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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 July 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 August 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 Results of Operations and
Financial Condition 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
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<TABLE><CAPTIONS> COLOR TILE, INC.
Condensed Consolidated Balance Sheet
July 3, 1994 and January 2, 1994
(Amounts in Thousands, except share amounts)
(Unaudited)
ASSETS
July 3, January 2,
1994 1994
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,002 $ 4,522
Accounts and notes receivable,
net of allowance for bad debts
of $367 and $369 15,306 13,860
Inventories 94,046 83,552
Deferred income taxes 1,078 1,078
Other current assets 9,166 5,072
-------- --------
Total Current Assets 121,598 108,084
-------- --------
Property, plant and equipment, net 123,051 119,993
Goodwill, net 266,613 269,824
Other intangible assets, net 42,770 40,696
Deferred financing costs, net 6,059 6,464
Deferred income taxes 13,078 13,078
Other assets 5,228 7,204
-------- --------
Total Assets $578,397 $565,343
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 5,889 $ 5,790
Accounts payable 73,035 60,941
Employee compensation 5,731 4,867
Accrued interest 1,370 1,111
Customer deposits 10,563 6,008
Accrued expenses 19,436 24,995
-------- --------
Total Current Liabilities 116,024 103,712
-------- --------
Long-term debt 351,446 347,567
Other noncurrent liabilities 5,362 5,488
-------- --------
Total Liabilities 472,832 456,767
-------- --------
Commitments and contingencies (Note 4)
Redeemable preferred stock, $92,578
liquidation value at July 3, 1994 88,890 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 99,169 105,230
Accumulated deficit (82,494) (83,492)
-------- --------
Total Common Stockholder's Equity 16,675 21,738
-------- --------
Total Liabilities and Stockholders' Equity $578,397 $565,343
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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<TABLE><CAPITONS>
COLOR TILE, INC.
Condensed Consolidated Statement of Operations
For the three months and six months ended July 3, 1994 and July 4, 1993
(Amounts in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
------------------ -----------------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Systemwide Sales $175,910 $134,362 $347,263 $271,973
======== ======== ======== ========
Net Sales $169,388 $131,596 $335,920 $266,276
Cost and expenses:
Cost of sales 98,486 72,636 195,116 144,202
Selling, general
and administrative 53,641 46,610 105,709 94,195
Depreciation
and amortization 7,071 5,930 13,981 12,056
-------- -------- -------- --------
Total costs
and expenses 159,198 125,176 314,806 250,453
-------- -------- -------- --------
Operating profit 10,190 6,420 21,114 15,823
Loss on disposal of a
line of business (2,500) (434) (2,500) (780)
Interest expense, net (8,518) (4,818) (17,273) (9,673)
-------- -------- -------- --------
Income (loss)
before income taxes (828) 1,168 1,341 5,370
Provision for income taxes 176 223 342 523
-------- -------- -------- --------
Net income (loss) ($ 1,004) $ 945 $ 999 $ 4,847
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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<TABLE><CAPTIONS>
COLOR TILE, INC.
Condensed Consolidated Statement of Cash Flows
For the six months ended July 3, 1994 and July 4, 1993
(Amounts in Thousands)
Six Months Ended
-----------------
July 3, July 4,
1994 1993
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 999 $ 4,847
Adjustments to reconcile to cash
provided by operating activities:
Depreciation and amortization 14,386 12,802
Loss on disposal of a line of business 2,500
(Increase) decrease in accounts
and notes receivable (1,446) 1,118
Increase in inventories (10,494) (9,101)
Increase in other current assets (4,094) (1,881)
Increase in accounts payable
and accrued expenses 9,711 9,671
Increase in other assets and liabilities (331) (4,186)
-------- --------
Total adjustments 10,232 8,423
-------- --------
Cash provided by operating activities 11,231 13,270
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (11,191) (4,951)
Other investing activities (2,529) (1,564)
-------- --------
Cash used in investing activities (13,720) (6,515)
-------- --------
Cash flows from financing activities:
Borrowings under revolving line of credit 138,700 106,750
Payments on revolving line of credit (132,000) (102,350)
Payments on long-term debt (2,722) (7,511)
Dividends paid on Senior Increasing
Rate Preferred Stock (4,009) (3,644)
-------- --------
Cash used in financing activities (31) (6,755)
-------- --------
Decrease in cash and cash equivalents (2,520)
Cash at beginning of period 4,522
-------- --------
Cash at end of period $ 2,002 $
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 16,291 $ 8,875
Income taxes $ 235 $ 338
Non-cash investing and financing actiivities:
Capital lease obligations incurred for
property, plant and equipment $ 365
</TABLE>
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 July 3, 1994 and January 2, 1994 and its results of
operations for the three months and six months ended July 3, 1994 and July 4,
1993 and cash flows for the six months ended July 3, 1994 and July 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 and six months ended July 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 (November 1, 1993) and sales of manufactured
products to outside third parties.
3. Inventories:
Inventories consists of the following:
July 3, January 2,
1994 1993
Finished Goods $ 91,871 $ 81,381
Work in Progress 734 656
Raw Materials 1,441 1,515
-------- --------
$ 94,046 $ 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). On May 20, 1994 the Company sold the
Canadian operations. In connection with the disposition of Factory Carpet, the
Company recorded a charge to continuing operations of $2,500 in the second
quarter of 1994 and $8,651 in the third quarter of 1993. 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:
Period Ended July 4, 1993
-------------------------
Three Months Six Months
------------ ----------
Net Sales $ 6,593 $12,204
Pre-tax loss ($ 434) ($ 780)
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 differences of $1,245 and $2,811 for the six months
ended July 3, 1994 and July 4, 1993, respectively.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Amounts in Thousands)
RESULTS OF OPERATIONS
- - ---------------------
THREE MONTHS ENDED JULY 3, 1994, COMPARED TO THREE MONTHS ENDED JULY 4, 1993.
- - -----------------------------------------------------------------------------
NET SALES.
Net sales for the three months ended July 3, 1994 increased $37,792, or
28.7%, compared to the comparable prior year period. The increase in sales
resulted primarily from (i) the addition of $23,407 in sales of ABWF, (ii) a
7.4% increase in retail sales by Company stores open over one year and (iii)
increased franchise fees and royalties and sales of merchandise to
franchisees.
COST OF SALES.
Cost of sales increased by $25,850, for the three months ended July 3, 1994
compared to the comparable prior year period. Cost of sales, as a percentage of
Net Sales, increased to 58.1% for the three months ended July 3, 1994 as
compared to 55.2% for the comparable prior year period. This increase in cost
of sales resulted principally from a sales mix shift resulting from (i) the
addition of sales of 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses decreased as a percentage of
Net Sales to 31.7% for the three months ended July 3, 1994 as compared to 35.4%
for the comparable prior year period due to the Company's continued emphasis on
control of operating costs and the addition of ABWF, which operates on lower
operating expenses, as a percentage of Net Sales. Such expenses increased in
aggregate dollar amount by $7,031 for the three months ended July 3, 1994 over
the comparable prior year period primarily due to (i) increases in
commission-based payroll due to higher sales, (ii) increased advertising
expenditures and (iii) the addition of ABWF's operating expenses.
INTEREST EXPENSE, NET.
Interest expense, net, increased $3,700 for the three months ended July 3,
1994 as compared to the comparable prior year period. The increased interest
expense resulted from the issuance of the $200,000 principal amount of 10-3/4%
Senior Notes (the "Senior Notes") during the fourth quarter of 1993 and higher
interest rates on borrowings under the Company's bank facility (the "Senior
Credit Agreement").
PRE-TAX INCOME (LOSS).
For the three months ended July 3, 1994, pre-tax loss was $828 as compared to
pre-tax income of $1,168 for the comparable prior year period. The pre-tax loss
for the three months ended July 3, 1994 resulted primarily from the increase in
interest expense of $3,700 and the $2,500 loss on disposal of a line of
business, which was only partially offset by the $3,770, or 58.7%, increase in
operating profit.
8
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INCOME TAXES.
Income tax expense was $176 for the three months ended July 3, 1994
representing a decrease of $47 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 $83 and $885 for the
three months ended July 3, 1994 and July 4, 1993, respectively.
NET INCOME (LOSS).
Net loss was $1,004 for the three months ended July 3, 1994 as compared to
net income of $945 in the comparable prior year period. The net loss resulted
primarily from increased interest expense of $3,700 and the $2,500 loss on
disposal of a line of business recorded during the current quarter.
SIX MONTHS ENDED JULY 3, 1994 COMPARED TO SIX MONTHS ENDED JULY 4, 1993.
- - ------------------------------------------------------------------------
NET SALES.
Net sales for the six months ended July 3, 1994 increased $69,644, or
26.2%, 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 (i) the
addition of approximately $47,263 in sales of ABWF, (ii) a 5.6% increase in
retail sales by Company stores open over one year and (iii) increased franchise
fees and royalties and sales of merchandise to Franchisees.
At July 3, 1994, there were 814 retail stores in operation selling the
Company's line of products, 105 of which were operated by Franchisees
("Franchise Stores").
COST OF SALES.
Cost of sales increased by $50,914, for the six months ended July 3, 1994
compared to the comparable prior year period. Cost of sales, as a percentage of
Net Sales, increased to 58.1% for the six months ended July 3, 1994 as compared
to 54.2% for the comparable prior year period. This increase in cost of sales
resulted principally from a sales mix shift resulting from (i) the addition of
sales of 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses decreased as a percentage of
Net Sales to 31.5% for the six months ended July 3, 1994 as compared to 35.4%
for the comparable prior year period due to the Company's continued emphasis on
control of operating costs and the addition of ABWF, which operates on lower
operating expenses, as a percentage of Net Sales, than Color Tile. Such
expenses increased in aggregate dollar amount by $11,514 for the six months
ended July 3, 1994 over the comparable prior year period primarily due to (i)
increases in commission-based payroll due to higher sales and (ii) the addition
of ABWF's operating expenses.
INTEREST EXPENSE, NET.
Interest expense, net increased $7,600 for the six months ended July 3,
1994 as compared to the comparable prior year period. The increased interest
expense resulted from the issuance of the Senior Notes during the fourth quarter
of 1993 and the higher interest rates on borrowings under the Senior Credit
Agreement.
9
<PAGE>
PRE-TAX INCOME.
Pre-tax income for the six months ended July 3, 1994 was $1,341 as compared
to pre-tax income of $5,370 for the comparable prior year period. Pre-tax
income for the six months ended July 3, 1994 decreased primarily due to the
increase in interest expense of $7,600 and the $2,500 loss on disposal of a line
of business, which was partially offset by the $5,291, or 33.4%, increase in
operating profit.
INCOME TAXES.
Income tax expense was $342 for the six months ended July 3, 1994
representing a decrease of $181 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 $1,245 and $2,811 for the
six months ended July 3, 1994 and July 4, 1993, respectively.
NET INCOME
Net income was $999 for the six months ended July 3, 1994 as compared to
net income of $4,847 in the comparable prior year period. The decrease in net
income over the comparable prior year period resulted primarily from increased
interest expense of $7,600 and the $2,500 loss on disposal of a line of
business.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At July 3, 1994, the Company had $133,300 in outstanding Borrowings under
the Senior Credit Agreement, which bear interest at fluctuating rates, and
approximately $5,700 of availability under the Senior Credit Agreement. At that
date, the average fluctuating interest rate on such Borrowings approximated 7.3%
per annum. The Company was in compliance as of July 3, 1994 with all
restrictive covenants contained in the Senior Credit Agreement and the Senior
Note Indenture.
During the remainder of fiscal 1994, the Company's principal payments due
under its outstanding long-term mortgage indebtedness and payments due under
capitalized leases will aggregate approximately $3,000. 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
$4,000 of total cash dividends will be payable on the Series A Shares 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 six months ended July 3, 1994 were $11,191 as
compared to $4,951 for the six months ended July 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 $7,000 to $8,000.
10
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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 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.
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
11
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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:
August 16, 1994 /s/ DANIEL J. GILMARTIN
Daniel J. Gilmartin, Senior Vice President,
Treasurer and Chief Financial Officer
