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 30, 2005
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 000-22791
COLLINS & AIKMAN FLOORCOVERINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 58-2151061 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
| 311 Smith Industrial Boulevard, Dalton, Georgia | 30721 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number: (706) 259-9711
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The Registrant had 1,000 shares of Common Stock, par value $.01 per share, issued and outstanding as of June 13, 2005.
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
| Page No. | ||||
| Part I. |
Financial Information |
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| Item 1. Financial Statements |
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| Consolidated Balance Sheets – As of January 29, 2005 and April 30, 2005 |
3 | |||
| Consolidated Statements of Operations – Thirteen Weeks Ended May 1, 2004 and April 30, 2005 |
4 | |||
| Consolidated Statement of Stockholder’s Equity – Thirteen Weeks Ended April 30, 2005 |
5 | |||
| Consolidated Statements of Cash Flows – Thirteen Weeks Ended May 1, 2004 and April 30, 2005 |
6 | |||
| 7 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 | |||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
33 | |||
| Item 4. Controls and Procedures |
33 | |||
| Part II. |
Other Information |
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| Item 1. Legal Proceedings |
34 | |||
| Item 6. Exhibits |
35 | |||
| 36 | ||||
2
PART 1 – FINANCIAL INFORMATION
| Item 1. | Financial Statements |
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
| January 29, 2005 |
April 30, 2005 |
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| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 25,726 | $ | 8,499 | ||||
| Accounts receivable, net of allowance of $918 and $911 in fiscal 2004 and 2005, respectively |
41,863 | 36,560 | ||||||
| Inventories |
38,978 | 48,173 | ||||||
| Deferred tax assets |
5,412 | 5,162 | ||||||
| Prepaid expenses and other |
1,813 | 3,065 | ||||||
| Total current assets |
113,792 | 101,459 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, net |
67,687 | 70,191 | ||||||
| GOODWILL |
98,378 | 98,378 | ||||||
| OTHER INTANGIBLE ASSETS, net |
31,143 | 30,365 | ||||||
| OTHER ASSETS |
7,610 | 7,291 | ||||||
| TOTAL ASSETS |
$ | 318,610 | $ | 307,684 | ||||
| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 18,213 | $ | 23,411 | ||||
| Accrued expenses |
28,228 | 16,505 | ||||||
| Current portion of long-term debt |
713 | 678 | ||||||
| Total current liabilities |
47,154 | 40,594 | ||||||
| OTHER LIABILITIES, including post-retirement benefit obligation |
4,884 | 4,773 | ||||||
| DEFERRED TAX LIABILITIES |
4,979 | 5,704 | ||||||
| LONG-TERM DEBT, net of current portion |
207,536 | 207,848 | ||||||
| MINORITY INTEREST |
440 | 430 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 15) |
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| STOCKHOLDER’S EQUITY: |
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| Common stock: $.01 par value per share, 1,000 shares authorized, issued, and outstanding in fiscal 2004 and 2005 |
— | — | ||||||
| Paid-in capital |
72,648 | 72,648 | ||||||
| Retained deficit |
(17,806 | ) | (23,589 | ) | ||||
| Accumulated other comprehensive loss : |
||||||||
| Foreign currency translation adjustment, net of tax |
(271 | ) | 230 | |||||
| Minimum pension liability adjustment, net of tax |
(954 | ) | (954 | ) | ||||
| Total Stockholder’s equity |
53,617 | 48,335 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY |
$ | 318,610 | $ | 307,684 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and In Thousands)
| Thirteen Weeks Ended |
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| May 1, 2004 |
April 30, 2005 |
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| Net Sales |
$ | 77,685 | $ | 68,314 | ||||
| Cost of Goods Sold |
51,416 | 49,318 | ||||||
| Selling, General & Administrative Expenses |
21,004 | 20,134 | ||||||
| Amortization |
766 | 778 | ||||||
| Operating Expenses |
73,186 | 70,230 | ||||||
| Operating Income (Loss) |
4,499 | (1,916 | ) | |||||
| Net Interest Expense |
(5,123 | ) | (5,076 | ) | ||||
| Minority Interest in Loss of Subsidiary |
36 | 10 | ||||||
| Equity in Earnings of Affiliate |
411 | — | ||||||
| Loss on sale of fixed assets |
— | (117 | ) | |||||
| Loss Before Income Taxes |
(177 | ) | (7,099 | ) | ||||
| Income Tax Expense (Benefit) |
578 | (1,316 | ) | |||||
| Net Loss |
$ | (755 | ) | $ | (5,783 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
4
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY
FOR THE THIRTEEN WEEKS ENDED April 30, 2005
(Unaudited and In Thousands, Except Share Amounts)
| Common Stock |
Accumulated other Comprehensive Income (Loss) |
|||||||||||||||||||||||
| Shares |
Amount |
Paid - in Capital |
Retained Deficit |
Foreign Currency Translation Adjustment |
Minimum Pension Liability |
Total |
||||||||||||||||||
| BALANCE, January 29, 2005 |
1,000 | $ | — | $ | 72,648 | $ | (17,806 | ) | $ | (271 | ) | $ | (954 | ) | $ | 53,617 | ||||||||
| Net loss |
— | — | — | (5,783 | ) | — | — | (5,783 | ) | |||||||||||||||
| Foreign currency translation adjustment, net of tax |
— | — | — | — | 501 | — | 501 | |||||||||||||||||
| Total Comprehensive Income (Loss) |
— | — | — | (5,783 | ) | 501 | — | (5,282 | ) | |||||||||||||||
| BALANCE, April 30, 2005 |
1,000 | $ | — | $ | 72,648 | $ | (23,589 | ) | $ | 230 | $ | (954 | ) | $ | 48,335 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and In Thousands)
| Thirteen Weeks Ended |
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| May 1, 2004 |
April 30, 2005 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: |
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| Net loss |
$ | (755 | ) | $ | (5,783 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: |
||||||||
| Depreciation and leasehold amortization |
2,586 | 2,564 | ||||||
| Amortization of other intangible assets |
766 | 778 | ||||||
| Amortization and write-off of deferred financing fees |
420 | 415 | ||||||
| Change in deferred income tax |
1,089 | 975 | ||||||
| Equity in earnings of affiliate |
(411 | ) | — | |||||
| Minority interest in loss of subsidiary |
(36 | ) | (10 | ) | ||||
| Changes in operating assets and liabilities: |
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| Accounts receivable |
(5,180 | ) | 5,303 | |||||
| Inventories |
(9,490 | ) | (9,195 | ) | ||||
| Accounts payable |
3,555 | 5,198 | ||||||
| Accrued expenses |
(2,590 | ) | (11,723 | ) | ||||
| Other, net |
(337 | ) | (2,374 | ) | ||||
| Total adjustments |
(9,628 | ) | (8,069 | ) | ||||
| Net cash used in operating activities |
(10,383 | ) | (13,852 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Equity distribution from affiliate |
278 | — | ||||||
| Additions to property, plant, and equipment |
(1,214 | ) | (3,704 | ) | ||||
| Net cash used in investing activities |
(936 | ) | (3,704 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Proceeds from revolving credit facility |
10,104 | — | ||||||
| Repayments of revolving credit facility |
(4,500 | ) | — | |||||
| Proceeds from long-term debt |
— | 448 | ||||||
| Repayments of long-term debt |
(1,567 | ) | (141 | ) | ||||
| Financing costs |
(17 | ) | (97 | ) | ||||
| Net cash provided by financing activities |
4,020 | 210 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
302 | 119 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS |
(6,997 | ) | (17,227 | ) | ||||
| CASH AND CASH EQUIVALENTS, beginning of period |
11,041 | 25,726 | ||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | 4,044 | $ | 8,499 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | General and Critical Accounting Policies |
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Form 10-K for the year ended January 29, 2005, which was filed with the Securities and Exchange Commission on April 29, 2005. The accompanying unaudited consolidated financial statements, in the opinion of management, include all adjustments necessary for fair presentation. All such adjustments are of a normal and recurring nature.
Our significant accounting policies are more fully described in Note 2 to the audited consolidated financial statements included in the Company’s Form 10-K which was filed with the Securities and Exchange Commission on April 29, 2005. Certain of our accounting policies require the application of significant judgments by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. Our significant accounting policies include:
Revenue Recognition. Revenue is recognized when goods are shipped, which is when legal title passes to the customer. For product installations subject to customer approval, revenue is recognized upon acceptance by the customer. The Company provides certain installation services to customers utilizing independent third-party contractors. The billings and expenses for these services are included in net sales and cost of goods sold, respectively.
A customer claims reserve and allowance for product returns is established based upon historical claims experience as a percent of gross sales as of the balance sheet date. The allowance for customer claims is recorded upon shipment of goods and is recorded as a reduction of sales. While we believe that our customer claims reserve and allowance for product returns is adequate and that the judgment applied is appropriate based upon our historical experience for these items, actual amounts determined to be due and payable could differ and additional allowances may be required.
Foreign Currency Translation. Assets and liabilities of our Canadian, United Kingdom (“U.K.”) and Asian subsidiaries are translated to U.S. dollars at period end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are accumulated as a separate component of shareholder’s equity. Gains and losses resulting from foreign currency translation adjustments amounted to $0.6 million and $0.0 million, for the 13 week periods ended May 1, 2004 and April 30, 2005, respectively, and are accumulated as a separate component of stockholder’s equity.
Impairment of Goodwill and Indefinite Lived Intangible Assets. In addition to the annual impairment tests required by SFAS No. 142, the Company may periodically evaluate the carrying value of its goodwill and indefinite lived intangible asset for potential impairment. Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance. Future events could cause the Company to conclude that impairment indicators exist and that the goodwill and indefinite lived intangible asset associated with acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.
7
Accounts Receivable Allowances. The Company provides allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluation of the financial condition of the Company’s customers and collectability of the Company’s accounts receivable. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to pay their debts, allowances recorded in the Company’s financial statements may not be adequate.