Statutory rate are as follows:
Fiscal Years Ended
--------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
--------------------------------------------
(in thousands)
Computed (expected)
tax provision $ 14,502 $ 12,522 $ 11,059
Increase (decrease) from:
State and local taxes 1,830 1,155 1,359
Amortization of goodwill 609 532 597
Foreign sales (394) (292) -
Other book to tax
differences, net (738) (143) (186)
------- ------- -------
Total $ 15,809 $ 13,774 $ 12,829
======= ======= =======
<PAGE>
NOTE 4 - OPERATING LEASE COMMITMENTS:
The Company rents certain real estate and equipment under leases expiring
at various dates to 2015. Several leases include options for renewal or
purchase and contain clauses for payment of real estate taxes and insurance.
In most cases, management expects that, in the normal course of business,
leases will be renewed or replaced by other leases.
The following is a summary of minimum future rental payments required
under operating leases that have initial non-cancelable lease terms in excess
of one year.
(in thousands)
1997 $ 2,129
1998 1,500
1999 799
2000 434
2001 51
Thereafter 132
--------
Total $ 5,045
========
Rental expense for operating leases amounted to $6,682,000, $8,335,000,
and $7,704,000 for the fiscal years ended January 3, 1997, December 29, 1995,
and December 30, 1994, respectively.
NOTE 5 - EMPLOYEE BENEFIT PLANS:
Pension and Profit Sharing Plans:
- ---------------------------------
The Company sponsors several defined benefit pension plans and is required
to contribute to several labor union-related defined contribution plans.
Total pension expense was $1,169,000, $1,114,000, and $991,000 for the fiscal
years ended January 3, 1997, December 29, 1995, and December 30, 1994,
respectively, including $517,000, $538,000, and $419,000 respectively, for
defined benefit plans, which includes amortization of prior service costs over
the estimated average remaining service period of active employees.
<PAGE>
The following table sets forth the defined benefit pension plans' fund
status at January 3, 1997 and December 29, 1995.
January 3, December 29,
1997 1995
-----------------------------
(in thousands)
Actuarial present value
of benefit obligation:
Vested $ 10,519 $ 9,409
Non-vested 566 463
-------- --------
Accumulated and projected
benefit obligation 11,085 9,872
Plan assets at fair value 10,538 9,129
-------- --------
Projected benefit obligation in excess
of plan assets (547) (743)
Unrecognized prior service costs 598 84
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 1,235 1,492
Adjustment to recognize minimum liability (1,761) (1,435)
-------- --------
Accrued pension expense $ (475) $ (602)
======== =======
Net periodic pension costs for defined benefit pension plans for the
fiscal years ended January 3, 1997, December 29, 1995, and December 30, 1994,
include the following components:
Fiscal Years Ended
--------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
--------------------------------------------
(in thousands)
Service cost-benefits
earned during the
period $ 277 $ 271 $ 267
Interest cost on
projected benefit
obligation 818 779 735
Actual return on plan
assets (1,129) (825) 106
Net amortization and
deferral 551 313 (689)
-------- ------- --------
Net periodic pension
cost $ 517 $ 538 $ 419
======== ======= ========
A weighted average discount rate of 8.5% was used in 1996, 1995 and 1994
to determine the benefit obligations of the Company's defined benefit pension
plans. The plans do not provide for future compensation increases in
calculating benefit obligations as the benefits do not derive from
compensation levels but from length of service. The plans' assets are
invested in a diversified portfolio of common stocks and fixed income
securities. The expected long-term rate of return on plan assets was 8.0% in
1996, 1995 and 1994.
The Company has a profit sharing plan for salaried employees, and a
supplemental profit sharing plan for certain salaried employees to which
contributions are made at the discretion of its Board of Directors as long as
the Company has met specified financial goals. The fiscal 1996, 1995 and 1994
contributions were $1,250,000 $1,245,450 and $1,255,385, respectively.
<PAGE>
Long-Term Incentive Plans:
- --------------------------
In June 1993, the Company adopted the Triangle Pacific Corp. Long-Term
Incentive Compensation Plan, (the "Long-Term Incentive Plan") which authorizes
grants of various incentive awards to all regular salaried full-time officers
and key employees of the Company. There are 1,400,000 shares of common stock
authorized for issue under this plan. In February 1994, March 1994, February
1996 and April 1996 stock options were granted for 795,200 shares at 100% of
fair market value at the date of grant. Also granted in February 1994 were
28,200 stock bonus shares and $425,517 in deferred cash bonuses.
The following summarizes the Company's stock option activity:
Weighted
Number Average
of Exercise Price Exercise Price
Shares Per Share Per Share
- ------------------------------------------------------------------------------
Outstanding,
December 31, 1993 201,007 $ 2.99 $ 2.99
1994
Granted 557,700 $14.44 - $15.13 $14.48
Exercised (15,002) $ 2.99 $ 2.99
Forfeited (12,500) $14.44 - $15.13 $14.58
- ------------------------------------------------------------------------------
Outstanding,
December 30, 1994 731,205 $ 2.99 - $15.13 $11.56
1995
Granted - - -
Exercised (756) $ 2.99 $ 2.99
Forfeited - - -
- ------------------------------------------------------------------------------
Outstanding,
December 29, 1995 730,449 $ 2.99 - $15.13 $11.57
1996
Granted 237,500 $16.38 $16.39
Exercised (22,093) $ 2.99 - $14.44 $ 4.29
Forfeited (14,200) $14.44 - $15.13 $14.64
- ------------------------------------------------------------------------------
Outstanding,
January 3, 1997 931,656 $ 2.99 - $16.38 $12.99
==============================================================================
All stock options are granted with exercise prices equal to the fair
market value of the Company's common stock at the date of grant. The weighted
average exercise prices of the stock options granted during 1996 was $16.38.
Stock options expire ten years from date of grant and vest equally over a four
year period. The number of stock options exercisable at January 3, 1997, was
454,582 shares. These stock options have a weighted average exercise price of
$11.09 per share and a weighted average contractual life of 7.39 years.
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. Had compensation cost for the stock
options issued subsequent to January 1, 1995 been determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), the Company's pro forma net income and net
income per share for 1996 and 1995 would have been materially different from
reported net income and net income per share. Because the SFAS 123 method of
accounting has not been applied to options granted prior to January 1, 1995,
pro forma compensation cost may not be representative of that to be expected
in future years.
<PAGE>
The value of each stock option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for the two grants in 1996: risk free interest rates
of 6.34% - 6.87%; expected dividend yield of 0%; expected life of ten years;
and expected volatility of 30.22% - 29.06%.
In 1994, the Company established a performance-based cash incentive plan
for officers and other key employees to make annual bonus awards based upon
pre-established criteria which were approved by the Board of Directors. The
expense was $3,282,000, $2,287,000 and $1,780,000 in 1996, 1995 and 1994,
respectively.
Non-Employee Director Stock Option Plan:
- ----------------------------------------
The Company has a Non-Employee Director Stock Option Plan for up to
100,000 shares of common stock. Options have been granted to six non-employee
directors for an aggregate of 39,000 shares, with exercise prices equal to the
fair market value at the date of grant. These options are currently
exercisable and generally expire 10 years from the date of grant.
Post-retirement and Post-employment Benefits:
- ---------------------------------------------
The Company, as of January 3, 1997, generally does not provide post-
retirement life or health insurance benefits or any post-employment benefits
other than those previously discussed.
NOTE 6 - ACCRUED LIABILITIES:
Amounts included in accrued liabilities are as follows:
January 3, December 29,
1997 1995
---------------------------------
(in thousands)
Payroll $ 8,187 $ 5,827
Pension and profit sharing 1,919 2,295
Taxes 3,311 3,224
Insurance 9,340 5,149
Interest 7,029 7,179
Marketing 5,363 1,717
Other 5,077 3,210
-------- --------
Total $ 40,226 $ 28,601
======== ========
NOTE 7 - SUPPLEMENTARY QUARTERLY FINANCIAL DATA (unaudited):
(In thousands, except per share amounts)
Net
Income
Net Gross Net Per
Quarters Sales Profit Income Share
- --------------------------------------------------------------------
1996
First Quarter $ 110,525 $ 25,926 $ 3,904 $ 0.26
Second Quarter 131,471 34,364 7,433 0.50
Third Quarter 142,941 34,755 6,762 0.45
Fourth Quarter 149,324 36,457 7,525 0.50
1995
First Quarter $ 107,192 $ 27,932 $ 4,534 $ 0.31
Second Quarter 116,609 30,807 6,461 0.44
Third Quarter 115,738 27,941 5,379 0.36
Fourth Quarter 119,329 29,840 5,631 0.38
<PAGE>
NOTE 8 - ACQUISITION OF HARTCO FLOORING COMPANY:
On June 28, 1996, the Company acquired all of the outstanding shares of
Hartco Flooring Company ("Hartco"), formerly a wholly-owned subsidiary of
Premark International, Inc. The total value of the acquisition was $63
million, consisting of $36.1 million in cash and the balance representing the
assumption of liabilities.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The excess of the purchase price over the fair values of
the net assets acquired was $17.5 million and has been recorded as goodwill,
which is being amortized on a straight-line basis over 40 years. The
accompanying consolidated financial statements reflect the operations of
Hartco for the period subsequent to June 28, 1996.
The net purchase price was allocated as follows:
(In thousands)
Net working capital $ 13,589
Net property, plant and equipment 22,717
Other assets 712
Goodwill 17,530
Other non-current liabilities (18,408)
--------
Cash paid for Hartco $ 36,140
========
The unaudited pro forma results below assume the acquisition occurred at
the beginning of the years ended January 3, 1997 and December 29, 1995, (In
thousands, except per share amounts)
Fiscal Years Ended
---------------------------
January 3, December 29,
1997 1995
---------------------------
Net sales $ 574,680 $ 529,657
Net income 25,958 21,346
Net income per share $ 1.73 $ 1.44
The above pro forma results include adjustments to give effect to
amortization of goodwill, interest expense on acquisition debt and certain
other adjustments, together with related income tax effects. The pro forma
results above are not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the beginning
of the periods presented, nor are they necessarily indicative of future
operating results.
NOTE 9 - POTENTIAL ACQUISITION:
The Company has entered into a letter of intent, subject to due diligence
and the completion of a definitive agreement with Robbins Inc., and its
affiliate, Searcy Flooring, Inc., to acquire the assets and to assume certain
liabilities of the Residential Flooring Division of Robbins and of Searcy.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The section entitled "Election of Directors" appearing in the definitive
proxy statement of the Registrant for the annual meeting of shareholders to be
held on May 7, 1997 sets forth certain information regarding the directors and
is incorporated herein by reference. The section entitled "Executive
Compensation-Compliance with Section 16(a) of the Exchange Act" appearing in
the definitive proxy statement of the Registrant for the annual meeting of
shareholders to be held on May 7, 1997 sets forth certain information
regarding reporting under Section 16 of the Securities Exchange Act of 1934,
as amended, and is incorporated herein by reference. Certain information with
respect to the executive officers of the Registrant is set forth in Part I of
this Form 10-K under the caption "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of management is contained in the
definitive proxy statement of the Registrant for the annual meeting of
shareholders to be held on May 7, 1997, under the caption "Executive
Compensation" and, except for the report of the compensation committee of the
Board of Directors and the information contained under the caption
"Performance Graph," is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's Common Stock is contained
in the definitive proxy statement of the Registrant for the annual meeting of
shareholders to be held on May 7, 1997, under the captions "Security Ownership
of Certain Beneficial Owners" and "Security Ownership of Management" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Included in Part II of this report.
- Report of independent public accountants
- Consolidated balance sheets as of January 3, 1997, and
December 29, 1995.
- Consolidated statements of operations for the fiscal
years ended January 3, 1997, December 29, 1995, and
December 30, 1994.
- Consolidated statements of changes in shareholders'
investment for the fiscal years ended January 3, 1997,
December 29, 1995, and December 30, 1994.
- Consolidated statements of cash flows for the fiscal
years ended January 3, 1997, December 29, 1995, and
December 30, 1994.
- Notes to consolidated financial statements.
(a)(2) Financial Statement Schedules
Included in Part IV of this report:
For the fiscal years ended January 3, 1997, December 29, 1995,
and December 30, 1994.
- Schedule II - Valuation and qualifying accounts
and reserves.
Information required by other schedules called for under
Regulation S-X is either not applicable or is included in
the consolidated financial statements or notes thereto.
(a)(3) Exhibits
--------
The information required by this Item 14(a)(3) is set forth
in the Index to Exhibits in item 14(c) of this annual report on
form 10-K.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter
of the year ended January 3, 1997.
(c) Exhibits
--------
3.1 - Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to
Exhibit 3.1 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1993).
3.2 - Amended and Restated Bylaws of the Registrant
(incorporated herein by reference to Exhibit 3.2 to
the Registrant's Form 10-K for the fiscal year ended
December 31, 1993).
4.1 - Form of 10 1/2% Senior Notes due 2003 (incorporated
herein by reference to Exhibit 4.2 to the
Registrant's Form 10-K for the fiscal year ended
December 31,1993).
<PAGE>
4.2 - Indenture governing 10 1/2% Senior Notes due 2003
(incorporated herein by reference to Exhibit 4.2 to
the Registrant's Form 10-K for the fiscal year ended
December 31, 1993).
4.3 - Credit Agreement dated as of August 4, 1993, as
amended, among the Registrant, the Lenders listed
therein and CitiCorp USA, Inc., as the Co-Agent for
the Lenders, and the Bank of Nova Scotia, as the
Agent for the Lenders (the "Credit Agreement")
(incorporated herein by reference to Exhibit 4.4 to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-64530)).
4.4 - Amendment No. 4 to the Credit Agreement dated as of
December 2, 1994.
4.5 - Amendment No. 6 to the Credit Agreement dated as of
December 21, 1995.
4.6 - Amendment No. 7 to the Credit Agreement dated as of
May 1, 1996.
10.1 - Registration Rights Agreement, dated as of June 5,
1992 by and among the Registrant and the Persons
listed therein (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-50724)).
10.2 - Lenders' Equity Agreement dated as of June 5, 1992 by
and among the Registrant and the Banks and other
financial institutions listed herein (incorporated
herein by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-50724)).
10.3 - ESJ Exchange Agreement dated as of June 5, 1992 by
and among the Registrant, TPC Holding Corp. and the
ESJ Entities (incorporated herein by reference to
Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-50724)).
10.4* - Management Equity Agreement dated as of June 5, 1992
by and among the Registrant and the individuals
listed therein, and including a form of the Triangle
Pacific Corp. Stock Option Plan (incorporated herein
by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-50724)).
10.5* - Form of Amended and Restated Employment Agreement
dated as of March 8, 1995 between the Company and the
individuals named on Schedule 1 thereto.
10.6* - Form of Employment Agreement dated as of March 8,
1995 between the Company and the individuals named on
Schedule 1 thereto.
10.7* - Salaried Employees Profit Sharing Plan (as restated
January 1, 1993) of the Registrant
10.8* - Annual Cash Incentive Bonus System of the Registrant
for Officers and Managers.
<PAGE>
10.9* - Form of Stock Option Plan of the Registrant
(incorporated herein by reference to Exhibit 10.12 to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-64530)).
10.10* - Form of Stock Option Agreement of the Registrant
(incorporated herein by reference to Exhibit 10.13 to
the Registrant's Registration Statement on From S-1
(Registration No. 33-64530)).
10.11 - Lease dated as of June 1, 1988 by and between West
Virginia Jobs and Development Corporation and
Registrant (incorporated herein by reference to
Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-50724)).
10.12 - Amendment to lease effective as of April 14, 1989 by
and between West Virginia Jobs and Development
Corporation and the Registrant (incorporated herein
by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-64530)).
10.13 - Second Amendment to lease effective as of November 1,
1991 by and between West Virginia Economic
Development Authority, as successor to West Virginia
Jobs and Development Corporation, and the Registrant
(incorporated herein by reference to Exhibit 10.16 to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-64530)).
10.14 - Third Amendment to lease effective as of March 10,
1993 by and between West Virginia Economic
Development Authority, as successor to West Virginia
Jobs and Development Corporation, and the Registrant
(incorporated herein by reference to Exhibit 10.17 to
the Registrant's Registration Statement on Forms S-1
(Registration No. 33-64530)).
10.15 - Fourth amendment to lease effective as of September 22,
1995 by and between West Virginia Economic Development
Authority, as successor to West Virginia Jobs and
Development Corporation, and the Registrant.
10.16* - Triangle Pacific Corp. 1993 Long-Term Incentive
Compensation Plan (incorporated herein by reference
to Exhibit 10.18 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-64530)).
10.17* - Triangle Pacific Corp. Nonemployee Director Stock
Option Plan (incorporated herein by reference to
Exhibit 10.19 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-64530)).
10.18 - Form of Indemnity Agreement between the Registrant
and each of its directors and executive officers
(incorporated herein by reference to Exhibit 10.20 to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-64530)).
10.19* - Supplemental Profit Sharing and Deferred Compensation
Plan of the Registrant.
10.20 - Stock Purchase Agreement dated as of June 28, 1996 between
the Company and Premark International Inc. (incorporated
herein by reference to Exhibit 2.1 to the Registrant's Form
8-K dated June 28, 1996).
<PAGE>
11.1 - Statement re computation of per share earnings
23.1 - Consent of Arthur Andersen LLP
27.1 - Financial Data Schedule.
- --------------
* Management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereto duly
authorized.
TRIANGLE PACIFIC CORP.
By: /s/ Floyd F. Sherman
---------------------------
Floyd F. Sherman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Floyd F. Sherman Chairman of the Board March 31, 1997
- ---------------------------- and Chief Executive Officer
Floyd F. Sherman (Principal Executive Officer)
/s/ M. Joseph McHugh Director and President March 31, 1997
- ----------------------------
M. Joseph McHugh
/s/ Robert J. Symon Executive Vice President March 31, 1997
- ---------------------------- Treasurer and Chief
Robert J. Symon Financial Officer
(Principal Financial & Accounting Officer)
/s/ B. William Bonnivier Director March 31, 1997
- ----------------------------
B. William Bonnivier
Director March , 1997
- ----------------------------
Charles M. Hansen, Jr.
/s/ David R. Henkel Director March 31, 1997
- ----------------------------
David R. Henkel
Director March , 1997
- ----------------------------
Bruce A. Karsh
/s/ Jack L. McDonald Director March 31, 1997
- ----------------------------
Jack L. McDonald
Director March , 1997
- ----------------------------
Carson R. McKissick
/s/ Karen Gordon Mills Director March 31, 1997
- ----------------------------
Karen Gordon Mills
<PAGE>
SCHEDULE II
-----------
<TABLE>
TRIANGLE PACIFIC CORP. AND SUBSIDIARIES
---------------------------------------
VALUATION AND QUALIFYING
------------------------
ACCOUNTS AND RESERVES
---------------------
(in thousands)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Balance at charged to Balance
beginning costs and at end of
Classifications of period expenses Deductions (1) period
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year ended
December 30, 1994:
Reserve for
doubtful accounts
and returns and
allowances $ 3,323 $ 884 $ 1,716 $ 2,491
=================================================
Fiscal Year ended
December 29, 1995:
Reserve for
doubtful accounts
and returns and
allowances $ 2,491 $ 435 $ 338 $ 2,588
=================================================
Fiscal Year ended
January 3, 1997:
Reserve for
doubtful accounts
and returns and
allowances $ 2,588 $ 672 (2) $ 207 $ 3,053
=================================================
</TABLE>
[FN]
(1) Write-offs of specific accounts, net of recoveries.
(2) Includes Hartco balance of $250 at June 28, 1996, acquisition date.
<PAGE>
Exhibit 11.1
------------
<TABLE>
TRIANGLE PACIFIC CORP.
COMPUTATION OF NET INCOME PER SHARE
Fiscal Years Ended
----------------------------------------------
January 3, December 29, December 30,
1997 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net Income $ 25,624,000 $ 22,005,000 $ 18,802,000
============ ============ ============
Shares outstanding
beginning of period 14,663,365 14,662,609 14,647,607
Weighted average number
of shares issued from
incentive bonus shares 1,008 - -
Weighted average number
of shares issued from
exercise of stock options 5,248 567 12,182
----------- ------------ ------------
Weighted average number
of shares outstanding 14,669,621 14,663,176 14,659,789
Shares issuable from assumed
exercise of stock options,
reduced by the number of
shares which could have
been purchased with the
proceeds from exercise of
such options 334,904 151,884 -
------------ ------------ ------------
Weighted average number
of shares outstanding as
adjusted 15,004,525 14,815,060 14,659,789
============ ============ ============
Primary income per common
and common equivalent
share $ 1.71 $ 1.49 $ 1.28
============ ============ ============
Assuming full dilution:
Weighted average number
of shares outstanding 14,669,621 14,663,176 14,659,789
Shares issuable from
assumed exercise of
stock options reduced
by the number of shares
which could have been
purchased with the
proceeds from exercise
of such options 447,169 215,817 -
----------- ----------- -----------
Weighted average number
of shares outstanding as
adjusted 15,116,790 14,878,993 14,659,789
============ ============ ============
Fully diluted income per
common and common
equivalent share $ 1.70 $ 1.48 $ 1.28
============ ============ ============
</TABLE>
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the
Company's previously filed Registration Statement Files Nos. 33-69682,
33-69684 and 33-50724.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 31, 1997
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of May 1, 1996 (this
"Amendment"), to the Existing Credit Agreement (as defined below) is entered
into by and among TRIANGLE PACIFIC CORP., a Delaware corporation (the
"Borrower"), and the various financial institutions parties hereto
(collectively, the "Lenders").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, Bank of America NT&SA as co-agent (the
Co-Agent") for the Lenders, and The Bank of Nova Scotia as the agent (the
"Agent") for the Lenders, have heretofore entered into that certain Credit
Agreement, dated as of August 4, 1993 (together with all Exhibits, Schedules
and Attachments thereto, in each case as amended or otherwise modified prior
to the date hereof, being collectively referred to herein as the "Existing
Credit Agreement");
WHEREAS, the Borrower has requested the Lenders to amend the Existing
Credit Agreement in certain respects as set forth below; and
WHEREAS, the Lenders are willing, on the terms and conditions set forth
below, to amend the Existing Credit Agreement in certain respects as provided
herein (the Existing Credit Agreement, as amended pursuant to the terms of
this Amendment, being referred to as the "Credit Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Borrower and the Lenders hereby agree as
follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. The following terms (whether or not
underscored) when used in this Amendment, including its preamble and recitals,
shall, except where the context otherwise requires, have the following
meanings (such meanings to be equally applicable to the singular and plural
form thereof):
"Affirmation and Consent" means the affirmation and consent executed and
delivered pursuant to Subpart 3.1.6.
"Agent" is defined in the first recital.
"Amendment" is defined in the preamble.
<PAGE>
"Borrower" is defined in the preamble.
"Co-Agent" is defined in the first recital.
"Credit Agreement" is defined in the third recital.
"Existing Credit Agreement" is defined in the first recital.
"Lenders" is defined in the preamble.
"Seventh Amendment" is defined in Subpart 3.1.
"Seventh Amendment Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Terms for which meanings are provided
in the Existing Credit Agreement are, unless otherwise defined herein or the
context otherwise requires, used in this Amendment with such meanings provided
therein.
PART II
AMENDMENTS TO THE
EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Seventh Amendment
Effective Date, and in reliance upon the representations and warranties made
herein and (if any) in each other agreement furnished to the Agent pursuant to
the terms hereof or in connection herewith, the parties hereto hereby agree
that the Existing Credit Agreement is hereby amended in accordance with this
Part II. Except as expressly so amended or modified by this Amendment, the
Existing Credit Agreement and each other Loan Document shall continue in full
force and effect in accordance with their respective terms.
SUBPART 2.1. Amendments to Article I ("DEFINITIONS AND ACCOUNTING
TERMS"). Article I of the Existing Credit Agreement is hereby amended in
accordance with Subpart 2.1.1.
SUBPART 2.1.1. Section 1.1 ("Defined Terms") of the Existing Credit
Agreement is hereby amended by inserting the following definitions in the
appropriate alphabetical order:
"Hartco" means Hartco Flooring Company, a Tennessee corporation, a
wholly owned Subsidiary of the Borrower.
"Hartco Letter of Intent" means the Letter of Intent between the
Borrower and Premark International, Inc. dated April 11, 1996.
<PAGE>
"Seventh Amendment" means the Seventh Amendment to Credit Agreement,
dated as of May 1, 1996 among the Borrower and the Lenders parties
thereto.
"Seventh Amendment Effective Date" is defined in Subpart 3.1 of the
Seventh Amendment.
SUBPART 2.2. Amendments to Article VII ("COVENANTS"). Article VII of the
Existing Credit Agreement is hereby amended in accordance with Subparts 2.2.1,
Subpart 2.2.2, Subpart 2.2.3, Subpart 2.2.4 and Subpart 2.2.5.
SUBPART 2.2.1. Section 7.2.2 ("Indebtedness") of the Existing Credit
Agreement is hereby amended by (a) deleting the word "and" following the semi-
colon appearing at the end of clause (c)(i) of such Section, (b) inserting the
word "and" following the semi-colon appearing at the end of clause (c)(ii) of
such Section and (c) inserting a new clause (iii) to such Section which shall
read as follows:
"(iii) Indebtedness incurred by Hartco in an aggregate principal amount
not to exceed $16,500,000 and of the types described in Item
7.2.2(c)(iii) of the Disclosure Schedule."
SUBPART 2.2.2. Clause (c) of Section 7.2.3 ("Liens") of the Existing
Credit Agreement is hereby amended in its entirety to read as follows:
"(c) Liens
(i) granted prior to the Closing Date to secure payment of
Indebtedness of the type permitted and described in clause (c)(i) of
Section 7.2.2; and
(ii) granted by Hartco to secure the payment of Indebtedness
incurred by Hartco in an aggregate principal amount not to exceed
$16,500,000 and of the type permitted and described in Item 7.2.3(c)(ii)
of the Disclosure Schedule;"
SUBPART 2.2.3. Clauses (b), (c) and (e) of Section 7.2.4 ("Financial
Condition") of the Existing Credit Agreement are hereby amended in their
respective entireties to read as follows:
"(b) the ratio of Funded Debt (excluding Contingent Liabilities relating
to such Debt) to EBITDA, as of the last day of any Fiscal Quarter during
each Fiscal Year set forth below to be greater than the ratio set forth
opposite such Fiscal Year:
<PAGE>
Fiscal Year Ratio
1995 3.25:1
1996 3.25:1
1997 2.75:1
1998 2.50:1
1999 2.50:1
2000 2.50:1;"
"(c) the Fixed Charge Coverage Ratio as of the last day of any Fiscal
Quarter during each Fiscal Year set forth below to be less than the ratio
set forth opposite such Fiscal Year:
Fixed Charge
Fiscal Year Coverage Ratio
1995 1.00:1
1996 .95:1
1997 1.05:1
1998 1.05:1
1999 1.10:1
2000 1.10:1;"
<PAGE>
"(e) its Net Worth at any time during any Fiscal Year set forth below
to be less than the amount set forth opposite such Fiscal Year:
Fiscal Year Minimum Net Worth
1995 $115,000,000
1996 $130,000,000
1997 $140,000,000
1998 $150,000,000
1999 and each $150,000,000, plus an
Fiscal Year thereafter amount equal to 25%
of Net Income for such
Fiscal Year as of the
date of determination
thereof."
SUBPART 2.2.4. Clause (e) of Section 7.2.5 ("Investments") of the
Existing Credit Agreement is hereby amended in its entirety to read as
follows:
"(e)
(i) Investments by the Borrower in Hartco arising from the
transaction contemplated by the Hartco Letter of Intent; and
(ii) in the ordinary course of business, Investments by the Borrower
in any of its Subsidiaries (except Permitted Foreign Subsidiaries), or by
any such Subsidiary in any of its Subsidiaries, by way of contributions
to capital or loans or advances;"
SUBPART 2.2.5. Clause (a) of Section 7.2.16 ("No New Subsidaries") of
the Existing Credit Agreement is hereby amended by deleting the refernce to
"(i)" and deleting clause (a)(ii) in its entirety.
SUBPART 2.2.6. The Disclosure Schedule is hereby amended by adding
thereto Items 7.2.2(c)(iii) and 7.2.3(c)(ii) as set forth in Annex I hereto.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Seventh Amendment Effective Date. This Amendment (and
the amendments and modifications contained herein) shall become effective, and
shall thereafter be referred to as the "Seventh Amendment", on the date (the
"Seventh Amendment Effective Date") when all of the conditions set forth in
this Subpart 3.1 have been satisfied.
<PAGE>
SUBPART 3.1.1. Execution of Counterparts. The Agent shall have
received counterparts of this Amendment, duly executed and delivered on behalf
of the Borrower and each of the Lenders.
SUBPART 3.1.2. Resolutions. etc. The Agent shall have received in
form and substance satisfactory to the Agent,
(a) a certificate, dated the Seventh Amendment Effective Date, of
the Borrower's Secretary or Assistant Secretary as to
(i) resolutions of the Borrower's Board of Directors then in
full force and effect authorizing the execution, delivery and
performance of this Amendment and each other Loan Document executed
or to be executed by it in connection herewith; and
(ii) the incumbency and signatures of those officers of the
Borrower authorized to act with respect to this Amendment and each
other Loan Document executed or to be executed by it in connection
herewith,
upon which certificate each Lender may conclusively rely with respect to
the incumbency and signature of such Authorized Officers until it shall
have received a further certificate of the Secretary or Assistant
Secretary of the Borrower cancelling or amending such prior certificate;
(b) a certificate, dated the Seventh Amendment Effective Date, of
the Secretary or Assistant Secretary of Hartco as to
(i) resolutions of the Board of Directors of Hartco then in
full force and effect authorizing the execution, delivery and
performance of a guaranty and security agreement (as such are
described in Subparts 3.1.3 and 3.1.4, below) and each other Loan
Document executed or to be executed by it in connection herewith and
therewith; and
(ii) the incumbency and signatures of those officers of Hartco
authorized to act with respect to the guaranty and the security
agreement of Hartco described in Subparts 3.1.3 and 3.1.4 below and
each other Loan Document executed or to be executed by it in
connection herewith and therewith,
upon which certificate each Lender may conclusively rely with respect to
the incumbency and signature of such Authorized Officers until it shall
have received a further certificate of the Secretary or Assistant
Secretary of Hartco cancelling or amending such prior certificate;
(c) a certificate, dated the Seventh Amendment Effective Date, of
the Secretary or Assistant Secretary of each other Obligor as to
<PAGE>
(i) resolutions of such Obligor's Board of Directors then in
full force and effect authorizing the execution, delivery and
performance of the Affirmation and Consent and each other Loan
Document executed or to be executed by it in connection herewith;
and
(ii) the incumbency and signatures of those officers of such
Obligor authorized to act with respect to the Affirmation and
Consent and each other Loan Document executed or to be executed by
it in connection herewith,
upon which certificate each Lender may conclusively rely with respect to
the incumbency and signature of such Authorized Officers until it shall
have received a further certificate of the Secretary or Assistant
Secretary of such Obligor cancelling or amending such prior certificate;
and
(d) such other documents (certified if requested) or certificates
as the Agent may reasonably request with respect to this Amendment, the
Affirmation and Consent, any other Loan Document or any Organic Document
or approval.
SUBPART 3.1.3. Delivery of Hartco Guaranty. The Agent shall have
received, for the benefit of each Lender, the Issuer and the Agent, a guaranty
in respect of the Obligations in a form reasonably satisfactory to the Agent,
duly executed and delivered by an Authorized Officer of Hartco, dated as of
the Seventh Amendment Effective date.
SUBPART 3.1.4. Delivery of Hartco Security Agreement. The Agent shall
have received, for the benefit of each Lender, the Issuer and the Agent, a
security agreement in a form reasonably satisfactory to the Agent, duly
executed and delivered by an Authorized Officer of Hartco, dated as of the
Seventh Amendment Effective Date, together with such opinions in form and
substance and from counsel satisfactory to Agent, as the Agent may require,
together with (i) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in any collateral described in such security agreement
previously granted by any Person, (ii) Uniform Commercial Code financing
statements naming Hartco as the debtor and the Agent as the secured party to
be filed under all jurisdictions as may be necessary or, in the opinion of the
Agent, desirable to perfect the security interest of the Agent pursuant to
such security agreement and (iii) certified copies of Uniform Commercial Code
requests for information or similar search reports dated a date reasonably
near the date of the acquisition of Hartco listing all effective financing
statements which name Hartco as a debtor.
SUBPART 3.1.5. Solvency Certificate. The Agent shall have received for
the benefit of each Lender, the Issuer and the Agent, a solvency certificate
of an Authorized Officer of Borrower, in a form reasonably satisfactory to the
Agent, dated as of the Seventh Amendment Effective Date.
<PAGE>
SUBPART 3.1.6. Affirmation and Consent. The Agent shall have received a
duly executed copy of the Affirmation and Consent to this Amendment, in a form
reasonably satisfactory to the Agent, duly executed and delivered by each
Obligor.
SUBPART 3.1.7. Hartco Acquisition. The Borrower's acquisition of Hartco
shall have been completed without a material change in the terms of the
acquisition from those set forth in the Hartco Letter of Intent, except as may
be otherwise consented to by the Required Lenders.
SUBPART 3.1.8. No Material Adverse Change. Since December 29, 1995,
there has been no material adverse change in the financial condition,
operations, assets, business or properties of the Borrower and its
Subsidiaries, taken as a whole.
SUBPART 3.1.9. Fees and Expenses. The Agent shall have received for its
own account, or for the account of each Lender, as the case may be, all fees
and expenses due and payable under Subpart 4.5.
SUBPART 3.1.10. Environmental Audits. The Agent shall have received
written reports from an environmental consultant relating to environmental
audits of material real property to be acquired in the acquisition of Hartco
reasonably satisfactory in scope and results to the Agent.
SUBPART 3.1.11. Opinions of Counsel. The Agent shall have received such
opinions, each dated the Seventh Amendment Effective Date, in form and
substance and from counsel satisfactory to the Agent, as the Agent may
require.
SUBPART 3.1.12. Legal Details, etc. All documents executed or submitted
pursuant hereto shall be satisfactory in form and substance to the Agent and
its counsel. The Agent and its counsel shall have received all information
and such counterpart originals or such certified or other copies or such
materials as the Agent or its counsel may reasonably request, and all legal
matters incident to the transactions contemplated by this Amendment shall be
satisfactory to the Agent and its counsel.
PART IV
MISCELLANEOUS; REPRESENTATIONS
SUBPART 4.1. Cross-References. References in this Amendment to any Part
or Subpart are, unless otherwise specified or otherwise required by the
context, to such Part or Subpart of this Amendment.
SUBPART 4.2. Loan Document Pursuant to Existing Credit Agreement. This
Amendment is a Loan Document executed pursuant to the Existing Credit
Agreement and shall be construed, administered and applied in accordance with
all of the terms and provisions of the Existing Credit Agreement (and,
following the Seventh Amendment Effective Date, the Credit Agreement).
<PAGE>
SUBPART 4.3. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SUBPART 4.4. Full Force and Effect; Limited Amendment. Except as
expressly amended hereby, all of the representations, warranties, terms,
covenants, conditions and other provisions of the Existing Credit Agreement
and the other Loan Documents shall remain unamended and unwaived and shall
continue to be, and shall remain, in full force and effect in accordance with
their respective terms. The amendments set forth herein shall be limited
precisely as provided for herein to the provisions expressly amended herein
and shall not be deemed to be an amendment to, waiver of, consent to or
modification of any other term or provision of the Existing Credit Agreement,
any other Loan Document referred to therein or herein or of any transaction or
further or future action on the part of the Borrower which would require the
consent of the Lenders under the Existing Credit Agreement or any of the Loan
Documents.
SUBPART 4.5. Payment of Fees and Expenses. The Borrower hereby agrees
to pay and reimburse the Agent for all of its reasonable fees and expenses
incurred in connection with the negotiation, preparation, execution and
delivery of this Amendment and related documents, including all reasonable
fees and disbursements of counsel to the Agent.
SUBPART 4.6. Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
SUBPART 4.7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SUBPART 4.8. Compliance with Warranties. No Default, etc. Both before
and after giving effect to the occurrence of the Seventh Amendment Effective
Date and the amendments to the Existing Credit Agreement set forth above, the
Borrower represents and warrants to the Lenders that the following statements
are true and correct:
(a) the representations and warranties set forth in Article VI
(excluding, however, those contained in Section 6.7) of the Existing
Credit Agreement and the representations and warranties set forth in
Article III of each Security Agreement and in Article III of the
Subsidiary Guaranty and in each other Loan Document are true and correct
in all material respects with the same effect as if then made (unless
stated to relate solely to an earlier date, in which case such
representations and warranties were true and correct as of such earlier
date);
(b) except as disclosed by the Borrower to the Agent and the
Lenders pursuant to Section 6.7 of the Existing Credit Agreement,
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding is pending or, to the
<PAGE>
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which could result in a Material Adverse Effect
(including with respect to this Amendment or any other Loan Document
delivered in connection herewith); and
(ii) no development has occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to Section 6.7 of the Existing Credit Agreement
which could result in a Material Adverse Effect (including with
respect to this Amendment or any other Loan Document delivered in
connection herewith); and
(c) no Default has occurred and is continuing.
SUBPART 4.9. Additional Representations. In order to induce the Lenders
and the Agents to enter into this Amendment, the Borrower hereby additionally
represents and warrants as follows:
(a) the execution and delivery of this Amendment and the
performance by the Borrower and each of its Subsidiaries of each of their
respective obligations hereunder, under each other Loan Document, under
the Existing Credit Agreement as amended hereby and, upon the occurrence
of the Seventh Amendment Effective Date, under the Credit Agreement are
within such Person's corporate powers, have been duly authorized by all
necessary corporate action, have received all necessary governmental
approvals (if any shall be required), and do not (i) contravene such
Person' s Organic Documents, (ii) contravene any contractual restriction,
law or governmental regulation or court decree or order binding on or
affecting such Person or (iii) result in, or require the creation or
imposition of, any Lien on any of such Person's properties (other than
pursuant to a Loan Document); and
(b) this Amendment, each other Loan Document, the Existing Credit
Agreement as amended hereby and, upon the occurrence of the Seventh
Amendment Effective Date, the Credit Agreement are the legal, valid and
binding obligations of the Borrower and each of its Subsidiaries, as
applicable, enforceable in accordance with their respective terms (except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and by principles of equity).
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
TRIANGLE PACIFIC CORP.
By:
---------------------------
Title:
THE BANK OF NOVA SCOTIA
By:
---------------------------
Title:
BANK OF AMERICA NT&SA
By:
---------------------------
Title:
COMERICA BANK - TEXAS
By:
------------------------------
Title:
<PAGE>
ANNEX I
TO SEVENTH AMENDMENT TO CREDIT AGREEMENT
DATED AS OF MAY 1, 1996
Item 7.2.2(c)(iii)
1. $10 Million Industrial Development Building Bonds
Floating Rate: 3.85%
Loan Agreement:
Section 7.6: Hartco must maintain corporate existence, with
certain exceptions. Nothing prevents the sale of
stock.
Section 9.1: The note is prepayable at any time. Otherwise the
obligation lasts until 2009 with letter of credit
obligations.
Section 10.4: Assignment only with issuer's consent and letter of
credit bank's consent.
Reimbursement Agreement:
Section 5.4: Guarantor must cause insurance to be maintained.
Section 5.5: No liens can be placed upon the facility.
Section 5.6: There can be no consolidation or merger of Hartco.
Section 8.8: Assignment only with bank's consent.
Indenture:
Section 3.02: The bonds are optionally redeemable on any date.
2. $5.4 Million Kentucky Rural Economic Development Bonds (approximately $5
Million left)
Fixed Rate: 10%
Indenture:
Section 3.1: The bonds are redeemable at any time at par upon
purchase of the facility for the outstanding bond
balance.
<PAGE>
Lease:
Section 9.1: Assignment only with lessor's consent.
Section 9.4: The bonds are redeemable at any time.
Section 11.1: Terminable at any time if bonds are paid.
There is no Premark guaranty, and Premark owns the bonds.
3. Additional Indebtedness. In addition to the Indebtedness described above,
additional Indebtedness of Hartco in an amount not to exceed $1.5 Million.
<PAGE>
Item 7.2.3(c)(ii)
Purchase money mortgages, purchase money security interests or other Liens
granted to secure payment of Indebtedness incurred by Hartco (a) for the
purpose of financing the construction of properties or fixed improvements or
(b) in respect of Purchase Money Obligations for property used in a Permitted
Business, and covering only (together in each case with accessions and
fixtures thereto) the property so acquired or the properties or fixed
improvements so constructed (it being understood that any Lien granted on
property so acquired may also encumber and extend to properties and fixed
improvements constructed thereon, and any Lien granted on properties and fixed
improvements so constructed may also encumber and extend to property so
acquired on which such improvements are constructed).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> JAN-03-1997
<CASH> 19,638,000
<SECURITIES> 0
<RECEIVABLES> 62,289,000
<ALLOWANCES> 3,053,000
<INVENTORY> 95,096,000
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0
0
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<EPS-PRIMARY> 1.71
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</TABLE>
