<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1999
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 33-64140
DAL-TILE INTERNATIONAL INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3548809
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
7834 Hawn Freeway, Dallas, Texas 75217
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(Address of principal executive office)
(Zip Code)
(214) 398-1411
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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
----- -----
As of May 6, 1999, the registrant had outstanding 54,023,805 shares of voting
common stock, par value $0.01 per share.
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DAL-TILE INTERNATIONAL INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited) 3
Notes to Consolidated Condensed Financial Statements (Unaudited) 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
</TABLE>
2
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
APRIL 2, APRIL 3,
1999 1998
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<S> <C> <C>
Net sales $ 200,692 $ 185,831
Cost of goods sold 104,010 98,503
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Gross profit 96,682 87,328
Operating expenses:
Transportation 14,128 14,533
Selling, general and administrative 58,768 57,433
Amortization of intangibles 1,401 1,401
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Total operating expenses 74,297 73,367
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Operating income 22,385 13,961
Interest expense 10,185 11,604
Interest income 26 26
Other income (expense) 212 (391)
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Income before income taxes 12,438 1,992
Income tax provision 1,300 1,164
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Net Income $ 11,138 $ 828
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BASIC EARNINGS PER SHARE
Net income per common share $ 0.21 $ 0.02
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Average shares 53,568 53,435
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DILUTED EARNINGS PER SHARE
Net income per common share $ 0.21 $ 0.02
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Average shares 54,066 54,149
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</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements.
3
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 2, JANUARY 1,
1999 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,348 $ 1,546
Trade accounts receivable 105,109 93,331
Inventories 134,795 138,418
Prepaid expenses 3,583 4,213
Other current assets 15,656 17,319
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Total current assets 260,491 254,827
Property, plant, and equipment, at cost 291,081 288,060
Less accumulated depreciation 90,487 86,058
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200,594 202,002
Goodwill, net of amortization 146,605 147,796
Finance costs, net of amortization 6,322 6,687
Tradename and other assets, net of amortization 28,803 29,496
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Total assets $ 642,815 $ 640,808
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</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements.
4
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DAL-TILE INTERNATIONAL INC.
CONSOLDIATED CONDENSED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 2, JANUARY 1,
1999 1999
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 32,426 $ 28,684
Accrued expenses 64,396 59,420
Accrued interest payable 793 490
Current portion of long-term debt 49,009 46,509
Income taxes payable 1,658 169
Deferred income taxes 2,140 1,930
Other current liabilities 222 10
----------- -----------
Total current liabilities 150,644 137,212
Long-term debt 441,473 453,923
Other long-term liabilities 21,924 32,639
Deferred income taxes 1,847 1,575
Stockholders' Equity:
Common stock, $.01 par value:
Authorized shares - 200,000,000; issued and
outstanding shares - 53,577,996 536 535
Additional paid-in capital 436,441 436,182
Accumulated deficit (335,720) (346,858)
Accumulated other comprehensive loss (74,330) (74,400)
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Total stockholders' equity 26,927 15,459
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Total liabilities and stockholders' equity $ 642,815 $ 640,808
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</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements.
5
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 2, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT LOSS TOTAL
------ ------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 535 $436,182 $ (346,858) $ (74,400) $ 15,459
Proceeds from exercise of stock options 1 259 - - 260
Comprehensive Income
Net income - - 11,138 - 11,138
Foreign currency translation adjustments - - - 70 70
----- -------- ---------- --------- --------
Total Comprehensive Income 11,208
----- -------- ---------- --------- --------
Balance at April 2, 1999 $ 536 $436,441 $ (335,720) $ (74,330) $ 26,927
----- -------- ---------- --------- --------
----- -------- ---------- --------- --------
</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements.
6
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,138 $ 828
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,968 7,165
Other, net 358 149
Changes in operating assets and liabilities:
Trade accounts receivable (11,691) (13,936)
Inventories 4,006 6,218
Other assets 2,941 1,557
Trade accounts payable and accrued expenses 8,285 5,866
Accrued interest payable 303 (847)
Other liabilities (9,104) 511
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Net cash provided by operating activities 13,204 7,511
INVESTING ACTIVITIES
Proceeds from sale of (expenditures for) property, plant
and equipment, net (3,785) 3,272
FINANCING ACTIVITIES
Repayments of long-term debt (67,600) (44,650)
Borrowings under long-term debt 57,650 27,004
Fees and expenses associated with debt refinancing - (241)
Proceeds from exercise of stock options 260 -
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Net cash used in financing activities (9,690) (17,887)
Effect of exchange rate changes on cash 73 15
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Net decrease in cash (198) (7,089)
Cash at beginning of period 1,546 7,488
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Cash at end of period $ 1,348 $ 399
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</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements.
7
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DAL-TILE INTERNATIONAL INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements for the three months
ended April 2, 1999 reflect the results of operations of Dal-Tile
International Inc. and its consolidated subsidiaries (the "Company"). Due
to the Company's 52/53 week accounting cycle, the first quarter of 1999
ended on April 2, 1999.
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements include all adjustments, consisting of normal
recurring items, necessary for a fair presentation of financial position,
results of operations and cash flow. The results of operations for the
three months ended April 2, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the January 1, 1999 annual report on Form
10-K of the Company.
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
2. EARNINGS PER SHARE
Basic earnings per share are based on the average number of shares
outstanding during each period presented. Diluted earnings per share are
based on the average number of shares outstanding including any dilutive
effects of options, warrants and convertible securities.
3. COMPREHENSIVE INCOME
Total comprehensive income includes net income and foreign currency
translation adjustments. For the first quarter of 1999 and 1998, total
comprehensive income (loss) was $11,208 and ($1,974), respectively.
8
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4. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
April 2, January 1,
1999 1999
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<S> <C> <C>
Raw materials $ 8,007 $ 9,016
Work-in-process 4,334 4,053
Finished goods 122,454 125,349
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$ 134,795 $ 138,418
--------- ---------
--------- ---------
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 2, January 1,
1999 1999
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<S> <C> <C>
Term A Loan $ 195,000 $ 205,000
Term B Loan 123,750 124,000
Revolving Credit Loan 152,750 152,050
Other 18,982 19,382
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490,482 500,432
Less current portion 49,009 46,509
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$ 441,473 $ 453,923
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--------- ---------
</TABLE>
6. INCOME TAXES
The income tax provision reflects effective tax rates of 10% and 58%
for the three months ended April 2, 1999 and April 3, 1998,
respectively. These rates reflect expected Mexico tax liabilities and
U.S. state and possession taxes based on estimated taxable income in
those jurisdictions. The decrease in effective rate for the first
quarter of 1999 versus 1998 was due to increased levels of pretax
income, which primarily effect the federal tax jurisdiction. No U.S.
federal income tax expense was recorded in the first quarter of 1999
or 1998 due to an offset by a valuation allowance against U.S. federal
deferred tax assets recorded during 1997. The requirement for a valuation
allowance will continue to be reassessed in future reporting periods.
7. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state, local and foreign laws and
regulations relating to the environment and to work places. Laws that
affect or could affect the Company's United States operations include,
among others, the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act and the Occupational Safety and Health Act.
The Company believes that it is currently in substantial compliance with
such laws and the regulations promulgated thereunder.
The Company is involved in various proceedings relating to environmental
matters. The Company,
9
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in the past, has disposed or arranged for the disposal of substances
which are now characterized as hazardous and currently is engaged in
the cleanup of hazardous substances at certain sites. It is the
Company's policy to accrue liabilities for remedial investigations and
cleanup activities when it is probable that such liabilities have been
incurred and when they can be reasonably estimated. The Company has
provided reserves which management believes are adequate to cover
probable and estimable liabilities of the Company with respect to such
investigations and cleanup activities, taking into account currently
available information and the Company's contractual rights of
indemnification. However, estimates of future response costs are
necessarily imprecise due to, among other things, the possible
identification of presently unknown sites, the scope of contamination
of such sites, the allocation of costs among other potentially
responsible parties with respect to any such sites and the ability of
such parties to satisfy their share of liability. Accordingly, there
can be no assurance that the Company will not become involved in
future litigation or other proceedings or, if the Company were found
to be responsible or liable in any litigation or proceeding, that such
costs would not be material to the Company.
The Company is also a defendant in various lawsuits arising from normal
business activities. In the opinion of management, the ultimate liability
likely to result from the contingencies described above is not expected
to have a material adverse effect on the Company's consolidated financial
condition, results of operations or liquidity.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the first quarter of 1999, the Company continued the positive momentum
generated during fiscal year 1998 as it reported record quarterly revenues and
improved profitability. Operating margin continued to improve through increased
capacity utilitization and reductions in transportation and operating costs. Net
income increased for the fourth consecutive quarter versus prior years
comparable quarters. For the remainder of 1999, the Company plans an extensive
roll-out of new products servicing both the commercial and residential markets.
New product lines will be distributed through the Company-operated sales centers
and to the independent distributor and home center channels. In addition, the
Company will continue efforts to reduce costs and streamline operations through
additional manufacturing efficiencies, improved material prices and overall cost
reductions within the Company's value-added cycles.
The following is a discussion of the results of operations for the three months
ended April 2, 1999 compared with the three months ended April 3, 1998 for
Dal-Tile International Inc. and its consolidated subsidiaries (the "Company").
Due to the Company's 52/53 week accounting cycle, the first quarter of 1999
ended on April 2, 1999.
NET SALES
Net sales for the first quarter of 1999 increased $14.9 million, or 8.0%, to
$200.7 million from $185.8 million in 1998. The increase was due primarily to
increased sales volume through the Company-operated sales centers, which
increased 13.1% compared to the prior year quarter. Net sales increased 7.7%
through the home center services channel and decreased 11.1% within the
independent distributor channel. First quarter 1998 net sales to independent
distributors included a one time sale of inventories of approximately $3.5
million related to the sale of three remaining American Olean stores. Excluding
this sale of inventories, first quarter 1999 net sales to independent
distributors were comparable to 1998.
GROSS PROFIT
Gross profit for the first quarter of 1999 increased $9.4 million, or 10.8%, to
$96.7 million from $87.3 million in 1998 principally as a result of increased
sales volume. Gross margin increased in the first quarter of 1999 to 48.2% from
47.0% in the first quarter of 1998. The increase was due to higher sales and
lower manufacturing costs.
OPERATING EXPENSES
Operating expenses in the first quarter of 1999 increased $0.9 million, or 1.2%,
to $74.3 million from $73.4 million in the first quarter of 1998. This increase
was due primarily to additional spending related to new product introductions
and higher costs associated with the growth in sales. Operating expenses as a
percent of sales in the first quarter of 1999 improved to 37.0% from 39.5% in
1998. The decrease was due primarily to higher sales and reductions in general
and administrative costs. In addition, transportation costs decreased from 7.8%
of sales to 7.0% due to improvements in inventory positioning and lower freight
rates from carrier consolidation.
11
<PAGE>
OPERATING INCOME
Operating income in the first quarter of 1999 increased $8.4 million, or 60.0%,
to $22.4 million from $14.0 million in the first quarter of 1998. Operating
margin improved to 11.2% in the first quarter of 1999 from 7.5% in 1998 due
primarily to higher sales and decreased manufacturing and general and
administrative expenses.
INTEREST EXPENSE (NET)
Interest expense (net) in the first quarter of 1999 decreased $1.4 million, or
12.1%, to $10.2 million from $11.6 million in the first quarter of 1998. This
decrease was due to reduced borrowing requirements on the Company's credit
facility and related reductions in interest rates and fees.
INCOME TAXES
The income tax provision reflects effective tax rates of approximately 10% and
58% for the first quarter of 1999 and 1998, respectively. These rates reflect
expected Mexico tax liabilities and U.S. state and possession taxes based on
estimated taxable income in those jurisdictions. The decrease in effective rate
for the first quarter of 1999 versus 1998 was due to increased levels of pretax
income, which primarily effect the federal tax jurisdiction. No U.S. federal
income tax expense was recorded for the first quarter of 1999 or 1998 due to an
offset by a valuation allowance against U.S. federal deferred tax assets
recorded during 1997. The requirement for a valuation allowance will continue to
be reassessed in future reporting periods.
NET INCOME
Net income in the first quarter of 1999 increased to $11.1 million from $0.8
million in the first quarter of 1998. Net income increased due to higher gross
profit and operating income and reduced interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations and funds available under the Company's bank credit
agreement (the "Third Amended Credit Facility") continue to provide the Company
with liquidity and capital resources for working capital requirements, capital
expenditures and debt service. For the three months ended April 2, 1999, cash
provided by operating activities was $13.2 million compared to $7.5 million for
the same period in 1998. The improvement in operating cash flow was due to
increased profitability compared to the first quarter of 1998.
Net expenditures for property, plant and equipment were $3.8 million for the
first quarter of 1999 compared to cash provided of $3.3 million in the first
quarter of 1998. Net cash provided in 1998 included $8.1 million of net cash
proceeds from the sale of the Lansdale, PA manufacturing facility. Expenditures
for the first quarter of 1999 included costs for multiple projects to improve
manufacturing, distribution and information systems. Capital expenditures during
the remainder of 1999 will be comprised of routine capital improvements and
continued costs to upgrade production capacity, distribution facilities and
information systems.
12
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Cash used in financing activities was $9.7 million for the first quarter of
1999, which reflects term debt amortization on the Company's Third Amended
Credit Facility of $10.3 million. Total availability under the Third Amended
Credit Facility as of April 2, 1999 was $82.8 million.
Although the Company believes cash flow from operating activities, together with
borrowings available under the Third Amended Credit Facility, will be sufficient
to fund working capital needs, capital expenditures and debt service
requirements, the Company is constantly pursuing opportunities to improve its
capital structure and may seek alternative financing arrangements.
The peso fluctuation and economic uncertainties in Mexico are not expected to
have a significant impact on the Company's liquidity. Since the Company has no
peso-based borrowings, high interest rates in Mexico are not expected to
directly affect the Company's liquidity. Any future devaluation of the peso
against the U.S. dollar may adversely affect the Company's results of operations
or financial condition.
The Company is involved in various proceedings relating to environmental matters
and is currently engaged in environmental investigation and remediation programs
at certain sites. The Company has provided reserves for remedial investigation
and cleanup activities that the Company has determined to be both probable and
reasonably estimable. The Company is entitled to indemnification with respect to
certain expenditures incurred in connection with such environmental matters and
does not expect that the ultimate liability with respect to such investigation
and remediation activities will have a material adverse effect on the Company's
liquidity and financial condition.
The United States is a party to the General Agreement on Tariffs and Trade
("GATT"). Under GATT, the United States currently imposes import duties on
ceramic tile from non-North American countries at no more than 15%, to be
reduced ratably to 8 1/2% by 2004. Accordingly, GATT may stimulate competition
from non-North American manufacturers who now export, or who may seek to export,
ceramic tile to the United States. The Company cannot predict with certainty the
effect that GATT may have on the Company's operations.
In 1993, Mexico, the United States and Canada approved the North American Free
Trade Agreement ("NAFTA"). NAFTA has, among other things, removed and will
continue to remove, over a transition period, most normal customs duties imposed
on goods traded among the three countries. In addition, NAFTA will remove or
limit many investment restrictions, liberalize trade in services, provide a
specialized means for settlement of, and remedies for, trade disputes arising
thereunder, and will result in new laws and regulations to further these goals.
Although NAFTA lowers the tariffs imposed on the Company's ceramic tile
manufactured in Mexico and sold in the United States, it also may stimulate
competition in the United States and Canada from manufacturers located in
Mexico. The United States currently imposes import duties on ceramic tile from
Mexico of approximately 12%, although these duties on imports from Mexico are
being phased out ratably under NAFTA by 2008. It is uncertain what ultimate
effect NAFTA will have on the Company's results of operations.
EFFECTS OF INFLATION
The Company believes it has generally been able to increase productivity to
offset increases in costs resulting from inflation in the U.S. and Mexico.
Inflation has not had a material impact on the Company's results of operations
during the three months ended April 2, 1999 and April 3, 1998. However, any
future increases in the inflation rate, and any increases in interest rates
which affect financing costs, may negatively affect the Company's results of
operations.
13
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IMPACT OF YEAR 2000
Some of the Company's computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer programs
have time-sensitive software that recognize a date using "00" as the year 1900
rather than the year 2000. This could cause system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in normal business
activities.
The Company is continuing its efforts to modify and replace certain portions of
its software and equipment so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000 cost
is estimated at approximately $5.4 million and will be expensed as incurred. To
date, the Company has completed the updating of "mission critical" software for
Year 2000 date processing and has implemented these changes into the day-to-day
business systems. In addition, customers, suppliers and carriers have been
required to certify their readiness for Year 2000. Through the end of the first
quarter of 1999, expenses totaling $4.0 million were incurred for Year 2000
activities.
The testing of all "mission critical" software and equipment, including the
testing of interrelationships of all components is estimated to be completed no
later than the second quarter of 1999, which is prior to any anticipated impact
on the Company's operating systems. Less critical activities, including the
upgrade of stand-alone equipment and monitoring of supplier and carrier
progress, will continue for the balance of 1999. The Company believes that, with
modifications to existing software and conversions to new software, the Year
2000 issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed in a timely manner, the Year 2000 issue could have a material adverse
impact on operations.
The cost of the project and the date by which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, non-performance of key software and
hardware vendors and similar uncertainties.
In addition, material disruptions to the operations of the Company's major
customers and suppliers as a result of Year 2000 issues could also have a
material adverse impact on the Company's operations and financial condition. At
present, the Company is preparing a detailed Year 2000 contingency plan. The
contingency plan will include a more definitive risk assessment related to major
customers and suppliers and how the Company plans to mitigate such risk. The
plan is expected to be in place by the end of the third quarter of 1999.
NEW ACCOUNTING PRONOUNCEMENTS
Effective for fiscal year 1999, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
statement requires capitalization of certain costs incurred in the development
of internal-use software, including external direct material and service costs,
employee payroll and payroll-related costs and capitalized interest. Prior to
adoption of SOP 98-
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1, the Company expensed these costs as incurred. The effect of this change in
accounting principle on earnings in 1999 is not expected to be material.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is required to be adopted in years beginning after June 15, 1999. Because
of the Company's minimal use of derivatives, management does not anticipate that
the adoption of SFAS 133 will have a significant effect on earnings or the
financial position of the Company.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Cautionary Statement for purposes of "Safe Harbor Provisions" of the
Private Securities Litigation Reform Act of 1995.
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to risks, uncertainties
and other factors which could cause actual results to differ materially
from future results expressed or implied by such forward looking
statements. Potential risks and uncertainties include, but are not
limited to, the impact of competitive pressures and changing economic
conditions on the Company's business and its dependence on residential
and commercial construction activity, the fact that the Company is
highly leveraged, currency fluctuations and other factors relating to
the Company's foreign manufacturing operations, the impact of pending
reductions in tariffs and custom duties, system integration issues and
environmental laws and other regulations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 - Dal-Tile International Inc. 1999 Employee Stock
Purchase Plan
27.1 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
April 2, 1999.
15
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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.
DAL-TILE INTERNATIONAL INC.
----------------------------
(Registrant)
Date:
May 10, 1999 /s/ W. Christopher Wellborn
- ------------ -----------------------------------------
Executive Vice President, Chief Financial
Officer and Assistant Secretary
16
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DAL-TILE INTERNATIONAL INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.01 PURPOSE. The Dal-Tile International Inc. Employee Stock
Purchase Plan (the "Plan") is intended to provide a method whereby employees
of Dal-Tile International Inc. (the "Company") and its Eligible Subsidiary
Corporations (as defined below) will have an opportunity to acquire a
proprietary interest in the Company through the purchase of shares of the
Common Stock (as defined below).
1.02 RULES OF INTERPRETATION. It is the intention of the Company to
have the Plan qualify as an "employee stock purchase plan" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
ARTICLE II
DEFINITIONS
2.01 "CODE" shall have the meaning set forth in Section 1.02.
2.02 "COMPANY" shall have the meaning set forth in Section 1.01.
2.03 "COMPENSATION" shall mean the gross cash compensation
(including wage, salary and overtime earnings) paid by the Company or any
Eligible Subsidiary Corporation to a participant in accordance with the terms
of employment, but excluding all bonus payments, expense allowances and
compensation paid in a form other than cash.
2.04 "COMMITTEE" shall have the meaning set forth in Section 11.01.
2.05 "COMMON STOCK" shall mean the common stock, par value $.01 per
share, of the Company.
<PAGE>
2.06 "ELIGIBLE SUBSIDIARY CORPORATION" shall mean each Subsidiary
Corporation the employees of which are entitled to participate in the Plan,
as listed or referred to on Schedule 2.04 hereto.
2.07 "EMPLOYEE" shall have the meaning set forth in Section 3.01.
2.08 "OFFERING COMMENCEMENT DATE" shall have the meaning set forth
in Section 4.02.
2.09 "OFFERING PRICE" shall have the meaning set forth in Section
6.02.
2.10 "OFFERING TERMINATION DATE" shall have the meaning set forth in
Section 4.02.
2.11 "OFFERINGS" shall have the meaning set forth in Section 4.02.
2.12 "PLAN" shall have the meaning set forth in Section 1.01.
2.13 "PLAN REPRESENTATIVE" shall mean the person designated from
time to time by the Committee to receive certain notices and take certain
other administrative actions relating to participation in the Plan.
2.14 "SUBSIDIARY CORPORATION" shall mean any present or future
corporation which (i) is or becomes a "subsidiary corporation" (as that term
is defined in Section 424 of the Code) of the Company, and (ii) is designated
as a participating employer in the Plan by the Committee.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 INITIAL ELIGIBILITY. Each non-officer employee who shall have
completed six consecutive months of full-time employment with the Company and/or
any Eligible Subsidiary Corporation shall be eligible to participate in
Offerings which commence after such six-month period has concluded, provided he
or she is employed on a full-time basis by the Company or an Eligible Subsidiary
Corporation as of the relevant Offering
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<PAGE>
Commencement Date (any such eligible employee, an "Employee"). Persons who
are not Employees shall not be eligible to participate in the Plan.
3.02 RESTRICTIONS ON PARTICIPATION. Notwithstanding any provision
of the Plan to the contrary, no Employee shall be granted an option to
purchase shares of Common Stock under the Plan:
(a) if, immediately after the grant, such Employee would own
stock and/or hold outstanding options to purchase stock possessing 5% or more
of the total combined voting power or value of all classes of stock of the
Company (for purposes of this paragraph, the rules of Section 424(d) and
Section 423(b)(3) of the Code shall apply in determining stock ownership of
any Employee); or
(b) which permits such Employee's rights to purchase stock
under all employee stock purchase plans of the Company to accrue at a rate
which exceeds $25,000 of fair market value of the Common Stock (determined at
the time such option is granted) for each calendar year in which such option
is outstanding at any time.
3.03 COMMENCEMENT OF PARTICIPATION. An eligible Employee may become
a participant by completing an authorization for payroll deductions on the
form provided by the Company and filing the completed form with the Plan
Representative on or before the filing date set therefor by the Committee,
which date shall be prior to the Offering Commencement Date for the next
following Offering. Payroll deductions for a participant shall commence on
the next following Offering Commencement Date after the Employee's
authorization for payroll deductions becomes effective and shall continue
until termination of the Plan or the participant's earlier termination of
participation in the Plan. Each participant in the Plan shall be deemed to
continue participation until termination of the Plan or such participant's
earlier termination of participation in the Plan pursuant to Article VIII
below.
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
4.01 STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 12.04, the Company's Board of Directors shall reserve initially for
issuance under the Plan an aggregate of five hundred thousand (500,000)
shares of Common Stock, which shares
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<PAGE>
shall be authorized but unissued. The Company's Board of Directors may from
time to time reserve additional shares of authorized and unissued Common
Stock for issuance pursuant to the Plan; provided, however, that at no time
shall the number of shares of Common Stock reserved be greater than permitted
by applicable law.
4.02 OFFERINGS. The Plan will be implemented by two offerings of
the Common Stock during each twelve-month period (the "Offerings"). For so
long as the Plan is in effect, an Offering will begin on January 1 and end on
June 30 and begin on July 1 and end on December 31. The first day of an
Offering shall be deemed the "Offering Commencement Date" and the last day
the "Offering Termination Date" for such Offering.
ARTICLE V
PAYROLL DEDUCTIONS
5.01 AMOUNT OF DEDUCTION. The form described in Section 3.03 will
permit a participant to elect payroll deductions of any whole percentage from
one percent (1%) through ten percent (10%) of such participant's Compensation
for each pay period during an Offering.
5.02 PARTICIPANT'S ACCOUNT. All payroll deductions made for a
participant shall be credited to an account established for such participant
under the Plan. A participant may not make any separate cash payment into
such account.
5.03 CHANGES IN PAYROLL DEDUCTIONS. A participant may reduce or
increase future payroll deductions (within the limits described in Section
5.01) by filing with the Plan Representative a form provided by the Company
for such purpose. The effective date of any increase or reduction in future
payroll deductions will be the first day of the next Offering following
processing of the change form. A participant may increase or reduce the
amount of his or her payroll deductions only once with respect to any
Offering.
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<PAGE>
ARTICLE VI
GRANTING OF OPTION
6.01 NUMBER OF OPTION SHARES. On the Offering Commencement Date
(for each Offering), each participating Employee shall be deemed to have been
granted an option to purchase a maximum number of shares of Common Stock the
fair market value of which is equal to (i) that percentage of the Employee's
Compensation which the Employee has elected to have withheld (but not in any
case in excess of 10%) multiplied by (ii) the Employee's Compensation during
the Offering then divided by (iii) the applicable Offering Price determined
as provided in Section 6.02 below. Notwithstanding the foregoing, the
maximum number of shares of Common Stock that a participant may purchase
pursuant to an Offering is three thousand (3000).
6.02 OPTION PRICE. The option price of stock purchased with payroll
deductions made during any Offering (the "Offering Price") for a participant
therein shall be the lower of:
(a) 85% of the closing price of the stock on the Offering
Commencement Date for such Offering or the nearest prior business day on
which trading occurred on the New York Stock Exchange; or
(b) 85% of the closing price on the Offering Termination
Date for such Offering or the nearest prior business day on which trading
occurred on the New York Stock Exchange. If the Common Stock of the Company
is not admitted to trading on any of the aforesaid dates for which closing
prices of the stock are to be determined, then reference shall be made to the
fair market value of the stock on each such date, as determined on such basis
as shall be established or specified by the Committee.
ARTICLE VII
EXERCISE OF OPTION
7.01 AUTOMATIC EXERCISE. Subject to Section 6.01, each Plan
participant's option for the purchase of stock with payroll deductions made
during any Offering will be deemed to have been exercised automatically on
the applicable Offering Termination Date for the purchase of the number of
full shares of Common Stock which the
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accumulated payroll deductions in the participant's account at the time will
purchase at the applicable Offering Price.
7.02 WITHDRAWAL OF ACCOUNT. No participant in the Plan shall be
entitled to withdraw any amount from the accumulated payroll deductions in his
or her account; provided, however, that a participant's accumulated payroll
deductions shall be refunded to the participant as and to the extent specified
in Section 8.01 below upon termination of such participant's participation in
the Plan.
7.03 FRACTIONAL SHARES. Fractional shares of Common Stock will not
be issued under the Plan. Any accumulated payroll deductions which would
have been used to purchase fractional shares, unless refunded pursuant to
Section 7.02 above, will be held for the purchase of Common Stock in the next
following Offering, without interest.
7.04 EXERCISE OF OPTIONS. During a participant's lifetime, options
held by such participant shall be exercisable only by such participant.
7.05 DELIVERY OF STOCK. As promptly as practicable after the
Offering Termination Date of each Offering, the Company will deliver to each
participant in such Offering, as appropriate, the shares of Common Stock
purchased therein upon exercise of such participant's option. The Company
may deliver such shares in certificated or book entry form, at the Company's
sole election. The Company may require a participant to dispose of the
shares of Common Stock acquired pursuant to the Plan through one or more
brokers designated by the Company.
7.06 STOCK TRANSFER RESTRICTIONS. The Plan is intended to satisfy
the requirements of Section 423 of the Code. A participant will not obtain
the benefits of this provision if such participant disposes of shares of
Common Stock acquired pursuant to the Plan within two (2) years from the
applicable Offering Commencement Date.
ARTICLE VIII
WITHDRAWAL
8.01 IN GENERAL. A participant may stop participating in the Plan
at any time by giving written notice to the Plan Representative. Upon
processing of any such written notice, no further payroll deductions will be
made from the participant's Compensation
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<PAGE>
during such Offering or thereafter, unless and until such participant elects
to resume participation. Such participant's payroll deductions accumulated
prior to processing of such notice to stop participation shall be applied
toward purchasing full shares of Common Stock in the then-current Offering as
provided in Section 7.01 above. Any cash balance remaining after the
purchase of shares in such Offering shall be refunded promptly to such
participant. A participant may elect to resume participation in the Plan by
providing written notice to the Plan Representative pursuant to Section 3.03
above. Such election to resume participation shall be effective as of the
first Offering commencing following the processing of such election.
8.02 EFFECT ON SUBSEQUENT PARTICIPATION. A participant's withdrawal
from any Offering will not have any effect upon such participant's
eligibility to participate in any succeeding Offering or in any similar plan
which may hereafter be adopted by the Company and for which such participant
is otherwise eligible.
8.03 TERMINATION OF EMPLOYMENT. Upon termination of a participant's
employment with the Company or any Eligible Subsidiary Corporation (as the
case may be) for any reason, including retirement or death, the participant's
payroll deductions accumulated prior to such termination, if any, shall be
applied toward purchasing full shares of Common Stock in the then-current
Offering, and any cash balance remaining after the purchase of shares in such
Offering shall be refunded to him or her, or, in the case of his or her
death, to the person or persons entitled thereto under Section 12.01, and his
or her participation in the Plan shall be deemed to be terminated.
ARTICLE IX
INTEREST
9.01 PAYMENT OF INTEREST. No interest will be paid or allowed on
any money paid into the Plan or credited to the account of or distributed to
any participant.
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<PAGE>
ARTICLE X
STOCK
10.01 PARTICIPANT'S INTEREST IN OPTION STOCK. No participant will
have any interest in shares of Common Stock covered by any option held by
such participant until such option has been exercised as provided in Section
7.01 above.
10.02 REGISTRATION OF STOCK. Shares of Common Stock purchased by a
participant under the Plan will be recorded in the books and records of the
Company in the name of the participant.
10.03 RESTRICTIONS ON EXERCISE. The Board of Directors of the
Company may, in its discretion, require as conditions to the exercise of any
option that the shares of Common Stock reserved for issuance upon the
exercise of such option shall have been duly listed, upon official notice of
issuance, upon a stock exchange or market, and that either:
(a) a registration statement under the Securities Act of
1933, as amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is his
or her intention to purchase the shares for investment and not for resale or
distribution.
ARTICLE XI
ADMINISTRATION
11.01 APPOINTMENT OF COMMITTEE. The Board of Directors of the
Company shall appoint a committee (the "Committee") to administer the Plan,
which shall consist solely of no fewer than two "non-employee directors" (as
defined in Rule 16b-3(a)(3) promulgated under the Securities Exchange Act of
1934, as amended).
11.02 AUTHORITY OF COMMITTEE. Subject to the express provisions of
the Plan, the Committee shall have plenary authority in its discretion to
interpret and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to
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<PAGE>
make all other determinations deemed necessary or advisable for administering
the Plan. The Committee's determination of the foregoing matters shall be
conclusive.
11.03 RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE. The Board
of Directors of the Company may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed
and may fill vacancies, however caused, in the Committee. The Committee may
select one of its members as its chairman, shall hold its meetings at such
times and places as it shall deem advisable, and may hold telephonic
meetings. All determinations of the Committee shall be made by a majority of
its members. A decision or determination reduced to writing and signed by a
majority of the members of the Committee shall be as fully effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and regulations
for the conduct of its business as it shall deem advisable.
ARTICLE XII
MISCELLANEOUS
12.01 DESIGNATION OF BENEFICIARY. A participant may file with the
Plan Representative a written designation of a beneficiary who is to receive
any shares of Common Stock and/or cash under the Plan upon the participant's
death. Such designation of beneficiary may be changed by the participant at
any time by written notice to the Plan Representative. Upon the death of a
participant and receipt by the Company of proof of identity and existence at
the participant's death of a beneficiary validly designated by the
participant under the Plan, and subject to Article VIII above concerning
withdrawal from the Plan, the Company shall deliver such shares of Common
Stock and/or cash to such beneficiary. In the event of the death of a
participant lacking a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver
such shares of Common Stock and/or cash to the executor or administrator of
the estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares of Common Stock and/or cash to the spouse
or to any one or more dependents of the participant, in each case without any
further liability of the Company whatsoever under or relating to the Plan. No
beneficiary shall, prior to the death of the participant by whom he or she
has been designated, acquire any interest in the shares of Common Stock
and/or cash credited to the participant under the Plan.
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<PAGE>
12.02 TRANSFERABILITY. Neither payroll deductions credited to any
participant's account nor any option or rights with regard to the exercise of
an option or the receipt of Common Stock under the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the participant
other than by will or the laws of descent and distribution. Any such
attempted assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may, in its discretion, treat such act as an
election to withdraw from participation in the Plan in accordance with
Section 8.01.
12.03 USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose.
The Company shall not be obligated to segregate such payroll deductions.
12.04 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding under the Plan,
the outstanding shares of Common Stock of the Company have increased,
decreased, changed into, or been exchanged for a different number or kind of
shares or securities of the Company through any reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or
similar transaction, appropriate and proportionate adjustments may be made by
the Committee in the number and/or kind of shares which are subject to
purchase under outstanding options and in the Option Price applicable to such
outstanding options. In addition, in any such event, the number and/or kind
of shares which may be offered in the Offerings described in Article IV
hereof shall also be proportionately adjusted.
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or capital
stock of the Company to another corporation, the holder of each option then
outstanding under the Plan will thereafter be entitled to receive at the next
Offering Termination Date, upon the exercise of such option, for each share
as to which such option shall be exercised, as nearly as reasonably may be
determined, the cash, securities and/or property which a holder of one share
of the Common Stock was entitled to receive upon and at the time of such
transaction. The Board of Directors of the Company shall take such steps in
connection with such transactions as it shall deem necessary to assure that
the provisions of this Section 12.04 shall thereafter be applicable, as
nearly as reasonably may be determined, in relation to
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<PAGE>
the said cash, securities and/or property as to which each such holder of any
such option might hereafter be entitled to receive.
12.05 AMENDMENT AND TERMINATION. The Board of Directors of the
Company shall have complete power and authority to terminate or amend the
Plan; provided, however, that the Board of Directors of the Company shall
not, without the approval of the shareholders of the Company, alter (i) the
aggregate number of shares of Common Stock which may be issued under the Plan
(except pursuant to Section 12.04 above), or (ii) the class of employees
eligible to receive options under the Plan, other than to designate
additional Subsidiary Corporations as Eligible Subsidiary Corporations; and
provided further, however, that no termination, modification, or amendment of
the Plan may, without the consent of an Employee then having an option under
the Plan to purchase shares of Common Stock, adversely affect the rights of
such Employee under such option, except that the foregoing shall not prohibit
the Company from terminating the Plan at any time (including during an
Offering) and applying the amounts theretofore withheld from participants to
the purchase of shares of Common Stock as if the termination date of the Plan
were an Offering Termination Date.
12.06 EFFECTIVE DATE. The Plan shall become effective as of March 1,
1999, subject to approval by the holders of a majority of the shares of
Common Stock present and represented at any special or annual meeting of the
shareholders of the Company duly held within 12 months after adoption of the
Plan. If the Plan is not so approved, the Plan shall not become effective.
12.07 NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create in any person any right with respect to continuation of
employment by the Company or any Subsidiary Corporation, and it shall not be
deemed to interfere in any way with the Company's or any Subsidiary
Corporation's right to terminate, or otherwise modify, any Employee's
employment at any time.
12.08 EFFECT OF PLAN. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Employee.
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<PAGE>
12.09 GOVERNING LAW. The law of the State of Texas will govern all
matters relating to this Plan except to the extent superseded by the federal
laws of the United States.
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<PAGE>
SCHEDULE 2.04 TO
DAL-TILE INTERNATIONAL INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ELIGIBLE SUBSIDIARY CORPORATIONS
1. Each Subsidiary Corporation organized under the laws of any of the states
of the United States of America.
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-02-1999
<CASH> 1,348
<SECURITIES> 0
<RECEIVABLES> 105,109
<ALLOWANCES> 10,819
<INVENTORY> 134,795
<CURRENT-ASSETS> 260,491
<PP&E> 291,081
<DEPRECIATION> 90,487
<TOTAL-ASSETS> 642,815
<CURRENT-LIABILITIES> 150,644
<BONDS> 441,473
0
0
<COMMON> 536
<OTHER-SE> 26,391
<TOTAL-LIABILITY-AND-EQUITY> 642,815
<SALES> 200,692
<TOTAL-REVENUES> 200,692
<CGS> 104,010
<TOTAL-COSTS> 178,307
<OTHER-EXPENSES> (212)
<LOSS-PROVISION> 1,867
<INTEREST-EXPENSE> 10,185
<INCOME-PRETAX> 12,438
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 11,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,138
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
