<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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 2, 1995
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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
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COLOR TILE, INC.
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(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
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(Address of principal executive office)
(Zip Code)
(817) 870-9400
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(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, 1995 was 101.
Exhibit Index is on Page 11
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COLOR TILE, INC.
Table of Contents
PART I - FINANCIAL INFORMATION Page
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Item 1 - Financial Statements 3
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Fo11 8-K 11
2
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<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Balance Sheet
April 2, 1995 and January 1, 1995
(Amounts in Thousands, except share amounts)
(Unaudited)
ASSETS
April,2 January 1,
1995 1995
---------- ----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 444 $ 630
Accounts and notes receivable, net of
allowance for bad debts of $788 and $753 18,352 16,032
Inventories 91,392 87,394
Other current assets 11,153 6,362
--------- --------
Total Current Assets 121,341 110,418
--------- --------
Property, plant and equipment, net 122,763 121,667
Goodwill, net 262,356 264,159
Other intangible assets, net 38,964 39,787
Deferred financing costs, net 5,545 5,757
Other assets 9,066 8,310
-------- --------
Total Assets $560,038 $550,098
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of long-term debt $ 9,359 $ 5,817
Accounts payable 61,163 61,269
Employee compensation 3,485 5,089
Accrued interest 7,531 2,099
Accrued expenses 22,216 21,979
Customer deposits 13,234 6,878
-------- --------
Total Current Liabilities 116,988 103,131
-------- --------
Long-term debt 386,438 386,717
Other noncurrent liabilities 5,993 6,055
-------- --------
Total Liabilities 509,419 495,903
Commitments and contingencies (Note 4)
Redeemable preferred stock, $95,462
liquidation value at April 2, 1995 92,416 90,943
Common Stockholder's Deficiency:
Common stock, $.01 par value, 1,000,000 shares
authorized, 101 shares issued and outstanding
Additional paid-in capital 89,525 93,060
Accumulated deficit (131,322) (129,808)
--------- ---------
Total Common Stockholder's Deficiency (41,797) (36,748)
--------- ---------
Total Liabilities and Stockholders' Equity $560,038 $550,098
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Statement of Operations
For the three months ended April 2, 1995 and April 3, 1994
(Amounts in Thousands)
(Unaudited)
Three Months Ended
------------------
April 2, April 3,
1995 1994
-------- --------
<S> <C> <C>
Systemwide Sales $172,272 $171,353
======== ========
Net Sales $166,354 $166,532
Cost and expenses:
Cost of sales 98,648 96,630
Selling, general and administrative 51,568 52,068
Depreciation and amortization 6,906 6,910
-------- --------
Total costs and expenses 157,122 155,608
-------- --------
Operating income 9,232 10,924
Interest expense, net (10,578) (8,755)
-------- --------
Income (loss) before income taxes (1,346) 2,169
Provision for income taxes 168 166
-------- --------
Net income (loss) $ (1,514) $ 2,003
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Statement of Common Stockholder's Deficiency
For the three months ended April 2, 1995
(Amounts in Thousands, except share amounts)
(Unaudited)
Additional Total Common
Common Stock Paid-In Accumulated Stockholder's
Shares Amount Capital Deficit Deficit
------ ------ ------- ------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 101 $93,060 $(129,808) $(36,748)
Senior Cumulative Preferred Stock
dividends, declared and undeclared (1,202) (1,202)
Accretion of difference between
redemption value and proceeds of
Senior Cumulative Preferred Stock (21) (21)
Senior Increasing Rate Preferred
Stock dividends, declared and
undeclared (2,219) (2,219)
Accretion of difference between
redemption value and proceeds of
Senior Increasing Rate Preeds of
Stock (93) (93)
Net Loss (1,514) (1,514)
------ ------ ------- ---------- -------
Balance, April 2, 1995 101 $89,525 $(131,322) $(41,797)
====== ====== ======= ========== ========= -------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Statement of Cash Flows
For the three months months ended April 2, 1995 and April 3, 1994
(Amounts in Thousands)
(Unaudited)
Three Months Ended
-------------------------
April 2, April 3,
1995 1994
-------- --------
Cash Flows from operating activities:
<S> <C> <C>
Net income (loss) $ (1,514) $ 2,003
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Adjustments to reconcile to cash
provided by operating activities:
Depreciation and amortization 7,115 7,113
Increase in accounts and
notes receivable (2,320) (2,370)
Increase in inventories (3,998) (2,701)
Increase in other current assets (4,790) (3,534)
Increase in accounts payable
and accrued expenses 10,314 7,268
(Increase) decrease in other
assets and liabilities (131) 441
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Total adjustments 6,190 6,217
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Cash provided by operating activities 4,676 8,220
Cash flows from investing activities:
Purchases of property, plant and equipment (3,622) (5,459)
Other investing activities 20 (611)
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Cash used in investing activities (3,602) (6,070)
-------- --------
Cash flows from financing activities:
Borrowings under revolving line of credit 29,000 59,350
Payments on revolving line of credit (26,750) (59,700)
Payments on long-term debt (1,448) (1,443)
Dividends paid on Senior Increasing Rate
Preferred Stock (2,062) (1,986)
-------- --------
Cash used in financing activities (1,260) (3,779)
-------- --------
Decrease in cash and cash equivalents (186) (1,629)
Cash and cash equivalents at beginning
of period 630 4,522
-------- --------
Cash and cash equivalents at end of period $ 444 $ 2,893
======== ========
Supplemental disclosure of cash flow information: Cash paid during the
year for:
Interest $ 4,937 $ 3,030
Income taxes $ 353 $ 184
Non-cash investing and financing activities
Capital lease obligations incurred for property
plant and equipment $ 2,461 $ 0
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
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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 1, 1995. 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 2, 1995 and January 1, 1995 and its results of
operations and cash flows for the three months ended April 2, 1995 and April 3,
1994. Information included in the Condensed Consolidated Balance Sheet as of
January 1, 1995 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 2, 1995 may not
be indicative of the results of operations for the full fiscal year ending
December 31, 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"),
the Company's wholly-owned subsidiary, and sales of manufactured products to
outside third parties.
3. Inventories:
Inventories consisted of the following:
April 2, January 1,
1995 1995
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Finished Goods $88,617 $85,176
Work in Progress 895 563
Raw Materials 1,880 1,655
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$91,392 $87,394
=========== ==========
4. Commitments and Contingencies:
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.
7
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5. Advertising:
ABWF adopted the AICPA's, Statement of Position 93-7 (SOP 93-7), "Reporting
on Advertising Costs", effective for the three month period ended April 2, 1995
and subsequent periods. Pursuant to the provisions of SOP 93-7, the Company
expenses the costs of advertising in the annual period in which those costs are
incurred, except for direct response advertising of ABWF (e.g. magazine,
newspapers and television advertisements containing ABWF's products), which is
capitalized and amortized over its expected period of future benefits. These
direct-response advertising costs are amortized over the period following
publication of the advertisements during which future benefits of the specific
advertising are to be recognized.
For interim (quarterly) reporting purposes, the Company allocates its
advertising costs among the interim periods on the basis of estimated future
benefits of the advertising costs recognized in each of the periods.
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 $57,579
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
$65,307 of the Company's net operating loss carryforwards.
8
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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 April 2, 1995, compared to three months ended April 3, 1994.
Net Sales. Net sales for the three months ended April 2, 1995, which were
negatively impacted by increased interest rate pressures, lagging consumer
confidence and weak sales of existing homes, decreased $178 or 0.1% to $166,354
compared to the prior year period. While net sales were essentially flat, there
was (i) a 4.8% decrease in sales of Company owned retail stores open over one
year and (ii) a 4.0% reduction in the number of Company owned retail stores
operating within the chain the effects of which were largely offset by (i) a
4.5% increase in sales by ABWF, (ii) increased franchise royalties and (iii) a
17.2% increase in sales of merchandise to franchisees.
At April 2, 1995, there were 840 retail stores in operation selling the
Company's products, including 160 of which were operated by franchisees as
compared to 804 retail stores in operation as of April 3, 1994, including 100
stores operated by franchisees.
Cost of Sales. Cost of sales increased by $2,018 for the three months ended
April 2, 1995 compared to the prior year period. Cost of sales, as a percentage
of net sales, increased to 59.3% for the three months ended April 2, 1995 as
compared to 58.0% for the prior year period. The increase in cost of sales
resulted primarily from the sales mix shift described above, as higher margin
sales of retail stores were replaced by lower margin sales of ABWF and increased
sales of product to franchisees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased as a percentage of net sales to 31.0% for the
three months ended April 2, 1995 as compared to 31.3% for the prior year period
due to continued emphasis on control of operating costs. Such expenses decreased
in aggregate dollar amount by $500 for the three months ended April 2, 1995 from
the prior year period primarily due to decreases in retail sales related
commission-based payrolls which were partially offset by increased selling
expenses at ABWF resulting from the introduction of that unit's carpet program.
Interest Expense, Net. Interest expense, net, increased $1,823 for the
three months ended April 2, 1995 as compared to the prior year period. The
increased interest expense resulted from additional borrowings of $29,000 under
the term loan portion of the Senior Credit Agreement during the fourth quarter
1994 and higher interest rates on total borrowings under the Company's Senior
Credit Agreement.
Pre-Tax Income (Loss). Pre-tax loss was $1,346 for the three months ended
April 2, 1995 as compared to pre-tax income of $2,169 for the prior year period.
The pre-tax loss resulted principally from the increase in interest expense of
$1,823 and from the decrease in profit from Company stores due to lower sales
during the period.
Income Taxes. Income tax expense was $168 for the three months ended April
2, 1995 as compared to $166 for the prior year period.
Net Income (Loss). Net loss for the three months ended April 2, 1995 was
$1,514 as compared to net income of $2,003 in the prior year period. The net
loss resulted principally from the increase in interest expense and the decrease
in profit from Company owned retail stores due to lower sales during the period.
9
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Liquidity and Capital Resources
In September 1994, the Company entered into an amendment to its Senior
Credit Agreement and , on October 4, 1994, the Company borrowed an additional
$29,000 under the term loan portion of the Senior Credit Agreement, the proceeds
of which were utilized to provide additional working capital for the business.
At April 2, 1995, the Company had $167,850 in outstanding borrowings under
the Senior Credit Agreement and the average fluctuating interest rate on such
borrowings approximated 9.0% per annum. At May 1, 1995, the Company had
approximately $3,250 of availability under the revolving line of credit portion
of the Senior Credit Agreement.
During the remainder of fiscal 1995, the Company's principal payments due
under its outstanding long-term mortgage indebtedness and payments due under
capitalized leases will aggregate approximately $4,375. The next mandatory
principal payment under the term loan portion of the Senior Credit Agreement
will be the quarterly payment of $3,526 due in March 1996. Interest payments of
$10,750 on the Senior Notes are payable on each of the 15th of June and the 15th
of December, 1995. Interest payments under the Senior Credit Agreement are
generally due at the end of each calendar quarter and are anticipated to
approximate $3,750 quarterly.
Approximately $8,600 annually of cash dividends are scheduled to be paid
quarterly on the Series A Shares during 1995 of which the Company paid $2,062 in
January 1995. As of January 15, 1995, the Company's Redeemable Senior Preferred
Stock began to accrue cash dividends of approximately $5,200 annually, scheduled
to be payable quarterly. The Company did not pay the scheduled quarterly cash
dividends on the preferred stock in April 1995 and does not intend to pay
quarterly dividends on its preferred stock during the remainder of 1995. Failure
of the Company to pay scheduled preferred stock dividends in 1995 would not
cause a default or acceleration of any financial obligations of the Company.
However, although the relevant terms of the two outstanding series of preferred
stock differ somewhat, in general if six quarterly preferred stock dividends are
not paid, the holders of the preferred stock will be entitled to elect an
aggregate of up to four directors of the Company.
Capital expenditures for the three months ended April 2, 1995 were $3,622
as compared to $5,459 for the prior year period. These capital expenditures were
funded through cash flow from operations and the revolving credit portion of the
Senior Credit Agreement. During the remainder of fiscal 1995, the Company
anticipates total capital expenditures of approximately $12,800.
As a result of working capital needs resulting primarily from growth of
Franchised Stores in fiscal 1995, increased interest expense, expansion of the
Company's Floors A Plenty super-store concept, which has the short term effect
of reducing cash flow due to financing of initial inventory and initial
operating losses, and lower operating results in the first quarter of 1995 as
compared to the first quarter of 1994, the Company concluded that it would not
have sufficient cash resources to cover required and planned cash outlays during
the balance of fiscal 1995. To address this issue the Company has reduced its
planned capital expenditures for fiscal 1995 compared to fiscal 1994 and,
affiliates of Investcorp S.A., which indirectly has the power to vote a majority
of the outstanding voting shares of Holdings (collectively, with its affiliates,
"Investcorp"), have agreed to provide up to $15 million of financing to the
Company. Such financing will be provided on commercially reasonable terms and
will be available for one year, unless there is an earlier default. The specific
arrangements have not been completed for this financing and no borrowings have
been made. The Company anticipates completion of this arrangement and the
availability of these funds during the second quarter of 1995.
The Company believes that the proceeds of such financing, together with the
anticipated cash flows from operations, the reduction in capital expenditures as
compared to fiscal 1994 and borrowings under the Senior Credit Agreement, will
provide the Company with sufficient working capital for its operational needs in
fiscal
10
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1995 and enable the Company to make all payments required or planned for fiscal
1995, except the payments of quarterly dividends on its preferred stock.
The Company was in compliance with all covenants in the Senior Credit
Agreement at April 2, 1995. However, the Company believes that it will not be in
compliance with certain financial covenants, including trailing twelve months
operating profit and dividend coverage covenants, in the Senior Credit Agreement
as of the end of the second quarter of fiscal 1995. Such anticipated
non-compliance would result primarily from covenants that become increasingly
more restrictive over time in accordance with their terms, together with lower
than anticipated operating profits and increased interest expense.
The Company intends to seek relief from the covenants under the Senior
Credit Agreement and believes that some measure of relief will be granted,
especially in view of the financing being made available by Investcorp. The
Company has initiated discussions with the agent bank under the Senior Credit
Agreement regarding this issue; however, the Company has not finalized the
details of the relief it will request and no assurance can be given that such
relief, when requested, will be made available to the Company, or, if so,
whether the terms and conditions thereof will be acceptable to the Company.
If such non-compliance were to occur and the Company were unable to secure
the requisite waivers or covenant modifications, the Company would have to
refinance some or all of its indebtedness, sell assets, restructure its
operations or raise additional equity. No assurance can be given that any of the
foregoing could be accomplished or, if accomplished, would raise sufficient
funds for the Company to satisfy its debt service and other financial
obligations on a timely basis.
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:
May 16, 1995 /s/ WILLIAM H. PAVONY
---------------------
William H. Pavony, Vice President
and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Color
Tile, Inc.'s condensed consolidated financial statements for the three
months ended April 2, 1995 and is qualified in its entirety by reference
to such statements.
</LEGEND>
<CIK> 0000276780
<NAME> Color Tile, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> APR-02-1995
<CASH> 444
<SECURITIES> 0
<RECEIVABLES> 19140
<ALLOWANCES> 788
<INVENTORY> 91392
<CURRENT-ASSETS> 121341
<PP&E> 122763
<DEPRECIATION> 0
<TOTAL-ASSETS> 560038
<CURRENT-LIABILITIES> 116988
<BONDS> 386438
<COMMON> 0
92416
0
<OTHER-SE> (41797)
<TOTAL-LIABILITY-AND-EQUITY> 560038
<SALES> 166354
<TOTAL-REVENUES> 166354
<CGS> 98648
<TOTAL-COSTS> 157122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10578
<INCOME-PRETAX> (1346)
<INCOME-TAX> 168
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<NET-INCOME> (1514)
<EPS-PRIMARY> 0
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</TABLE>
