UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2001
OR
o 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.
(Exact name of registrant as specified in its charter)
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Delaware |
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13-3548809 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer identification no.) |
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7834 Hawn Freeway, Dallas, Texas 75217 |
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(214) 398-1411 |
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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 ý NO o
As of November 1, 2001, the registrant had 55,900,201 outstanding shares of voting common stock, par value $0.01 per share.
DAL-TILE INTERNATIONAL INC.
Table of Contents
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PART I - FINANCIAL INFORMATION |
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Item 1 – |
Financial Statements (Unaudited) |
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Notes to Consolidated Condensed Financial Statements (Unaudited) |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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DAL-TILE INTERNATIONAL INC.
(In Thousands)
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(Unaudited) |
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September 28, |
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December 29, |
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2001 |
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2000 |
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Assets |
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Current Assets: |
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Cash |
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$ |
899 |
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$ |
1,477 |
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Trade accounts receivable, net of allowance of $3,038 at |
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September 28, 2001 and $3,271 at December 29, 2000 |
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125,784 |
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104,352 |
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Inventories |
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158,688 |
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140,246 |
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Prepaid expenses |
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3,524 |
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5,702 |
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Other current assets |
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16,984 |
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25,222 |
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Total current assets |
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305,879 |
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276,999 |
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Property, plant and equipment, at cost |
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355,850 |
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344,032 |
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Less accumulated depreciation |
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(129,974 |
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(119,343 |
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225,876 |
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224,689 |
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Goodwill, net of accumulated amortization of $79,788 at |
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September 28, 2001 and $76,202 at December 29, 2000 |
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134,674 |
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138,260 |
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Tradename and other assets, net of accumulated amortization of |
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$11,018 at September 28, 2001 and $9,373 at December 29, 2000 |
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27,162 |
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30,572 |
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Total assets |
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$ |
693,591 |
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$ |
670,520 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
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(Unaudited) |
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September 28, |
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December 29, |
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2001 |
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2000 |
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Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Trade accounts payable |
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$ |
40,044 |
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$ |
32,766 |
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Accrued expenses |
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71,961 |
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66,848 |
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Current portion of long-term debt |
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19,197 |
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55,761 |
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Income taxes payable |
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3,490 |
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542 |
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Deferred income taxes |
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3,491 |
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4,779 |
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Total current liabilities |
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138,183 |
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160,696 |
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Long-term debt |
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242,500 |
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276,017 |
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Other long-term liabilities |
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19,318 |
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17,968 |
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Deferred income taxes |
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26,078 |
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3,531 |
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Stockholders’ Equity: |
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Preferred stock, $0.01 par value: |
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Authorized shares – 11,100,000; no issued or |
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outstanding shares at September 28, 2001 and |
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December 29, 2000 |
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- |
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- |
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Common stock, $0.01 par value |
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Authorized shares – 200,000,000 issued and |
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outstanding shares – 55,899,201 at September 28, 2001 |
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and 55,252,695 at December 29, 2000 |
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559 |
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553 |
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Additional paid-in capital |
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459,004 |
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453,144 |
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Accumulated deficit |
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(115,302 |
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(172,338 |
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Accumulated other comprehensive loss |
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(76,749 |
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(69,051 |
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Total stockholders’ equity |
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267,512 |
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212,308 |
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Total liabilities and stockholders’ equity |
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$ |
693,591 |
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$ |
670,520 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 28, |
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September 29, |
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September 28, |
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September 29, |
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Net Sales |
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$ |
269,016 |
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$ |
247,852 |
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$ |
777,986 |
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$ |
722,946 |
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Cost of goods sold |
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143,466 |
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129,995 |
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410,793 |
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376,883 |
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Gross Profit |
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125,550 |
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117,857 |
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367,193 |
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346,063 |
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Expenses: |
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Transportation |
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17,470 |
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17,003 |
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51,627 |
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48,432 |
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Selling, general and administrative |
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67,237 |
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63,052 |
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200,666 |
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190,743 |
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Amortization of intangibles |
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1,378 |
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1,378 |
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4,134 |
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4,134 |
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Total expenses |
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86,085 |
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81,433 |
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256,427 |
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243,309 |
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Operating income |
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39,465 |
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36,424 |
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110,766 |
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102,754 |
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Interest expense, net |
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5,025 |
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7,498 |
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16,996 |
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23,102 |
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Other income (expense) |
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(1,120 |
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460 |
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(1,029 |
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(108 |
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Income before income taxes |
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33,320 |
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29,386 |
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92,741 |
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79,544 |
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Income tax provision |
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12,828 |
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1,701 |
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35,705 |
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4,995 |
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Net income |
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$ |
20,492 |
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$ |
27,685 |
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$ |
57,036 |
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$ |
74,549 |
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Basic Earnings Per Share |
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Net income per common share |
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$ |
0.37 |
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$ |
0.50 |
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$ |
1.02 |
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$ |
1.36 |
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Average shares |
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55,882 |
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54,976 |
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55,819 |
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54,869 |
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Diluted Earnings Per Share |
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Net income per common share |
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$ |
0.35 |
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$ |
0.50 |
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$ |
0.98 |
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$ |
1.35 |
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Average shares |
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58,597 |
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55,516 |
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58,162 |
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55,108 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY
September 28, 2001
(In Thousands)
(Unaudited)
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Common Stock |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Loss |
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Total |
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Balance at December 29, 2000 |
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$ |
553 |
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$ |
453,144 |
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$ |
(172,338 |
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$ |
(69,051 |
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$ |
212,308 |
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Proceeds from issuance of common stock |
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6 |
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5,860 |
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- |
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- |
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5,866 |
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Comprehensive Income |
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Net income |
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- |
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- |
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57,036 |
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- |
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57,036 |
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Unrealized loss on hedge instruments, |
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net of tax |
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- |
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- |
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- |
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(7,546 |
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(7,546 |
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Foreign currency translation adjustments |
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- |
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- |
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- |
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(152 |
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(152 |
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Total Comprehensive Income |
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49,338 |
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Balance at September 28, 2001 |
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$ |
559 |
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$ |
459,004 |
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$ |
(115,302 |
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$ |
(76,749 |
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$ |
267,512 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
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Nine Months Ended |
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September 28, |
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September 29, |
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2001 |
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2000 |
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Operating Activities |
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Net Income |
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$ |
57,036 |
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$ |
74,549 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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21,735 |
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19,833 |
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Deferred income tax provision |
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21,229 |
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2,891 |
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Other, net |
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(224 |
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(55 |
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Changes in operating assets and liabilities: |
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Trade accounts receivable |
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(21,074 |
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(21,217 |
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Inventories |
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(19,039 |
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(5,230 |
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Other assets |
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12,230 |
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(779 |
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Trade accounts payable and accrued expenses |
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14,337 |
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10,840 |
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Accrued interest payable |
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(1,295 |
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804 |
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Other liabilities |
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(3,813 |
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(4,252 |
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Net cash provided by operating activities |
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81,122 |
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77,384 |
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Investing Activities |
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Expenditures for property, plant and equipment, net |
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(17,697 |
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(24,936 |
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Financing Activities |
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Borrowings under long-term debt |
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188,250 |
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188,250 |
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Repayment of long-term debt |
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(258,330 |
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(245,104 |
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Proceeds from issuance of common stock |
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5,866 |
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4,009 |
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Net cash used in financing activities |
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(64,214 |
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(52,845 |
) |
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Effect of exchange rate changes on cash |
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211 |
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(18 |
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Net decrease in cash |
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(578 |
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(415 |
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Cash at beginning of period |
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1,477 |
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1,193 |
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Cash at end of period |
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$ |
899 |
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$ |
778 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
DAL-TILE INTERNATIONAL INC.
(UNAUDITED)
1. Basis of Presentation
The operating results of Dal-Tile International Inc. for the nine months ended September 28, 2001 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 nine months ended September 28, 2001 are not necessarily indicative of the results that may be expected for the year ending December 28, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the December 29, 2000 annual report on Form 10-K of the Company.
Certain prior year amounts have been reclassified to conform to the 2001 presentation.
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.
Total comprehensive income includes net income, changes in the fair value of outstanding hedges, net of tax, and foreign currency translation adjustments. For the nine months ended September 28, 2001 and September 29, 2000, total comprehensive income was $49,338,000 and $74,461,000, respectively.
4. Inventories
Inventories are as follows (in thousands):
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September 28, |
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December 29, |
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2001 |
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2000 |
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Raw materials |
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$ |
9,005 |
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$ |
9,599 |
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Work-in-process |
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5,658 |
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5,204 |
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Finished goods |
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144,025 |
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125,443 |
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$ |
158,688 |
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$ |
140,246 |
5. Long-Term Debt
On October 26, 2001, the Company completed a $400,000,000 refinancing of its credit facility (the “Amended and Restated Credit Facility”). The transaction includes a $325,000,000 five-year credit facility, comprised of a $125,000,000 Term Loan A, a $200,000,000 revolving credit facility, and a $75,000,000 facility secured by accounts receivable. Proceeds from the refinancing were used to prepay the Term Loan B in full and pay related transaction fees and expenses. The Company will be required to make quarterly amortization payments on the Term Loan A starting in the first quarter of 2002 with final maturity on October 31, 2006. Full year amortization payments will consist of $15,000,000 in 2002 and 2003, $20,000,000 in 2004, $25,000,000 in 2005 and $50,000,000 in 2006. Borrowings under the revolving credit facility will be payable in full on October 26, 2006. The Term Loan A and revolving credit facility will bear interest at the London Interbank Offered Rate plus a borrowing rate spread based on a pricing grid starting at 162.5 basis points. The Company is required to maintain certain financial covenants.
The accounts receivable securitization facility represents a three-year revolving securitization of eligible accounts receivable. The facility will be accounted for as a secured financing and the Company will pay monthly interest based on prevailing commercial paper rates plus a program fee of 47.5 basis points. The Company is required to maintain certain compliance and reporting covenants.
Long-term debt consists of the following (in thousands):
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September 28, |
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December 29, |
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2001 |
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2000 |
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Term Loan A |
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$ |
77,500 |
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$ |
115,000 |
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Term Loan B |
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121,250 |
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122,000 |
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Revolving Credit Loan |
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57,250 |
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86,700 |
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Other |
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5,697 |
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8,078 |
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261,697 |
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331,778 |
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Current portion at quarter end under previous agreement |
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(66,447 |
) |
(55,761) |
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Reclassification for October 26, 2001 refinancing |
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47,250 |
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- |
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$ |
242,500 |
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$ |
276,017 |
6. Income Taxes
The income tax provision for the third quarter of 2001 reflects an effective tax rate of approximately 38.5 percent compared to 5.8 percent for the third quarter of 2000. The increase in the effective rate for 2001 versus 2000 was mainly due to the impact of the reversal of the valuation allowance recorded against certain U.S. federal deferred tax assets.
The pro-forma effective tax rate for 2000, assuming no benefits from the Company’s net operating losses, would have been 38.5 percent.
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, 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 clean-up of hazardous substances at certain sites. It is the Company's policy to accrue liabilities for remedial investigations and clean-up 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 clean-up 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.
In June 2001, the Financial Accounting Standards Board issued Statement No. 141, “Business Combinations” (“SFAS 141”) and Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under the new rules, SFAS 141 eliminates the pooling of interest method of accounting for business combinations. SFAS 142 requires that goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. In October 2001, the Financial Accounting Standards Board issued Statement No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets” ("SFAS 144”). This statement establishes new rules for determining impairment of certain other long-lived assets, including intangible assets subject to amortization, property and equipment and long-term prepaid assets. These new standards are all effective for fiscal years beginning after December 15, 2001. The Company will adopt these statements on December 29, 2001 for the 2002 fiscal year. At the present time, the Company has no foreseeable business combinations and management believes that SFAS 141 will have no material impact on the Company. The effect of adopting SFAS 142 will be to reduce amortization expense on an annual basis by approximately $5,500,000 and increase net income by approximately $5,200,000 for 2002 compared to 2001. Management believes that impairment of existing goodwill and intangible assets is unlikely, and the adoption of SFAS 144 will not have a significant effect on the operating results or financial position of the Company.
ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF
The Company achieved record sales and profits during the third quarter of 2001. Sales increased primarily through the Company-operated sales centers driven by continued growth in the residential market. Profit margin before tax increased to approximately 12.4 percent versus 11.9 percent in the third quarter of 2000 due to reduced corporate spending and lower interest expense. In addition, free cash flow increased through improved profitability and lower capital spending while debt decreased $92.1 million from third quarter 2000.
Net Sales
Net sales in the third quarter of 2001 increased $21.1 million, or 8.5 percent, to $269.0 million from $247.9 million in the third quarter of 2000. For the nine months ended September 28, 2001, net sales increased $55.1 million, or 7.6 percent, to $778.0 million from $722.9 million for the same period in 2000. These increases for the three and nine months ended September 28, 2001 were due primarily to gains in the residential market realized through the Company-operated sales centers. Compared to third quarter 2000, third quarter sales increased 9.7 percent through Company–operated sales centers and 9.2 percent for the nine-month period. Home center sales increased 1.9 percent for the quarter and 3.9 percent for the nine-month period. Sales to independent distributors increased 8.4 percent for the quarter and 3.4 percent for the nine-month period.
Gross Profit
Gross profit in the third quarter of 2001 increased $7.7 million, or 6.5 percent, to $125.6 million from $117.9 million in the third quarter of 2000. Gross profit for the nine months ended September 28, 2001, increased $21.1 million, or 6.1 percent, to $367.2 million from $346.1 million for the same period in 2000. Gross margin was 46.7 percent in the third quarter of 2001 versus 47.6 percent in the third quarter of 2000. For the nine months ended September 28, 2001, gross margin decreased to 47.2 percent from 47.9 percent for the same period in 2000. The decline was attributable to product mix, declining floor tile prices and reduced production to balance inventories.
Operating Expenses
Operating expenses in the third quarter of 2001 increased $4.7 million, or 5.8 percent, to $86.1 million from $81.4 million in the third quarter of 2000. For the nine months ended September 28, 2001, operating expenses increased $13.1 million, or 5.4 percent, to $256.4 million from $243.3 million for the same period in 2000. This increase was due primarily to additional spending for new product introductions and higher costs associated with the growth in sales. For the quarter, operating expenses, as a percent of sales, decreased to 32.0 percent from 32.8 percent in the third quarter of 2000. Year to date, operating expenses, as a percent of sales, decreased to 33.0 percent from 33.7 percent for the same period in 2000. The decrease was due primarily to higher sales and lower corporate spending. Transportation costs, as a percent of sales, decreased to 6.5 percent of sales for the third quarter of 2001 versus 6.9 percent for the third quarter of 2000. For the nine months ended September 28, 2001, transportation costs, as a percent of sales, were 6.6 percent compared to 6.7 percent for the same period in 2000. The decrease was due primarily to a shift to intermodal transport and reduced “less than truckload” shipments.
Operating income in the third quarter of 2001 increased $3.1 million, or 8.5 percent, to $39.5 million from $36.4 million in the third quarter of 2000. For the nine months ended September 28, 2001, operating income increased $8.0 million, or 7.8 percent, to $110.8 million from $102.8 million for the comparable period in 2000. Operating margin was flat at 14.7 percent in the third quarter of 2001 compared to the third quarter of 2000. For the nine months ended September 28, 2001, operating margin remained flat at 14.2 percent compared to the same period last year.
Interest Expense (Net)
Interest expense (net) in the third quarter of 2001 decreased $2.5 million, or 33.3 percent, to $5.0 million from $7.5 million in the third quarter of 2000. For the nine months ended September 28, 2001, interest expense (net) decreased $6.1 million, or 26.4 percent to $17.0 million from $23.1 million in the same period of 2000. 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 in the third quarter of 2001 reflects an effective tax rate of approximately 38.5 percent compared to 5.8 percent for the third quarter of 2000. The increase in the effective rate for 2001 versus 2000 was mainly due to the impact of the reversal of the valuation allowance recorded against certain U.S. federal deferred tax assets.
The pro-forma effective tax rate for 2000, assuming no benefits from the Company’s net operating losses, would have been 38.5 percent.
Net Income
Net income in the third quarter of 2001 decreased $7.2 million, or 26.0 percent, to $20.5 million from $27.7 million in the third quarter of 2000. Year to date, net income decreased to $57.0 million from $74.5 million for the same period in 2000. On a pro-forma—fully taxed basis, net income for the third quarter of 2001 increased $2.4 million, or 13.3 percent, from $18.1 million in the third quarter of 2000. On a pro-forma—fully taxed basis, net income for the nine months ended September 28, 2001 increased $8.1 million, or 16.6 percent, from $48.9 million for the same period in 2000.
Liquidity and Capital Resources
Cash flow from operations and funds available under the Company's bank credit agreement (the "Fourth 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 September 28, 2001, cash provided by operating activities was $81.1 million compared to $77.4 million for the same period in 2000. For the nine-month period, trade accounts receivable and inventories increased versus prior year to support increased sales levels.
Net expenditures for property, plant and equipment were $17.7 million for the nine months ended September 28, 2001, compared to $24.9 million for the comparable period of 2000. The decrease was due primarily to timing differences of capital projects. The Company plans to initiate various capital projects during the remainder of fiscal year 2001 for expansion and modernization of its manufacturing facilities, along with expenditures for routine capital improvements and maintenance. However, timing of projects will be dependent upon economic conditions.
Cash used in financing activities was $64.2 million for the nine months ended September 28, 2001. Cash outflows for term debt repayment of $38.2 million, revolver debt of $29.5 million and other debt of $2.4 million were partially offset by cash inflows of $5.9 million related to employee stock purchases and the exercise of options to purchase common stock. Total availability under the Fourth Amended Credit Facility as of September 28, 2001 was $180.2 million.
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 are 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 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 13 percent, to be reduced ratably to no less than 8.5 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 operations.
NAFTA, which was entered into by Canada, Mexico and the United States and became effective on January 1, 1994, has created the world's largest free–trade zone. 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 glazed ceramic tile from Mexico of approximately 8.8 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 and Exchange Rates
The Company believes it has generally been able to enhance productivity to offset increases in costs resulting from inflation in the United States and Mexico. Any future increases in the Mexican inflation rate, which are not offset by a corresponding devaluation of the peso, or increases in the United States inflation rate, which affect financing costs, may negatively affect the Company's results of operations.
From time to time, the Company enters into transactions in other foreign currencies, which may negatively affect the Company's results of operations.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement No. 141, “Business Combinations” (“SFAS 141”) and Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under the new rules, SFAS 141 eliminates the pooling of interest method of accounting for business combinations. SFAS 142 requires that goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. In October 2001, the Financial Accounting Standards Board issued Statement No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets” ("SFAS 144”). This statement establishes new rules for determining impairment of certain other long-lived assets, including intangible assets subject to amortization, property and equipment and long-term prepaid assets. These new standards are all effective for fiscal years beginning after December 15, 2001. The Company will adopt these statements on December 29, 2001 for the 2002 fiscal year. At the present time, the Company has no foreseeable business combinations and management believes that SFAS 141 will have no material impact on the Company. The effect of adopting SFAS 142 will be to reduce amortization expense on an annual basis by approximately $5.5 million and increase net income by approximately $5.2 million for 2002 compared to 2001. Management believes that impairment of existing goodwill and intangible assets is unlikely, and the adoption of SFAS 144 will not have a significant effect on the operating results or financial position of the Company.
Subsequent Events
On October 26, 2001, the Company completed a $400 million refinancing of its credit facility (the “Amended and Restated Credit Facility”). The transaction includes a $325 million five-year credit facility, comprised of a $125 million Term Loan A, a $200 million revolving credit facility, and a $75 million facility secured by accounts receivable. Proceeds from the refinancing were used to prepay the Term Loan B in full and pay related transaction fees and expenses. The Company will be required to make quarterly amortization payments on the Term Loan A starting in the first quarter of 2002 with final maturity on October 31, 2006. Full year amortization payments will consist of $15 million in 2002 and 2003, $20 million in 2004, $25 million in 2005 and $50 million in 2006. Borrowings under the revolving credit facility will be payable in full on October 26, 2006. The Term Loan A and revolving credit facility will bear interest at the London Interbank Offered Rate plus a borrowing rate spread based on a pricing grid starting at 162.5 basis points. The Company is required to maintain certain financial covenants.
The accounts receivable securitization facility represents a three-year revolving securitization of eligible accounts receivable. The facility will be accounted for as a secured financing and the Company will pay monthly interest based on prevailing commercial paper rates plus a program fee of 47.5 basis points. The Company is required to maintain certain compliance and reporting covenants.
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) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended September 28, 2001.
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.
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DAL-TILE INTERNATIONAL INC. |
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(Registrant) |
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By: |
/s/ W. Christopher Wellborn |
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W. Christopher Wellborn |
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Executive Vice President and |
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Chief Financial Officer |
Date: November 9, 2001