<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 October 1, 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
- ------------------------------- -------------------
(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 offices)
(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 November 4, 1999, the registrant had outstanding 54,387,768 shares of
voting common stock, par value $0.01 per share.
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DAL-TILE INTERNATIONAL INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1 - Financial Statements (Unaudited) 2
Notes to Consolidated Condensed Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
</TABLE>
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 219,500 $ 194,068 $ 639,495 $ 570,806
Cost of goods sold 112,280 101,392 329,942 300,575
------------ ----------- ----------- -----------
Gross profit 107,220 92,676 309,553 270,231
Expenses:
Transportation 14,500 14,438 43,428 43,182
Selling, general and administrative 57,174 55,955 175,445 170,158
Amortization of intangibles 1,401 1,401 4,203 4,203
------------ ----------- ----------- -----------
Total expenses 73,075 71,794 223,076 217,543
------------ ----------- ----------- -----------
Operating income 34,145 20,882 86,477 52,688
Interest expense 8,886 11,153 28,767 34,406
Interest income 14 48 85 104
Other income (expense) (195) 1,313 512 1,318
------------ ----------- ----------- -----------
Income before income taxes 25,078 11,090 58,307 19,704
Income tax provision 1,301 1,154 3,901 3,493
------------ ----------- ----------- -----------
Net income $ 23,777 $ 9,936 $ 54,406 $ 16,211
============ =========== =========== ===========
BASIC EARNINGS PER SHARE
Net income per common share $ 0.44 $ 0.19 $ 1.01 $ 0.30
============ =========== =========== ===========
Average shares 54,346 53,522 53,975 53,464
============ =========== =========== ===========
DILUTED EARNINGS PER SHARE
Net income per common share $ 0.43 $ 0.18 $ 1.00 $ 0.30
============ =========== =========== ===========
Average shares 54,762 53,725 54,501 54,125
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 1,
1999 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 856 $ 1,546
Trade accounts receivable 106,861 93,331
Inventories 139,497 138,418
Prepaid expenses 4,483 4,213
Other current assets 15,241 17,319
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Total current assets 266,938 254,827
Property, plant, and equipment, at cost 301,852 288,060
Less accumulated depreciation 99,861 86,058
----------- -----------
201,991 202,002
Goodwill, net of amortization 144,223 147,796
Finance costs, net of amortization 5,591 6,687
Tradename and other assets 28,733 29,496
----------- -----------
Total assets $ 647,476 $ 640,808
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 1,
1999 1999
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 32,322 $ 28,684
Accrued expenses 69,766 59,420
Accrued interest payable 1,008 490
Current portion of long-term debt 54,009 46,509
Income taxes payable 2,707 169
Deferred income taxes 1,574 1,930
Other current liabilities 82 10
----------- -----------
Total current liabilities 161,468 137,212
Long-term debt 383,468 453,923
Other long-term liabilities 21,971 32,639
Deferred income taxes 1,835 1,575
Stockholders' Equity:
Common stock, $.01 par value:
Authorized shares - 200,000,000; issued and
outstanding shares - 54,387,768 544 535
Additional paid-in capital 444,918 436,182
Accumulated deficit (292,452) (346,858)
Accumulated other comprehensive loss (74,276) (74,400)
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Total stockholders' equity 78,734 15,459
----------- -----------
Total liabilities and stockholders' equity $ 647,476 $ 640,808
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
OCTOBER 1, 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
Net proceeds from common stock issue 9 8,736 - - 8,745
Comprehensive income
Net Income - - 54,406 - 54,406
Foreign currency translation adjustments - - - 124 124
------- ---------- ----------- ---------- ---------
Total Comprehensive income 54,530
Balance at October 1, 1999 $ 544 $ 444,918 $ (292,452) $(74,276) $ 78,734
======= ========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 54,406 $ 16,211
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,981 21,062
Asset write-down - 1,700
Other, net (278) (309)
Changes in operating assets and liabilities:
Trade accounts receivable (13,365) (9,535)
Inventories 3,259 (6,763)
Other assets 2,211 (5,810)
Trade accounts payable and accrued expenses 9,559 19,011
Accrued interest payable 517 (1,332)
Other liabilities (8,227) 2,587
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Net cash provided by operating activities 68,063 36,822
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (14,659) (3,083)
FINANCING ACTIVITIES
Borrowings under long-term debt 197,550 107,157
Repayments of long-term debt (260,505) (146,669)
Fees and expenses associated with stock registration - (335)
Proceeds from issuance of common stock 8,745 1,038
---------- ----------
Net cash used in financing activities (54,210) (38,809)
Effect of exchange rate changes on cash 116 (168)
---------- ----------
Net decrease in cash (690) (5,238)
Cash at beginning of period 1,546 7,488
---------- ----------
Cash at end of period $ 856 $ 2,250
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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DAL-TILE INTERNATIONAL INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The operating results of Dal-Tile International Inc. for the nine months
ended October 1, 1999 reflect the results of operations of Dal-Tile
International Inc. and its consolidated subsidiaries (the "Company") on
the basis of a 52/53 week accounting cycle.
The accompanying unaudited interim consolidated 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, all adjustments,
consisting of normal recurring adjustments considered necessary for a
fair presentation of the financial position, results of operations, and
cash flow have been included. The results of operations for the three and
nine months ended October 1, 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 nine months ended October 1, 1999 and
October 2, 1998, total comprehensive income was $54,530 and $3,637,
respectively.
4. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
October 1, January 1,
1999 1999
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<S> <C> <C>
Raw Materials $ 9,762 $ 9,016
Work-in-process 4,282 4,053
Finished goods 125,453 125,349
------------ -----------
$ 139,497 $ 138,418
============ ===========
</TABLE>
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DAL-TILE INTERNATIONAL INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 1, January 1,
1999 1999
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<S> <C> <C>
Term Loan A $ 175,000 $ 205,000
Term Loan B 123,250 124,000
Revolving Credit Loan 122,600 152,050
Other 16,627 19,382
----------- -----------
437,477 500,432
Less current portion 54,009 46,509
----------- -----------
$ 383,468 $ 453,923
=========== ===========
</TABLE>
6. INCOME TAXES
The income tax provision for the third quarter of 1999 reflects an
effective tax rate of approximately 5% compared to 10% for the third
quarter of 1998. For the nine months ended October 1, 1999, the effective
tax rate was approximately 7% compared to 18% for the same period in
1998. These rates reflect expected Mexico tax liabilities and U.S. state
and possession income taxes based on estimated taxable income in those
jurisdictions. The decrease in effective rates in 1999 versus 1998 was
due to increased levels of pretax income, which primarily affect the U.S.
federal tax jurisdiction. No U.S. federal income tax expense was recorded
for 1999 or 1998 due to an offset by a valuation allowance against U.S.
federal deferred tax assets recorded during 1997. If the valuation
allowance had not been recorded, the effective tax rate for the three and
nine months ended October 1, 1999 and October 2, 1998 would have been
approximately 38.5%. 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.
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DAL-TILE INTERNATIONAL INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
The Company is involved in various proceedings relating to environmental
matters. The Company, in the past, has disposed, or arranged for the
disposal of, substances which are now characterized as hazardous and
currently is engaged in the investigation and 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 remedial 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.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company achieved new records in sales and profits during the third quarter
of 1999. The improvement in sales was driven primarily by increased volume
through the Company-operated sales centers. Increased efficiencies throughout
the supply chain and reduced corporate spending resulted in improved profits. In
conjunction with these improvements, cash flow increased allowing the Company to
substantially reduce its debt and increase capital spending to modernize and
expand various manufacturing locations. For the remainder of the year,
opportunities to increase market share will be pursued through introductions of
new products, and efforts will continue to improve manufacturing costs and
reduce debt.
The following is a discussion of the results of operations for the three and
nine months ended October 1, 1999 compared with the three and nine months ended
October 2, 1998 for Dal-Tile International Inc. and its consolidated
subsidiaries (the "Company"). Due to the Company's 52/53 week accounting cycle,
the third quarter of 1999 ended on October 1, 1999.
NET SALES
Net sales for the third quarter of 1999 increased $25.4 million, or 13.1
percent, to $219.5 million from $194.1 million in the third quarter of 1998. Net
sales for the nine months ended October 1, 1999 increased $68.7 million, or 12.0
percent, to $639.5 million from $570.8 million for the same period in 1998.
Sales increased across all product lines for the three and nine months ended
October 1, 1999. These increases were primarily achieved through the
Company-operated sales centers, an increase of 17 percent over the third quarter
of 1998, and were related to increased volume and strong market acceptance of
new products. For the third quarter of 1999, independent distributor sales
increased 4.3 percent and home center sales remained even compared to the prior
year. For the nine months ended October 1, 1999, independent distributor sales
declined by 2.2 percent and home center sales improved 7.7 percent. Year-to-date
1998 independent distributor sales were favorably affected by the first quarter
sale of inventories related to the sale of three remaining American Olean
stores.
GROSS PROFIT
Gross profit for the third quarter of 1999 increased $14.5 million, or 15.6
percent, to $107.2 million from $92.7 million in the third quarter of 1998.
Gross profit for the nine months ended October 1, 1999 increased $39.4 million,
or 14.6 percent, to $309.6 million from $270.2 million for the same period in
1998. Gross margin increased for the third quarter of 1999 to 48.8 percent from
47.8 percent in the third quarter of 1998. Gross margin for the nine months
ended October 1, 1999 improved to 48.4 percent versus 47.3 percent for the same
period in 1998. These increases for the three and nine months ended October 1,
1999 were due to higher sales, lower manufacturing costs and reduced inventory
shrink and breakage at the Company-operated stores and distribution centers.
OPERATING EXPENSES
Operating expenses in the third quarter of 1999 increased $1.3 million, or 1.8
percent, to $73.1 million from $71.8 million in the third quarter of 1998. For
the nine months ended October 1, 1999, operating expenses increased $5.6
million, or 2.6 percent, to $223.1 million from $217.5 million for the same
period in 1998. These increases were 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
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sales in the third quarter of 1999 decreased to 33.3 percent from 37.0
percent in the third quarter of 1998. Operating expenses for the nine months
ended October 1, 1999 as a percent of sales decreased to 34.9 percent
compared to 38.1 percent for the same period in 1998. These decreases for the
three and nine months ended October 1, 1999 were due primarily to higher
sales and lower corporate spending. In addition, transportation costs for the
three months ended October 1, 1999 as a percent of sales decreased to 6.6
percent from 7.4 percent for the same period in 1998 due to improved shipment
planning and execution along with reduced freight rates.
OPERATING INCOME
Operating income in the third quarter of 1999 increased $13.2 million, or 63.2
percent, to $34.1 million from $20.9 million in the third quarter of 1998. For
the nine months ended October 1, 1999, operating income increased $33.8 million,
or 64.1 percent, to $86.5 million versus $52.7 million for the same period in
1998. Operating income improvements were primarily related to higher sales and
decreased operating costs.
INTEREST EXPENSE (NET)
Interest expense (net) in the third quarter of 1999 decreased $2.2 million, or
19.8 percent, to $8.9 million from $11.1 million in the third quarter of 1998.
For the nine months ended October 1, 1999, interest expense (net) decreased $5.6
million, or 16.3 percent, to $28.7 million from $34.3 million for the same
period in 1998. These decreases were 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 for the third quarter of 1999 reflects an effective tax
rate of approximately 5 percent compared to 10 percent for the third quarter of
1998. For the nine months ended October 1, 1999, the effective tax rate was
approximately 7 percent compared to 18 percent for the same period in 1998.
These rates reflect expected Mexico tax liabilities and U.S. state and
possession income taxes based on estimated taxable income in those
jurisdictions. The decrease in effective rates in 1999 versus 1998 was due to
increased levels of pretax income, which primarily affect the federal tax
jurisdiction. No U.S. federal income tax expense was recorded for 1999 or 1998
due to an offset by a valuation allowance against U.S. federal deferred tax
assets recorded during 1997. If the valuation allowance had not been recorded,
the effective tax rate for the nine months ended October 1, 1999 and October 2,
1998 would have been approximately 38.5 percent. The requirement for a valuation
allowance will continue to be reassessed in future reporting periods.
NET INCOME
Net income in the third quarter of 1999 increased to $23.8 million, or $0.43 per
share, from $9.9 million, or $0.18 per share, in the third quarter of 1998 and
increased to $54.4 million, or $1.00 per share, for the nine months ended
October 1, 1999 compared to $16.2 million, or $0.30 per share, for the same
period in 1998. Using a 38.5 percent effective tax rate, net income for the nine
months ended October 1, 1999 would have been $35.9 million, or $0.66 per share,
compared to $12.1 million, or $0.22 per share, for the same period in 1998. Net
income increased due to higher gross profit and operating income and reduced
interest expense.
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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 nine months ended October 1, 1999, cash
provided by operating activities was $68.1 million compared to $36.8 million for
the same period in 1998. The improvement in operating cash flow was due to
increased profitability compared to the same period in 1998.
Net expenditures for property, plant and equipment were $14.7 million for the
nine months ended October 1, 1999 compared to $3.1 million for the same period
in 1998. The 1998 net expenditures included $8.1 million of net cash proceeds
from the sale of the Lansdale, PA manufacturing facility. Expenditures for the
nine months ended October 1, 1999 included costs for multiple projects to
improve manufacturing, distribution and information systems. For the remainder
of 1999, the Company expects to increase capital spending primarily to expand
and modernize several manufacturing facilities.
Cash used in financing activities was $54.2 million for the nine months ended
October 1, 1999, which primarily reflects revolver repayments of $29.5 million,
term debt amortization of $30.8 million and additional debt and fees of
approximately $2.6 million offset by cash inflows of approximately $8.7 million
related to the exercise of options for common stock. Total availability under
the Third Amended Credit Facility as of October 1, 1999 was $114.2 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 the investigation and cleanup of hazardous
substances 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 percent, to be
reduced ratably to 8 1/2 percent 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 results of
operations.
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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 percent, 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 nine months ended October 1, 1999 and October 2, 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.
IMPACT OF YEAR 2000
The Company is continuing its efforts to modify and replace portions of its
software and equipment so that its computer systems will function properly in
the year 2000 and thereafter. The primary activity for this effort has been the
modification or upgrade of mission critical IT software information systems
necessary to process day-to-day business transactions (such as customer sales
and orders, invoices, customer statements, shipment planning and distribution,
product planning and financial accounting). These efforts have been completed.
All necessary modifications have been completed of non-mission critical
information systems, which include, but are not limited to, local area
networks, desktop PC's and departmental software applications. The Company
continues to address other mission critical equipment and services, which
include, but are not limited to, plant equipment and certain vendor provided
services. These efforts are expected to be complete by the end of the year.
In addition to the Company's software and equipment, disruptions to the
operations of the Company's major customers and suppliers could have a material
adverse impact on the Company's operations and financial condition. Major
customers and suppliers have been surveyed to certify their readiness for Year
2000. The Company is preparing a detailed Year 2000 contingency plan which 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 November 1999.
The total Year 2000 project cost is estimated at approximately $5.4 million and
is being expensed as incurred. Through the end of the third quarter of 1999,
expenses totaling $4.7 million have been incurred for Year 2000 activities. 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
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area, the ability to locate and correct all relevant computer codes,
non-performance of key software and hardware vendors and similar
uncertainties.
The Company believes that, with modifications to existing software and
conversions to new software and equipment, the Year 2000 issue will not pose
significant operational problems for its computer systems. The Company also
believes that it is expending its best efforts to make such modifications.
However, if such modifications and conversions are not made, are made
improperly, or are not completed in a timely manner, the Year 2000 issue could
have a material adverse impact on operations.
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, Year 2000 issues, 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
27.1 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended October 1,
1999.
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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:
NOVEMBER 8, 1999 /s/ W. CHRISTOPHER WELLBORN
- ---------------- -------------------------------------------------
Executive Vice President, Chief Financial Officer
and Assistant Secretary
Page 15
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-03-1999 JAN-02-1999
<PERIOD-END> OCT-01-1999 OCT-01-1999
<CASH> 856 856
<SECURITIES> 0 0
<RECEIVABLES> 106,861 106,861
<ALLOWANCES> 10,261 10,261
<INVENTORY> 139,497 139,497
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<PP&E> 301,852 301,852
<DEPRECIATION> 99,861 99,861
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<BONDS> 383,468 383,468
0 0
0 0
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<CGS> 112,280 329,942
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<OTHER-EXPENSES> 195 (512)
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