-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SaNClATMTbip530V4lS6CfVdMzHN0pDFjNzMX9pcBAoKeAAUTVdS6KmQeMYgDZOA RVB85a9ys1Fiju8XTEdPag== 0000950137-02-003027.txt : 20020514 0000950137-02-003027.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950137-02-003027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020330 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMEGA CABINETS LTD CENTRAL INDEX KEY: 0001043958 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 421423186 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-37135 FILM NUMBER: 02647726 BUSINESS ADDRESS: STREET 1: 1205 PETERS DR CITY: WATERLOO STATE: IA ZIP: 50703 BUSINESS PHONE: 3192355700 MAIL ADDRESS: STREET 1: 1205 PETERS DR CITY: WATERLOO STATE: IA ZIP: 50703 10-Q 1 c69645e10-q.txt QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 30, 2002 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: to ---------------------- ---------------------- Commission file number: 333-37135 --------- Omega Cabinets, Ltd. -------------------- (Exact name of registrant as specified in its charter) Delaware 42-1423186 -------- ---------- (State or other jurisdiction (I.R.S. Employer incorporation or organization Identification Number) 1205 Peters Drive, Waterloo, Iowa 50703 --------------------------------------- (Address of principal executive offices) (Zip Code) (319) 235-5700 -------------- Registrants telephone number, including area code) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] Not Applicable. APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. On March 30, 2002, all of the voting stock of Omega Cabinets Ltd. was held by Omega Holdings, Inc. ("Holdings"), a Delaware corporation. As of March 30, 2002, Omega Cabinets, Ltd. had 1,000 shares of Common Stock issued and outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements are presented herein: Condensed Consolidated Balance Sheets as of March 30, 2002 and December 29, 2001 Condensed Consolidated Statements of Income for the three months ended March 30, 2002 and March 31, 2001 Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2002 and March 31, 2001 Notes to Condensed Consolidated Financial Statements 2 OMEGA CABINETS, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 30, DECEMBER 29, 2001 2002 (UNAUDITED) (NOTE) ------------------------------------ ASSETS Current assets: Cash $ 6,132,335 $ 3,683,764 Accounts receivable 36,688,982 25,760,371 Inventories (Note 2) 19,113,838 17,212,507 Other current assets 3,376,734 2,912,565 ------------------------------------ Total current assets 65,311,889 49,569,207 Property, plant and equipment 79,669,518 77,367,042 Less accumulated depreciation 20,738,446 19,413,330 ------------------------------------ 58,931,072 57,953,712 Deferred financing costs, net 4,489,944 4,776,898 Goodwill, net 88,055,453 88,059,577 Other assets 1,890,590 1,741,445 ------------------------------------ Total assets $218,678,948 $202,100,839 ==================================== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses $ 35,383,188 $ 26,140,749 Current portion of long-term debt 9,217,018 6,862,031 ------------------------------------ Total current liabilities 44,600,206 33,002,780 Deferred income taxes 7,025,141 6,828,963 Long-term debt, less current portion 121,986,695 123,982,936 Stockholder's equity: Common stock, $.01 par value; 10,000 shares authorized; 1,000 shares issued and outstanding 10 10 Additional paid-in capital 88,755,936 89,203,864 Less stock notes receivable (2,663,374) (2,629,083) Predecessor basis adjustment (11,031,662) (11,031,662) Accumulated other comprehensive loss - foreign currency translation adjustment (148,698) (149,123) Retained earnings (deficit) (29,845,306) (37,107,846) ------------------------------------ Total stockholder's equity 45,066,906 38,286,160 ------------------------------------ Total liabilities and stockholder's equity $218,678,948 $202,100,839 ====================================
Note: The balance sheet at December 29, 2001 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 3 OMEGA CABINETS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2002 MARCH 31, 2001 ------------------------------------ Net sales $92,292,780 $77,186,015 Cost of goods sold 65,735,069 55,618,211 ------------------------------------ Gross profit 26,557,711 21,567,804 Selling, general and administrative expenses 11,418,076 9,168,718 Amortization of goodwill (Note 1) - 633,777 ------------------------------------ Operating income 15,139,635 11,765,309 Interest expense 3,113,162 3,929,985 Foreign currency transaction losses 40,793 829,996 ------------------------------------ Income before income taxes 11,985,680 7,005,328 Income tax expense 4,725,658 2,793,205 ------------------------------------ Net income $ 7,260,022 $ 4,212,123 ====================================
See accompanying notes. 4 OMEGA CABINETS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2002 MARCH 31, 2001 ------------------------------------ OPERATING ACTIVITIES Net income $ 7,260,022 $4,212,123 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,646,473 2,054,669 Noncash interest income on stock notes receivable (44,353) (34,215) Deferred income taxes 210,020 336,263 Changes in operating assets and liabilities: Accounts receivable (10,933,735) (7,112,974) Inventories (1,896,606) (2,076,654) Other assets (631,276) (523,101) Accounts payable, accrued expenses and other liabilities 9,249,506 7,265,784 ------------------------------------ Net cash provided by operating activities 4,860,051 4,121,895 INVESTING ACTIVITIES Purchases of property, plant and equipment (2,314,356) (2,931,753) ------------------------------------ Net cash used in investing activities (2,314,356) (2,931,753) FINANCING ACTIVITIES Payments of long-term debt (4,509,024) (4,419,434) Proceeds from long-term debt 4,727,983 4,694,212 Payment to parent to redeem common stock and options at parent level (447,913) (1,855,952) Proceeds from stock notes receivable 10,062 20,515 ------------------------------------ Net cash used in financing activities (218,892) (1,560,659) Effect of foreign exchange rate changes on cash 121,768 (181,175) ------------------------------------ Net increase (decrease) in cash 2,448,571 (551,692) Cash at beginning of period 3,683,764 2,982,601 ------------------------------------ Cash at end of period $ 6,132,335 $2,430,909 ====================================
See accompanying notes. 5 Omega Cabinets, Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited) March 30, 2002 1. ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 30, 2002 are not necessarily indicative of the results that may be expected for the full 2002 fiscal year. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended December 29, 2001. IMPLEMENTATION OF NEW ACCOUNTING STANDARD In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under SFAS 142, goodwill is no longer amortized but is subject to annual impairment tests, or more frequent tests if impairment indicators arise. The Company adopted SFAS 142 effective December 30, 2001. The Company assessed its goodwill for impairment upon adoption, and will test for impairment at least annually thereafter. The Company's transitional impairment test did not indicate any impairment losses. Had the provisions of SFAS 142 been in effect during the three months ended March 31, 2001, a reduction in goodwill amortization expense would have had the following effect on net income: Net income as reported $4,212,123 Decrease of amortization expense of $633,777, net of tax effect of $253,000 380,777 ------------------- Adjusted net income $4,592,900 ===================
6 Omega Cabinets, Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited) March 30, 2002 2. INVENTORIES Inventories consist of the following:
MARCH 30, 2002 DECEMBER 29, 2001 ------------------------------------ Raw materials $ 8,173,998 $ 7,615,890 Work-in-process 6,771,769 6,064,278 Finished goods 4,168,071 3,532,339 ------------------------------------ $ 19,113,838 $ 17,212,507 ====================================
3. COMPREHENSIVE INCOME Comprehensive income was $7,260,447 and $4,724,665 for the three months ended March 30, 2002 and March 31, 2001, respectively. 4. SUBSEQUENT EVENT - SALE OF COMPANY On April 4, 2002, the Company's parent, Omega Holdings, Inc. (Holdings), entered into a definitive agreement for the sale of Holdings and the Company to Fortune Brands, Inc. (NYSE: FO). On April 12, 2002, the transaction was consummated whereby Holdings became a wholly-owned subsidiary of Fortune Brands. 5. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES The Company's $100 million senior subordinated notes are fully and unconditionally guaranteed by Panther Transport, Inc. ("Panther"), a wholly-owned subsidiary of the Company. Separate financial statements or summarized financial information for Panther have not been presented since its operations are inconsequential and its accounts and transactions represent less than 1% of each of the consolidated total assets, liabilities, equity, net sales, operating income, and net income of the Company. Management believes that the separate financial statements and summarized financial information of Panther are not material to investors. 7 Omega Cabinets, Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited) March 30, 2002 5. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) The Company also has two wholly-owned subsidiaries which do not guarantee the senior subordinated notes. These non-guarantor subsidiaries generally comprise the Kitchen Craft of Canada, Ltd. ("Kitchen Craft") business. Set forth below are consolidating condensed financial statements as of March 30, 2002 and for the three months ended March 30, 2002 and March 31, 2001, which separately reflect Kitchen Craft (amounts in thousands):
THE COMPANY* KITCHEN CRAFT ELIMINATIONS CONSOLIDATED ----------------------------------------------------------- CONDENSED CONSOLIDATING BALANCE SHEET MARCH 30, 2002 Current assets: Cash $ 1,733 $ 4,399 $ - $ 6,132 Accounts receivable 24,903 11,786 - 36,689 Inventories 14,024 5,090 - 19,114 Other 2,060 1,317 - 3,377 ----------------------------------------------------------- Total current assets 42,720 22,592 - 65,312 Property, plant and equipment, net 39,937 18,994 - 58,931 Goodwill, net 47,635 40,420 - 88,055 Other noncurrent assets 39,850 204 (33,673) 6,381 ----------------------------------------------------------- Total assets $170,142 $82,210 $(33,673) $218,679 =========================================================== Current liabilities: Accounts payable and accrued expenses $ 26,542 $15,097 $ (6,256) $ 35,383 Current portion of long-term debt 8,051 1,166 - 9,217 ----------------------------------------------------------- Total current liabilities 34,593 16,263 (6,256) 44,600 Long-term debt, less current portion 117,959 17,874 (13,846) 121,987 Other noncurrent liabilities 5,557 1,468 - 7,025 Total stockholder's equity (deficit) 12,033 46,605 (13,571) 45,067 ----------------------------------------------------------- Total liabilities and stockholder's equity (deficit) $170,142 $82,210 $(33,673) $218,679 ===========================================================
*Includes Panther which is inconsequential as described above. 8 Omega Cabinets, Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited) March 30, 2002 5. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
THE COMPANY KITCHEN CRAFT ELIMINATIONS CONSOLIDATED ----------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 30, 2002 Net sales $61,791 $30,502 $ - $92,293 Cost of goods sold 44,946 20,789 - 65,735 ----------------------------------------------------------- Gross profit 16,845 9,713 - 26,558 Selling, general and administrative expenses 7,254 4,164 - 11,418 Interest expense 2,920 193 - 3,113 Foreign currency transaction losses - 41 - 41 ----------------------------------------------------------- Income before income taxes 6,671 5,315 - 11,986 Income tax expense 2,596 2,130 - 4,726 ----------------------------------------------------------- Net income $ 4,075 $ 3,185 $ - $ 7,260 =========================================================== THREE MONTHS ENDED MARCH 31, 2001 Net sales $51,333 $25,853 $ - $77,186 Cost of goods sold 38,071 17,547 - 55,618 ----------------------------------------------------------- Gross profit 13,262 8,306 - 21,568 Selling, general and administrative expenses 6,045 3,123 - 9,169 Amortization of Goodwill 364 270 - 634 Interest expense 3,260 670 - 3,930 Foreign currency transaction losses - 830 - 830 ----------------------------------------------------------- Income before income taxes 3,593 3,412 - 7,005 Income tax expense 1,436 1,357 - 2,793 ----------------------------------------------------------- Net income $ 2,157 $ 2,055 $ - $ 4,212 ===========================================================
9 Omega Cabinets, Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited) March 30, 2002 5. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
THE COMPANY KITCHEN CRAFT ELIMINATIONS CONSOLIDATED ----------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 30, 2002 Operating activities - net cash provided by operating activities $2,096 $2,764 $ - $4,860 Investing activities - purchase of property, plant and equipment (1,887) (428) - (2,315) Financing activities: Proceeds from long-term debt 4,728 - - 4,728 Redemptions of stock, net of capital contributions (448) - - (448) Proceeds from stock notes receivable 10 - - 10 Intercompany funding 241 (241) - - Payments of long-term debt (3,765) (744) - (4,509) ----------------------------------------------------------- Net cash provided by (used in) financing 766 (985) - (219) activities Effect of foreign exchange - 122 - 122 ----------------------------------------------------------- Net decrease in cash 975 1,473 - 2,448 Cash at beginning of period 758 2,926 - 3,684 ----------------------------------------------------------- Cash at end of period $1,733 $4,399 $ - $6,132 =========================================================== THREE MONTHS ENDED MARCH 31, 2001 Operating activities - net cash provided by operating activities $3,336 $ 786 $ - $4,122 Investing activities - purchase of property, plant and equipment (1,789) (1,143) - (2,932) Financing activities: Proceeds from long-term debt 1,900 2,794 - 4,694 Redemptions of stock, net of capital contributions (1,856) - - (1,856) Proceeds from stock notes receivable 21 - - 21 Intercompany funding 2,687 (2,687) - - Payments of long-term debt (4,527) 107 - (4,420) ----------------------------------------------------------- Net cash provided by (used in) financing (1,775) 214 - (1,561) activities Effect of foreign exchange - (181) - (181) ----------------------------------------------------------- Net decrease in cash (228) (324) - (552) Cash at beginning of period 1,015 1,968 - 2,983 ----------------------------------------------------------- Cash at end of period $ 787 $1,644 $ - $2,431 ===========================================================
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements for the period ended March 30, 2002 and the Company's audited consolidated financial statements and Annual Report on Form 10-K for the year ending December 29, 2001. RESULTS OF OPERATIONS NET SALES for the three months ended March 30, 2002 ("first quarter 2002") were $92.3 million compared to $77.2 million for the three months ended March 31, 2001 ("first quarter 2001"), an increase of 19.6% driven primarily by new dealers and products as well as favorable weather. Net sales for the Kitchen Craft division were $30.5 million in the first quarter 2002 compared with $25.9 million for the first quarter 2001, a 18.0% increase driven by new selling locations and products. Net sales for the Omega lines (custom and semi-custom cabinetry and bath vanities) were $30.5 million in the first quarter 2002 compared with $25.5 million for first quarter 2001, a 19.8% increase driven by new selling locations, new products, and increased share at existing dealers. Omega's semi-custom net sales increased 36.2% driven primarily by new dealers and additional selling locations at Home Depot's EXPO Design Centers and Sears' The Great Indoors. Omega's custom net sales were flat with last year due to soft high-end remodeling activity. Omega's vanity sales declined 7.2% driven by decisions to discontinue sales through various homecenters. Net sales for HomeCrest's stock product lines were $31.3 million in the first quarter 2002 compared to $25.9 million for the first quarter 2001, a 21.0% increase primarily driven by strong new construction activity and the impact of one new dealer, Kitchen Distributor of America, added during February. GROSS PROFIT for first quarter 2002 was $26.6 million compared to $21.6 million for first quarter 2001, an increase of 23.1%. As a percentage of net sales, gross profit increased to 28.8% in first quarter 2002 from 27.9% in first quarter 2001 driven primarily by improved factory execution at every division, the impact of various capital and Company-wide cost reduction projects, and sales price increases implemented during early first quarter 2002. Kitchen Craft's gross margin were 31.8% during first quarter 2002 compared to 32.1% during first quarter 2001 while gross margins for Omega and HomeCrest increased to 27.3% during first quarter 2002 compared to 25.8% during first quarter 2001. SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES for first quarter 2002 were $11.4 million compared to $9.2 million for the first quarter 2001, an increase of 24.5% driven primarily by higher revenues and increased sales promotions to accelerate revenue growth. As a percentage of net sales, selling, general and administrative expenses were 12.4% for the first quarter 2002 compared to 11.9% for the first quarter 2001. Kitchen Craft's SG&A expenses as a percentage of sales increased to 13.7% during first quarter 2002 from 12.1% during first quarter 2001 primarily due to higher reserves for employee incentive programs. SG&A expenses as a percentage of sales for Omega and HomeCrest were 11.7% during first quarter 2002 compared to 11.8% for the first quarter 2001. 11 INTEREST EXPENSE for first quarter 2002 was $3.1 million compared to $3.9 million for first quarter 2001, a 20.8% decrease driven by lower average borrowings and interest rates. INCOME TAXES for first quarter 2002 were $4.7 million compared to $2.8 million for first quarter 2001. First quarter 2002 reflected a normalized tax rate of 39.4% compared to 39.9% for first quarter 2001 resulting from a lower effective state tax rate for the U.S. divisions. NET INCOME for first quarter 2002 was $7.3 million compared to $4.2 million for first quarter 2001, a 72.4% increase related to factors discussed above as well as the elimination of goodwill amortization. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash needs are working capital, capital expenditures and debt service. The Company has financed these cash requirements primarily through internally generated cash flow and funds borrowed under the Company's credit facilities. Net cash provided by operating activities for first quarter 2002 was $4.9 million compared to $4.1 million for first quarter 2001. The increase of $0.8 million was driven primarily by $3.1 million higher net income partly offset by a $1.8 million higher increase in operating assets and liabilities and $0.6 million related to discontinuing goodwill amortization. The Company used cash in investing activities of $2.3 million for first quarter 2002 compared to $2.9 million for first quarter 2001, a decrease of $0.6 million. Major capital expenditures for first quarter 2002 included various productivity and capacity expansion projects at HomeCrest's Goshen, IN facility. Major capital expenditures for first quarter 2001 included a 200,000 square foot capacity expansion at Kitchen Craft's Winnipeg facility. Cash used in financing activities was $0.2 million for first quarter 2002 compared to cash used of $1.6 million for first quarter 2001. This change of $1.4 million was due to lower stockholder equity redemptions. The Company's ability to make scheduled payments of principal of, or to pay the interest or premium, if any, on, or to refinance, its indebtedness, or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations, management believes that cash flow from operations and available cash, together with available borrowings under its bank loans, will be adequate to meet the Company's anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on its indebtedness for the next several years. There can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowing will be available under its bank loans in an amount sufficient to enable the Company to service its indebtedness or make anticipated capital expenditures. At March 30, 2002, the Company's long-term debt consisted of (i) the $100.0 million of senior subordinated notes; (ii) a U.S. senior credit facility, consisting of a $22.5 million term note facility (the "U.S. Term Facility") and a $20.0 million revolving facility (the "U.S. Revolving Facility"); and 12 (iii) a Canadian senior credit facility, consisting of a (Cdn) $8.3 million term facility (the "Canadian Term Facility") and a (Cdn) $15.0 million revolving facility (the "Canadian Revolving Facility"). On May 10, 2002, the Company delivered notice to the Holders of the Senior Subordinated Notes of the Companies Elections to redeem all of the issued and outstanding notes. As of March 30, 2002, the Company had $3.5 million borrowings under the U.S. Revolving Facility and no borrowing against the Canadian Revolving Facility. In addition, the Company had cash of $6.1 million that was available to further reduce long-term debt. The U.S. Term Facility requires quarterly principal payments that began in April 1999 at $1.0 million per quarter and increase at each September anniversary. Subsequent payments will be approximately $1.0 million and $1.2 million per quarter during the four quarter periods beginning September 2001 and 2002, respectively, with $1.5 million payments due the last two quarters of 2003. Finally, four equal quarterly payments of $3.5 million will occur during 2004 with the term loan fully amortized on December 31, 2004. Additional payments are also due each year based on 75% of the Company's defined excess cash flow, if any. As a result of this requirement, a mandatory $1.8 million excess cash flow payment was made during March 2002. The Canadian Term Facility requires quarterly payments that began in April 1999 at approximately (Cdn) $0.4 million per quarter and increase at each anniversary. Subsequent payments will be approximately (Cdn) $0.4 million, (Cdn) $0.5 million and (Cdn) $1.3 million per quarter during 2002, 2003, and 2004. Both the U.S. and Canadian Term Facilities mature on December 31, 2004. Revolving Facilities mature on December 26, 2003 and have no scheduled interim amortization. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. The Company applied this new rule beginning in the first quarter of 2002. Applying the nonamortization provisions of the Statements resulted in an increase in pretax income of $0.6 million related to goodwill amortization which is no longer recorded. FORWARD LOOKING STATEMENTS When used in this quarterly report on Form 10-Q, the words "believes," "anticipates" and similar expressions are used to identify forward looking statements. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. The Company wishes to caution readers that the following important factors and others in some cases have affected and in the future could affect the Company's actual results and could cause the Company's results for future periods to differ materially from those expressed in any forward statements made by the Company: (i) inability to hire and retain adequately trained employees, (ii) economic conditions in the remodeling and housing markets, (iii) availability of credit, (iv) increases in interest rates, (v) cost of lumber and other raw materials, (vi) inability to maintain state-of-the-art manufacturing facilities, (vii) heightened competition, including intensification of price and service competition, the entry of new competitors and the introduction of new products by existing competitors, (viii) 13 loss or retirement of key executives. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is subject to interest rate market risk in connection with its long-term debt. These financial instruments are entered into for purposes other than trading. As of March 30, 2002, the Company's debt instruments consisted of certain obligations which bear a fixed interest rate and others which bear interest at variable rates. The following table provides information about the Company's debt instruments that are sensitive to changes in interest rates, and presents the principal cash flows and related interest rates by scheduled maturity dates (in thousands): 14 Variable Rate (a) Fixed Rate (b) Maturing in: 2002 7,637 -- 2003 6,570 -- 2004 16,997 -- Thereafter -- 100,000 ------------ ----------- Total $31,204 $100,000 ======= ======== Fair value at March, 2002 $31,204 $ 105,250 (a) $8.7 million at LIBOR plus 1.25%, $13.8 million at LIBOR plus 1.50%, $3.5 million at prime plus .25%, and $5.2 million at Canadian BA rate plus 1.50%, (3.91% weighted average at March 30, 2002). (b) All at 10.5%. The Company's interest expense is most sensitive to changes in the general level of U.S. and certain foreign (LIBOR and Canadian BA) interest rates. In this regard, changes in such interest rates affect the interest paid on certain of its debt. To manage the impact of fluctuations in interest rates, the Company continually monitors and may select a variety of rate options on its variable-rate debt. In addition, the Company has maintained a majority of its debt borrowings as fixed-rate debt. 15 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is a party to various legal actions arising in the ordinary course of its business. The Company believes that the resolution of these legal actions will not have a material adverse effect on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On April 4, 2002, holders of a majority of the outstanding shares of Registrant's parent corporation, Omega Holdings, Inc., approved by written consent the merger of MBC Acquisition Corporation, a subsidiary of MasterBrand Cabinets, Inc. and an indirect subsidiary of Fortune Brands, Inc., with and into Omega Holdings, Inc. As a result of this merger on April 12, 2002, Registrant became an indirect subsidiary of Fortune Brands, Inc. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None 16 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OMEGA CABINETS, LTD. /s/ JOHN HORTON By:-------------------------- Name: John S. Horton Title: Chief Financial Officer (Authorized signatory and principal financial officer) Dated: May 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----