Item 1. Business --------
The Company is a Delaware corporation organized in February 1986 for the purpose of acquiring Triangle Pacific Corp., a New York corporation ("Old Triangle"), in a leveraged buyout transaction completed in May 1986. In September 1988, TPC Holding Corp. ("Holding") acquired the Company in a second leveraged buyout transaction pursuant to which the Company became a wholly-owned subsidiary of Holding.
On June 8, 1992, the Company successfully completed a capital restructuring (the "1992 Restructuring") pursuant to which substantially all of the Company's outstanding long-term indebtedness, redeemable preferred stock and common stock were exchanged for new debt with lower interest rates and new common stock.
The Company filed two registration statements with the Securities and Exchange Commission in 1993 and sold to the public 7,939,750 shares of the Company's Common Stock and $160 million aggregate principal amount of 10 1/2% Senior Notes due 2003 (collectively, "the Offerings"). The net proceeds of the Offerings together with borrowings under a new $90 million credit facility were used (i) to repay the entire unpaid balance under the Company's previously-existing senior debt financing agreements, redeem certain previously outstanding debentures and pay related accrued interest, for a total of approximately $227 million, and (ii) for working capital and general corporate purposes.
The Company's operations are conducted through a single business segment which consists of the manufacture and distribution of building products. The Company through its Hardwood Floors Division produces hardwood flooring and through its Cabinet Division manufactures and distributes kitchen and bathroom cabinets. The Company's products are used primarily in residential new construction and remodeling. The Company through its Building Products Division also operates a general building materials distribution center located in Beltsville, Maryland. The Company's business is seasonal, with demand for its products generally highest between April and November.
Presented below is a summary of sales results for each of the fiscal years 1990 through 1994.
1994 1993 1992 1991 1990 ---------------------------------------------- (in millions) Net Sales:
Hardwood Floors Division $ 244.0 $ 202.0 $ 152.9 $ 117.2 $ 129.9
Cabinet Division 146.5 125.6 123.2 125.1 165.3
Building Products Division 21.5 20.7 19.2 16.2 29.2
Intracompany sales* (1.8) (2.0) (2.5) (2.4) (3.3) ------ ------ ------ ------ ------ Total Net Sales $ 410.2 $ 346.3 $ 292.8 $ 256.1 $ 321.1 ====== ====== ====== ====== ====== *Represents intracompany sales from the Cabinet Division to the Building Products Division which are eliminated in consolidation.
Hardwood Floors Division ------------------------
The Company's Hardwood Floors Division is the largest and best known manufacturer of hardwood flooring in the United States. The Company produces a complete line of hardwood flooring products and believes that it is generally recognized for its superior quality and service. The Company believes the Bruce name is the most recognized brand name in hardwood flooring.
Industry Overview
Sales of hardwood flooring have grown from 2.9% of total United States floorcovering sales in 1982 to an estimated 6.6% of estimated total United States floorcovering sales in 1993. The Company believes that the growth of hardwood flooring sales is due to increased consumer preference for the aesthetic appeal of hardwood flooring and technological advances in the production, installation and maintenance of hardwood flooring.
Hardwood flooring competes primarily with carpet, vinyl and ceramic tile in the floorcovering market. The increased sales of hardwood flooring during the last decade have been achieved at the expense of carpet and vinyl floorcovering. The Company believes that the principal competitive factors in the floorcovering market are aesthetic appeal, price, durability and ease of installation and maintenance.
Products and Product Development
The Company offers approximately 100 varieties of hardwood flooring products in four basic categories - 3/4" solid strip and plank, 3/8" laminated strip, plank and parquet and 5/16" solid strip and parquet - in unfinished and a variety of pre-finished styles and colors. The Company's hardwood flooring products are generally available in various widths and lengths and are differentiated in terms of quality and price based primarily on whether the product is finished or unfinished and on the grade of the raw materials used to produce the product.
The Company has been a leader in developing a wide variety of new hardwood flooring products, including (i) 5/16" solid parquet flooring, (ii) 3/8" laminated flooring, (iii) 3/8" laminated, square-edge, pre- finished flooring, (iv) 3/8" acrylic-impregnated flooring for commercial applications (all of the above for glue-down installation) and (v) 3/4" square-edge, pre-finished flooring and (vi) most recently, 5/16" solid strip flooring. The Company believes that new product development has enabled it to increase its sales and has contributed to the overall growth of hardwood flooring since the mid-1970s. The Company's product innovations have made hardwood flooring a viable alternative for a variety of floorcovering applications for which hardwood flooring previously had been unsuitable.
The Company has been instrumental in the development of thinner hardwood flooring products which can be glued to the concrete slab foundations increasingly used in new home construction. Installation of 3/4" hardwood flooring over concrete slabs requires the construction of a false floor above the slab to which the hardwood flooring can be nailed, thereby increasing installation time and expense. The Company has developed 5/16" flooring products, which can be glued to wood or concrete slab foundations, eliminating the need for a false floor. The development of 3/8" laminated flooring (consisting of multiple layers of oak veneer, glued and pressed together), which can be glued to a wood or concrete sub-floor, further expanded the uses for hardwood flooring. The dimensional stability of laminated flooring permits its installation in kitchens and basements where the presence of moisture had previously rendered hardwood flooring impractical.
In 1994, the Company finalized development of a water-based solvent-free adhesive, Everbond SF, an environmentally sound mastic used to glue down laminated and 5/16-inch solid parquet floors. Everbond SF meets the requirements of a federal mandate scheduled to become effective in 1996.
Also in 1994, the Company acquired Premier Wood Floors in Statesville, North Carolina. This facility adds 100,000 square feet per shift per week of laminated flooring capacity to its operations, with near term potential to double that output. Premier will be operated as a separate brand name with its own product line and marketing programs. The Company will report the combined operations of Bruce and Premier as the "Hardwood Floors Division".
Manufacturing
The Company manufactures its 3/4" solid oak hardwood flooring products at its plants in Nashville, and Jackson, Tennessee; Beverly, West Virginia, and West Plains, Missouri. These plants have the capacity to produce a total of 1.7 million square feet of 3/4" flooring per week. The Beverly, West Virginia plant also produces 5/16" "solid strip" prefinished flooring with a capacity of 150,000 square feet per week. The Company manufactures its 3/8" laminated hardwood flooring products at its plants in Center, Texas and Port Gibson, Mississippi. The Center plant has a capacity of 500,000 square feet of 3/8" flooring per week and produces sufficient 1/8" oak veneer to supply approximately one-half of its veneer requirements. The Port Gibson, Mississippi plant has a capacity of 200,000 square feet of 3/8" flooring per week and also supplies most of the remainder of the Center plant's veneer requirements for the production of 3/8" laminated products. The Company manufactures its 5/16" solid parquet products at its plant in Jackson, Tennessee, which has the capacity to produce 400,000 square feet of 5/16" flooring per week in addition to its production of 3/4" product.
To alleviate capacity limitations, in 1994 the Company further expanded the plants in Beverly, West Virginia and Port Gibson, Mississippi. The West Virginia project enabled that plant to increase its capacity to produce 3/4" product from 540,000 square feet per week to 690,000 square feet per week. The Port Gibson project expanded that plants capacity to produce 3/8" laminated flooring from 200,000 square feet per week to 350,000 square feet per week, while maintaining the Port Gibson plant's ability to supply veneer to the Center plant. These capacity expansions, including the Premier acquisition, have increased total hardwood flooring capacity from 2.65 million to 3.2 million square feet per week.
The Beverly, West Virginia facility is operated by the Company under an 18-year lease with the West Virginia Economic Development Corporation expiring 2007 (subject to extension until 2017 at the option of the Company). In connection with the Beverly, West Virginia plant expansion, the Company made capital expenditures of $7.5 million for the purchase of equipment in the name of the West Virginia Economic Development Corporation. Pursuant to the operating lease, the West Virginia Economic Development Corporation reimbursed the Company for $5.5 million of the cost of such equipment.
The following table sets forth certain information concerning the manufacturing facilities operated by the Hardwood Floors Division.
Owned/ Capacity (1) Location Leased Product (Sq. Ft./Week) -------- ------ ------------------------ -------------- Nashville, TN Owned 3/4" strip and plank; 450,000 pre-finished, unfinished
West Plains, MO Owned 3/4" strip; pre-finished, 360,000 unfinished
Beverly, WV Leased 5/16" solid strip; pre-finished 150,000 and 3/4" strip; pre-finished, 690,000 unfinished
Jackson, TN (2) Owned 5/16" solid parquet; 400,000 pre-finished, unfinished 3/4" strip; unfinished 200,000
Center, TX (3) Owned 3/8" laminated strip, plank 500,000 and parquet; pre-finished, unfinished
Port Gibson, MS (3) Owned 3/8" laminated strip, plank 350,000 and parquet; pre-finished, unfinished
Statesville, NC Owned 3/8" laminated strip, plank, 100,000 pre-finished, unfinished ---------
Total Capacity 3,200,000 =========
------------------ (1) Production capacity based on multiple shift operations.
(2) The Jackson plant also manufactures dimension parts used by the Cabinet Division in cabinet production. See "- Cabinet Division - Manufacturing" below.
(3) The Center and Port Gibson plants also produce 1/8" veneer, which is used in the manufacture of 3/8" laminated products at these plants and at the Statesville, N.C. plant.
Raw materials for the hardwood flooring products produced at the Nashville, Jackson, Beverly and West Plains plants consist primarily of rough cut oak lumber. Each plant obtains lumber from local independent sawmill operators, purchasing entire truckloads of ungraded, mixed specie lumber. The Company maintains an inventory of purchased lumber which is sufficient for approximately three to four months of operations. The quality and efficiency of lumber purchasing and grading operations are important determinants of manufacturing yields and productivity.
Purchased lumber is stacked for drying in the open air for 90 to 120 days, and then placed in dry kilns for approximately five to seven days to reduce moisture content. Where necessary, the Company operates pre-drying kilns, which shorten the required open-air drying time. The Company's drying processes are another important determinant of satisfactory product yields. Following drying, the flooring-grade lumber is cut into various sizes of strip, plank and parquet flooring. The products are then sanded and, in most cases, beveled. A majority of the Company's products are pre-finished with a urethane or combination stain and wax finish. Pre-finished products are more durable and do not require a time-consuming sanding and finishing process at the installation site. Recently, the Company began treating a portion of its 3/8" laminated product with an acrylic impregnating process to produce its new Wear Master line of commercial flooring. The Statesville, N.C. plant purchases veneer from outside sources and also obtains veneer from the Port Gibson plant, which is converted into laminated products.
Raw materials for the laminated hardwood flooring products manufactured at the Company's plants in Center, Texas and Port Gibson, Mississippi consist of oak logs which are purchased primarily from independent loggers located within about 100 miles of the respective plants. Purchased logs are stored in soaking ponds until needed, and then debarked, soaked in hot water or steamed, cut into five-foot lengths, loaded into a lathe, and peeled to produce sheets of thin oak veneer. Layers of veneer are then pressed into plywood which is cut into strip, plank and parquet hardwood flooring and pre-finished. The Company employs advanced veneer manufacturing processes which substantially increase material yields, thereby reducing costs. The total conversion time for laminated products, from log to finished product, is approximately one week.
Sales
The Hardwood Floors Division sells its products to over 100 independent wholesale floorcovering distributors located throughout the United States and eight other countries. Most distributors handle a diverse line of floorcovering products in addition to hardwood flooring. The Company's distributors sell their products to retail floorcovering dealers, installation contractors, builders, remodelers and retail home center stores. The Company believes that new home construction and remodeling account for approximately 40% and 60%, respectively, of its hardwood flooring sales.
The Bruce trademark is a valuable asset because of its significant brand name recognition. Based on independent surveys, the Company believes that Bruce has the highest consumer brand name recognition of any hardwood flooring product. Sales and marketing efforts for Bruce hardwood floors are designed to further solidify its well-recognized position among resellers of hardwood flooring and to heighten Bruce's brand name recognition among end users. The Company advertises its Bruce hardwood flooring products in national and regional publications, including House Beautiful, Better Homes and Gardens, Sunset, Southern Living and others.
The Company has developed Bruce product displays, more than 50,000, of which have been placed in floorcovering dealer showrooms. These product displays are available in a variety of sizes designed to accommodate the varying floor spaces available in dealer showrooms. The Company has also developed marketing programs specifically tailored to retail home center stores and commercial users and has developed displays to demonstrate the ease of do-it-yourself installation of hardwood floors. The do-it-yourself installation displays have been placed in approximately 4,000 retail locations. Management believes that both the product displays and the do-it-yourself installation displays are important sales promotion devices.
The Company operates a training facility at its Nashville plant to give its Bruce floorcovering distributors, dealers and contractors training in the sale, installation and maintenance of hardwood floors. Providing this training, results in better educated resellers and installers, which the Company believes should enhance their ability to sell more Bruce products and improve consumer satisfaction with the installed products.
The Hardwood Floors Division currently employs 53 salespersons who are assigned geographical sales territories. In addition to making direct sales to independent distributors, the sales force assists distributors in broadening their market penetration by making joint sales calls on dealers, conducting installation training for distributors and their customers, and advising on the use of advertising and special product promotions. Salespersons earn bonuses, in addition to their salaries, based on volume and sales mix.
Competition
The Hardwood Floors Division is currently the largest manufacturer of hardwood flooring in the United States.
The floorcovering industry, which includes carpeting, sheet vinyl, vinyl tile, hardwood flooring and ceramic tile, is highly competitive. The principal competitive factors in floorcovering are aesthetic appeal, price, durability and ease of installation and maintenance. Hardwood flooring is generally more durable than other floorcoverings. Thus, although the average selling price of hardwood flooring is higher than that of the selling price of most other floorcoverings, the Company believes that the overall cost is competitive after taking into account average product life, maintenance expenses and removal and replacement costs.
The Company believes it competes favorably based on the high quality of the Company's products and the additional product support services offered by the Company and on the Company's network of independent distributors, its production of a complete line of hardwood flooring products, its innovative product development and manufacturing technology, and its well-known Bruce trademark.
Cabinet Division ----------------
The Company estimates that new construction accounts for approximately one-third of the total cabinet industry sales with remodeling generating the remaining two-thirds. Residential new construction activity is more cyclical than remodeling activity, which has historically been relatively stable. Cabinet manufacturing is a highly fragmented industry with competitors of widely varying production capacities, distribution capabilities and financial resources. In recent years, contraction in the industry has resulted in smaller competitors leaving the market and more aggressive cost controls and marketing programs being implemented by the remaining participants. The Kitchen Cabinet Manufacturing Association estimates that there are 8,000 manufacturers of kitchen and bathroom cabinets competing for approximately 50% of the total cabinet market. The balance of the market is supplied by trim carpenters and job-site cabinet makers. The market is dependent on new home construction and remodeling activity.
The entire cabinet manufacturing industry is characterized by substantial excess capacity. In the late 1970's, new construction expanded to meet the demands of more than two million housing starts annually plus remodeling. Price competition is severe, due principally to the excess industry capacity.
Products and Product Development
The Company manufactures kitchen and bathroom cabinets in approximately 100 different styles and colors. Cabinets are marketed under the brand names "TriPac", "IXL", "Classic Bath Products" and "Bruce"." The Company continues to develop new product styles. While the styles of the Company's cabinets vary from other manufacturers' brands, kitchen and bathroom cabinet construction is fundamentally the same throughout the industry. Differences in the price and quality of the Company's cabinets result from variations in basic materials (e.g., solid oak, plywood, particleboard or fiberboard doors), the type and quality of exterior and interior finish, the quality of the hardware and other features such as adjustable shelves and interior storage aids.
In 1994, the Company introduced three new products: Baseline, and Gemini, both price-competitive lines aimed at the multi-family market; and Ultrawood, an all-wood cabinet developed for the home center market. These new lines complement the existing Premier cabinet line, which was designed primarily for the single-family market.
Manufacturing
The Company operates seven cabinet manufacturing plants, generally located within 500 miles of most major population centers in the United States. These regional plants enable the Company to compete with local and regional manufacturers on the basis of the cost of freight, speed of delivery and service to customers. The Company also operates a manufacturing facility at Jefferson City, Tennessee which supplies cultured marble vanity tops, primarily to the Cabinet Division, and to retail home center stores.
The following table sets forth certain information concerning the Company's cabinet manufacturing facilities:
Owned/ Capacity (1) Location Leased Product (Units/Week) -------- ------ -------------------- ------------
Auburn, NE Owned Kitchen and bathroom 10,000 cabinets
Elizabeth City, NC Owned Bruce and IXL kitchen 15,000 and bathroom cabinets and European frameless cabinets
McKinney, TX Owned Kitchen and bathroom 6,000 cabinets
Morristown, TN Owned Kitchen and bathroom 9,000 (2) cabinets
Morristown, TN Owned Kitchen and bathroom 7,500 cabinets
Thompsontown, PA Owned Kitchen and bathroom 15,000 cabinets
Union City, IN Owned Kitchen and bathroom 9,000 cabinets _______
71,500 =======
------------------ (1) Production capacity based on single shift operations.
(2) This plant also produces finished end panels for certain other cabinet plants.
The plants are primarily cabinet assembly operations. The plant inventories consist of raw materials, component parts and a limited amount of work in process. Raw materials utilized by the plants consist of sheet stock of plywood, particleboard or fiberboard, and component parts consist of dimension parts (front frame parts, doors and drawer fronts), finished end panels, finishing materials and hardware. In the cabinet assembly operations, front frame parts, doors and drawer fronts are sanded smooth and color stained and finished. Then, end panels, tops, bottoms and shelves are glued and stapled to the front frames, drawers are assembled to drawer fronts and hardware is attached. The completed cabinet is inspected, packed and staged for shipment.
Sheet stock is a commodity product purchased from a variety of suppliers. The Company obtains its dimension parts, consisting of front frame parts, doors and drawer fronts, primarily from its manufacturing facility located at the hardwood flooring plant in Jackson, Tennessee. See "- Hardwood Floors Division - Manufacturing" above. The Jackson plant supplies 74% of the Cabinet Division's front frame parts requirements. The Company manufacturers finished end panels at its Morristown, Tennessee cabinet plants. Finishing materials and hardware are purchased from several suppliers.
The Cabinet Division is not dependent on any single supplier for any of its raw materials or component parts, other than the Jackson dimension parts plant. The Company believes its sources of supply are adequate to meet its needs. Imports from foreign suppliers, which account for less than ten percent of the Company's cabinet materials, consist of wood veneer, laminated veneer door panels and certain hardware items. While the Company maintains insurance coverage on all of its properties, including the Jackson dimension parts plant, the loss of that plant could have an adverse effect on the Company's operations. See "- Properties" below.
Sales and Marketing
The Company distributes its cabinets directly from the factories and also through 42 company-owned distribution centers, including seven new locations opened in 1994, in major markets accross the country. These centers, which cater largely to builders and remodeling contractors, generate more than 50% of the Cabinet Division's total sales.
The Company-operated distribution centers are also used to support sales to major builders and retail home centers by providing prompt replacements for lost or damaged cabinets and delivery and storage for truckload quantities of cabinets pending staged deliveries to job sites. The Company believes that its distribution centers are an important factor in maintaining and increasing its sales, and intends to open additional distribution centers in new geographic markets as conditions warrant.
Buyers Choice is an innovative marketing strategy developed to enable buyers to design semi-custom cabinets to meet their individual preferences. Buyers Choice product displays contain samples of the various types, colors and qualities of basic materials, hardware and other features available to complete a semi-custom cabinet design. The buyer chooses the preferred combination and the Cabinet Division assembles the cabinets in accordance with the buyer's specifications. The Buyers Choice program has been popular with single-family home builders, who use the displays in model homes in connection with their marketing efforts.
The Company provides personal computer software for use primarily by retail home center stores to create complete kitchen floor plans, including elevations and product specifications lists, with related prices, based on room measurements provided by customers. Management believes this software package to be a significant sales aid.
The Cabinet Division has one of the largest sales forces in the cabinet industry, currently employing approximately 223 salespersons. The sales force makes direct sales and service calls on builders, independent distributors and retail home center stores, and offers kitchen design, cabinet installation and cabinet display and marketing advice to retail home center stores and independent distributors. Most sales personnel are affiliated with one of the Company's distribution centers and are responsible for sales to all customers within their sales area including sales of cabinets directly by the plant. The Cabinet Division maintains a competitive salary base and provides performance incentives by compensating its sales force with bonuses tied to volume and profitability.
Competition
The Company is one of the largest manufacturers of kitchen and bathroom cabinets in the U.S.
The cabinet industry is a mature, highly competitive, regionalized and highly fragmented industry with thousands of cabinet makers competing primarily on a local basis. There is a relatively high manual labor content in cabinet products. Because of the low capital requirements for cabinet assembly, it is relatively easy and inexpensive for small cabinet makers to enter the industry as manufacturing competitors. In addition, high transportation costs limit the area to which a manufacturer can ship cabinets and still remain competitive. This has led the Company, and more recently, some of its larger competitors, to open regional manufacturing plants and distribution centers. The Company's seven regional manufacturing plants and 42 Company-operated distribution centers are important factors in the Company's ability to maintain cost and price competitiveness with local and regional manufacturers.
Due to significant excess manufacturing capacity, the cabinet industry has been subject to severe price competition. Other competitive factors include quality of product, production capacity and speed of delivery. The Company believes it competes favorably because of its breadth and quality of product offerings, and its production capacity, regional manufacturing facilities, national sales force and distribution capabilities.
Building Products Division --------------------------
The Company operates a general building materials distribution center in Beltsville, Maryland, located between Baltimore and Washington, D.C. Principal products sold, primarily to builders, include lumber, doors, windows, kitchen and bathroom cabinets and custom millwork. The Building Products Division is the largest customer of the Cabinet Division and also purchases hardwood flooring products from local distributors of the Hardwood Floors Division. Management believes that the Building Products Division has a reputation in its market area for quality products and a high level of customer service.
Backlog -------
The Company generally sells its flooring products from inventories on hand. The company produces its cabinets primarily in response to firm orders and, to a lesser extent, to maintain a working inventory at distribution centers operated by the Company. The Company generally ships its cabinets within a short time (e.g., one week) after receipt of an order. Accordingly, the dollar amount of backlog orders believed to be firm is not significant or indicative of the Company's future sales and earnings.
Employees ---------
As of December 30, 1994, the Company employed approximately 4,001 persons, of which 2,380 were employed by the Hardwood Floors Division, 1,491 by the Cabinet Division, 121 by the Beltsville Division and the remainder in the Company's headquarters and other operations. The Company has entered into collective bargaining agreements with hourly employees at three of its seven hardwood flooring plants, and three of its seven cabinet plants covering in the aggregate approximately 1,623 employees. Management considers its employee relations to be satisfactory.
Environmental Matters ---------------------
The Company's operations are subject to extensive federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Permits are required for certain of the Company's operations, and these permits are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines or the entry of injunctions, or both. The Company does not believe it will be required under existing environmental laws and enforcement policies to expend amounts which will have a material adverse effect on its results of operations or financial condition. However, the requirements of such laws and enforcement policies have generally become stricter in recent years. Accordingly, the Company is unable to predict the ultimate cost of compliance with environmental laws and enforcement policies.
Item 2.
Item 2. Properties ----------
The Company's principal manufacturing facilities are described under "- Hardwood Floors Division - Manufacturing" and "- Cabinet Division - Manufacturing" above. Management believes that the Company's plants and properties are generally well-maintained and in good operating condition.
The Company maintains blanket property insurance coverage on all its properties with aggregate limits of $100 million. The Company is also insured for losses arising from loss of inventory, business interruption and certain extra expense. Although this coverage is sufficient to replace any of the Company's manufacturing facilities, the complete loss of the dimension parts plant in Jackson, Tennessee for an extended period of time could adversely affect the Company's operations. See "- Cabinet Division - Manufacturing" above.
Item 3.
Item 3. Legal Proceedings -----------------
The Company is not a party to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
None.
Executive Officers of the Registrant ------------------------------------
Set forth below as of December 30, 1994 are the names, ages and principal occupations of the executive officers of the Company, as well as certain other information concerning their business experience.
Name and Positions held Principal Occupation with the Company and Other Information ----------------------- ---------------------
Floyd F. Sherman Mr. Sherman has served as Chairman Chairman of the Board of of the Board and Chief Executive Directors, and Chief Officer since July, 1992. Prior to Executive Officer November, 1994 he served as President of the Company since 1981. Prior to 1981, he served as Executive Vice President of the Company. Mr. Sherman is 55 years old and became a director of the Company in 1986.
M. Joseph McHugh Mr. McHugh has served as President Director, President and Chief Operating Officer of the and Chief Operating Company since November, 1994. Officer Prior thereto, he served as Senior Executive Vice President and Treasurer of the Company since 1981. Prior to 1981, he served as Executive Vice President of the Company. He became a director of the Company in 1986. Mr. McHugh is also a director of Pillowtex Corporation. He is 57 years old.
Robert J. Symon Mr. Symon has served as Executive Executive Vice President, Vice President, Treasurer and Treasurer and Chief Chief Financial Officer of the Financial Officer Company since November, 1994. Prior thereto he served as Vice President - Controller of the Company since 1978. Mr. Symon is 63 years old and served as a director of the Company from December 1988 to June 1992.
John G. Conklin Mr. Conklin has served as Executive Vice President Executive Vice President of the Company since November, 1994. Prior thereto he served as a Vice President of the Company since 1978. He has been President of the Cabinet Division since September 1993. Prior thereto he was responsible for cabinet manufacturing. Mr. Conklin is 61 years old.
Darryl T. Marchand Mr. Marchand has served as Vice Vice President, Secretary President, Secretary and General and General Counsel Counsel of the Company since 1986. Prior thereto he served as Vice President - Legal of the Company from 1981 to 1986 and as Treasurer from February to August, 1981. Mr. Marchand is 52 years old.
Charles A. Engle Mr. Engle has served as a Vice Vice President President of the Company since 1979. His primary responsibility for the Company is Cabinet Division sales. Mr. Engle is 51 years old.
John W. Esch Mr. Esch has served as a Vice Vice President President of the Company since November, 1994. He has been a division Controller of the Cabinet Division since 1977. Mr. Esch is 50 years old.
James T. Fidler Mr. Fidler has served as a Vice Vice President President of the Company since 1981. Mr. Fidler is primarily responsible for data processing for the Company. Mr. Fidler is 52 years old.
Michael J. Kearins Mr. Kearins has served as a Vice Vice President President of the Company since 1985. He had been a divisional Vice President of sales of the Bruce Hardwood Floors Division from December, 1983 to May, 1985. He is primarily responsible for sales and marketing in the Bruce Hardwood Floors Division. Prior to 1983, he had been a Regional Sales Manager of the Company. Mr. Kearins is 48 years old.
E. Dwain Plaster Mr. Plaster has served as a Vice Vice President President of the Company since November, 1994. He has been a divisional Controller of the Bruce Hardwood Floors Division since 1977. Mr. Plaster is 45 years old.
James E. Price Mr. Price has served as a Vice Vice President President of the Company since November, 1994. He has been Vice President of manufacturing of the Bruce Hardwood Floors Division since March, 1993. Prior thereto he was General Manager of that division since 1984. He had been a Plant Manager of the Company since 1979. Mr. Price is 52 years old.
Allen Silver Mr. Silver has served as a Vice Vice President President of the Company since 1985. Prior to that time he had been a divisional Vice President of manufacturing of the Cabinet Division. Mr. Silver is 55 years old.
David Weaver Mr. Weaver has served as a Vice Vice President President of the Company since November, 1994. He has been General Manager of the Building Products Division since June, 1989. Prior thereto he was a Sales Manager of the Company since 1987 and a Sales Representative of the Company since 1968. Mr. Weaver is 48 years old.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related ----------------------------------------------------- Stockholder Matters -------------------
A) Price range of common stock
The following table shows the range of market prices for the common stock on the NASDAQ National Market System for each quarter during the past two fiscal years. (Trading began August 11, 1993).
Market Price 1993 High Low ---- ------------ Third Quarter 12-1/4 10 Fourth Quarter 15-7/8 11-3/8
---- First Quarter 17-1/4 12-5/8 Second Quarter 14-1/8 11-1/4 Third Quarter 14-3/8 11-1/2 Fourth Quarter 13-7/8 11-3/4
B) Approximate number of equity security holders (As of December 30, 1994)
Class of Security Number of Record Holders
Common Stock ($.01 par value) 1,950
C) Dividend Policy
The Company has not declared or paid any dividends on its Common Stock. Management currently intends to retain future earnings for the operation and expansion of the Company's business and does not anticipate paying any cash dividends in the foreseeable future. The payment of cash dividends is prohibited under the terms of the bank credit facility and is restricted under the terms of the indenture relating to the Company's 10 1/2% Senior Notes due 2003.
Item 6.
Item 6. Selected Consolidated Financial Data ------------------------------------ (In thousands, except per share amounts)
The selected consolidated financial data of the Company presented below for the five fiscal years ended December 30, 1994 was derived from the consolidated financial statements of the Company and should be read in conjunction with the consolidated financial statements and related notes included herein.
Fiscal Fiscal Seven Five Fiscal Fiscal year year months months year year ended ended ended ended ended ended Dec. Dec. Jan. Jun. Jan. Dec. INCOME 30, 31, 1, 8, 3, 28, STATEMENT 1994 1993 1993 1992* 1992* 1990* DATA ---------------------------------------------------------- Net sales $410,159 $346,296 $173,426 $119,417 $256,112 $321,126 Cost of sales 300,160 269,360 137,413 90,991 204,026 250,305 ---------------------------------------------------------- Gross profit 109,999 76,936 36,013 28,426 52,086 70,821 Selling, general and admin- istrative 57,928 44,213 27,179 19,404 41,597 47,383 Gain on insurance settlement - - (1,350) (3,624) - - Amortization of goodwill 1,520 1,613 884 1,863 4,463 4,463 Interest 18,920 19,406 11,289 25,786 59,719 56,983 ----------------------------------------------------------- Income (loss) before income taxes and extra- ordinary item 31,631 11,704 (1,989) (15,003) (53,693) (38,008) Provision (benefit) for income taxes 12,829 4,501 (940) - (10,028) (12,857) ----------------------------------------------------------- Income (loss) before extra- ordinary item 18,802 7,203 (1,049) (15,003) (43,665) (25,151) Extraordinary items - gain from extin- guishment of debt - - - 201,308 - - - Loss from repayment of debt - (11,307) - - - - ----------------------------------------------------------- Net income (loss) $ 18,802 $ (4,104) $ (1,049) $186,305 $(43,665) $(25,151) ===========================================================
Per share data: (1) Net income (loss) before extraordinary items $ 1.28 $ 0.74 $ (0.16) Net income (loss) $ 1.28 $ (0.42) $ (0.16)
Weighted average shares out- standing 14,660 9,714 6,707
Fiscal years ended --------------------------- December 31, January 1, 1993 1993 ------------ ---------- Pro-Forma Income Data (3) Net income (loss) before extraordinary items, as reported $ 7,203 $ (16,052) Pro-Forma adjustments re: 1992 restructuring & 1993 recapitalization 490 16,852 ---------- ---------- Pro-Forma net income before extraordinary items $ 7,693 $ 800 ========== ========== Pro-Forma net income before extraordinary items, per share $ 0.53 0.05 Weighted average shares outstanding 14,648 14,648
Dec. Dec. Jan. June Jan. Dec. BALANCE 30, 31, 1, 8, 3, 28, SHEET DATA 1994 1993 1993 1992* 1992* 1990* --------------------------------------------------------- Working capital $ 94,354 $ 74,082 $ 53,480 $ 79,421 $ 78,927 $ 63,599 Total assets 363,451 326,545 302,259 323,563 453,105 465,352 Long-term debt, net of current maturities, and redeemable preferred stock 168,388 162,897 198,332 222,483 470,506 450,948 Common shareholders' investment 106,894 $ 88,047 $ 18,951 $ 20,000 $(121,081) $(71,218)
* Prior to the restructuring on June 8, 1992 (See Notes 2 and 3 to the Consolidated Financial Statements). __________ (1) As the Company was a wholly-owned subsidiary of another company, earnings per share are not meaningful for the periods prior to June 8, 1992. (2) The balance sheet data as of June 8, 1992 (unaudited) reflects the quasi-reorganization adjustments recorded by the Company on that date. (See Notes 2 and 3 to the Consolidated Financial Statements). (3) See Note 10 to the Consolidated Financial Statements.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations ---------------------
The following table sets forth selected information concerning the Company's results of operations for fiscal 1994, 1993 and 1992. For clarity of presentation, the discussion of results of operations for fiscal 1992 reflects the combined results of operations for the five month period ended June 8, 1992, the date the 1992 Restructuring was completed, and the seven month period ended January 1, 1993.
Fiscal Year ------------------------ 1994 1993 1992 ------ ------ ------ (Dollars in millions) Net sales:
Hardwood Floors Division $244.0 $202.0 $152.9 Cabinet Division 146.5 125.6 123.2 Building Products Division 21.5 20.7 19.2 Intracompany sales (1.8) (2.0) (2.5) ----- ----- -----
Total net sales 410.2 346.3 292.8 ===== ===== =====
Gross profit 110.0 76.9 64.4 Selling, general and administrative expenses 57.9 44.2 46.6 Gain on insurance settlement - - (5.0) Amortization of goodwill 1.5 1.6 2.7 ----- ----- -----
Operating income $ 50.6 $ 31.1 $ 20.1 ===== ===== =====
As a percent of net sales: Gross profit 26.8% 22.2% 22.0% Selling, general and administrative expenses 14.1 12.8 15.9 Operating income 12.3 9.0 6.9
Fiscal year 1994 compared to Fiscal year 1993 ---------------------------------------------
Net sales for fiscal 1994 were $410.2 million, or 18.4% greater than the $346.3 million in net sales for fiscal 1993. Net sales for the Hardwood Floors Division increased 20.8% to $244.0 million from $202.0 million in the prior year. The increase in hardwood flooring sales resulted primarily from an increase in units sold. The second half of 1994 benefited from the sales generated by Premier Wood Floors which was acquired on July 1, 1994.
Cabinet Division net sales for 1994 were $146.5 million, or an increase of 16.7% over 1993 net sales of $125.6 million. While unit sales increased by 2.7% the major portion of the growth in sales was attributable to a more favorable mix of cabinets sold and to a lesser extent to price increases.
Net sales of the Building Products Division increased 3.9% in 1994 to $21.5 million compared to $20.7 million in 1993.
Gross profit for fiscal 1994 was $110.0 million, or 26.8% of net sales, compared to $76.9 million or 22.2% of net sales in fiscal 1993. The improvement in gross profit resulted primarily from higher unit sales and to a lesser extent from increased prices. Lower lumber costs in 1994 compared to 1993 were also a significant factor. In addition the Company benefited from improved efficiency generated at the plants and in part by capital improvements in recent years to increase productivity.
Selling, general and administrative expenses were $57.9 million, or 14.1% of net sales, in fiscal 1994 compared to $44.2 million, or 12.8% of net sales in fiscal 1993. The major portion of the increased expenses was higher spending levels for selling expense in the Hardwood Floors Division. These increased expenses were for consumer, co-op and trade advertising, display and tradeshow expenses and the expenses associated with the promotion of new products. Administrative expenses were higher due to larger provisions for incentive bonuses and profit sharing plans in accordance with pre-set goals.
Operating income was $50.6 million, or 12.3% of net sales, in fiscal 1994 compared to $31.1 million, or 9.0% of net sales in fiscal 1993. These improved results were generated by the improved performance in gross profit offset in part by higher levels of spending for selling, general and administrative expenses.
Interest expense was $18.9 million in fiscal 1994 compared to $19.4 million in fiscal 1993.
Net income for fiscal 1994 was $18.8 million compared to net income before an extraordinary item for fiscal 1993 of $7.2 million. Higher net sales along with an increase in operating income accounted for this improvement.
Fiscal year 1993 compared to Fiscal year 1992 ---------------------------------------------
Net sales for fiscal 1993 were $346.3 million, or 18.3% greater than the $292.8 million in net sales for fiscal 1992. Net sales for the Hardwood Floors Division increased 32.1% to $202.0 million from $152.9 million in the prior year. The increase in hardwood flooring sales resulted from increased unit sales and increased average sales prices. Cabinet Division net sales for the year were $125.6 million or an increase of 1.9% over 1992 net sales of $123.2 million. During 1993, we focused our sales and marketing attention on the stronger and more stable single-family housing markets, yet without deserting either the multi-family or home center business. Net sales of the Building Products Division increased 7.8% to $20.7 million from $19.2 million in the prior year. The increased sales resulted primarily from an improved housing market in the Washington, D.C., Baltimore and Northern Virginia areas.
Gross profit for fiscal 1993 was $76.9 million or 22.2% of net sales, compared to $64.4 million, or 22.0% of net sales in the previous year. All divisions experienced higher raw material prices, especially for lumber and logs. Increased sales prices, together with improved operations and plant utilization, especially in the Hardwood Floors Division, resulted in the modest improvement in gross profit as a percent of sales.
Selling, general and administrative expenses were $44.2 million or 12.8% of net sales, in fiscal 1993 compared to $46.6 million, or 15.9% of net sales, in the prior year. The reduction in spending for selling, general and administrative expenses was primarily in the Cabinet Division where salaried payroll and related expenses were reduced. Also in 1992, selling, general and administrative expenses included a $.9 million expense relating to the common stock issued to management in connection with the 1992 Restructuring.
Operating income was $31.1 million, or 9.0% of net sales, in fiscal 1993 compared to $20.1 million or 6.9% of net sales, in the previous year. The improvement was $16.0 million before the gain in 1992 of $5.0 million from the Thompsontown cabinet plant fire insurance settlement. The improved results were attributable to higher net sales, slightly higher gross margins, lower selling, general and administrative expenses and lower goodwill amortization attributable to the 1992 Restructuring.
Interest expense was $19.4 million in fiscal 1993 compared to $37.1 million, in the prior fiscal year due principally to the effects of the 1992 Restructuring.
Net income before an extraordinary item for fiscal 1993 was $7.2 million compared to a net loss of $16.1 million before an extraordinary item in fiscal 1992. Higher net sales, the reduction in interest expense and increase in operating income were significant factors in this improvement.
Liquidity And Capital Resources -------------------------------
In 1993 the Company completed two public offerings of 7,939,750 shares of the Company's common stock and $160 million aggregate principal amount of 10-1/2% senior notes. The net proceeds of the public offerings, together with borrowings under a new $90 million bank credit facility executed on August 4, 1993, (the "New Credit Facility") were used (i) to repay the entire unpaid balance under the Company's previously existing senior debt financing agreements, redeem certain previously outstanding debentures and pay related accrued interest, for a total of approximately $227 million, and (ii) for working capital and general corporate purposes. As a result of this repayment of debt, the Company incurred an extraordinary loss of approximately $11.3 million, net of tax, as a result of the original issue discount on certain of the repaid notes as well as the premium required to redeem the debentures. The New Credit Facility provides for up to $90 million of revolving credit loans for working capital and for letters of credit. Availability of borrowings under the New Credit Facility is based upon a formula related to inventory and accounts receivable. At December 30, 1994, there were no borrowings under this facility.
For the fiscal year ended December 30, 1994, cash increased by $24.1 million. Net cash provided by operating activities was $37.0 million and $7.0 million was received from Industrial Revenue Bond Notes issued to finance the expansion of the Bruce Hardwood Floors plant in Port Gibson, Mississippi. Cash of $20.9 million was used primarily for additions to property, plant and equipment, the expansion of the Port Gibson plant, construction deposits relating to expansion of the Hardwood Floors plant in West Virginia, long-term debt payments and the acquisition of Premier Wood Floors on July 1, 1994 for approximately $5.1 million.
At December 30, 1994, the Company had working capital of $94.4 million, or 26.0% of total assets, and $56.3 million of unused bank borrowing capacity.
As of December 30, 1994, the Company has utilized all net operating loss carryforward benefits. For 1994 $10.7 million of Federal and state income taxes have been paid or are payable. In 1993 the comparable amount was $.2 million.
The Company believes that borrowing availability under the New Credit Facility and cash generated from operations will be adequate to fund working capital requirements, debt service payments and the planned capital expenditures of $34 million, of which $8 million is applicable to a portion of a planned new hardwood floors plant scheduled to start construction in the third quarter of 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Triangle Pacific Corp.:
We have audited the accompanying consolidated balance sheets of Triangle Pacific Corp. and subsidiaries (a Delaware corporation) as of December 30, 1994 and December 31, 1993, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for the fiscal years ended December 30, 1994 and December 31, 1993, the seven-month period ended January 1, 1993 and the five-month period ended June 8, 1992. These financial statements and the schedule referred to below, are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Triangle Pacific Corp. and subsidiaries as of December 30, 1994 and December 31, 1993 and the results of their operations and their cash flows for the fiscal years ended December 30, 1994 and December 31, 1993, the seven-month period ended January 1, 1993 and the five-month period ended June 8, 1992, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas February 6, 1995
TRIANGLE PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) December 30, December 31, ASSETS 1994 1993 Current assets: ----------- ------------ Cash and cash equivalents $ 24,906 $ 785 Receivables (net of allowances of $2,491 & $3,323 respectively) 43,303 39,454 Inventories 70,900 64,072 Prepaid expenses 3,934 4,273 -------- -------- Total current assets 143,043 108,584 -------- -------- Property, plant and equipment: Land 12,003 13,452 Buildings 43,452 43,382 Equipment, furniture and fixtures 79,568 65,759 -------- -------- 135,023 122,593 Less accumulated depreciation 21,110 13,171 -------- -------- 113,913 109,422 Other assets: Goodwill 56,617 58,026 Trademark 29,933 30,733 Other 13,237 11,654 Deferred financing costs 6,708 8,126 -------- -------- Total assets $ 363,451 $ 326,545 ======== ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities Current portion of long-term debt $ 1,527 $ 1,467 Accounts payable 17,723 13,336 Accrued liabilities 28,112 19,699 Income taxes payable 1,327 - -------- -------- Total current liabilities 48,689 34,502 -------- -------- Long-term debt, net of current portion 168,388 162,897 -------- -------- Deferred income taxes 39,480 41,099 -------- -------- Total liabilities 256,557 238,498 ======== ======== Shareholders' investment: Common stock - $.01 par value, authorized shares - 30,000,000 issued and outstanding shares - 14,662,609 at December 30, 1994 and 14,647,607 at December 31, 1993 147 146 Additional paid-in capital 93,098 93,054 Retained earnings (deficit) 13,649 (5,153) -------- -------- Total shareholders' investment 106,894 88,047 -------- -------- Total liabilities and shareholders' investment $ 363,451 $ 326,545 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these balance sheets. TRIANGLE PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, except per share amounts)
Fiscal Fiscal Seven Five Year Year Months Months Ended Ended Ended Ended December 30, December 31, January 1, June 8, 1994 1993 1993 1992* ------------------------------------------------- Net Sales $410,159 $346,296 $173,426 $119,417 ------- ------- ------- ------- Costs and expenses: Cost of sales 300,160 269,360 137,413 90,991 Selling, general and administrative 57,928 44,213 27,179 19,404 Gain on insurance settlement - - (1,350) (3,624) Amortization of goodwill 1,520 1,613 884 1,863 Interest 18,920 19,406 11,289 25,786 ------- ------- ------- ------- 378,528 334,592 175,415 134,420 Income (loss) before income taxes and extraordinary items 31,631 11,704 (1,989) (15,003) Provision (benefit) for income taxes 12,829 4,501 (940) - ------- ------- ------- ------- Net income (loss) before extraordinary items 18,802 7,203 (1,049) (15,003) Extraordinary items Gain from exting- uishment of debt - - - 201,308 Loss from re- payment of debt, net of tax - (11,307) - - ------- ------- ------- ------- Net income (loss) $ 18,802 $ (4,104) $ (1,049) $186,305 ======= ======= ======= ======= Per Share Data: Net income (loss) before extraordinary items $ 1.28 $ 0.74 $ (0.16) (1) Net income (loss) $ 1.28 $ (0.42) $ (0.16) Weighted average share outstanding 14,660 9,714 6,707
Fiscal Years Ended ------------------------ December 31, January 1, 1993 1993 ------------------------ Pro-Forma Income Data(unaudited) (See Note 10) Net income (loss) before extraordinary items, as reported $ 7,203 $(16,052) Pro-Forma adjustments re: 1992 restructuring and 1993 recapitalization 490 16,852 ------- ------- Pro-Forma net income before extraordinary items $ 7,693 $ 800 ======= ======= Pro-Forma net income before extraordinary items, per share $ 0.53 $ 0.05 Weighted average shares outstanding 14,648 14,648
(1) As the Company was a wholly-owned subsidiary of another company, earnings per share for the periods prior to June 8, 1992, are not meaningful. * Prior to the restructuring on June 8, 1992 (see Notes 2 and 3 for additional information).
The accompanying notes to consolidated financial statements are an integral part of these statements. TRIANGLE PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT for the Five Months Ended June 8, 1992, for the Seven Months Ended January 1, 1993, for the Fiscal Year Ended December 31, 1993, and for the Fiscal Year Ended December 30, 1994 (In Thousands)
Carryover Additional Basis of Retained Common Paid-in Common Earnings Stock Capital Stock (Deficit) Total ----------------------------------------------------- Balance, January 3, 1992* $ 1 $ 14,999 $(26,000) $(110,081) $(121,081) Net income - - - 186,305 186,305 Dividends on mandatory redeemable preferred stock - - - (2,913) (2,913) Quasi-reorganization adjustments - net 66 4,934 26,000 (73,311) (42,311) ----------------------------------------------------------------------- Balance, June 8, 1992 $ 67 $ 19,933 $ - $ - $ 20,000 Net loss - - - (1,049) (1,049) ----------------------------------------------------------------------- Balance, January 1, 1993 $ 67 $ 19,933 $ - $ (1,049) $ 18,951 Net loss - - - (4,104) (4,104) Sale of Common Stock - net 79 73,121 - - 73,200 ----------------------------------------------------------------------- Balance, December 31, 1993 $146 $ 93,054 $ - $ (5,153) $ 88,047 Net income - - - 18,802 18,802 Exercise of stock options 1 44 - - 45 ----------------------------------------------------------------------- Balance, December 30, 1994 $147 $ 93,098 $ - $ 13,649 $ 106,894 ======================================================================= *Prior to the restructuring on June 8, 1992 (See Notes 2 and 3 for additional information).
The accompanying notes to consolidated financial statements are an integral part of these statements. TRIANGLE PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Fiscal Fiscal Seven Five Year Year Months Months Ended Ended Ended Ended December 30, December 31, January 1, June 8, 1994 1993 1993 1992* ------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ 18,802 $ (4,104) $ (1,049) $ 186,305 Adjustments: Depreciation 8,217 7,929 5,255 3,734 Deferred income taxes 2,163 2,680 (940) - Gain on insurance settlement - - (1,350) (3,624) Amortization of goodwill and trademark 2,320 2,413 1,351 2,279 Amortization of deferred financing costs 1,432 536 - 1,603 Amortization of original issue discount - 1,037 749 - Extraordinary items - 11,307 - (201,308) Provision for doubtful accounts 884 485 1,438 678 Other - - - 106 Changes in assets and liabilities: Receivables (3,936) (7,522) (2,351) (4,529) Inventories (6,328) (16,460) 2,151 (7,387) Prepaid expenses 364 982 1,436 (1,316) Accounts payable 4,238 1,502 5,553 (408) Accrued liabilities- other 6,637 1,414 (3,115) 4,058 Accrued liabilities- interest 1,197 3,688 2,795 10,052 Income taxes payable 1,327 - - - Deferred compensation - (5,068) 147 105 Other (278) 1,684 (2,821) (2,087) ------------------------------------------------------------------------ Net cash provided by (used in) operating activities 37,039 2,503 9,249 (11,739) ------------------------------------------------------------------------ Cash flows from investing activities: Proceeds from sale of property, plant and equipment 913 34 3 41 Additions to property, plant and equipment (12,217) (7,636) (2,386) (890) Acquisition of Premier Wood Floors (5,123) - - - Construction deposits (2,073) (7,504) - (18) ------------------------------------------------------------------------
Net cash used in investing activities (18,500) (15,106) (2,383) (867) ------------------------------------------------------------------------ Cash flows from financing activities: Long-term debt borrowings 7,000 500 - - Long-term debt payments (1,449) (10,332) (22,890) (908) Tranche I and II Note payments - (207,400) - - Restructuring costs - - - (2,994) Refinancing costs (14) (14,860) - - Proceeds from senior notes issued - 160,000 - - Sale of common stock - 79,398 - - Exercise of stock options 45 - - - Reimbursement of construction deposits - 5,535 - - ------------------------------------------------------------------------ Net cash provided by (used in) financing activities 5,582 12,841 (22,890) (3,902) ------------------------------------------------------------------------ Net increase (decrease) in cash $ 24,121 $ 238 $ (16,024) $(16,508) Cash and cash equivalents, beginning of period 785 547 16,571 33,079 ------------------------------------------------------------------------ Cash and cash equivalents end of period $ 24,906 $ 785 $ 547 $ 16,571 ========================================================================
Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 16,969 $ 14,667 $ 8,035 $ 14,029 Income taxes 8,935 45 - - Supplemental schedule of non-cash investing and financing activities: Accrued dividends on preferred stock $ - $ - $ - $ 2,913
*Prior to the restructuring on June 8, 1992 (see Notes 2 and 3 for additional information).
The accompanying notes to consolidated financial statements are an integral part of these statements. TRIANGLE PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 1993 RECAPITALIZATION:
The Company filed in 1993 two registration statements with the Securities and Exchange Commission and sold to the public 7,939,750 shares of the Company's Common Stock and $160 million aggregate principal amount of 10 1/2% Senior Notes due 2003 ("the Offerings"). The net proceeds of the Offerings together with borrowings under a new $90 million bank credit facility (the "New Credit Facility") were used (i) to repay the entire unpaid balance under the Company's previously- existing senior debt financing agreements, redeem certain previously outstanding debentures and pay related accrued interest, for a total of approximately $227 million, and (ii) for working capital and general corporate purposes. As a result of this repayment of debt the Company incurred an extraordinary loss of $11.3 million, net of tax, as a result of the original issue discount on certain of the repaid notes as well as the premium required to redeem the debentures.
On June 14, 1993, the Company's Board of Directors approved a reclassification pursuant to which each share of Series A Common Stock was changed and converted into .67 of a share of Common Stock. The transaction became effective upon completion of the Offerings described above and has been reflected retroactively in the accompanying consolidated financial statements.
NOTE 2 - 1992 RESTRUCTURING:
On June 8, 1992, the Company successfully completed a capital restructuring (the "1992 Restructuring") pursuant to which substantially all of the Company's then outstanding long-term indebtedness, redeemable preferred stock and common stock were exchanged for new debt with lower interest rates and new common stock.
Under the 1992 Restructuring, the Company entered into amendments to its previously existing senior debt financing agreements pursuant to which $237.4 million principal amount of senior indebtedness outstanding prior to the restructuring plus accrued and unpaid interest through June 8, 1992 was restructured as approximately $150.0 million principal amount of Tranche I Term Notes, $30.0 million principal amount of Tranche I Revolving Notes, $57.4 million principal amount of Tranche II Notes and approximately 9% of the Company's new Series A Common Stock. In addition, approximately $11.6 million of letters of credit remained outstanding under a facility pursuant to which they could be renewed or replaced. The Tranche II Notes were recorded at $37.3 million, which the Company and its investment bankers estimated to be the market value. The difference was treated as original issue discount and amortized over the life of the Tranche II Notes, which were to have matured on June 30, 1999.
The senior subordinated split coupon reset debentures, a note payable to the former principal shareholder, other obligations, the mandatory redeemable preferred stock and common stock outstanding prior to the 1992 Restructuring were exchanged for new shares of common stock. The mandatory redeemable preferred stock and the special preferred stock were retired in conjunction with the 1992 Restructuring.
In addition to the exchange for common stock, the principal shareholder prior to the 1992 Restructuring received warrants entitling the holder to purchase up to approximately .8 million shares of common stock at prices ranging from $22.39 to $37.31 per share. The Warrants are currently exercisable and will terminate, if not previously exercised, on June 8, 1999. No value was assigned to these warrants since the exercise prices are significantly higher than the current value of the common stock.
In connection with the 1992 Restructuring, the Company entered into an agreement with certain members of management pursuant to which, shortly after the 1992 Restructuring, the Company issued to such members of management 200,990 shares of common stock and stock options to purchase 201,007 shares of common stock. The exercisability of such options is tied to the achievement of certain levels of operating income. A portion of the options became exercisable as a result of the Company's 1992, 1993 and 1994 operating results. In connection with the issuance of the common stock in 1992, management shareholders incurred ordinary income tax liability and were compensated by the Company for a portion of the tax liability arising from receipt of such shares and such incremental compensation. Such compensation was expensed in conjunction with the 1992 Restructuring.
NOTE 3 - QUASI-REORGANIZATION ELECTION:
In connection with the 1992 Restructuring, the Company's Board of Directors approved quasi-reorganization accounting procedures. Under these procedures an entity restates its assets and liabilities at fair value and eliminates its accumulated deficit. Such adjustments are reflected entirely through the Company's capital accounts. None of the adjustments are recorded through the income statement. Such adjustments included both the quasi-reorganization related fair value restatements of assets, liabilities, and equity as well as the recognition of the 1992 Restructuring. Because the Company's historical and future expected operations exhibited an ability to cover amortization of its intangibles on an earnings before interest and tax basis, the partial write-down of such intangibles by approximately $98.4 million was reflected by the Company as a quasi-reorganization adjustment. Other principal adjustments made in conjunction with the quasi-reorganization election included (i) the extinguishment of senior bank debt of approximately $261.0 million, senior subordinated debentures of approximately $218.9 million, notes, obligations, and payables of approximately $10.3 million, mandatory redeemable preferred stock of approximately $44.9 million and the common stock of $15.0 million and (ii) the recording of new senior debt of approximately $217.3 million and new common stock of $20.0 million. This transfer resulted in a gain from extinguishment of debt of approximately $201.3 million, net of deferred financing costs and restructuring costs of $11.6 million. In addition, the property, plant and equipment was revalued resulting in a decrease in net book value of $3.0 million. An additional decrease in net book value of $6.5 million was recorded prior to January 1, 1993. The trademark was also reduced by approximately $4.3 million to fair value. In addition, a write-down of certain deferred financing costs of approximately $4.5 million and restructuring costs of approximately $5.9 million was included as part of the quasi-reorganization adjustments. Because the Company has adopted the provision of SFAS No. 109, Accounting for Income Taxes, it is required to gross up the fair value of the net assets to, in effect, ignore the tax consequences of the differences between the market value and tax bases of its assets and liabilities. Such tax consequences are then recognized through the recording of a corresponding deferred tax asset or liability. The deferred tax liability was increased by approximately $20.3 million due to the loss of the net operating loss carryforwards, and by approximately $10.4 million for the tax effects of other quasi- reorganization adjustments. The final quasi-reorganization accounting adjustment was to eliminate the accumulated deficit of the Company.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation: -----------------------
The consolidated financial statements include the financial statements of Triangle Pacific Corp. and its subsidiaries. The Company maintains its records on a 52/53 week year.
Prior Period Reclassifications: -------------------------------
Certain reclassifications have been made to the December 31, 1993 balances, in order to conform to the current year presentation.
Cash and Cash Equivalents: --------------------------
The Company considers all investments with an original maturity of less than three months to be cash equivalents.
Inventories: ------------
Inventories are valued at the lower of cost or market. The last- in, first-out (LIFO) method is used for certain lumber inventories and the first-in, first-out (FIFO) method is used for all other inventories. Inventories valued by the LIFO method were $20,870,000 at December 30, 1994 and $23,965,000 at December 31, 1993. Had all inventories been valued by the FIFO method, which approximates current cost, inventories would have been increased by $2,069,000 at December 30, 1994 and $4,420,000 at December 31, 1993. Raw materials inventories include purchased parts and supplies to be used in manufactured products. Work- in-process and finished goods inventories include material, labor and overhead costs incurred in the manufacturing process. The major components of inventories are as follows:
December 30, December 31, 1994 1993 ------------------------------ (in thousands) Raw materials $ 39,092 $ 42,045 Work-in-process 3,640 3,125 Finished goods 28,168 18,902 ------ ------ Total $ 70,900 $ 64,072 ======= =======
Property, Plant and Equipment: ------------------------------
Property, plant and equipment are stated at fair value as of June 8, 1992, plus acquisition or construction cost subsequent thereto. Expenditures for maintenance, repairs, renewals and improvements which do not extend the useful life's of assets are charged to appropriate expense accounts in the year incurred. Upon disposition of an asset, cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the results of operations. Depreciation and amortization are computed on the straight-line basis using the following estimated useful lives:
Buildings 10 to 50 years Equipment, furniture and fixtures 3 to 22 years
Amortization of leasehold improvements is provided over the terms of the leases or the useful lives of the assets, whichever is shorter. For income tax purposes, all assets are depreciated under allowable tax depreciation methods.
Intangible Assets: ------------------
The Company annually evaluates its carrying value and expected period of benefit of trademark and goodwill in relation to results of operations. In determining the recoverability of these assets the Company analyzes its historical and future ability to generate earnings before interest and taxes using the non-discounted method. Deferred financing costs are being amortized on the straight-line method over the lives of the related debt. The trademark and goodwill are being amortized over 40 years. Accumulated amortization of trademark and goodwill is $2,067,000 and $4,017,000 respectively at December 30, 1994 and $1,267,000 and $2,497,000, respectively at December 31, 1993.
Fair Value of Financial Instruments: ------------------------------------
The Company's cash equivalents and long-term debt are recorded at cost, which approximates fair market value at December 30, 1994.
NOTE 5 - LONG TERM DEBT:
Long-term debt consists of the following:
December 30, December 31, 1994 1993 ------------------------------ (in thousands) Mortgages payable $ 9,915 $ 4,364 Senior Notes, 10 1/2% due 8-1-2003 160,000 160,000 -------- --------
169,915 164,364
Less: Current portion of long-term debt (1,527) (1,467) -------- -------- $ 168,388 $ 162,897 ======== ========
Letters of credit outstanding at December 30, 1994 and December 31, 1993 were $9.8 million under a facility pursuant to which they can be renewed or replaced.
Senior Notes: -------------
The Senior Notes are senior unsecured obligations of the Company with an aggregate principal of $160 million. The Senior Notes mature on August 1, 2003 and bear interest at an annual rate of 10 1/2%, payable in two equal semi-annual installments of $8,400,000 each, with each semi-annual period deemed to have 180 days. The Senior Notes were issued under an Indenture (the "Indenture") between the Company and a predecessor to Texas Commerce Bank National Association, as Trustee (the "Trustee"). The Senior Notes rank pari passu with all present and future senior indebtedness of the Company and senior to all present and future subordinated indebtedness of the Company. However, because borrowings under the New Credit Facility are secured by inventory and accounts receivable of the Company and the proceeds thereof, the Senior Notes are effectively subordinated to such borrowings to the extent of such security interest.
The Senior Notes are not redeemable prior to August 1, 1998. Thereafter, the Senior Notes are redeemable at the option of the Company at redemption prices specified in the Indenture. The Senior Notes are not subject to any mandatory sinking fund requirements.
Upon a "change of control" (as defined in the Indenture), the Company is required to offer to purchase all outstanding Senior Notes at 101% of the principal amount thereof, plus accrued interest to the date of repurchase. In addition, the Company may be required to offer to purchase the Senior Notes at 100% of the principal amount plus accrued interest with the net cash proceeds of certain sales or other dispositions of assets.
The Indenture contains covenants which limit, among other things, the incurrence of additional indebtedness by the Company and its subsidiaries, the payment of dividends on or the purchase of the capital stock of the Company ("Restricted Payments"), the creation of liens on the assets of the Company and its subsidiaries, the creation of certain restrictions on the payment of dividends and other distributions by the Company's subsidiaries, the issuance of preferred stock by the Company's subsidiaries, and certain mergers, sales of assets and transactions with affiliates.
Based on the Company's operations through December 30, 1994, the amount of Restricted Payments that the Company could make under the Indenture was $15,440,000.
The Indenture specifies a number of events of default including, among others, the failure to make timely principal and interest payments or to perform the covenants contained therein. The Indenture contains a cross-default to other indebtedness of the Company aggregating more than $5,000,000 and certain customary bankruptcy and insolvency defaults. Upon the occurrence of an event of default under the Indenture, the Trustee or the holders of not less than 25% in principal amount of the outstanding Senior Notes may declare all amounts thereunder immediately due and payable, except that such amounts automatically become immediately due and payable in the event of a bankruptcy or insolvency default.
New Credit Facility: --------------------
The Company has entered into the New Credit Facility, which provides for up to $90 million of revolving loans for working capital and general corporate purposes and for letters of credit. Availability of borrowings under the New Credit Facility is based upon a formula related to inventory and accounts receivable. At December 30, 1994, the Company had no borrowings under the New Credit Facility and had $56.3 million of Borrowing capacity under this facility. Borrowings under the New Credit Facility bear interest at the agent's prime rate plus 1% (9.5% at December 30, 1994) or, at the Company's option, at certain alternate floating rates and is secured by a pledge of the Company's inventory and accounts receivable. The New Credit Facility expires on August 4, 1996.
The New Credit Facility contains covenants which restrict, among other things, the incurrence of additional indebtedness and rental obligations by the Company and its subsidiaries, the payment of dividends and other distributions in respect of the capital stock of the Company, the creation of liens on the assets of the Company and its subsidiaries, the creation of certain restrictions on the payment of dividends and other distributions by the Company's subsidiaries, the making of investments and capital expenditures by the Company and its subsidiaries, the creation of new subsidiaries by the Company, and certain mergers, sales of assets and transactions with affiliates.
The New Credit Facility also contains certain financial covenants relating to the consolidated financial condition of the Company and its subsidiaries, including covenants relating to their net worth, the ratio of their earnings to their fixed charges, the ratio of their earnings to their interest expense, the ratio of their current assets to their current liabilities, and the ratio of their indebtedness to their total capitalization. At December 30, 1994, the Company was in compliance with all financial covenants.
The New Credit Facility specifies a number of events of default including, among others, the failure to make timely payments of principal, fees, and interest, the failure to perform the covenants contained therein, the failure of representations and warranties to be true, the occurrence of a "change of control" (as defined in the New Credit Facility, to include, among other things, the ownership by any person or group of more than 25% or, (in case of The TCW Group, Inc. and its affiliates, 50%) of the total voting securities of the Company), and certain impairments of the security for the New Credit Facility. The New Credit Facility also contains a cross-default to other indebtedness of the Company aggregating more than $2,000,000 and certain customary bankruptcy, insolvency and similar defaults. Upon the occurrence of an event of default under the New Credit Facility, at least three of the lenders holding at least 60% in amount of the principal indebtedness outstanding under the New Credit Facility may declare all amounts thereunder immediately due and payable, except that such amounts automatically become immediately due and payable in the event of certain bankruptcy, insolvency or similar defaults.
The New Credit Facility generally prohibits the Company from prepaying the Senior Notes whether the prepayment would result from the redemption of the Senior Notes, an offer by the Company to purchase the Senior Notes following a change of control or a sale or other disposition of assets, or the acceleration of the due date for payment of the Senior Notes.
Mortgages payable represent primarily various Industrial Revenue Bond (IRB) notes. In June 1994, the Company entered into an industrial revenue financing agreement in the amount of $7,000,000 with Mississippi Business Finance Corp., a public corporation in Mississippi, to finance the expansion of the Bruce Hardwood Floors plant in Port Gibson, Mississippi. The funds required were provided by a bank term loan which matures on June 28, 2001. Collateral for the loan is the plant and equipment at Port Gibson, Mississippi. The IRB notes vary in interest rate, with several notes dependent upon the prime rate. At December 30, 1994 and December 31, 1993 the interest rates ranged up to 9.0%.
These notes are payable through 2001 and are collateralized by the related underlying assets.
Maturities for all long-term debt are as follows:
(in thousands) 1995 $ 1,527 1996 1,538 1997 1,215 1998 632 1999 561 Thereafter 164,442 -------- Total $ 169,915 ========
NOTE 6 - INCOME TAXES:
The components of the deferred tax liability and asset are as follows: December 30,	December 31, 1994 1993 ----------------------------- (in thousands) Deferred Tax Liability: Property, plant and equipment $ 22,511 $ 25,875 Trademark 11,764 12,078 Other 8,527 7,123 -------- -------- Total $ 42,802 $ 45,076 ======== ======== Deferred Tax Asset: Tax carryforwards $ - $ 1,991 Other 3,322 1,986 -------- -------- Total $ 3,322 $ 3,977 ======== ========
The provision (benefit) for income taxes consists of the following:
Fiscal Fiscal Seven Five Year Year Months Months Ended Ended Ended Ended December 30, December 31, January 1, June 8, 1994 1993 1993 1992 -------------------------------------------------- (in thousands) Current Federal $ 10,015 $ 168 $ - $ - State and local 651 - - - ------- -------- ------- ------ $ 10,666 $ 168 $ - $ - ======= ======== ======= ====== Deferred: Federal $ 1,926 $ 3,841 $ (834) $ - State and local 237 492 (106) - ------- -------- ------- ------ $ 2,163 $ 4,333 $ (940) $ - ------- -------- ------- ------ Subtotal $ 12,829 $ 4,501 $ (940) $ - ======= ======== ======= =====
Extraordinary benefit: Federal $ - $ (6,251) $ - $ - State and local - (768) - - ------- -------- ------- ------ $ - $ (7,019) $ - $ - ------- -------- ------- ------ Total $ 12,829 $ (2,518) $ (940) $ - ======= ======== ======= ======
The tax provision or benefit for the periods ending December 30, 1994, December 31, 1993, January 1, 1993 and June 8, 1992 is 40.6%, 38.5%, 47.28% and 0% of pre-tax income or losses, respectively. The factors causing the rate to vary from the U.S. Federal Statutory rate are as follows:
Fiscal Fiscal Seven Five Year Year Months Months Ended Ended Ended Ended December 30, December 31, January 1, June 8, 1994 1993 1993 1992 -------------------------------------------------- (in thousands) Computed (expected) tax provision (benefit) $ 11,059 $ 4,097 $ (676) $ (5,101)
Increase (decrease) from: State and local taxes 1,359 503 (106) - Amortization of goodwill 597 634 546 - Change due to limitation of net operating loss carryforwards - - - 5,101 Other book to tax differences, net (186) (733) (704) - ------ ------- ------- ------ Total $ 12,829 $ 4,501 $ (940) $ - ======= ======= ======= ======
In 1993, the Company adjusted the deferred liability and current provision for taxes to reflect the change in tax rate form 34% to 35% enacted by the Revenue Reconciliation Act of 1993. As of December 30, 1994, all net operating loss carryforwards have been fully utilized.
NOTE 7 - LEASE COMMITMENTS:
The Company rents certain real estate and equipment under leases expiring at various dates to 2008. Several leases include options for renewal or purchase and contain clauses for payment of real estate taxes and insurance. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases.
The following is a summary of minimum future rental payments required under operating leases that have initial non-cancelable lease terms in excess of one year:
(in thousands) 1995 $ 2,907 1996 2,024 1997 1,679 1998 1,351 1999 1,060 Thereafter 292 -------- Total $ 9,313 ========
Rental expense for operating leases amounted to $7,704,000, $6,309,000, $3,562,000, and $2,538,000 for the fiscal years ended December 30, 1994, December 31, 1993, for the seven months ended January 1, 1993 and for the five months ended June 8, 1992, respectively.
The Company has an agreement with the West Virginia Economic Development Authority to lease land, buildings and equipment for the Bruce Hardwood Floors plant which is located in Beverly, West Virginia. Land and buildings have a lease term of 18 years and equipment has a term of 10 years, both with 10 year renewal options. In June, 1990, the Company was reimbursed $22,653,000 by the West Virginia Economic Development Authority for the Phase I construction costs, which included all costs advanced by the Company in 1989 and the first six months of 1990 except for 28% of the cost of equipment. In December 1993 the Company was reimbursed $5,535,000 by the West Virginia Economic Development Authority for 72% of the Phase II equipment cost.
NOTE 8 - EMPLOYEE BENEFIT PLANS:
Pension and Profit Sharing Plans: ---------------------------------
The Company sponsors several defined benefit pension plans and is required to contribute to several labor union-related defined contribution plans. Total pension expense was $991,000, $967,000, $483,000, and $217,000 for the fiscal years ended December 30, 1994, and December 31, 1993, for the seven months ended January 1, 1993, and for the five months ended June 8, 1992, respectively, including $419,000, $481,000, $290,000, and $207,000, respectively, for defined benefit plans, which includes amortization of prior service costs over the estimated average remaining service period of active employees. The Company does not have any requirement to provide life or health insurance coverage for retired employees. The following table sets forth the defined benefit pension plans' funded status at December 30, 1994, and December 31, 1993.
Fiscal years ended --------------------------- December 30, December 31, 1994 1993 ------------ ------------ (in thousands) Actuarial present value of benefit obligation: Vested $ 9,011 $ 8,382 Non-vested 426 481 ------- ------- Accumulated and projected benefit obligation 9,437 8,863 Plan assets at fair value 8,276 8,109 ------- ------- Projected benefit obligation in excess of plan assets (1,161) (754) Unrecognized prior service costs 143 105 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 1,684 928 Adjustment to recognize minimum liability (1,762) (1,121) ------- ------- Accrued pension expense $ (1,096) $ (842) ======= =======
Net periodic pension costs for defined benefit pension plans for the fiscal years ended December 30, 1994 and December 31, 1993, for the seven months ended January 1, 1993, and for the five months ended June 8, 1992, include the following components:
Fiscal Fiscal Seven Five year year months months ended ended ended ended December 30, December 31, January 1, June 8, 1994 1993 1993 1992 ------------ ------------ ---------- ------- (in thousands) Service cost-benefits earned during the period $ 267 $ 258 $ 152 $ 111 Interest cost on projected benefit obligation 735 696 383 273 Actual return on plan assets 106 (872) (247) (177) Net amortization and deferral (689) 399 2 - -------- -------- -------- ----- Net periodic pension cost $ 419 $ 481 $ 290 $ 207 ======== ======== ======== =====
A weighted average discount rate of 8.50% was used in 1994, 1993 and 1992 to determine the benefit obligations of the Company's defined benefit pension plans. The plans do not provide for future compensation increases in calculating benefit obligations as the benefits do not derive from compensation levels but from length of service. The plans' assets are invested in a diversified portfolio of common stocks and fixed income securities. The expected long-term rate of return on plan assets was 8.0% in 1994, 1993, and 1992.
The Company has a profit sharing plan for salaried employees, and a supplemental profit sharing plan for certain salaried employees to which contributions are made at the discretion of its Board of Directors as long as the Company has met specified financial goals. The fiscal 1994, 1993 and 1992 contributions were $1,255,385, $500,000, and $400,000, respectively.
Long-Term Incentive Plan: -------------------------
In June 1993, the Company adopted the Triangle Pacific Corp. Long- Term Incentive Compensation Plan, which authorizes grants of various incentive awards to all regular salaried full-time officers and key employees of the Company. There are 1,000,000 shares of common stock reserved for this plan. In February and March 1994, stock options were granted for 551,300 shares at 100% of fair market value at the date of grant. These options expire in 10 years. Also granted in February 1994 were 28,200 stock bonus shares and $425,517 in deferred cash bonuses. These awards vested 25% at the date of grant and will vest 25% each year thereafter, with the vested amount payable on the third anniversary of the date of grant.
In 1994, the Company established a performance-based cash incentive plan for officers and other key employees to make annual bonus awards based upon pre-established criteria which were approved by the Board of Directors. The expense for 1994 was $1,780,000. In 1993, the Company awarded $744,000 in cash bonuses to the same group of officers and key employees under a discretionary bonus arrangement.
Stock Option Plan: ------------------
In connection with the 1992 Restructuring, certain members of management received options for 201,007 shares of Common stock pursuant to a Stock Option Plan which was adopted by the Board of Directors of the Company. The management options are exercisable at a price of $2.99 per share. The exercisability of the management options is tied to the achievement of certain levels of operating income. Twenty percent of the management options will become exercisable in any fiscal year in which the Company meets the annual target for such fiscal year.
For the years ended December 30, 1994, December 31, 1993 and January 1, 1993, twenty percent each year became exercisable. In addition, if the Company fails to meet the annual target in any fiscal year but meets the cumulative target in such fiscal year or any subsequent fiscal year, the management options for such fiscal year and all prior fiscal years will become exercisable if they had not previously become exercisable.
Non-Employee Director Stock Option Plan: ----------------------------------------
In June 1993, the Company adopted a Non-employee Director Stock Option Plan for up to 50,000 shares of common stock. Options have been granted to six non-employee directors for an aggregate of 30,000 shares, with option prices at 100% of fair market value at the date of grant. These options are currently exercisable and generally expire 10 years from the date of grant.
Post-retirement And Post-employment Benefits: ---------------------------------------------
The Company, as of December 30, 1994, does not provide post- retirement medical benefits or any post-employment benefits other than those previously discussed.
NOTE 9 - ACCRUED LIABILITIES:
Amounts included in accrued liabilities are as follows:
December 30, December 31, 1994 1993 --------------------------- (in thousands) Payroll $ 5,342 $ 2,960 Pension and profit sharing 3,360 2,060 Taxes, other than income 2,647 2,013 Insurance 4,712 3,043 Interest 7,819 6,623 Other 4,232 3,000 ------- ------- Total $ 28,112 $ 19,699 ======= =======
NOTE 10 - PRO-FORMA INCOME DATA (unaudited):
Pro-forma figures assume that the Company's third quarter 1993 Recapitalization and the 1992 Restructuring occurred on the first day of fiscal 1992.
NOTE 11 - SUPPLEMENTARY QUARTERLY FINANCIAL DATA (unaudited):
(In thousands, except per share amounts) Income Before Income Extra- Net Before ordinary Income Extra- Items Net (loss) Net Gross ordinary Per Income Per Quarters Sales Profit Items Share (loss) Share -------------------------------------------------------------------- First Quarter $ 90,710 $ 22,083 $ 2,142 $0.15 $ 2,142 $ 0.15 Second Quarter 106,918 29,447 5,860 0.40 5,860 0.40 Third Quarter 104,236 28,176 5,217 0.35 5,217 0.35 Fourth Quarter 108,295 30,293 5,583 0.38 5,583 0.38
First Quarter $ 78,482 $ 17,947 $ 373 $0.04 $ 373 $ 0.04 Second Quarter 87,853 20,832 2,917 0.43 2,917 0.43 Third Quarter 85,911 18,274 1,835 0.17 (9,472)(a) (0.88)(a) Fourth Quarter 94,050 19,883 2,078 0.10 2,078 0.10
(a) The third quarter of 1993 reflects the results of the 1993 Recapitalization. (See Note 1)
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Company -----------------------------------------------
The section entitled "Election of Directors" appearing in the definitive proxy statement of the Registrant for the annual meeting of shareholders to be held on May 3, 1995 sets forth certain information regarding the directors and is incorporated herein by reference. The section entitled "Executive Compensation-Compliance with Section 16(a) of the Exchange Act" appearing in the definitive proxy statement of the Registrant for the annual meeting of shareholders to be held on May 3, 1995 sets forth certain information regarding reporting under Section 16 of the Securities Exchange Act of 1934, as amended, and is incorporated herein by reference. Certain information with respect to the executive officers of the Registrant is set forth in Part I of this Form 10-K under the caption "Executive Officers of the Company."
Item 11.
Item 11. Executive Compensation ----------------------
Information regarding the compensation of management is contained in the definitive proxy statement of the Registrant for the annual meeting of shareholders to be held on May 3, 1995, under the caption "Executive Compensation" and, except for the report of the compensation committee of the Board of Directors and the information contained under the caption "Performance Graph," is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
Information regarding ownership of the Company's Common Stock is contained in the definitive proxy statement of the Registrant for the annual meeting of shareholders to be held on May 3, 1995, under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
None
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on ------------------------------------------------------ Form 8-K --------
(a)(1) Financial Statements
Included in Part II of this report.
- Report of independent public accountants
- Consolidated balance sheets as of December 30, 1994 and December 31, 1993.
- Consolidated statements of operations for the fiscal years ended December 30, 1994 and December 31, 1993, for the seven months ended January 1, 1993, and for the five months ended June 8, 1992.
- Consolidated statements of changes in shareholders' investment for the fiscal years ended December 30, 1994 and December 31, 1993, for the seven months ended January 1, 1993, and for the five months ended June 8, 1992.
- Consolidated statements of cash flows for the fiscal years ended December 30, 1994 and December 31, 1993, for the seven months ended January 1, 1993, and for the five months ended June 8, 1992.
- Notes to consolidated financial statements.
(a)(2) Financial Statement Schedules
Included in Part IV of this report:
For the fiscal years ended December 30, 1994 and December 31, 1993, for the seven months ended January 1, 1993, and for the five months ended June 8, 1992.
- Schedule II - Valuation and qualifying accounts and reserves.
Information required by other schedules called for under Regulation S-X is either not applicable or is included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits --------
The information required by this Item 14(a)(3) is set forth in the Index to Exhibits accompanying this annual report on form 10-K.
(b) Reports on Form 8-K -------------------
No reports on Form 8-K were filed during the fourth quarter of the year ended December 30, 1994.
(c) Exhibits --------
3.1 - Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 10-K for the fiscal year ended December 31, 1993).
3.2 - Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.2 to the Registrant's Form 10-K for the fiscal year ended December 31, 1993).
4.1 - Form of 10 1/2% Senior Notes due 2003 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Form 10-K for the fiscal year ended December 31,1993).
4.2 - Indenture governing 10 1/2% senior Notes due 2003 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Form 10-K for the fiscal year ended December 31, 1993).
4.3 - Credit Agreement dated as of August 4, 1993, as amended, among the Registrant, the Lenders listed therein and CitiCorp USA, Inc., as the Co-Agent for the Lenders, and the Bank of Nova Scotia, as the Agent for the Lenders (the "Credit Agreement") (incorporated herein by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
4.4 - Amendment No. 4 to the Credit Agreement dated as of December 2, 1994.
10.1 - Registration Rights Agreement, dated as of June 5, 1992 by and among the Registrant and the Persons listed therein (incorporated herein by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-50724)).
10.2 - Lenders' Equity Agreement dated as of June 5, 1992 by and among the Registrant and the Banks and other financial institutions listed herein (incorporated herein by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-50724)).
10.3 - ESJ Exchange Agreement dated as of June 5, 1992 by and among the Registrant, TPC Holding Corp. and the ESJ Entities (incorporated herein by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-50724)).
10.4* - Management Equity Agreement dated as of June 5, 1992 by and among the Registrant and the individuals listed therein, and including a form of the Triangle Pacific Corp. Stock Option Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-50724)).
10.5* - Form of Amended and Restated Employment Agreement dated as of March 8, 1995 between the Company and the individuals named on Schedule 1 thereto.
10.6* - Form of Employment Agreement dated as of March 8, 1995 between the Company and the individuals named on Schedule 1 thereto.
10.7* - Salaried Employees Profit Sharing Plan (as restated January 1, 1993) of the Registrant
10.8* - Annual Cash Incentive Bonus System of the Registrant for Officers and Managers.
10.9* - Form of Stock Option Plan of the Registrant (incorporated herein by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
10.10* - Form of Stock Option Agreement of the Registrant (incorporated herein by reference to Exhibit 10.13 to the Registrant's Registration Statement on From S-1 (Registration No. 33-64530)).
10.11 - Lease dated as of June 1, 1988 by and between West Virginia Jobs and Development Corporation and Registrant (incorporated herein by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-50724)).
10.12 - Amendment to lease effective as of April 14, 1989 by and between West Virginia Jobs and Development Corporation and the Registrant (incorporated herein by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
10.13 - Second Amendment to lease effective as of November 1, 1991 by and between West Virginia Economic Development Authority, as successor to West Virginia Jobs and Development Corporation, and the Registrant (incorporated herein by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
10.14 - Third Amendment to lease effective as of March 10, 1993 by and between West Virginia Economic Development Authority, as successor to West Virginia Jobs and Development Corporation, and the Registrant (incorporated herein by reference to Exhibit 10.17 to the Registrant's Registration Statement on Forms S-1 (Registration No. 33-64530)).
10.15* - Triangle Pacific Corp. 1993 Long-Term Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
10.16* - Triangle Pacific Corp. Nonemployee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
10.17 - Form of Indemnity Agreement between the Registrant and each of its directors and executive officers (incorporated herein by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-64530)).
10.18* - Supplemental Profit Sharing and Deferred Compensation Plan of the Registrant.
23.1 - Consent of Arthur Andersen LLP
27.1 - Financial Data Schedule.
-------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
TRIANGLE PACIFIC CORP.
By: /s/ Floyd F. Sherman --------------------------- Floyd F. Sherman Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Floyd F. Sherman Chairman of the Board March 28, 1995 ---------------------------- and Chief Executive Officer Floyd F. Sherman (Principal Executive Officer)
/s/ M. Joseph McHugh Director and President March 28, 1995 ---------------------------- M. Joseph McHugh
/s/ Robert J. Symon Executive Vice President March 28, 1995 ---------------------------- Treasurer and Chief Robert J. Symon Financial Officer (Principal Financial & Accounting Officer)
/s/ B. William Bonnivier Director March 28, 1995 ---------------------------- B. William Bonnivier
/s/ Charles M. Hansen, Jr. Director March 28, 1995 ---------------------------- Charles M. Hansen, Jr.
/s/ David R. Henkel Director March 28, 1995 ---------------------------- David R. Henkel
/s/ Jack L. McDonald Director March 28, 1995 ---------------------------- Jack L. McDonald
/s/ Carson R. McKissick Director March ___, 1995 ---------------------------- Carson R. McKissick
Director March ___, 1995 ---------------------------- Karen Gordon Mills SCHEDULE II -----------
TRIANGLE PACIFIC CORP. AND SUBSIDIARIES --------------------------------------- VALUATION AND QUALIFYING ------------------------ ACCOUNTS AND RESERVES --------------------- (in thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- --------
Additions Balance at charged to Balance beginning costs and at end of Classifications of period expenses Deductions (1) period ----------------------------------------------------------------------- Five months ended June 8, 1992: Reserve for doubtful accounts and returns and and allowances $ 3,438 $ 678 $ (19) $ 4,135 ================================================= Seven months ended January 1, 1993: Reserve for doubtful accounts and returns and and allowances $ 4,135 $ 1,438 $ 475 $ 5,098 ================================================= Fiscal Year ended December 31, 1993: Reserve for doubtful accounts and returns and and allowances $ 5,098 $ 485 $ 2,260 $ 3,323 ================================================= Fiscal Year ended December 30, 1994: Reserve for doubtful accounts and returns and and allowances $ 3,323 $ 884 $ 1,716 $ 2,491 =================================================
(1)	Write-offs of specific accounts, net of recoveries.
Exhibit 23.1 ------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement Files Nos. 33-69682, 33-69684 and 33-50724.
ARTHUR ANDERSEN LLP
Dallas, Texas March 28, 1995