UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________________________
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-8777
COLOR TILE, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1606185
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
515 Houston Street, Fort Worth, Texas 76102
(Address of principal executive office)
(Zip Code)
(817)870-9400
(Registrant`s telephone number, including area code)
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
All of the common stock of the registrant is held by Color Tile
Holdings, Inc., a Delaware corporation. The number of shares
outstanding of the registrant's common stock, $.01 par value, as
of May 1, 1994 was 101.
Exhibit Index is on Page 11
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COLOR TILE, INC.
Table of Contents
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements 3
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
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<TABLE><CAPTION>
COLOR TILE, INC.
Condensed Consolidated Balance Sheet
April 3, 1994 and January 2, 1994
(Amounts in Thousands, except share amounts)
(Unaudited)
ASSETS
April 3, 1994 January 2, 1994
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,893 $ 4,522
Accounts and notes receivable, net of
allowance for bad debts of $369 and $369 16,230 13,860
Inventories 86,253 83,552
Deferred income taxes 1,078 1,078
Other current assets 8,606 5,072
--------- ---------
Total Current Assets 115,060 108,084
Property, plant and equipment, net 120,761 119,993
Goodwill, net 268,010 269,824
Other intangible assets, net 41,255 40,696
Deferred financing costs, net 6,262 6,464
Deferred income taxes 13,078 13,078
Other assets 6,430 7,204
--------- ---------
Total Assets $ 570,856 $ 565,343
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 5,790 $ 5,790
Accounts payable 59,512 60,941
Employee compensation 3,081 4,867
Accrued interest 6,633 1,111
Accrued expenses 23,472 24,995
Customer deposits 12,492 6,008
--------- ---------
Total Current Liabilities 110,980 103,712
Long-term debt 345,774 347,567
Other noncurrent liabilities 5,509 5,488
--------- ---------
Total Liabilities 462,263 456,767
Commitments and contingencies (Note 4)
Redeemable preferred stock, $91,561
liquidation value at April 3, 1994 87,945 86,838
Common Stockholder's Equity:
Common stock, $.01 par value, 1,000,000 shares
authorized, 101 shares issued and outstanding
Additional paid-in capital 102,137 105,230
Accumulated deficit (81,489) (83,492)
--------- ---------
Total Common Stockholder's Equity 20,648 21,738
--------- ---------
Total Liabilities and Stockholders' Equity $ 570,856 $ 565,343
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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COLOR TILE, INC.
Condensed Consolidated Income Statement
For the three months ended April 3, 1994 and April 4, 1993
(Amounts in Thousands)
(Unaudited)
Three Months Ended
April 3, 1994 April 4, 1993
Systemwide sales $ 171,353 $ 137,611
========= =========
Net Sales $ 166,532 $ 134,680
Cost and expenses:
Cost of sales 96,630 71,566
Selling, general and administrative 52,068 47,585
Depreciation and amortization 6,910 6,126
--------- ---------
Total costs and expenses 155,608 125,277
--------- ---------
Operating profit 10,924 9,403
Loss on disposal of a line of business (346)
Interest expense, net (8,755) (4,855)
--------- ---------
Income before income taxes 2,169 4,202
Provision for income taxes 166 300
--------- ---------
Net income $ 2,003 $ 3,902
========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
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COLOR TILE, INC.
Condensed Consolidated Statement of Cash Flows
For the three months ended April 3, 1994 and April 4, 1993
(Amounts in Thousands)
(Unaudited)
Three Months Ended
April 3, 1994 April 4, 1993
Cash flows from operating activities:
Net income $ 2,003 $ 3,902
Adjustments to reconcile to cash
provided by operating activities:
Depreciation and amortization 7,113 6,500
Increase in accounts and
notes receivable (2,370) (98)
Increase in inventories (2,701) (6,852)
Increase in other current assets (3,534) (1,934)
Increase in accounts payable
and accrued expenses 7,268 7,901
(Increase) decrease in other
assets and liabilities 441 (1,020)
--------- ---------
Total adjustments 6,217 4,497
--------- ---------
Cash provided by operating activities 8,220 8,399
Cash flows from investing activities:
Purchases of property, plant
and equipment (5,459) (2,426)
Other investing activities (611) (823)
--------- ---------
Cash used in investing activities (6,070) (3,249)
Cash flows from financing activities:
Borrowings under revolving
line of credit 59,350 56,250
Payments on revolving line of
credit (59,700) (55,850)
Payments on long-term debt (1,443) (3,762)
Dividends paid on Senior Increasing
Rate Preferred Stock (1,986) (1,788)
--------- ---------
Cash used in financing activities (3,779) (5,150)
--------- ---------
Decrease in cash and cash equivalents (1,629) 0
Cash at beginning of period 4,522 0
--------- ---------
Cash at end of period $ 2,893 $ 0
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,030 $ 4,459
Income taxes $ 184 $ 166
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
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COLOR TILE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
(unaudited)
1. Basis of Presentation:
Color Tile, Inc. ("Color Tile" or the "Company") is a wholly
owned subsidiary of Color Tile Holdings, Inc. ("Holdings").
Reference is made to the summary of significant accounting
policies in the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1994. These financial statements
and the related notes should be read in connection with such Form
10-K.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position of the Company
as of April 3, 1994 and January 2, 1994 and its results of
operations and cash flows for the three months ended April 3,
1994 and April 4, 1993. Information included in the Condensed
Consolidated Balance Sheet as of January 2, 1994 has been derived
from the Company's audited financial statements in its Annual
Report on Form 10-K.
The results of operations for the three months ended April 3,
1994 may not be indicative of the results of operations for the
full fiscal year ending January 1, 1995.
2. Systemwide Sales:
Systemwide sales include retail sales of all Company stores,
retail sales of all Franchise stores, sales of American Blind and
Wallpaper Factory ("ABWF") since the date of acquisition and
sales of manufactured products to outside third parties.
3. Inventories:
Inventories consisted of the following:
April 3, January 2,
1994 1994
Finished Goods $ 83,972 $ 81,381
Work in Progress 722 656
Raw Materials 1,559 1,515
--------- ---------
$ 86,253 $ 83,552
========= =========
4. Commitments and Contingent Liabilities:
There are various claims and pending actions incident to the
business operations of the Company. In the opinion of
management, the Company's potential liability in all pending
actions and claims, in the aggregate, is not material.
6
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5. Loss on Disposal of a Line of Business:
Effective October 3, 1993, the Company elected to dispose of its
wholly owned Canadian subsidiary, Factory Carpet, which operated
37 retail stores in Canada (including 8 Franchised Stores). The
Company is in the process of negotiating the sale of the Canadian
operations. In connection with the sale or disposition of
Factory Carpet, the Company recorded a charge to continuing
operations of $8,651. The sales and related expenses of Factory
Carpet's operations have been eliminated from the individual line
items of the 1993 Condensed Consolidated Income Statement and the
pre-tax loss of this line of business has been included on a
one-line basis in the loss on disposal of a line of business as
follows:
Three Months
Ended April 4, 1993
Net Sales $ 5,311
==========
Pre-tax loss $ 346
==========
6. Income Taxes:
As a result of an ownership change, within the meaning of Section
382 of the Internal Revenue Code of 1986, as amended, that
occurred with respect to the Company on May 14, 1990, the
Company's ability to utilize approximately $52,347 of its net
operating loss carryforwards for tax purposes is limited to
$4,977 per year. No limitation currently is required by Section
382 with respect to $36,140 of the Company's net operating loss
carryforwards. The Company recognized reductions in federal tax
expense primarily from the utilization of its deductible
temporary difference of $1,162 and $1,926 for the three months
ended April 3, 1994 and April 4, 1993, respectively.
7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands, except share amounts)
RESULTS OF OPERATIONS
- ---------------------
Three months ended April 3, 1994, compared to three months ended
April 4, 1993.
NET SALES. Net sales for the three months ended April 3, 1994 increased
$31,852, or 23.7%, compared to the comparable prior year period. These sales
increases were achieved despite weak retail sales during January and February
resulting from severe winter storms throughout much of the country and the
earthquake in the Los Angeles area. The increase in sales resulted primarily
from the addition of approximately $23,800 in sales of the recently acquired
ABWF and also from increased Color Tile sales of (i) carpet and related
installation services, and (ii) merchandise to franchisees.
Net sales for retail stores operated by the Company(collectively, "Company
Stores") open over one year increased 5.1% for the three months ended April 3,
1994 compared to the comparable prior year period. At April 3, 1994, there were
804 retail stores in operation selling the Company's line of products, 100 of
which were operated by Franchisees ("Franchised Stores") (collectively
with the Company Stores, "Color Tile Stores"). During the first quarter of
1994, 6 Company Stores were opened, 7 Company Stores were converted to
Franchised Stores and 9 Company Stores were closed. In addition, 14 Franchised
Stores were opened, including the 7 Franchised Stores which were converted
from Company Stores.
COST OF SALES. Cost of sales increased by $25,064, or 35.0%, for the three
months ended April 3, 1994 compared to the comparable prior year period. Cost
of sales, as a percentage of Net Sales, increased to 58.0% for the three months
ended April 3, 1994 as compared to 53.1% for the comparable prior year period.
This increase in cost of sales as a percentage of Net Sales resulted principally
from a sales mix shift resulting from (i) the addition of sales by ABWF which
operates on lower gross margins than Color Tile, (ii) increased sales of carpet
and related installation services and (iii) increased sales of product to
franchisees.
OPERATING EXPENSES. Selling, general and administrative expenses decreased as
a percentage of net sales to 31.3% for the three months ended April 3, 1994 as
compared to 35.3% for the comparable prior year period as the Company continued
to control its operating costs and due to the addition of ABWF, which operates
on significantly lower operating expenses as a percentage of net sales. Such
expenses increased in aggregate dollar amount by $4,483 for the three months
ended April 3, 1994 over the comparable prior year period primarily due to (i)
increases in commission-based payroll due to improved sales and (ii) the
addition of ABWF's operating expenses.
INTEREST EXPENSE, NET. Interest expense, net, increased $3,900 for the three
months ended April 3, 1994 as compared to the comparable prior year period. The
increased interest expense resulting from the issuance of the Company's 10-3/4 %
Senior Notes during the fourth quarter of 1993 (the "Senior Notes offering"),
was partially offset by a reduction of interest expense resulting from the early
repayments of principal on the term loan portion of the Senior Credit
Agreement.
PRE-TAX INCOME. Pre-tax income for the three months ended April 3, 1994 was
$2,169 as compared to pre-tax income of $4,202 for the comparable prior year
period. The reduction in pre-tax income for the three months ended April 3,
1994 resulted primarily from the increase in interest expense of $3,900 which
was only partially offset by the $1,521 or 16.2% increase in operating profit
for the
8
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three months then ended.
INCOME TAXES. Income tax expense was $166 for the three months ended April 3,
1994 representing a decrease of $134 over the comparable prior year period. The
Company recognized reductions in federal income tax expense primarily from the
utilization of its deductible temporary differences of $1,162 and $1,926 for the
three months ended April 3, 1994 and April 4, 1993, respectively.
NET INCOME. Net income was $2,003 for the three months ended April 3, 1994 as
compared to net income of $3,902 in the comparable prior year period. The
decrease in net income over the comparable prior year period resulted primarily
from increased interest expense during the current period.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Commencing November 1991, the Company implemented a recapitalization plan to
reduce the Company's interest and to provide additional liquidity and financial
flexibility to the Company. In connection with this plan, the Company issued
additional common stock to Holdings and entered into the Senior Credit Agreement
in late 1991, issued the Series A, Senior Increasing Rate Preferred Stock
(the "Series A Shares") in a private placement in 1992 and consummated the
Senior Notes offering in 1993. The Company utilized the proceeds of these
financings to refinance the Company's then existing bank debt, to repurchase all
of its outstanding debt securities, to prepay certain principal payments on the
term loan portion of the Senior Credit Agreement, to acquire ABWF and to provide
working capital for its operations.
At April 3, 1994, the Company had $126,250 in outstanding borrowings under the
Senior Credit Agreement, which bear interest at fluctuating rates, and
approximately $10,500 of availability under the Senior Credit Agreement. At
that date, the average fluctuating interest rate on such borrowings approximated
6.4% per annum. The Company was in compliance as of April 3, 1994 with all
restrictive covenants contained in the Senior Credit Agreement and the Senior
Notes indenture.
During the remainder of fiscal 1994, the Company's principal payments due under
its outstanding long-term mortgage indebtedness and lease payments due under
capitalized leases will aggregate approximately $4,000. After giving effect to
the use of net proceeds of the Senior Notes offering, the next mandatory
principal payment under the term loan portion of the Senior Credit Agreement
will be the quarterly payment of $3,026 due in March 1996. Approximately
$6,000 of total cash dividends on the Series A shares will be payable during the
remainder of 1994. In 1995, the Company's redeemable Senior Preferred Stock
will begin to accrue cash dividends of approximately $5,200 annually with the
first payment of approximately $2,600 occurring on July 15, 1995.
Capital expenditures for the three months ended April 3, 1994 were $5,459 as
compared to $2,426 for the three months ended April 4, 1993. These capital
expenditures have been funded through cash flows from operations and the
revolving line of credit portion of the Senior Credit Agreement. For the
remainder of fiscal 1994, the Company anticipates making additional capital
expenditures of approximately $13,000 to $15,000.
The Company believes that funds generated from operations, the revolving line
of credit portion of the Senior Credit Agreement, lease financings and purchase
money mortgages will provide sufficient resources through 1994 to permit it to
make all principal and interest payments on the Senior Notes and its other
existing indebtedness, to pay all cash dividend payments on the Series A Shares
and to finance all planned capital expenditures for the current fiscal year.
9
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IMPACT OF INFLATION AND CHANGING PRICES; SEASONALITY
- ----------------------------------------------------
Inflation and changing prices have not historically had a material effect on the
Company's overall operations. Generally, the Company has been able to offset
the effect of increases in product costs through a combination of price
increases, modifications in promotional strategies and the implementation
of operating efficiencies.
The Company's business shows some seasonal variation, with lower sales
levels generally occurring during the winter months.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COLOR TILE, INC.
(Registrant)
Date:
May 16, 1994 /s/ DANIEL J. GILMARTIN
Daniel J. Gilmartin, Senior Vice President,
Treasurer and Chief Financial Officer
