FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 27, 1998
Commission File Number 0-2585
THE DIXIE GROUP, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0183370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 South Watkins Street
Chattanooga, Tennessee 37404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 698-2501
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of July 28, 1998
Common Stock, $3 Par Value 10,607,329 shares
Class B Common Stock, $3 Par Value 735,228 shares
Class C Common Stock, $3 Par Value 0 shares
THE DIXIE GROUP, INC 2
INDEX
Part I. Financial Information: Page No.
Consolidated Condensed Balance Sheets --
June 27, 1998 and December 27, 1997 3
Consolidated Statements of Income --
Three Months Ended June 27, 1998
and June 28, 1997 5
Consolidated Statements of Income --
Six Months ended June 27, 1998
and June 28, 1997 7
Consolidated Condensed Statements of Cash Flows --
Six Months Ended June 27, 1998
and June 28, 1997 9
Notes to Consolidated Condensed Financial Statements 11
Management's Discussion and Analysis of Results of
Operations and Financial Condition 16
Part II. Other Information:
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 6 - Exhibits and Reports on Form 8-K 20
PART I - ITEM 1 3
FINANCIAL INFORMATION
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 27, December 27,
1998 1997
____________ ____________
(dollar amounts in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,556 $ 1,848
Accounts receivable (less allowance for
doubtful accounts of $5,217 in 1998
and $3,207 in 1997) 34,742 29,450
Inventories 80,297 82,661
Assets held for sale 10,000 10,000
Other 16,765 11,977
____________ ____________
TOTAL CURRENT ASSETS 145,360 135,936
PROPERTY, PLANT AND EQUIPMENT 353,342 373,449
Less accumulated amortization and
depreciation (189,373) (199,027)
____________ ____________
NET PROPERTY, PLANT AND EQUIPMENT 163,969 174,422
INTANGIBLE ASSETS (less accumulated
amortization of $9,189 in 1998
and $8,359 in 1997) 61,061 63,555
OTHER ASSETS 16,533 12,701
____________ ____________
TOTAL ASSETS $ 386,923 $ 386,614
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 4
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 27, December 27,
1998 1997
____________ ____________
(dollar amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 35,521 $ 35,768
Accrued expenses 32,135 26,974
Current portion of long-term debt 8,641 5,143
____________ ____________
TOTAL CURRENT LIABILITIES 76,297 67,885
LONG-TERM DEBT
Senior indebtedness 72,839 68,528
Subordinated notes 50,000 50,000
Convertible subordinated debentures 39,737 42,282
____________ ____________
TOTAL LONG-TERM DEBT 162,576 160,810
OTHER LIABILITIES 10,071 9,560
DEFERRED INCOME TAXES 27,210 27,115
STOCKHOLDERS' EQUITY
Common Stock - issued and outstanding,
14,050,129 shares in 1998 and
14,038,318 shares in 1997 42,150 42,115
Class B Common Stock - issued and
outstanding, 735,228 shares in 1998
and 1997 2,206 2,206
Common Stock subscribed 1,618 1,537
Additional paid-in capital 134,458 134,151
Stock subscriptions receivable (3,442) (3,132)
Unearned stock compensation (779) (894)
Retained earnings (deficit) (7,816) 2,853
Accumulated other comprehensive income (1,839) (1,839)
____________ ____________
166,556 176,997
Less Common Stock in treasury at cost -
3,442,800 shares in 1998 and
3,439,999 shares in 1997 (55,787) (55,753)
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 110,769 121,244
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 386,923 $ 386,614
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 5
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
_________________________________
June 27, June 28,
1998 1997
______________ ______________
(dollar amounts in thousands,
except per share data)
Net sales $ 167,663 $ 151,057
Cost of sales 136,195 122,137
____________ ____________
GROSS PROFIT 31,468 28,920
Selling and administrative
expenses 21,345 18,870
Other expense - net 1,115 868
____________ ____________
INCOME BEFORE INTEREST AND TAXES 9,008 9,182
Interest expense 3,392 3,009
____________ ____________
INCOME BEFORE INCOME TAXES 5,616 6,173
Income tax provision 2,179 2,508
____________ ____________
INCOME FROM CONTINUING OPERATIONS 3,437 3,665
LOSS FROM DISCONTINUED OPERATIONS 728 365
LOSS ON DISPOSAL OF KNIT FABRIC AND
APPAREL SEGMENT 14,717 ---
____________ ____________
NET INCOME (LOSS) $ (12,008) $ 3,300
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 6
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
_________________________________
June 27, June 28,
1998 1997
______________ ______________
(dollar amounts in thousands,
except per share data)
Basic earnings (loss) per share:
Income from continuing operations $ 0.30 $ 0.32
Loss from discontinued operations (0.06) (0.03)
Loss on disposal of knit fabric
and apparel segment (1.31) ---
Net earnings (loss) $ (1.07) $ 0.29
Diluted earnings (loss) per share:
Income from continuing operations $ 0.28 $ 0.32
Loss from discontinued operations (0.06) (0.03)
Loss on disposal of knit fabric
and apparel segment (1.22) ---
Net earnings (loss) $ (1.00) $ 0.29
Dividends per share:
Common Stock $ .05 $ ---
Class B Common Stock $ .05 $ ---
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 7
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
_________________________________
June 27, June 28,
1998 1997
______________ ______________
(dollar amounts in thousands,
except per share data)
Net sales $ 324,560 $ 294,833
Cost of sales 264,389 239,375
____________ ____________
GROSS PROFIT 60,171 55,458
Selling and administrative
expenses 40,924 36,591
Other expense - net 2,030 1,265
____________ ____________
INCOME BEFORE INTEREST AND TAXES 17,217 17,602
Interest expense 6,549 6,069
____________ ____________
INCOME BEFORE INCOME TAXES 10,668 11,533
Income tax provision 4,136 4,646
____________ ____________
INCOME FROM CONTINUING OPERATIONS 6,532 6,887
LOSS FROM DISCONTINUED OPERATIONS 1,351 606
LOSS ON DISPOSAL OF KNIT FABRIC AND
APPAREL SEGMENT 14,717 ---
____________ ____________
NET INCOME (LOSS) $ (9,536) $ 6,281
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 8
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
_________________________________
June 27, June 28,
1998 1997
______________ ______________
(dollar amounts in thousands,
except per share data)
Basic earnings (loss) per share:
Income from continuing operations $ 0.58 $ 0.61
Loss from discontinued operations (0.12) (0.05)
Loss on disposal of knit fabric
and apparel segment (1.31) ---
Net earnings (loss) $ (0.85) $ 0.56
Diluted earnings (loss) per share:
Income from continuing operations $ 0.54 $ 0.60
Loss from discontinued operations (0.11) (0.05)
Loss on disposal of knit fabric
and apparel segment (1.22) ---
Net earnings (loss) $ (0.79) $ 0.55
Dividends per share:
Common Stock $ .10 $ ---
Class B Common Stock $ .10 $ ---
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 9
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
___________________________
June 27, June 28,
1998 1997
____________ ____________
(dollar amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (9,536) $ 6,281
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities of continuing
operations:
Loss from discontinued operations 1,351 606
Loss on disposal of knit fabric
and segment apparel 14,717 ---
Depreciation and amortization 12,473 10,797
Provision (benefit) for deferred
income taxes 366 (517)
(Gain) loss on property, plant
and equipment 293 (20)
____________ ____________
19,664 17,147
Changes in operating assets and
liabilities, net of effects
of business combination (3,646) (12,390)
____________ ____________
NET CASH PROVIDED BY OPERATING
ACTIVITIES OF CONTINUING OPERATIONS 16,018 4,757
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of
property, plant and equipment 203 886
Purchase of property, plant and
equipment (16,698) (9,443)
Net cash paid in business
combination --- (19,046)
____________ ____________
NET CASH USED IN INVESTING ACTIVITIES
OF CONTINUING OPERATIONS (16,495) (27,603)
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 10
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
- CONTINUED
(UNAUDITED)
Six Months Ended
___________________________
June 27, June 28,
1998 1997
____________ ____________
(dollar amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in credit line borrowings 8,474 22,165
Payments on subordinated debentures (2,545) ---
Payments on term-loan (625) (1,250)
Dividends paid (1,134) ---
Other 41 (281)
____________ ____________
NET CASH PROVIDED BY FINANCING
ACTIVITIES OF CONTINUING OPERATIONS 4,211 20,634
NET CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS (2,026) 2,276
INCREASE IN CASH AND CASH EQUIVALENTS 1,708 64
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,848 1,988
____________ ____________
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 3,556 $ 2,052
____________ ____________
____________ ____________
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 6,038 $ 6,179
____________ ____________
____________ ____________
Income taxes paid, net of
tax refunds received $ 1,641 $ 1,712
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. 11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial statements which do not include all of the
information and footnotes required in annual 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 and six months ended June 27, 1998 are not
necessarily indicative of the results that may be expected for the entire
year. Consolidated Statements of Income for all periods include the
results related to the Company's knit fabric and apparel operations under
the reporting provisions for discontinued operations. Restatements were
made for periods previously presented where applicable.
NOTE B - INVENTORIES
Inventories are summarized as follows:
June 27, December 27,
1998 1997
____________ ____________
(dollar amounts in thousands)
At current cost
Raw materials $ 19,500 $ 19,080
Work-in-process 20,846 20,954
Finished goods 44,529 47,819
Supplies, repair parts
and other 3,033 3,183
____________ ____________
87,908 91,036
Excess of current cost
over LIFO value (7,611) (8,375)
____________ ____________
$ 80,297 $ 82,661
____________ ____________
____________ ____________
NOTE C - COMPREHENSIVE INCOME
The only component of accumulated other comprehensive income is the minimum
pension liability adjustment of $1,839 recorded as of December 27, 1997 and
unchanged as of June 27, 1998.
12
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
June 27, June 28,
1998 1997
Income from continuing operations $ 3,437 $ 3,665
Loss from discontinued operations 728 365
Loss on disposal of knit fabric
and apparel segment 14,717 ---
Net income (loss) $(12,008) $ 3,300
(No adjustments needed for diluted
calculation)
Denominator for calculation of
basic earnings per share -
weighted average shares (1) 11,266 11,202
Effect of dilutive securities:
Stock options 542 179
Stock subscriptions 258 160
Denominator for calculation of
diluted earnings per share -
weighted average shares
adjusted for potential
dilution (2) 12,066 11,541
Basic earnings (loss) per share:
Income from continuing operations $ 0.30 $ 0.32
Loss from discontinued operations (0.06) (0.03)
Loss on disposal of knit fabric
and apparel segment (1.31) ---
Net earnings (loss) $ (1.07) $ 0.29
Diluted earnings (loss) per share:
Income from continuing operations $ 0.28 $ 0.32
Loss from discontinued operations (0.06) (0.03)
Loss on disposal of knit fabric
and apparel segment (1.22) ---
Net earnings (loss) $ (1.00) $ 0.29
(1) Includes Common and Class B Common shares in thousands.
(2) Because their effects are anti-dilutive, excludes shares issuable
pursuant to certain grants under stock option, stock subscription, and
restricted stock plans whose grant price was greater than the average
market price of common shares outstanding during the periods presented and
the assumed conversion of subordinated debentures into shares of Common
Stock as follows: 1,667 shares in 1998 and 1,937 shares in 1997.
13
Six Months Ended
June 27, June 28,
1998 1997
Income from continuing operations $ 6,532 $ 6,887
Loss from discontinued operations 1,351 606
Loss on disposal of knit fabric
and apparel segment 14,717 ---
Net income (loss) $ (9,536) $ 6,281
(No adjustments needed for diluted
calculation)
Denominator for calculation of
basic earnings per share -
weighted average shares (1) 11,262 11,202
Effect of dilutive securities:
Stock options 525 158
Stock subscriptions 254 156
Denominator for calculation of
diluted earnings per share -
weighted average shares
adjusted for potential
dilution (2) 12,041 11,516
Basic earnings (loss) per share:
Income from continuing operations $ 0.58 $ 0.61
Loss from discontinued operations (0.12) (0.05)
Loss on disposal of knit fabric
and apparel segment (1.31) ---
Net earnings (loss) $ (0.85) $ 0.56
Diluted earnings (loss) per share:
Income from continuing operations $ 0.54 $ 0.60
Loss from discontinued operations (0.11) (0.05)
Loss on disposal of knit fabric
and apparel segment (1.22) ---
Net earnings (loss) $ (0.79) $ 0.55
(1) Includes Common and Class B Common shares in thousands.
(2) Because their effects are anti-dilutive, excludes shares issuable
pursuant to certain grants under stock option, stock subscription, and
restricted stock plans whose grant price was greater than the average
market price of common shares outstanding during the periods presented and
the assumed conversion of subordinated debentures into shares of Common
Stock as follows: 1,702 shares in 1998 and 2,001 shares in 1997.
14
NOTE E - DEBT AND CREDIT ARRANGEMENTS
On March 31, 1998, the Company entered into a new unsecured revolving
credit and term-loan facility with its principal senior lenders. The new
credit facility provides for revolving credit of up to $100.0 million
through a five year commitment period and a $60.0 million, seven year term-
loan. The new agreement contains financial covenants relating to minimum
net worth, the ratio of debt to capitalization, payment of dividends, and
certain other financial ratios. Interest rates available under the
facility may be selected by the Company from a number of options which
effectively allow for borrowing at rates equal to or lower than the greater
of the lender's prime rate, or the federal funds rate plus .5% per annum.
Commitment fees, ranging from .25% to .375% per annum on the revolving
credit line are payable on the average daily unused balance of the
revolving credit facility.
On April 2, 1998, the Company completed an agreement with the Development
Authority of Lafayette, Georgia to obtain up to $7.0 million from the
Authority under a development bond issuance. Amounts received by the
Company are secured by a letter of credit issued by the Company's lead
lender in favor of the Development Authority. The value of the letter of
credit reduces the Company's availability under its revolving credit and
term-loan facility. The proceeds are to be used for financing real
property and machinery and equipment needs of the Company's synthetic
materials recycling center under development in Lafayette, Georgia.
Under restrictions set forth in the Company's subordinated note agreement,
and absent a waiver from the lender or an amendment, future dividends can
only be paid to the extent of 50% of the excess of cumulative income for
periods subsequent to June 27, 1998 above $9,804.
Borrowing capacity under the revolving credit and term-loan agreement was
$82,654 at June 27, 1998. Covenants under the agreement limit the
available borrowing capacity to $34,496 at June 27, 1998. The
NOTE F - BUSINESS COMBINATION
As disclosed in Note B to the Company's consolidated financial statements
included in its 1997 Annual Report to Shareholders, the Company acquired
the needlebond and artificial turf assets and business of General Felt
Industries, Inc. based in Dalton, Georgia on October 2, 1997.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition had occurred at the beginning of 1997
after giving effect to certain adjustments, including the amortization of
cost in excess of net tangible assets acquired, interest expense on debt to
finance the acquisition, and related income taxes. The pro forma results
are presented for comparative purposes only and do not purport to be
indicative of future results or of the results that would have occurred had
the acquisition taken place at the beginning of 1997.
15
Three months Six months
ended ended
June 28, 1997 June 28, 1997
Net sales $163,795 $317,363
Income from continuing operations 4,182 7,565
Net income 3,817 6,959
Basic earnings per share:
Income from continuing operations .37 .67
Net income .34 .62
Diluted earnings per share:
Income from continuing operations .36 .66
Net income .33 .61
NOTE G - DISCONTINUED OPERATIONS
On June 22, 1998, the Company announced the decision to discontinue its
knit fabric and apparel operations. Operations of the apparel business are
being ceased during a wind-down phase that is expected to be completed by
the end of September, 1998. The Company is seeking a buyer for its knit
fabric business and anticipates a disposition by year-end, 1998.
The table set forth below summarizes (in thousands of dollars) the results
of operations and the estimated loss on disposal (including estimated
operating losses during the disposition period) with related tax effects
pertaining to the knit fabric and apparel businesses which have been
presented in the Statements of Income as discontinued operations.
Additionally, revenues for these operations through June, 1998 (measurement
date) are shown below and have been excluded from Net Sales in the
Statements of Income for all periods presented.
Three Months Ended Six Months Ended
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
Net Sales $12,704 $18,106 $23,691 $36,689
Pre-tax operating loss $ 1,194 $ 598 $ 2,214 $ 994
Tax (benefit) (466) (233) (863) (388)
Net operating loss $ 728 $ 365 $ 1,351 $ 606
Pre-tax loss on disposal
including $700 of operating
losses through disposition
period $21,745 $ --- $21,745 $ ---
Tax (benefit) (7,028) --- (7,028) ---
Net loss on disposal $14,717 $ --- $14,717 $ ---
Assets and liabilities related to the discontinued operations are presented
in the Consolidated Condensed Balance Sheets at their estimated net
realizable values and reflect all adjustments believed to be necessary.
Assets related to property, plant and equipment of the discontinued
operations are reported in Other Assets at June 27, 1998.
PART I - ITEM 2 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following is presented to update the discussion of results of
operations and financial condition included in the Company's 1997 Annual
Report.
RESULTS OF OPERATIONS
On May 26, 1998 the Company announced its intent to spin-off its Textile
Business. After the planned spin-off, the Company's Floorcovering Business
will remain as the core operations in The Dixie Group, Inc. Each company,
Floorcoverings and Textiles, will operate as a separate public company with
separate boards of directors. Management believes that the separation will
allow each company to more effectively pursue its individual strategies,
serve its customers, raise capital, and return value to shareholders. The
spin-off is contingent upon the Company obtaining a favorable tax ruling to
distribute the Textile Business to existing shareholders in a tax-free
stock transaction.
In late June, the Company announced the decision to discontinue its knit
fabric and apparel operations. The apparel operation is being wound down
and the Company is seeking a buyer for its fabric operation. Apparel
market conditions, including the impact of Asian imports on apparel
markets, have driven return levels on the knit fabric and apparel assets
below the Company's targets. The Company believes that prospective market
conditions indicate that similar impacts will continue for the foreseeable
future. Following these actions, the Company's on-going Textile Business
will consist of the Specialty Yarn Business. Management believes that this
will create a stronger and more focused business to operate as a separate
company after the planned spin-off.
As a result of the discontinuance of the knit fabric and apparel
operations, the Company's second quarter results reflected after-tax
charges of $15.4 million, or $1.28 per share, for the expected loss on
their dispositions as well as operating losses on the discontinued
operations during the quarter. All periods presented, including
restatement of previously published results, reflect the results of the
knit fabric and apparel operations as discontinued operations.
The Company's sales from continuing operations were $167.7 million in the
second quarter of 1998, up 11% compared with the second quarter of 1997.
Sales from continuing operations for the first six months of 1998 were
$324.6 million, an increase of 10% over 1997. The net increases in sales
were driven by strong growth in the Floorcovering Businesses.
The Company reported income from continuing operations of $3.4 million, or
$.28 per diluted share, in the quarter ended June 27, 1998 compared with
$3.7 million, or $.32 per diluted share, in the second quarter of 1997.
Income from continuing operations was $6.5 million, or $.54 per diluted
share in the first six months of 1998 against $6.9 million, or $.60 per
diluted share, in the 1997 comparable period. Operating earnings in the
Floorcovering Business increased in the 1998 versus 1997 reporting periods
and the Textile Business reflected declines in the 1998 reporting periods
compared with 1997.
17
The following table reflects selected operating data (in millions of
dollars) relating to the two industries served by the Company, the
floorcovering industry and the textile industry. The Company's
discontinued operations, knit fabric and apparel, are excluded from the
data. The Company's Floorcovering Business supplies carpets and rugs to
the manufactured housing and recreational vehicle markets through Carriage
Carpets, to home consumers through major retailers under the Bretlin name,
to higher end residential and commercial customers serviced by Masland, and
to the specialty carpet yarn market through Candlewick. The Company's
Textile Business produces value-added yarns for the apparel and home
furnishing markets as Dixie Yarns.
Quarter Ended Six Months Ended
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
SALES
Floorcovering $130.9 $109.1 $249.7 $211.3
Textile 37.2 42.2 75.5 84.1
Intersegment elimination (0.4) (0.2) (0.6) (0.6)
Total sales-continuing
operations $167.7 $151.1 $324.6 $294.8
OPERATING PROFIT
Floorcovering $ 10.5 $ 9.2 $ 18.8 $ 17.0
Textile 1.2 2.4 3.4 5.2
Total operating profit-
continuing operations $ 11.7 $ 11.6 $ 22.2 $ 22.2
Sales in the Company's Floorcovering Business reflected an increase of 20%
in the second quarter of 1998 compared with the second quarter of 1997 and
reflected an increase of 18% in the 1998 six months to date versus 1997.
The increase was a result of continued strong growth in sales of higher-end
products through Masland and sales volume increases in Bretlin resulting
from the October, 1997 acquisition of General Felt Industries', Dalton,
Georgia business. Operating profits in the Floorcovering Business
increased in the second quarter of 1998 and first six months of 1998 by 14%
and 11% compared with the respective periods in 1997 as a result of the
sales volume increases.
The Company's Textile Yarn Business reflected both lower sales and
operating profits in the quarter and six months ended June 27, 1998
compared with the 1997 second quarter and year-to-date reporting periods.
Weaker product demand and price softness was experienced in the second
quarter of 1998 compared with relatively strong performance in the second
quarter of 1997.
18
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1998, net cash provided from operating
activities of continuing operations was $16.0 million. Operating cash flow
was supplemented by $7.8 million of funds from increased net borrowings
under the Company's revolving credit and term-loan facility. These funds
were used primarily for purchases of property, plant and equipment of $16.7
million, dividend payments of $1.1 million, sinking fund payments of $2.5
million for the Company's subordinated debentures, and $2.0 million to fund
operations associated with the discontinued knit fabric and apparel
businesses.
On March 31, 1998, the Company entered into a new unsecured revolving
credit and term-loan facility with its principal senior lenders. The new
credit facility provides for revolving credit of up to $100.0 million
through a five year commitment period and a $60.0 million, seven year term-
loan. The new agreement contains financial covenants relating to minimum
net worth, the ratio of debt to capitalization, payment of dividends, and
certain other financial ratios. Interest rates available under the
facility may be selected by the Company from a number of options which
effectively allow for borrowing at rates equal to or lower than the greater
of the lender's prime rate, or the federal funds rate plus .5% per annum.
Commitment fees, ranging from .25% to .375% per annum on the revolving
credit line are payable on the average daily unused balance of the
revolving credit facility.
On April 2, 1998, the Company completed an agreement with the Development
Authority of Lafayette, Georgia to obtain up to $7.0 million from the
Authority under a development bond issuance. Amounts received by the
Company are secured by a letter of credit issued by the Company's lead
lender in favor of the Development Authority. The value of the letter of
credit reduces the Company's availability under its revolving credit and
term-loan facility. The proceeds are to be used for financing real
property and machinery and equipment needs of the Company's synthetic
materials recycling center under development in Lafayette, Georgia.
Under restrictions set forth in the Company's subordinated note agreement,
and absent a waiver from the lender or an amendment, future dividends can
only be paid to the extent of 50% of the excess of cumulative income for
periods subsequent to June 27, 1998 above $9.8 million.
Borrowing capacity under the revolving credit and term-loan agreement was
$82.7 million at June 27, 1998. Covenants under the agreement limit the
available borrowing capacity to $34.5 million at June 27, 1998. The
Company considers its unused debt availability and operating cash flows to
be adequate to fund its anticipated liquidity needs including anticipated
increases in capital expenditures to support sales growth and market needs.
19
ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal Use". Adoption of the SOP
is required for the Company at the beginning of fiscal 1999. Provisions of
the Statement require the capitalization of certain costs incurred after
the date of adoption in connection with developing or obtaining software
for internal use. Early adoption of the SOP is permitted, and accordingly
the Company adopted the Statement effective with the first quarter of 1998.
The Company has historically expensed internal software development costs
as incurred but after adoption of the Statement will capitalize and
amortize such costs over the expected useful life of the associated
software. Those costs incurred in the first six months of 1998 subject to
capitalization and amortization were not material to the Company's
financial statements.
PART II. OTHER INFORMATION 20
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on April 30, 1998.
(c) The meeting was held to consider and vote upon the following
proposals: (1) to elect Directors for the following year; (2) to
approve certain amendments (as described in the Proxy Statement) to
the Company's Incentive Stock Plan; (3) to approve the issuance of
Class B Common Stock (as described in the Proxy Statement); and (4)
to approve the Directors' Stock Plan. All Directors were elected
and all proposals were approved with the results of the vote
summarized as follows:
FOR AGAINST ABSTAIN TOTAL
J. Don Brock 23,711,326 9,440 140,727 23,861,493
Paul K. Brock 23,713,773 6,993 140,727 23,861,493
Lovic A. Brooks, Jr. 23,704,873 15,893 140,727 23,861,493
Daniel K. Frierson 23,714,873 5,893 140,727 23,861,493
Paul K. Frierson 23,714,373 6,393 140,727 23,861,493
William N. Fry, IV 23,714,466 6,300 140,727 23,861,493
John W. Murrey, III 23,713,183 7,583 140,727 23,861,493
Peter L. Smith 23,714,873 5,893 140,727 23,861,493
Robert J. Sudderth, Jr. 23,711,326 9,440 140,727 23,861,493
Amendments to the
Incentive Stock Plan 20,648,210 2,574,027 52,744 23,274,981
Issuance of Class
Common Stock B 20,385,218 2,846,060 56,023 23,287,301
Director's Stock Plan 22,405,288 809,837 59,613 23,274,738
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Exhibits Incorporated by Reference
None.
(ii) Exhibits Filed with this Report
None.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the registrant during the
three month period ended June 27, 1998.
21
SIGNATURES
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.
THE DIXIE GROUP, INC.
__________________________
(Registrant)
August 11, 1998
____________________
(Date)
/s/GLENN A. BERRY
__________________________
Glenn A. Berry
Executive Vice President and
Chief Financial Officer
/s/D. EUGENE LASATER
__________________________
D. Eugene Lasater
Controller
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT
AND FOR THE SIX MONTHS ENDED JUNE 27, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-END> JUN-27-1998
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<SECURITIES> 0
<RECEIVABLES> 39,959
<ALLOWANCES> 5,217
<INVENTORY> 80,297
<CURRENT-ASSETS> 145,360
<PP&E> 353,342
<DEPRECIATION> 189,373
<TOTAL-ASSETS> 386,923
<CURRENT-LIABILITIES> 76,297
<BONDS> 162,576
<COMMON> 44,356
0
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<OTHER-SE> 66,413
<TOTAL-LIABILITY-AND-EQUITY> 386,923
<SALES> 324,560
<TOTAL-REVENUES> 324,560
<CGS> 264,389
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> 10,668
<INCOME-TAX> 4,136
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<DISCONTINUED> (16,068)
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<NET-INCOME> (9,536)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.79)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT
AND FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, AS RESTATED FOR
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> JUN-28-1997
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<COMMON> 43,917
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<OTHER-SE> 70,703
<TOTAL-LIABILITY-AND-EQUITY> 363,775
<SALES> 294,833
<TOTAL-REVENUES> 294,833
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<INCOME-TAX> 4,646
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