SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______.
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $3.00 Par Value
(Title of Class)
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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or other
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
-Continued-
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Continued)
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 5, 1999: Common Stock - $69,699,050; Class B
Common Stock - No market exists for the shares of Class B Common Stock,
which is neither registered under Section 12 of the Act nor subject to
section 15(d) of the Act.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Class Outstanding as of March 5, 1999
Common Stock, $3.00 Par Value 10,630,779 shares
Class B Common Stock, $3.00 Par Value 735,228 shares
Class C Common Stock, $3.00 Par Value 0 shares
Documents Incorporated By Reference
Specified portions of the following document are incorporated by reference:
Proxy Statement of the registrant for annual meeting of shareholders to be
held April 29, 1999 (Part III).
PART I
ITEM 1. BUSINESS
GENERAL
Prior to 1993, the Company's business consisted of manufacturing yarn,
thread, and fabrics sold to industrial manufacturers. All products
required further processing by the Company's customers before reaching the
final consumers. The principal markets served were home furnishings,
textile related industrial markets, transportation, and apparel. A
component of the Company's yarn business was Candlewick Yarns, a supplier
of yarn to carpet and rug manufacturers serving various markets in the
floorcovering industry. The Company's total sales in 1992 were $470
million.
In 1993, the Company embarked on a strategic plan to divest itself of those
textile assets considered to have limited shareholder return potential
while investing, through acquisitions, in the floorcovering industry. The
Company sought carpet companies with existing positions in growth market
that were considered complementary to the Company's strengths in yarn
product offerings and product development in its Candlewick yarn business.
From 1993 through 1998, the Company sold or closed the majority of its
textile related operations. During 1998, the Company made the decision to
exit and hold for sale its remaining textile operations. In February 1999,
the Company signed letters of intent with two separate Companies for the
sale of those operations. Definitive sales agreements are being negotiated
with the prospective buyers and completion of the sales are expected to be
completed in the second quarter of 1999.
During the same period of textile related asset divestitures, the Company
acquired Carriage Carpets, Bretlin Carpets and Masland Carpets in 1993,
Patrick Carpet Mills in 1994, Danube Carpet Mills and certain carpet assets
of General Felt Industries in 1997, and Ideal Fibers in late 1998. In
January 1999, the Company acquired the assets and business of Multitex
Corporation of America, Inc., a manufacturer who sells carpet under the
name Globaltex.
Sales in 1998 were $496.4 million for the Company's floorcovering
businesses. Results for the textile related businesses have been
reclassified to discontinued operations in the Company's financial
statements for the periods presented. Entering 1999, the strategic
repositioning as a floorcovering company is expected to provide greater
return potential to the Company's shareholders.
THE INDUSTRY INFORMATION - The carpet and rug industry has two primary
markets, residential and commercial, with the residential market making up
the largest portion of the industry's sales. A substantial portion of
industry shipments is made in response to replacement demand. Residential
products consist of broadloom carpets, rugs, and bathmats in a broad range
of styles, colors, and textures. Commercial products consist primarily of
broadloom carpets for a variety of institutional applications such as
office buildings, restaurant chains, schools, hotels, and other commercial
establishments. The carpet industry also manufactures carpet for the
automotive, recreational vehicle, and small boat industries.
Based on various data complied from published information by the U.S.
Department of Commerce and industry trade association assessments, the
Company believes the domestic carpet and rug industry to be composed of
approximately 100 manufacturers of which the top 3 account for
approximately 75 of the industry's production. The carpet industry has
undergone substantial consolidation at the manufacturing level in recent
years. The Company believes the consolidations provide opportunities for
profitable growth in selected markets where styling, product
differentiation, and focused service add value to customers and
differentiate the Company from its competitors.
THE COMPANY'S BUSINESSES - The Company's businesses are segmented between
Carpet Manufacturing and Floorcovering Base Materials (See Note N in the
Company's 1998 Consolidated Financial Statements for quantitative segment
information). The products of each segment serve carpet and rug markets in
the floorcovering industry.
The Company's Carpet Manufacturing segment is viewed as a manufacturing,
selling, marketing, and distribution resource pool with a wide range of
capabilities to serve selected markets with a variety of products. The
products are sold in roll or piece goods in a wide breadth of textures,
colors and designs. Products in the Carpet Manufacturing segment, although
marketed for diverse applications under different marketing names, are
manufactured by similar techniques. Businesses in the Company's Carpet
Manufacturing segment are described below.
Masland Carpets is a manufacturer of specialty carpets and rugs for the
high-end residential and commercial marketplaces. Masland's products are
marketed to the architectural and interior design community and select
specialty floorcovering showrooms. Masland competes in each of these
markets through quality, service, and innovation in styling and product
design. Masland's business includes a product line designed to cater to
value oriented commercial customers where style, design, and quality are
required. Masland's product lines are marketed by its own sales force.
Carriage Carpets is a carpet manufacturer supplying tufted broadloom carpet
for customers of the factory built housing, recreational vehicle, van
conversion, and exposition trade show industries. Carriage creates
specialty products geared to customer specifications that maximizes
processing efficiency and minimizes waste with just-in-time delivery
through the Company's trucking fleet. The acquisition of Danube Carpet
Mills increased Carriage's sales in the manufactured housing and
recreational vehicle industries and provided the opportunity to be more
competitive by expanding its core business. Carriage's operations, which
include tufting, dyeing, finishing and distribution, provides carpet
production and related services to its sister companies to serve their
markets. Carriage's product lines are marketed by a staff of salaried
sales personnel.
Bretlin is a manufacturer of indoor/outdoor needlebond carpet and runners,
floormats, decorative accent rugs, commercial/industrial polypropylene
needlebond carpet, and synthetic fiber cushion. Its products are marketed
to home centers, mass merchants, floorcovering groups or co-ops,
distributors, and independent floorcovering retailers. The needlebond and
artificial turf assets and business acquired from General Felt Industries
in October 1997 are complementary to Bretlin's existing manufacturing
capabilities and product lines. The acquisition of Globaltex product line
in January 1999 expanded the Company's position in certain residential
markets and is expected to particularly strengthen and expand Bretlin's
position in the home center markets. High service standards in terms of
speed and accuracy in filling orders for its customers are key competitive
factors for Bretlin. Products of Bretlin are marketed primarily through
its own sales force, and to a lesser extent, commission sales
representatives.
The Company's Floorcovering Base Materials segment includes Candlewick
Yarns and the filament yarn extrusion assets of Ideal Fibers which were
acquired in a start-up phase in the fourth quarter of 1998. Ideal will
operate as a component of Candlewick. The Base Materials group produces
yarns for the carpet industry and are sold for applications in residential
and commercial carpet, bath and decorative accent rugs, and automotive
floorcovering. A substantial majority of the production volume in this
segment is utilized in the Company's Carpet Manufacturing group. As a
vertically integrated supplier, the Company's Base Materials group focuses
on the development and production of low costs yarn through extrusion,
spinning, and finishing. Their mission is to satisfy the internal needs of
the Carpet Manufacturing group at a competitive cost and to supply external
customers with innovative products, the production of which has the effect
of lowering the Company's total unit costs of production.
The Company's sales order backlog position in its floorcovering businesses,
excluding Carriage and Bretlin, was approximately $38,100,000 at December
26, 1998 and $27,300,000 at December 27, 1997. Approximately 90% of orders
received by Carriage and Bretlin are shipped within the same week. All of
the order backlog can reasonably be expected to be filled within the 1999
fiscal year.
The Company's floorcovering businesses own a variety of trademarks under
which their products are marketed. While such trademarks are important to
the Company's businesses, there is no one trademark, other than the name
"Masland", which is of material importance to the floorcovering business.
CUSTOMER AND PRODUCT CONCENTRATION
There was no single class of products exceeding 10 percent of the Company's
consolidated sales volume for 1998, 1997, or 1996. Sales to Fleetwood
Enterprises, Inc. were 11% of the Company's consolidated sales in 1996.
SEASONALITY
Within the varied markets serviced by the Company, there are a number of
seasonal production cycles, but the Company's business as a whole is not
considered to be significantly affected by seasonal factors. Consequently,
there are no material impacts on working capital relating to seasonality.
ENVIRONMENTAL
While compliance with current federal, state and local provisions
regulating the discharge of material into the environment may require
additional expenditures by the Company, these expenditures are not expected
to have a material effect on capital expenditures, earnings or the
competitive position of the Company.
RAW MATERIALS
The Company obtains natural and synthetic raw materials from a number of
domestic suppliers. Man-made fibers are purchased from major chemical
suppliers. Although the Company's procurement of raw materials is subject
to variations in price and availability due to market conditions and the
price of petroleum used to produce man-made fibers, the Company believes
that its sources of raw materials are adequate and that it is not
materially dependent on any single supplier.
UTILITIES
The Company uses electricity as its principal energy source, with oil or
natural gas used in some facilities for finishing operations as well as
heating. During the past five years the Company has not experienced any
material problems in obtaining electricity, natural gas or oil at
anticipated prices. Nevertheless, energy shortages of extended duration
could have an adverse effect on the Company's operations.
EMPLOYMENT LEVEL
The Company had approximately 3,100 associates in its continuing operations
as of the end of fiscal 1998.
ITEM 2. PROPERTIES
The following table lists the Company's facilities according to location,
type of operation and approximate total floor space as of March 5, 1999.
Approximate
Location Type of Operation Square Feet
FLOORCOVERING
Administrative:
Dalton, GA Administrative 13,000
Calhoun, GA Administrative 22,000
Mobile, AL Administrative 20,000
Total Administrative 55,000
Warehousing:
Ringgold, GA Warehousing 119,000
Manufacturing:
Lemoore, CA Tufted Yarn Spinning 322,000
Ringgold, GA Tufted Yarn Spinning 290,000
(1) Roanoke, AL Tufted Yarn Spinning 190,000
Ulmer, SC Tufted Yarn Spinning 138,000
(2) Calhoun, GA Carpet Manufacturing,
Distribution 1,284,000
Needlebond Manufacturing,
Distribution 347,000
(3) Dalton, GA Carpet Manufacturing,
Distribution 511,000
Atmore, AL Carpet Manufacturing,
Distribution 342,000
Mobile, AL Rug Manufacturing, Distribution 400,000
(4) LaFayette, GA Carpet Padding Manufacturing 73,000
Total Manufacturing 3,897,000
TEXTILE
Manufacturing:
(5) Chattanooga, TN Yarn Spinning 440,000
(5) Mebane, NC Yarn Spinning 99,000
(5) Ranlo, NC Yarn Spinning 319,000
(5)Chattanooga, TN Package Yarn Dyeing, Bleaching
and Mercerizing 276,000
Total Manufacturing 1,134,000
CORPORATE
Administrative:
Chattanooga, TN Administrative 41,000
Total 5,246,000
ITEM 2. PROPERTIES - CONTINUED
(1) This property is currently leased. Under the provisions of the
Roanoke, AL lease, the Company is acquiring title to the property over the
term of the lease, which is expected to terminate in 2004.
(2) The Company is currently leasing 126,000 square feet for Tufted Yarn
Twisting.
(3) The Company is currently leasing 165,000 square feet for carpet
manufacturing and 10,000 square feet for administrative uses.
(4) The Company is in the process of converting this operation to a carpet
padding manufacturing operation. No production is being performed in this
location as of March 5, 1999.
(5) Currently operating; "held for sale".
In addition to the facilities listed above, the Company owns or leases
various administrative, storage, warehouse and office spaces.
In the opinion of the Company, its manufacturing facilities are well
maintained and the machinery is efficient and competitive. Operations at
each plant generally vary between 120 hours and 168 hours per week. There
are no material encumbrances on any of the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiaries are a party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of 1998 to a vote
of the shareholders.
Pursuant to instruction G of Form 10-K the following is included as an
unnumbered item to Part I.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices held by the executive officers of
the registrant as of March 5, 1999, are listed below along with their
business experience during the past five years.
Name, Age Business Experience During
and Position Past Five Years
Daniel K. Frierson, 57 Director since 1973, Chairman of
Chairman of the Board the Board since 1987 and Chief
and Chief Executive Officer, Executive Officer since 1980.
Director, Member of Executive Director of SunTrust Bank,
Committee Chattanooga, N.A. Brother of
Paul K. Frierson.
William N. Fry, IV, 40 President and Chief Operating
President and Chief Operating Officer since February 1999.
Officer Executive Vice President and
Chief Operating Officer,
Floorcovering Business from
January 1997 to February 1999.
Executive Vice President
and Chief Operating Officer,
Candlewick, Carriage and
Bretlin from January 1996
to January 1997. President,
Bretlin from January 1995 to
January 1996. Executive Vice
President, Bretlin from November
1993 to January 1995. Business
Analyst, Carriage from July
1993 to November 1993. General
Manager, Dyed Yarns from May 1992 to
July 1993. Assistant Plant Manager,
Chattanooga Finishing from July 1991
to May 1992.
Glenn A. Berry, 51 Executive Vice President and Chief
Executive Vice President and Financial Officer since January
Chief Financial Officer 1997. Vice President, Lighting
Products Group, MagneTek, Inc.,
from March 1995 to December 1996.
Vice President, Allied Signal
Laminate Systems, 1986 to 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
Name, Age Business Experience During
and Position Past Five Years
George B. Smith, 58 Executive Vice President and
Executive Vice President Chief Operating Officer, Textile
and Chief Operating Officer, Business since September 1996.
Textile Business Executive Vice President and
President, Natural/Dyed Yarns
and Knits since March 1994.
President, Natural and Dyed Yarn
Group from August 1993 to March
1994. President Natural Yarn Group
from October 1992 to August 1993.
Self-employed (Consulting and
Commission Sales) from June 1990 to
November 1992.
Philip H. Barlow, 49 Vice President and President of
Vice President and President, Carriage Industries, Inc. since
Carriage Industries, Inc. 1993. Vice President of Sales and
Marketing, Carriage, 1988 to 1993.
Director of Sales and Marketing,
Carriage, 1986 to 1988.
Kenneth L. Dempsey, 40 Vice President and President,
Vice President and President, Masland Carpets, Inc. since
Masland Carpets, Inc. January 1997. Vice President of
Marketing, Masland, 1991 to 1996.
Director of Marketing, The Harbinger
Company, Inc., subsidiary of Horizon
Industries, Inc., 1982 to 1991.
Paul K. Frierson, 61 Director since 1988. Vice President
Vice President and President, and President, Candlewick Yarns
Candlewick Yarns, Director since 1989. Director of
NationsBank/Chattanooga. Brother of
Daniel K. Frierson.
Jeffrey L. Gregg, 35 Vice President and President of
Vice President and President, Bretlin, Inc. since January 1998.
Bretlin, Inc. Vice President of Operations,
Carriage Industries, Inc. from May
1996 to January 1998. Chief
Operating Officer and Chief
Financial Officer, The Geiger Group,
Inc. from July 1991 to April 1996.
W. Derek Davis, 48 Vice President of Human Resources
Vice President, Human since January 1991. Corporate
Resources Employee Relations Director,
1990 to 1991.
EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
Name, Age Business Experience During
and Position Past Five Years
Gary A. Harmon, 53 Treasurer since 1993.
Treasurer Director of Tax and Financial
Planning, 1985 to 1993.
D. Eugene Lasater, 48 Controller since 1988.
Controller
Starr T. Klein, 56 Secretary since November 1992.
Secretary Assistant Secretary, 1987 to 1992.
The executive officers of the registrant are elected annually by the Board
of Directors at its first meeting held after each annual meeting of the
Company's shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's Common Stock trades on the over-the-counter National Market
System with the NASDAQ symbol DXYN. No market exists for the Company's
Class B Common Stock.
As of March 5, 1999, the total number of record holders of the Company's
Common Stock was approximately 3,900 and the total number of holders of the
Company's Class B Common Stock was 16. Management of the Company estimates
that there are approximately 3,000 shareholders who hold the Company's
Common Stock in nominee names. Dividends and Price Range of Common Stock
for the four quarterly periods in the years ended December 26, 1998 and
December 27, 1997 are as follows:
<TABLE>
THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS
AND PRICE RANGE OF COMMON STOCK
(Unaudited)
(dollars in thousands, except per share data)
<CAPTION>
1998
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Net sales $118,601 $130,489 $120,387 $126,935
Gross profit 23,960 27,544 22,827 25,077
Income from continuing operations 2,247 3,343 1,650 1,868
Net income (loss) 2,472 (12,008) 206 (11,672)
Basic earnings (loss) per share:
Income from continuing operations .20 .30 .15 .17
Net income (loss) .22 (1.07) .02 (1.03)
Diluted earnings (loss) per share:
Income from continuing operations .19 .28 .14 .16
Net income (loss) .21 (1.00) .02 (1.02)
Dividends:
Common Stock .05 .05 .05 ---
Class B Common Stock .05 .05 .05 ---
Common Stock prices:
High $ 13.00 $ 14.00 $ 10.00 $ 8.13
Low 9.75 9.75 6.75 4.38
<CAPTION>
1997
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Net sales $101,860 $108,845 $106,932 $114,449
Gross profit 21,115 23,832 20,665 21,058
Income from continuing operations 2,051 2,717 2,299 1,745
Net income 2,981 3,300 3,012 2,326
Basic earnings per share:
Income from continuing operations .18 .24 .21 .16
Net income .27 .29 .27 .21
Diluted earnings per share:
Income from continuing operations .18 .24 .19 .14
Net income .26 .29 .25 .19
Dividends:
Common Stock --- --- --- ---
Class B Common Stock --- --- --- ---
Common Stock prices:
High $ 8.13 $ 9.88 $ 15.88 $ 14.75
Low 6.38 6.00 9.63 9.13
<FN>
The total of quarterly earnings per share may not equal the annual earnings per share
due primarily to Common Stock purchased and issued during the respective periods.
Discontinued operations consist of the knit fabric and apparel business as well as the
specialty yarns business. In the second quarter of 1998, results included charges of
$21,745 ($14,717 or $1.22 per diluted share after taxes), for the expected loss on the
disposition of the knit fabric and apparel business. In the fourth quarter of 1998,
results included charges of $17,580 ($13,540 or $1.18 per diluted share after taxes) for
the expected loss on the disposition of the specialty yarns business.
The discussion of restrictions on payment of dividends is included in Note F to the
Consolidated Financial Statements included herein.
</FN>
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
The following selected financial data should be read in conjunction with the related consolidated financial statements and notes
thereto included under Items 8, 14(a) (1) and (2) and 14 (d) of the report on Form 10-K.
<CAPTION>
Year Ended
December 26, December 27, December 28, December 30, December 31,
1998 1997 (1) 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net sales $496,412 $432,086 $363,113 $357,145 $350,377
Income from continuing
operations(2) 9,108 8,812 5,701 4,365 24,397
Total assets 374,646 386,614 328,135 396,997 488,320
Long-term debt:
Senior indebtedness 64,466 68,528 34,036 97,383 87,025
Subordinated notes 50,000 50,000 50,000 50,000 50,000
Convertible subordinated debentures 39,737 42,282 44,782 44,782 44,782
Common Stock, subject to put option --- --- --- --- 18,178
Per Share:
Income from continuing
operations: (2)
Basic .81 .78 .51 .37 1.99
Diluted .77 .75 .51 .37 1.99
Cash dividends declared:
Common Stock .15 --- --- --- .20
Class B Common Stock .15 --- --- --- .20
<FN>
(1) Includes the results of operations of Danube and GFI Dalton subsequent to their acquisitions on December 31, 1996 and
October 2, 1997, respectively.
(2) Income from continuing operations includes asset valuation losses of $739, or $.07 per share, for the year ended
December 28, 1996, asset valuation losses of $2,612, or $.22 per share, and casualty insurance gains of $2,672, or $.23 per
share, for the year ended December 30, 1995, casualty insurance gains of $2,641, or $.22 per share, and a nontaxable life
insurance gain of $12,835, or $1.05 per share, for the year ended December 31, 1994. See Note B and Note J to the
Consolidated Financial Statements.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During 1998, the Company successfully completed the sale of its Tarboro
textile yarn spinning facility, the closure and wind-down of its C-Knit
apparel operation, and the sale of its Caro-Knit textile fabric operation.
In February 1999, the Company signed letters of intent with two separate
companies for the sale of the remainder of its textile operations.
Definitive sale agreements are being negotiated with the prospective buyers
and completion of the sales are expected to be finalized in the second
quarter of 1999.
As a result of these actions, the Company's results reflected losses of
$30.1 million in 1998 associated with asset devaluations, costs of
disposal, expected operating losses through the estimated holding period,
as well as operating losses up to the measurement dates for the
discontinued businesses. The losses were classified as discontinued
operations and accordingly were segregated from results of the Company's
ongoing Floorcovering businesses, including restatement for periods
previously presented.
Subsequent to the end of fiscal 1998, in early January 1999, the Company
acquired the assets of Multitex Corporation of America, Inc., a Dalton,
Georgia carpet and carpet yarn producer. Multitex sells carpet under the
Globaltex name through home centers and other retail channels. During
1998, the Company expanded its manufacturing capacity at Masland Carpets'
Atmore, Alabama facility and, in late 1998, acquired the filament yarn
extrusion assets of Ideal Fibers. Ideal Fibers, which was in a start-up
phase, will provide the Company with an internally produced source of
filament yarn.
Ideal will operate in the Company's Base Materials group as part of
Candlewick Yarns. Following this acquisition, the Company funded
additional equipment acquisitions and plans further productive capacity
expansion in the extrusion operation. The Company expects Ideal's filament
yarn extrusion capacity to provide the Company's Carpet manufacturing group
with a source of raw material at a competitive cost, as well as product
development capabilities to meet market demands for product
differentiation.
Results for the Company's continuing operations, its floorcovering
businesses, reflected sales of $496.4 million in 1998 compared with sales
of $432.1 million in 1997 and $363.1 million in 1996. The year-over-year
growth in 1998 and 1997 versus the previous periods resulted from the
acquisitions of Danube Carpet Mills in early fiscal 1997, the needlebond
assets of General Felt Industries in late 1997, and strong growth in
selected commercial and residential markets served by the Company. Income
from continuing operations was $9.1 million in 1998, or $.77 per diluted
share, $8.8 million in 1997, or $.75 per diluted share, and $5.7 million in
1996, or $.51 per diluted share.
Effective for fiscal 1998, the Company adopted Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Statement 131 establishes standards for reporting
information about operating segments in annual and interim financial
statements. Prior to 1998 and the adoption of Statement 131, the Company
reported its business segments according to the industries served. The
Company identified its reportable segments under the new guidelines as
Carpet Manufacturing and Floorcovering Base Materials (see note N). The
adoption of Statement 131 did not affect results of operations or financial
position. Discussions below pertaining to the year-to-year operating
results exclude the Company's discontinued textile and apparel operations.
1998 Compared to 1997- The Company's sales increased to $496.4 million or
15% over 1997 sales of $432.1 million. The sales growth was attributable
to volume increases in its Carpet Manufacturing segment. The growth
resulted from the acquisition of the needlebond business of General Felt
Industries in late fiscal 1997 and strong growth in higher-end residential
and commercial products. The Company's 1998 earnings before interest and
taxes (EBIT) increased 9% over 1997. The increase in EBIT was a result of
the higher sales volume. Costs associated with facilities expansion and
selling expenses in support of current and anticipated future growth
impacted the 1998 earnings.
The Company's interest expense reflected an increase of $1.3 million in
1998 compared with 1997. The increase resulted from increased borrowing
levels to support the Company's growth. Interest expense as a percentage
of sales was 2.0% in 1998 and 1997.
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 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 historically expensed internal software development costs as
incurred but after adoption of the Statement capitalizes and amortizes such
costs over the expected useful life of the associated software. The
Company's results were not materially affected as a result of the adoption.
1997 Compared to 1996 - Net sales for 1997 increased $69.0 million, or 19%,
compared with 1996. Sales in each of the Company's operating segments
increased in 1997 over 1996. A substantial portion of the sales growth was
a result of the acquisition of Danube Carpet Mills in early fiscal 1997.
Danube products are sold primarily into the factory-built housing markets
in the Company's Carpet Manufacturing segment. Earnings before interest
and taxes reflected an increase of 32% in 1997 compared with 1996. The
increase resulted primarily from incremental sales volume increases
associated with the Danube acquisition and growth in higher-end residential
and commercial products.
The Company's interest expense increased by $1.3 million in 1997 compared
with 1996. Interest expense was 2% of sales in both periods.
The Company's effective income tax rate was 37.2% for 1997 and 41.5% for
1996. The higher effective rate in 1996 was due primarily to the effect of
non-deductible goodwill related to the lower level of pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
During the three year period ended December 26, 1998, cash flows generated
from operating activities were $138.4 million. These funds were
supplemented by $41.7 million from the sale of assets and were used to
finance the Company's operations, fund capital expenditures, invest in
business acquisitions, pay dividends, and reduce debt.
Investments in property, plant and equipment of $64.6 million and cash of
$61.7 million for business acquisitions were directed toward the carpet and
carpet yarn operations during the three year period ended December 26,
1998. The expenditures were made to support sales growth, manufacturing
capacities expansions, and equipment modernization.
In October, 1993, the Company entered into a seven year agreement under
which it sold a $45.0 million undivided interest in a revolving pool of its
trade accounts receivable. The sale is reflected as a reduction of
accounts receivable in the Company's balance sheets. No further interest
has been sold under this agreement subsequent to the original sale. The
cost of this program was fixed at 6.08% per annum of the undivided interest
sold plus administrative fees typical in such transactions. In addition,
the Company is generally at risk for credit losses associated with sold
receivables and provides for such in the Company's financial statements.
At December 26, 1998, the Company's debt consisted of $42.2 million of
convertible subordinated debentures, $50.0 million of subordinated notes
and $71.6 million of senior indebtedness, principally under the Company's
revolving credit and term-loan agreement. Beginning in 1998, the
convertible subordinated debentures require annual mandatory sinking fund
payments of $2.5 million. Principal payments under the Company's
subordinated notes are due in semi-annual installments of $2.4 million
beginning in the year 2000. In March, 1998 the Company entered into a new
unsecured revolving credit and term-loan agreement. The agreement 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.
Interest rates available under the revolving credit and term-loan 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 federal funds rate plus .5%.
The Company's long-term debt and credit agreements contain financial
covenants relating to minimum net worth, the ratio of debt to
capitalization, payment of dividends and certain other financial ratios.
Restrictions set forth in the Company's subordinated note agreement have
limited the Company's ability to pay dividends due to losses associated
with the disposal of the Company's textile and apparel operations. Absent
a waiver from the lender or an amendment, future dividends can only be paid
to the extent of 50% of the excess of aggregate consolidated net income
subsequent to the end of the fiscal quarter when the Company first meets
the required ratios of interest coverage and debt to earnings before
interest, taxes, depreciation and amortization as defined by the
subordinated note agreement.
As of December 26, 1998, the most restrictive covenants under the revolving
credit and term-loan agreement limit available borrowing capacity to $43.7
million.
The Company expects to generate net cash of approximately $55 million
related to the sale of the textile business subsequent to year-end 1998,
primarily in the first half of 1999.
Availability under the Company's existing debt arrangements and expected
operating cash flows are deemed adequate to finance the Company's future
liquidity requirements, which are anticipated to consist primarily of
capital expenditures and seasonal working capital needs.
YEAR 2000 SYSTEMS ISSUES
The Company believes it has identified all information technology systems
that were not year 2000 compliant. Incidental to year 2000 issues, the
Company developed a plan for the conversion of its hardware platform and
the acquisition or development of business process software to be utilized
and centrally maintained across each of its operating businesses. Each of
these new systems are designed to be year 2000 compliant. Certain modules
are due for implementation in the second and third quarters of 1999. Those
non-compliant applications which will not be implemented before year 2000
are in the process of modification for year 2000 compliance. The majority
of the modifications have been completed and the remainder are expected to
be completed by mid-1999.
Each operating business identified those non-information systems that
contain embedded technology that could be impacted by the year 2000 issue.
The Company is substantially complete in its state of readiness related to
those systems.
The Company identified those third parties through written or direct
communications with whom it has a material relationship or whose
relationship is substantially dependant on information technology. The
Company has no known unresolved issues that could have a material impact on
its on-going business.
Incremental costs associated with all aspects of year 2000 assessment and
remediation was less than $0.2 million in 1998 and is estimated to be less
than $0.2 million in 1999. The Company has not deferred any information
technology projects as a result of personnel or financial resource
allocation toward year 2000 compliance issues.
Based on the overall state of readiness, the Company feels it is reasonably
unlikely that any material impact will result from non-compliant
information technology systems issues that are within the Company's
control. Non-compliance resulting in service interruptions by electrical
power service providers would result in the worse case for the Company due
to its dependancy on electrical sourcing for productive output.
The Company has not developed a formal contingency plan due to its state of
readiness. Progress will continue to be monitored by management and plans
altered if deemed appropriate.
FORWARD-LOOKING INFORMATION
This Annual Report to shareholders may contain certain statements that may
be considered forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended. These forward-looking
statements are identified by their use of terms or phrases such as
"expects", "estimates", "projects", "believes", "anticipates",
"intends", and similar terms and phrases. Such terms or phrases relate
to, among other matters, the Company's future financial performance,
business prospects, growth, strategies, or liquidity. Forward-looking
statements involve a number of risks and uncertainties. The following
important factors may affect the future results of The Dixie Group, Inc.
and could cause those results to differ materially from those expressed in
the forward-looking statements. These risks include raw material prices,
materially adverse changes in economic conditions generally in carpet, rug
and floorcovering markets served by the Company, completion of the sale of
the Company's remaining textile business, risks associated with
interruptions in the Company's operations related to inadequate corrective
action for the Year 2000 computer problem in any systems of the Company or
one of its major suppliers or customers and other risks detailed from time
to time in the Company's filings with the Securities and Exchange
Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The supplementary financial information as required by Item 302 of Regulation
S-K is included in PART II, ITEM 5 of this report and the remaining response is
included in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Information about Nominees for Directors" in the Proxy
Statement of the registrant for the annual meeting of shareholders to be held
April 29, 1999 is incorporated herein by reference. Information regarding the
executive officers of the registrant is presented in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation Information" in the Proxy
Statement of the registrant for the annual meeting of shareholders to be held
April 29, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Principal Shareholders", as well as the beneficial
ownership table (and accompanying notes) in the Proxy Statement of the
registrant for the annual meeting of shareholders to be held April 29, 1999 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions Between the Company and Directors
and Officers" in the Proxy Statement of the registrant for the annual meeting
of shareholders to be held April 29, 1999 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2)-- The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits:
(i) Exhibits Incorporated by Reference:
(3a) Restated Charter of The Dixie Group, Inc.
(3b) Amended and Restated By-Laws of Dixie Yarns, Inc.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
(4a) Second Amended and Restated Revolving Credit and
Term Loan Agreement dated January 31, 1992 by and
among Dixie Yarns, Inc., and Trust Company Bank,
NationsBank of North Carolina, N.A. and Chemical
Bank.
(4b) Loan Agreement dated February 6, 1990, between
Dixie Yarns, Inc. and New York Life Insurance
Company and New York Life Insurance and Annuity
Corporation.
(4c) Form of Indenture, Dated May 15, 1987 between Dixie
Yarns, Inc. and Morgan Guaranty Trust Company of
New York as trustee.
(4d) Revolving Credit Loan Agreement dated as of
September 16, 1991 by and among Ti-Caro, Inc. and
Trust Company Bank, individually and as Agent, NCNB
National Bank and Chemical Bank.
(4e) First Amendment to Revolving Credit Loan Agreement
dated as of August 19, 1992 by and among Ti-Caro,
Inc., T-C Threads, Inc. and Trust Company Bank,
individually and as agent, NCNB National Bank, and
Chemical Bank.
(4f) First Amendment, dated August 25, 1993 to Second
Amended and Restated Revolving Credit and Term Loan
Agreement dated January 31, 1992, by and among
Dixie Yarns, Inc. and Trust Company Bank,
NationsBank of North Carolina, N.A. and Chemical
Bank.
(4g) Third Amended and Restated Credit Agreement dated
March 31, 1995.
(4h) Waiver and First Amendment to Credit Agreement dated
February 27, 1996.
(4i) Waiver and Modification Agreement dated November 1,
1996.
(4j) Waiver Letter dated December 13, 1996.
(4k) Second Amendment dated September 7, 1997 to the Third
Amended and Restated Credit Agreement dated March 31,
1995.
(4l) Amendment to 9.96% Senior Subordinated notes due
February 1, 2010.
(4m) Letter agreement dated February 17, 1998 re: Amendment
to 9.96% Senior Subordinated Notes due February 1,
2010.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
(4n) Credit Agreement dated as of March 31, 1998 by and
among The Dixie Group, Inc., SunTrust Bank, Atlanta,
and NationsBank, N.A. and Form of Revolving Credit
Note, Form of Term Note and Form of Swing Line Note.
(4o) Waiver letter dated August 17, 1998 from New York Life
Insurance and Annuity Corporation.
(4p) Waiver letter dated August 17, 1998 from New York Life
Insurance Company.
(10a) Dixie Yarns, Inc. Nonqualified Defined Contribution
Plan.
(10b) Dixie Yarns, Inc. Nonqualified Employee Savings
Plan.
(10c) Dixie Yarns, Inc. Incentive Compensation Plan.
(10d) Pooling and Servicing Agreement dated as of October
15, 1993, among Dixie Yarns, Inc., Dixie Funding,
Inc. and NationsBank of Virginia, N.A. (as
Trustee).
(10e) Annex X - Definitions, to Pooling and Servicing
Agreement dated as of October 15, 1993, among Dixie
Yarns, Inc., Dixie Funding, Inc. and NationsBank of
Virginia, N.A. (as Trustee).
(10f) Series 1993-1 Supplement, dated as of October 15,
1993, to Pooling and Servicing Agreement dated as
of October 15, 1993, among Dixie Yarns, Inc., Dixie
Funding Inc. and NationsBank of Virginia, N.A. (as
Trustee).
(10g) Certificate Purchase Agreement dated
October 15, 1993, among Dixie Yarns, Inc., Dixie
Funding, Inc. and New York Life Insurance and
Annuity Corporation.
(10h) Certificate Purchase Agreement dated
October 15, 1993, among Dixie Yarns, Inc., Dixie
Funding, Inc. and John Alden Life Insurance
Company.
(10i) Certificate Purchase Agreement dated
October 15, 1993, among Dixie Yarns, Inc., Dixie
Funding, Inc. and John Alden Life Insurance Company
of New York.
(10j) Certificate Purchase Agreement dated
October 15, 1993, among Dixie Yarns, Inc., Dixie
Funding, Inc. and Keyport Life Insurance Company.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
(10k) Asset Purchase Agreement dated May 23, 1996, by and
among T-C Threads, Inc. d/b/a Threads USA, Threads of
Puerto Rico, Inc., Productos para la Industria de la
Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de
C. V., and Dixie Yarns, Inc. and American & Efird, Inc.
(10l) Amendment, dated May 31, 1996, to Asset Purchase
Agreement dated May 23, 1996, by and among T-C Threads,
Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc.,
Productos para la Industria de la Maquila, S. A.,
PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie
Yarns, Inc. and American & Efird, Inc.
(10m) Second Amendment, dated June 3, 1996, to Asset Purchase
Agreement dated May 23, 1996, by and among T-C Threads,
Inc., d/b/a Threads USA, Threads of Puerto Rico, Inc.,
Productos para la Industria de la Maquila, S. A.,
PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie
Yarns, Inc. and American & Efird, Inc.
(10n) Yarn and Finished Goods Agreement dated as of June 3,
1996, by and among T-C Threads, Inc. d/b/a Threads USA,
Threads of Puerto Rico, Inc., Productos para la
Industria de la Maquila, S. A., PRIMA, Hilos y
Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and
American & Efird, Inc.
(10o) Accounts Receivable Agreement dated as of June 3, 1996,
by and among T-C Threads, Inc. d/b/a Threads USA,
Threads of Puerto Rico, Inc., Productos para la
Industria de la Maquila, S. A., PRIMA, Hilos y
Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and
American & Efird, Inc.
(10p) Noncompetition Agreement dated as of June 3, 1996, by
and among T-C Threads, Inc. d/b/a Threads USA, Threads
of Puerto Rico, Inc., Productos para la Industria de la
Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de
C. V., and Dixie Yarns, Inc. and American & Efird, Inc.
(10q) Asset Purchase Agreement dated as of August 29, 1997
among The Dixie Group, Inc., Bretlin, Inc., Foamex L.P.
and General Felt Industries, Inc.
(10r) Dixie Yarns, Inc. Incentive Stock Plan as amended.
(10s) Form of Nonqualified Stock Option Agreement Under the
Dixie Yarns, Inc. Incentive Stock Plan.
(10t) Form of Amendment to Nonqualified Stock Option
Agreement Under the Dixie Yarns, Inc. Incentive Stock
Plan.
(10u) Form of Stock Option Agreement Under the Dixie Yarns,
Inc. Incentive Stock Plan as amended.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
(10v) Form of Stock Rights and Restrictions Agreement for
Restricted Stock Award Under Incentive Stock Plan as
Amended.
(10w) The Dixie Group, Inc. Stock Ownership Plan as amended.
(10x) Form of Stock Subscription Agreement Under Stock
Ownership Plan of The Dixie Group, Inc.
(10y) The Dixie Group, Inc. Directors Stock Plan.
(21) Subsidiaries of the Registrant.
(ii) Exhibits filed with this report:
(4q) Second Amendment to 9.96% Senior Subordinated
Notes due February 1, 2010.
(4r) First Amendment to Credit Agreement
dated December 26, 1998.
(23) Consent of Ernst & Young LLP.
(b) Reports on Form 8-K--No reports on Form 8-K have been filed by the
registrant during the last quarter of the period covered by this
report.
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report. See Item 14 (a) (3) (ii) above.
(d) Financial Statement Schedules--The response to this portion of Item 14
is submitted as a separate section of this report.
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, thereunto duly authorized.
THE DIXIE GROUP, INC.
March 25, 1999 BY: /s/DANIEL K. FRIERSON
Daniel K. Frierson,
Chairman of the Board
and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Chairman of the Board,
Director and Chief
/s/DANIEL K. FRIERSON Executive Officer March 25, 1999
Daniel K. Frierson
President, Chief
Operating Officer
/s/WILLIAM N. FRY, IV and Director March 25, 1999
William N. Fry, IV
Vice President,
President of Candlewick
/s/PAUL K. FRIERSON Yarns and Director March 25, 1999
Paul K. Frierson
Executive Vice President and
/s/GLENN A. BERRY Chief Financial Officer March 25, 1999
Glenn A. Berry
/s/D. EUGENE LASATER Controller March 25, 1999
D. Eugene Lasater
SIGNATURES -- CONTINUED
/s/J. DON BROCK Director March 25, 1999
J. Don Brock
/s/PAUL K. BROCK Director March 25, 1999
Paul K. Brock
/s/ LOVIC A. BROOKS, JR. Director March 25, 1999
Lovic A. Brooks, Jr.
/s/JOHN W. MURREY, III Director March 25, 1999
John W. Murrey, III
/s/PETER L. SMITH Director March 25, 1999
Peter L. Smith
/s/ROBERT J. SUDDERTH, JR. Director March 25, 1999
Robert J. Sudderth, Jr.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a)(1) AND (2) AND ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 26, 1998
THE DIXIE GROUP, INC.
CHATTANOOGA, TENNESSEE
FORM 10-K--ITEM 14(a)(1) and (2)
THE DIXIE GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of The Dixie Group, Inc. and
subsidiaries are included in Item 8:
Report of Independent Auditors
Consolidated balance sheets--December 26, 1998 and
December 27, 1997
Consolidated statements of operations--Years ended
December 26, 1998, December 27, 1997, and December 28, 1996
Consolidated statements of cash flows--Years ended
December 26, 1998, December 27, 1997, and December 28, 1996
Consolidated statements of stockholders' equity--Years ended
December 26, 1998, December 27, 1997, and December 28, 1996
The following consolidated financial statement schedule of The Dixie Group,
Inc. and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, or are inapplicable, or the information is otherwise
shown in the financial statements or notes thereto, and therefore have been
omitted.
Report of Independent Auditors
Board of Directors
The Dixie Group, Inc.
We have audited the accompanying consolidated balance sheets of The
Dixie Group, Inc. and subsidiaries as of December 26, 1998 and December 27,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 26, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule 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 consolidated financial
position of The Dixie Group, Inc. and subsidiaries at December 26, 1998 and
December 27, 1997, and the consolidated results of their operations and
cash flows for each of the three years in the period ended December 26,
1998, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Chattanooga, Tennessee
February 17, 1999
<TABLE>
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<CAPTION>
December 26, December 27,
1998 1997
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,815 $ 1,848
Accounts receivable (less allowance for doubtful
accounts of $1,294 in 1998 and $3,207 in 1997) 8,364 29,450
Inventories 72,671 82,661
Net assets held for sale 67,508 10,000
Other 14,810 11,977
TOTAL CURRENT ASSETS 166,168 135,936
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 5,329 9,421
Buildings and improvements 56,027 72,683
Machinery and equipment 204,346 291,345
265,702 373,449
Less accumulated amortization and depreciation (120,517) (199,027)
NET PROPERTY, PLANT AND EQUIPMENT 145,185 174,422
INTANGIBLE ASSETS (less accumulated amortization of
$4,687 in 1998 and $8,359 in 1997) 52,394 63,555
OTHER ASSETS 10,899 12,701
TOTAL ASSETS $374,646 $386,614
<FN>
See notes to consolidated financial statements.
</FN>
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<CAPTION>
December 26, December 27,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 39,264 $ 35,768
Accrued expenses 24,028 26,974
Accrued losses of discontinued operations 12,649 ---
Current portion of long-term debt 9,645 5,143
TOTAL CURRENT LIABILITIES 85,586 67,885
LONG-TERM DEBT
Senior indebtedness 64,466 68,528
Subordinated notes 50,000 50,000
Convertible subordinated debentures 39,737 42,282
TOTAL LONG-TERM DEBT 154,203 160,810
OTHER LIABILITIES 11,869 9,560
DEFERRED INCOME TAXES 22,998 27,115
STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share): Authorized
80,000,000 shares, issued - 14,071,629 shares in
1998 and 14,038,318 shares in 1997 42,215 42,115
Class B Common Stock ($3 par value per share):
Authorized 16,000,000 shares, issued - 735,228
shares 2,206 2,206
Common Stock subscribed - 573,463 shares in 1998
and 512,477 shares in 1997 1,720 1,537
Additional paid-in capital 134,720 134,151
Stock subscriptions receivable (3,719) (3,132)
Unearned stock compensation (716) (894)
Retained earnings (deficit) (19,850) 2,853
Accumulated other comprehensive income (799) (1,839)
155,777 176,997
Less Common Stock in treasury at cost - 3,442,900
shares in 1998 and 3,439,999 shares in 1997 (55,787) (55,753)
TOTAL STOCKHOLDERS' EQUITY 99,990 121,244
Commitments - Note M
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $374,646 $386,614
<FN>
See notes to consolidated financial statements.
</FN>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<CAPTION>
Years Ended
December 26, December 27, December 28,
1998 1997 1996
<S> <C> <C> <C>
NET SALES $496,412 $432,086 $363,113
Cost of sales 397,004 345,416 286,742
GROSS PROFIT 99,408 86,670 76,371
Selling and administrative expenses 71,088 61,475 54,263
Other expense - net 3,357 2,283 4,775
INCOME BEFORE INTEREST AND TAXES 24,963 22,912 17,333
Interest expense 10,263 8,886 7,596
INCOME BEFORE INCOME TAXES 14,700 14,026 9,737
Income tax provision 5,592 5,214 4,036
INCOME FROM CONTINUING OPERATIONS 9,108 8,812 5,701
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (1,853) 2,807 (16,914)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (28,257) --- ---
NET INCOME (LOSS) $(21,002) $ 11,619 $(11,213)
<FN>
See notes to consolidated financial statements.
</FN>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<CAPTION>
Years Ended
December 26, December 27, December 28,
1998 1997 1996
Basic earnings (loss) per share:
<S> <C> <C> <C>
Income from continuing operations $ .81 $ .78 $ .51
Income (loss) from discontinued
operations (.16) .25 (1.51)
Loss on disposal of discontinued
operations (2.51) --- ---
Net earnings (loss) $ (1.86) $ 1.03 $ (1.00)
Diluted earnings (loss) per share:
Income from continuing operations $ .77 $ .75 $ .51
Income (loss) from discontinued
operations (.16) .24 (1.51)
Loss on disposal of discontinued
operations (2.39) --- ---
Net earnings (loss) $ (1.78) $ .99 $ (1.00)
Dividends per share:
Common Stock $ .15 $ --- $ ---
Class B Common Stock .15 --- ---
<FN>
See notes to consolidated financial statements.
</FN>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Years Ended
December 26, December 27, December 28,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Income from continuing operations $ 9,108 $ 8,812 $ 5,701
Income (loss) from discontinued operations (30,110) 2,807 (16,914)
Net income (loss) (21,002) 11,619 $(11,213)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization:
Continuing operations 18,701 15,809 14,731
Discontinued operations 6,272 8,686 13,464
Provision (benefit) for deferred
income taxes (7,900) 3,993 (5,395)
Long-lived asset losses-
discontinued operations 19,992 --- 17,860
(Gain) loss on property, plant
and equipment disposals and
asset valuation adjustments (56) (211) 846
Changes in operating assets and
liabilities, net of effects of
business combinations:
Accounts receivable (6,017) (14,821) 2,740
Inventories 2,196 26,361 10,028
Other current assets 21 (1,370) (721)
Other assets (1,518) (2,600) (3)
Accounts payable and accrued expenses 6,939 36 12,222
Accrued losses from
discontinued operations 12,649 --- ---
Other liabilities 4,167 1,444 443
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,444 48,946 55,002
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sales of property,
plant and equipment 13,078 4,556 24,057
Purchase of property, plant and equipment:
Continuing operations (33,363) (19,183) (12,095)
Discontinued operations (9,482) (7,336) (5,539)
Cash payments in connection with business
combinations --- (61,744) ---
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (29,767) (83,707) 6,423
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in credit line
borrowings 4,176 37,135 (60,080)
Payments under term loan facility (3,625) (2,500) (2,500)
Payments on subordinated debentures (2,545) --- ---
Dividends paid (1,701) --- ---
Other (15) (14) (270)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (3,710) 34,621 (62,850)
<CAPTION>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended
December 26, December 27, December 28,
1998 1997 1996
INCREASE (DECREASE) IN CASH AND CASH
<S> <C> <C> <C>
EQUIVALENTS 967 (140) (1,425)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 1,848 1,988 3,413
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,815 $ 1,848 $ 1,988
<FN>
See notes to consolidated financial statements.
</FN>
<CAPTION>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
Common
Stock Accumulated
and Common Additional Retained Other Common Total
Class B Stock Paid-In Earnings Comprehensive Stock In Stockholders'
Stock Subscribed Capital Other (Deficit) Income Treasury Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 30, 1995 $43,794 $ --- $131,618 $ --- $ 2,447 $ (4,116) $(55,453) $118,290
Common Stock acquired for treasury -
5,749 shares (32) (32)
Common Stock sold under stock
option and Employees' Stock
Purchase Plan - 14,027 shares 42 15 57
Common Stock subscribed -
449,300 shares 1,348 842 (2,190)
Net loss for the year (11,213) (11,213)
Other comprehensive income
Change in additional
minimum pension liability,
net of tax of $926 1,448 1,448
Comprehensive income (loss) (9,765)
BALANCE AT DECEMBER 28, 1996 43,836 1,348 132,475 (2,190) (8,766) (2,668) (55,485) 108,550
Common Stock acquired for treasury -
30,127 shares (268) (268)
Common Stock sold under stock
option and Employees' Stock
Purchase Plan - 60,925 shares 183 250 433
Common Stock subscribed -
124,677 shares 374 868 (1,242)
Stock subscriptions settled 77 (185) (192) 300
Restricted stock grants -
75,000 shares 225 750 (975)
Amortization of restricted
stock grants 81 81
Net income for the year 11,619 11,619
Other comprehensive income
Change in additional
minimum pension liability,
net of tax of $530 829 829
Comprehensive income 12,448
BALANCE AT DECEMBER 27, 1997 $44,321 $ 1,537 $134,151 $(4,026) $ 2,853 $ (1,839) $(55,753) $121,244
<CAPTION>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
Common
Stock Accumulated
and Common Additional Retained Other Common Total
Class B Stock Paid-In Earnings Comprehensive Stock In Stockholders'
Stock Subscribed Capital Other (Deficit) Income Treasury Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 27, 1997 $44,321 $1,537 $134,151 $(4,026) $ 2,853 $ (1,839) $(55,753) $121,244
Common Stock acquired for treasury -
2,901 shares (34) (34)
Common Stock sold under stock
option and restricted stock grant
plan - 22,759 shares 68 93 161
Common Stock issued upon conversion
of convertible subordinated
debentures - 1,552 shares 5 45 50
Common Stock subscribed -
60,986 shares 183 405 (588)
Restricted stock grants -
9,000 shares 27 26 (53)
Amortization of restricted
stock grants 232 232
Net loss for the year (21,002) (21,002)
Other comprehensive income
Change in additional
minimum pension liability,
net of tax of $533 1,040 1,040
Comprehensive income (loss) (19,962)
Dividends - Common Stock and Class B
Common Stock $.15 per share (1,701) (1,701)
BALANCE AT DECEMBER 26, 1998 $44,421 $1,720 $134,720 $(4,435) $(19,850) $ (799) $(55,787) $99,990
<FN>
See notes to consolidated financial statements.
</TABLE>
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of The Dixie Group, Inc. and its wholly-owned subsidiaries
(the "Company"). Significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Discontinued Operations: Financial statements for years prior to 1998 have
been restated to separately report results of discontinued operations from
results of continuing operations. Disclosures included herein pertain to
the Company's continuing operations unless noted otherwise. A portion of
interest cost not attributable to any specific operation of the Company is
allocated to discontinued operations based on the ratio of net assets
discontinued to the sum of consolidated net assets plus consolidated debt
(exclusive of debt attributable to specific operations).
Cash Equivalents: Highly liquid investments with original maturities of
three months or less when purchased are reported as cash equivalents.
Credit and Market Risk: For the years presented, the Company sold
floorcovering and textile/apparel products to a wide variety of
manufacturers and retailers located primarily throughout the United States.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. An allowance for doubtful accounts
is maintained at a level which management believes is sufficient to cover
potential credit losses including potential losses on receivables sold (see
Note D). The Company invests its excess cash in short-term investments and
has not experienced any losses on those investments.
Inventories: Substantially all inventories are stated at the lower of
cost, determined by the last-in, first-out (LIFO) method, or market. The
reduction of certain inventory quantities in 1996, carried at lower costs
prevailing in prior years, had the effect of increasing income from
continuing operations for 1996 by $1,714($.15 per share).
Inventories are summarized as follows:
1998 1997
At current cost:
Raw materials $21,424 $19,080
Work-in-process 11,636 20,954
Finished goods 34,796 47,819
Supplies, repair parts and other 1,631 3,183
69,487 91,036
LIFO value over (under) current cost 3,184 (8,375)
Total inventories $72,671 $82,661
Property, Plant and Equipment: Property, plant and equipment is stated at
the lower of cost or impaired value. Provision for depreciation and
amortization of property, plant and equipment has been computed for
financial reporting purposes using the straight-line method over the
estimated useful lives of the related assets, ranging from 10 to 40 years
for buildings and improvements, and 3 to 10 years for machinery and
equipment. Applicable statutory recovery methods are used for tax
purposes. Depreciation and amortization of property, plant and equipment
for financial reporting purposes totaled $16,888 in 1998, $14,407 in 1997,
and $13,812 in 1996.
Intangible Assets: The excess of the purchase price over the fair market
value of identifiable net assets acquired in business combinations is
recorded as goodwill and is amortized using the straight-line method over
40 years.
Impairment of Long-lived Assets: In 1995, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets. There was no material effect on the financial statements from the
adoption because the Company's prior impairment recognition practice was
consistent with the major provisions of the Statement. Under provisions of
the Statement, impairment losses are recognized when expected future cash
flows are less than the assets' carrying value. Accordingly, when
indicators of impairment are present, the Company evaluates the carrying
value of property, plant, and equipment and intangibles in relation to the
operating performance and estimated future undiscounted cash flows of the
underlying business. The Company adjusts the net book value of the
underlying assets if the sum of expected future cash flows is less than
book value.
Stock Based Compensation: During 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". As permitted under Statement No. 123, the Company continues
to account for stock based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
Earnings per Share: In 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Statement No. 128
replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average common shares outstanding including the
assumed conversion of Class B Common Stock. Diluted earnings per share
considers the effects of all potentially dilutive securities. Earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the provisions of Statement No. 128.
Revenue Recognition: The Company recognizes revenue for goods sold at the
time title passes to the customer.
Comprehensive Income: During 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
This Statement requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed with the same prominence as other financial
statements. To conform to the Statement, the Company has classified the
change in the minimum pension liability adjustment as other comprehensive
income in its consolidated statements of stockholders' equity and its
consolidated balance sheets. Adoption of the Statement had no effect on
the consolidated results of operations or total stockholders' equity of the
Company. Reclassification of the financial statements for all periods
presented has been made to conform with the provisions of Statement No.
130.
Segment Disclosures: During 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments. Operating segments, as defined by
the Statement, are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. The Statement requires financial information to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Adoption
of the Statement had no effect on the consolidated results of operations or
financial position of the Company. The Company has identified its
floorcovering base materials manufacturing business and its carpet
manufacturing business as its reportable segments under Statement No. 131.
Comparative information for all years presented has been reclassified to
conform with the provisions of Statement No. 131.
Pensions and Other Postretirement Benefits: During 1998, the Company
adopted Statement of Financial Accounting Standards No. 132, "Disclosures
about Pensions and Other Postretirement Benefits". This Statement
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, and requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. Adoption of the statement
had no effect on the consolidated results of operations or financial
position of the Company. Disclosures for earlier periods provided for
comparative purposes have been conformed to the provisions of Statement No.
132.
Computer Software Costs: During 1998, the Company early adapted Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The SOP is required to be
implemented for 1999 and earlier application was encouraged. The SOP
provides guidance on accounting for the costs of internal use software and
requires capitalization of certain types of costs which were expensed by
the Company under its previous accounting method. Restatement of amounts
reported in prior years is not allowed by the SOP. Adoption of the SOP in
1998 had no material effect on reported operating results.
NOTE B - BUSINESS COMBINATIONS
In early fiscal 1997, the Company acquired for $20,854, the business and
operating assets of Danube Carpet Mills, Inc. ("Danube"), a manufacturer of
carpet for the manufactured housing, recreational vehicle, and van
conversion industries. The Danube manufacturing and distribution
facilities were closed and their operations merged into existing facilities
of the Company's Carriage Carpet and Candlewick Yarns operations. On
October 2, 1997, the Company acquired the needlebond and artificial turf
assets and business of General Felt Industries based in Dalton, Georgia
("GFI Dalton") for $40,890. The acquired assets and business were merged
with the Company's Bretlin operation. The acquisitions were accounted for
as purchase business combinations, and accordingly, the results of
operations of Danube subsequent to December 31, 1996 and GFI Dalton
subsequent to October 2, 1997 are included in the Company's consolidated
financial statements. The purchase price of each acquisition was allocated
to the net tangible assets acquired based on their estimated fair market
values. The excess amounts of the purchase price over the estimated fair
market value of the net tangible assets were recorded as intangible assets
and are being amortized using the straight-line method over forty years.
A summary of net assets acquired is as follows:
GFI
Danube Dalton
Current assets $ 8,363 $ 9,015
Property, plant, and equipment 4,359 13,550
Current liabilities (4,703) (2,356)
Deferred taxes 141 ---
Intangible asset 12,694 20,681
Net assets acquired $20,854 $40,890
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions of Danube and GFI Dalton had occurred
at the beginning of the periods presented after giving effect to certain
adjustments, including the closure of Danube facilities and consolidation
into existing operations, amortization of cost in excess of net tangible
assets acquired, interest expense on debt to finance the acquisitions, 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 acquisitions taken place at
the beginning of the periods presented.
1997 1996
Net sales $464,442 $440,636
Net income (loss) 12,397 (9,923)
Net income (loss) per share:
Basic 1.10 (.89)
Diluted 1.05 (.89)
NOTE C-DISCONTINUED OPERATIONS
During 1998, the Company decided to discontinue its textile products
operations. At that time, this consisted of the knit fabric and apparel
and the specialty yarns businesses.
Apparel manufacturing was terminated and the knit fabric operations were
offered for sale effective June 27, 1998 (the knit fabric and apparel
measurement date). In January 1999, the Company finalized the sale of the
knit fabric operations.
The specialty yarns business was offered for sale beginning September 26,
1998 (the specialty yarns measurement date). The sale of one yarn facility
was finalized in December 1998, and in February 1999, the Company and two
different buyers agreed to basic terms and conditions under which the
remainder of the specialty yarns operations would be sold. The pending
transactions are scheduled to close in the second quarter of 1999. The
yarn facility sold in December 1998, was held for sale apart from the
remainder of the specialty yarns business beginning December 28, 1996.
Proceeds to the Company from disposal of its textile products operations
discussed above are expected to total $84,792 including liquidation of
certain accounts receivable and inventories retained by the Company.
Proceeds received though December 26, 1998, were approximately $11,025.
The Company's textile products operations formerly included its thread
business which was sold June 3, 1996. Proceeds from the sale of the thread
business and liquidation of its accounts receivable and inventories
retained by the Company, totaled approximately $55,533.
Following is summary financial information for the Company's discontinued
textile products operations:
1998 1997 1996
Net sales $184,122 $229,757 $251,968
Income (loss) from
discontinued operations:
Before income taxes (2,697) 4,776 (25,280)
Income tax provision (benefit) (844) 1,969 (8,366)
Net $(1,853) $2,807 $(16,914)
Estimated loss on disposal:
Before income taxes (39,325)
Income tax benefit (11,068)
Net $(28,257)
Interest cost charged to discontinued operations was $3,325 for 1998,
$3,697 for 1997 and $5,404 for 1996. Interest cost for periods subsequent
to the measurement dates included in the estimated loss on disposal is
$1,996.
The 1996 loss from discontinued operations includes charges of $5,154
(before income taxes) for costs to exit the thread business; and asset
valuation losses of $17,860 (before income taxes) related to assets held
for sale.
The estimated net loss on disposal includes the write-off of intangible
assets of $8,877 and estimated operating losses from the measurement dates
to the anticipated disposal dates of $944 (net of applicable income taxes
of $604). The effect of liquidating inventories carried at lower costs
prevailing in prior years under the LIFO method was to reduce the estimated
net loss on disposal by approximately $5,461.
At December 26, 1998, assets of the textile products operations to be sold
consisted of accounts receivable, inventories, and property, plant and
equipment amounting to approximately $77,212 after deducting an allowance
for the estimated loss on disposal; and liabilities were $22,354 including
estimated operating losses to the anticipated disposal date.
NOTE D--SALE OF ACCOUNTS RECEIVABLE
On October 15, 1993, the Company entered into a seven year agreement under
which it sold a $45,000 undivided interest in a revolving pool of its trade
accounts receivable. No further interest has been sold under this
agreement subsequent to the original sale. At December 26, 1998 and
December 27, 1997, the $45,000 interest sold is reflected as a reduction of
accounts receivable in the Company's consolidated balance sheets. Costs of
this program were fixed at 6.08% per annum on the amount of the interest
sold plus administrative fees typical in such transactions. These costs,
which were approximately $2,935 for 1998, $2,985 for 1997, and $2,948 for
1996, are included in other expense - net. In addition, the Company is
generally at risk for credit losses associated with sold receivables and
provides for such in the Company's financial statements.
NOTE E--ACCRUED EXPENSES
Accrued expenses include the following:
1998 1997
Compensation and benefits $ 8,910 $ 12,172
NOTE F--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
1998 1997
Senior indebtedness:
Credit line borrowings $ 14,000 $ 65,449
Term loan 57,000 5,000
Other 611 722
Total senior indebtedness 71,611 71,171
Subordinated notes 50,000 50,000
Convertible subordinated debentures 42,237 44,782
Total long-term debt 163,848 165,953
Less current portion ( 9,645) (5,143)
Total long-term debt (less current
portion) $154,203 $160,810
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 $100,000 through a
five year commitment period and a $60,000, seven year term-loan. 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. The effective annual interest rate on the
revolving credit and term-loan agreement was 6.28% for 1998, 6.79% for 1997
and 6.85% for 1996. The average interest rate on debt outstanding under
this agreement was 5.97% at December 26, 1998. 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 $7,000 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 being used to finance the real property and
machinery and equipment needs of the Company's synthetic materials
recycling center under development in Lafayette, Georgia.
The Company's subordinated notes are unsecured, bear interest at 9.96%
payable semiannually, and are due in semiannual installments of $2,381
beginning February 1, 2000.
The Company's convertible subordinated debentures bear interest at 7%
payable semiannually, are due in 2012, and are convertible by the holder
into shares of Common Stock of the Company at an effective conversion price
of $32.20 per share, subject to adjustment under certain circumstances.
Mandatory sinking fund payments, which commenced May 15, 1998, will retire
$2,500 principal amount of the debentures annually and approximately 70% of
the debentures prior to maturity. The convertible debentures are
subordinated in right of payment to all other indebtedness of the Company.
The Company's long-term debt and credit arrangements contain financial
covenants relating to minimum net worth, the ratio of debt to
capitalization, payment of dividends and certain other financial ratios.
Restrictions set forth in the Company's subordinated note agreement have
limited the Company's ability to pay dividends due to losses associated
with the disposal of the Company's textile and apparel operations. Absent
a waiver from the lender or an amendment, future dividends can only be paid
to the extent of 50% of the excess of aggregate consolidated net income
subsequent to the end of the fiscal quarter when the Company first meets
the required ratios of interest coverage and debt to earnings before
interest, taxes, depreciation and amortization as defined by the
subordinated note agreement.
As of December 26, 1998, the most restrictive covenants under the revolving
credit and term-loan agreement limit available borrowing capacity to
$43,699.
Approximate maturities of long-term debt for each of the five years
succeeding December 26, 1998 are $14,030 in 1999, $15,783 in 2000, $16,285
in 2001, $16,287 in 2002, and $23,289 in 2003.
Interest payments were $12,918 in 1998, $12,424 in 1997, and $13,550 in
1996.
NOTE G--FAIR VALUE OF FINANCIAL INSTRUMENTS
All of the Company's financial instruments are held or issued for purposes
other than trading. The carrying amounts and estimated fair values of the
Company's financial instruments are summarized as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets
Cash and cash
equivalents $ 2,815 $ 2,815 $ 1,848 $ 1,848
Notes receivable
(including current
portion) 1,151 1,151 2,178 2,178
Escrow funds 1,030 1,030 1,270 1,270
Financial liabilities
Long-term debt
(including current
portion) $163,848 $155,616 $165,953 $163,758
The fair values of the Company's financial assets approximate their
carrying amounts due to their short-term nature and for notes receivable,
adjustable interest rate provisions. The fair values of the Company's
long-term debt were estimated using discounted cash flow analyses based on
incremental borrowing rates for similar types of borrowing arrangements and
quoted market rates for the Company's convertible debentures.
NOTE H--PENSION PLANS
Information about the benefit obligation, assets and funded status of the
Company's defined benefit pension plans is as follows:
1998 1997
Change in benefit obligation:
Benefit obligation at beginning of year $ 14,533 $ 14,754
Service cost 51 47
Interest cost 941 1,026
Actuarial loss 4,020 107
Benefits paid (1,515) (1,685)
Settlement loss 195 284
Benefit obligation at end of year 18,225 14,533
Change in plan assets:
Fair value of plan assets at beginning of year 12,966 10,941
Actual return on plan assets 964 2,164
Employer contribution 135 1,546
Benefits paid (1,515) (1,685)
Fair value of plan assets at end of year 12,550 12,966
Funded status (5,675) (1,567)
Unrecognized actuarial loss 1,400 2,973
Net amount recognized $ (4,275) $ 1,406
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability $ (5,675) $ (1,567)
Accumulated other comprehensive income 1,400 2,973
Net amount recognized $ (4,275) $ 1,406
Weighted-average assumptions as of year-end:
Discount rate 5.11% 7.00%
Expected return on plan assets 8.50% 8.50%
The actuarial loss increasing the benefit obligation in 1998, resulted
primarily from reduction of the assumed discount rate to the estimated rate
applicable to settlement of the benefit obligation relative to associates
of discontinued operations. The amount of such benefit obligation subject
to settlement is approximately $14,377 and a loss resulting from the
settlement of approximately $5,769 ($3,519 after income tax) is included in
loss on disposal of discontinued operations in 1998.
At December 26, 1998, plan assets included 130,226 shares of the Company's
Common Stock with a fair value of $1,058 ($8.12 per share). Dividends
received on shares of the Company's Common Stock held during 1998 totaled
$20.
Costs charged to continuing operations for all pension plans are summarized
as follows:
1998 1997 1996
Components of net periodic
pension cost:
Defined benefit plans
Service cost $ 51 $ 47 $ 42
Interest cost 331 430 450
Expected return on plan assets (375) (411) (416)
Recognized net acturial loss 25 129 157
Settlement loss 59 108 215
91 303 448
Defined contribution plans 3,811 3,067 1,354
Net pension cost $3,902 $3,370 $1,802
Portions of the cost of the defined contribution plans are based on the
Company's operating results and the level of associates' contributions to
their accounts.
NOTE I--INCOME TAXES
The provision (benefit) for income taxes on income (loss) from continuing
operations consists of the following:
1998 1997 1996
Current Deferred Current Deferred Current Deferred
Federal $1,748 $3,525 $(1,188) $5,330 $1,930 $1,750
State 97 222 799 273 91 265
Total $1,845 $3,747 $ (389) $5,603 $2,021 $2,015
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the tax bases of those assets and liabilities.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
Deferred Tax Liabilities: 1998 1997
Property, plant and equipment $24,035 $28,749
Inventories 2,046 1,097
Intangible assets 1,682 1,185
Other 3,899 3,241
Total deferred tax liabilities 31,662 34,272
Deferred Tax Assets:
Post-retirement benefits 5,014 3,007
Other employee benefits 3,481 2,046
Losses from discontinued operations 2,398 ---
Alternative minimum tax 1,277 2,674
Allowances for bad debts,
claims and discounts 2,414 1,891
Other 1,085 1,700
Valuation reserve --- ---
Total deferred tax assets 15,669 11,318
Net deferred tax liabilities $15,993 $22,954
Differences between the provision for income taxes and the amount computed
by applying the statutory Federal income tax rate to income from continuing
operations are reconciled as follows:
1998 1997 1996
Statutory rate applied to income
from continuing operations $ 4,998 $ 4,769 $ 3,311
Plus state income taxes net of
Federal tax effect 210 707 235
Total statutory provision 5,208 5,476 3,546
Increase(decrease) attributable to:
Nondeductible amortization of and
impairment adjustments to
intangible assets 201 200 184
Nondeductible portion of
travel and entertainment 251 228 193
Net operating loss carryback
benefit --- (781) ---
Other items (68) 91 113
Total tax provision $ 5,592 $ 5,214 $ 4,036
Income tax payments, net of income tax refunds received, were $2,156 in
1998, $3,162 in 1997 and $1,677 in 1996.
NOTE J--RESTRUCTURING AND EXIT COSTS
At December 28, 1996, the financial statements included $954 of accrued
costs associated with the exit of two product lines and facility
consolidations.
Included in the accrual were $424 associated with involuntary termination
benefits related to 28 sales, administrative or distribution associates.
These costs were classified in "Selling and administrative expenses" in the
Company's financial statements. At December 26, 1998, no cost remains
accrued related to involuntary termination benefits for these associates.
Additional costs that were incremental and directly attributable to the
exit and consolidations totaling $530 were recorded in 1996. These costs
primarily relate to inventory devaluations and impairment of current assets
associated with discontinued product lines. Of these costs, $200 were
classified in "Cost of sales" and $330 were classified in "Other expense -
net" in the Company's financial statements. At December 26, 1998, no cost
remains accrued related to impairment of current assets associated with
discontinued product lines and facility clean up costs.
The actual amounts incurred for exit costs and termination benefits
approximated the amounts accrued. In connection with the exit of the
product lines, the Company recorded a write-off of intangible assets of
$1,068 in the Carpet Manufacturing segment.
NOTE K--COMMON STOCK AND EARNINGS PER SHARE
Holders of Class B Common Stock have the right to twenty votes per share on
matters that are submitted to Shareholders for approval and to dividends in
an amount not greater than dividends declared and paid on Common Stock.
Class B Common Stock is restricted as to transferability and may be
converted into Common Stock on a one share for one share basis. The
Company's Charter authorized 200,000,000 of Class C Common Stock, $3 par
value per share, and 16,000,000 shares of Preferred Stock. No shares of
Class C Common Stock or Preferred Stock have been issued.
In August 1996, the Company's Board of Directors adopted a stock ownership
plan applicable to the senior management of the Company for the purpose of
encouraging each participant to make a significant investment in the
Company's Common Stock. Pursuant to the plan, at December 26, 1998,
573,463 shares were subscribed at an average price of $6.49 per share, at
December 27, 1997, 512,477 shares were subscribed at an average price of
$6.11 per share, and at December 28, 1996, 449,300 shares were subscribed
at a price of $4.875 per share.
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations:
1998 1997 1996
Income from continuing operations (1) $ 9,108 $ 8,812 $ 5,701
Denominator for calculation of
basic earnings per share -
weighted average shares (2) 11,267 11,229 11,200
Effect of dilutive securities:
Stock options 348 332 ---
Stock subscriptions 194 204 ---
Denominator for calculation of
diluted earnings per share -
weighted average shares
adjusted for potential
dilution (3) 11,809 11,765 11,200
Earnings per share:
Basic $ .81 $ .78 $ .51
Diluted .77 .75 .51
(1) No adjustments needed in the numerator for diluted calculations.
(2) Includes Common and Class B Common shares in thousands.
(3) Because their effects are anti-dilutive, excludes shares issuable under
stock option, stock subscription, and restricted stock plans whose grant
price was greater than the average market price of common shares
outstanding and the assumed conversion of subordinated debentures into
shares of Common Stock as follows: 2,065 shares in 1998, 1,737 shares in
1997, and 3,100 shares in 1996.
NOTE L--STOCK PLANS
The Company's 1990 Incentive Stock Plan reserves 2,270,000 shares of Common
Stock for sale or award to key associates or to the outside directors of
the Company under stock options, stock appreciation rights, restricted
stock performance grants, or other awards. Outstanding options are
generally exercisable at a cumulative rate of 25% per year after the second
year from the date the options are granted and generally expire after ten
years from the date of grant. Options outstanding were granted at prices
at or above market price on the date of grant and include grants under the
1983 Incentive Stock Plan, under which no further options may be granted.
At December 28, 1996, no options remain outstanding under the 1983 plan.
In 1993, the Company issued options for the purchase of 83,044 shares of
Common Stock, which were immediately exercisable at prices ranging from
$3.19 - $5.27 per share, in connection with the acquisition of Carriage
Industries, Inc.
A summary of the 1996, 1997 and 1998 option activity is as follows:
Weighted-
Weighted- Average
Number Average Fair Value of
of Exercise Options Granted
Shares Price During the Year
Outstanding at December 30, 1995 769,759 $ 7.74
Granted at market price 532,500 5.49 $2.61
Granted above market price 85,000 6.33 2.57
Exercised (12,227) 3.96
Forfeited (111,190) 7.55
Expired (4,000) 19.50
Outstanding at December 28, 1996 1,259,842 6.71
Granted at market price 499,500 9.74 4.45
Granted above market price 12,000 14.30 5.54
Exercised (22,825) 6.46
Forfeited (80,250) 7.28
Outstanding at December 27, 1997 1,668,267 $ 7.65
Granted at market price 287,250 $ 8.53 3.95
Granted above market price 20,000 9.35 3.69
Exercised (12,250) 5.73
Forfeited (35,750) 6.21
Expired (1,019) 3.43
Outstanding at December 26, 1998 1,926,498 7.84
Options exercisable at
December 28, 1996 45,342 $ 4.85
December 27, 1997 240,392 6.85
December 26, 1998 497,561 6.90
The following table summarizes information about stock options at
December 26, 1998:
Options Outstanding
Weighted-Average
Range of Number of Remaining Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price
$3.43 - $ 5.27 166,498 6.4 years $ 4.83
5.75 - 8.50 1,421,000 7.4 7.18
9.25 - 14.30 339,000 8.4 12.09
$3.43 - $14.30 1,926,498 7.5 $ 7.84
Options Exercisable
Range of Number of Weighted-Average
Exercise Prices Shares Exercise Price
$3.43 - $ 5.27 71,811 $4.86
5.75 - 8.50 422,750 7.20
9.25 - 14.30 3,000 14.30
$3.43 - $14.30 497,561 $6.90
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions:
1998 Grants 1997 Grants 1996 Grants
Expected life 5 years 5 years 5 years
Expected volatility 44.2% 41.6% 44.3%
Risk-free interest rate 5.56% 6.25% 6.38%
Dividend yield 0% 0% 0%
The following pro forma summary presents the Company's net income (loss)
and earnings (loss) per share which would have been reported had the
Company determined stock compensation cost using the alternative fair value
method of accounting set forth under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". The pro
forma impact on net income (loss) shown below may not be representative of
future pro forma effects.
1998 1997 1996
Pro forma
Net income (loss) $(21,788) 11,073 $(11,495)
Earnings (loss)
per share:
Basic (1.93) .99 (1.03)
Diluted (1.84) .94 (1.03)
The Company also has a stock purchase plan which authorizes 108,000 shares
of Common Stock for purchase by supervisory associates at the market price
prevailing at the time of purchase. At December 26, 1998, 32,540 shares
remained available for issue. Shares sold under this plan are held in
escrow until paid for and are subject to repurchase agreements which give
the Company the right of first refusal at the prevailing market price.
Numbers of shares sold under the plan were 0 in 1998, 38,500 in 1997, and
1,800 in 1996.
NOTE M--COMMITMENTS
The Company had commitments for purchases of machinery and equipment,
building construction, and information systems of approximately $20,287 at
December 26, 1998.
NOTE N--SEGMENT INFORMATION
The Company has two reportable segments in its continuing operations:
Carpet Manufacturing and Floorcovering Base Materials. Each reportable
segment is organized around product similarities. The Carpet Manufacturing
segment contains three operating businesses that manufacture and sell
finished carpet and rugs. The Floorcovering Base Materials segment
manufactures and sells yarn to external customers and transfers a
significant portion of its unit volumes to the Company's Carpet
Manufacturing segment.
The profit performance measure for the Company's segments is defined as
Internal EBIT(earnings before interest and taxes). The aggregate of
Internal EBIT for the reportable segments differs from the Company's
consolidated earnings before interest and taxes by costs associated with
the sale of accounts receivable under the Company's accounts receivables
sales agreement and sundry amounts that are deemed to be non-operating in
nature. Assets measured in each reportable segment include long-lived
assets and goodwill, inventories at current cost, and accounts receivables
(without reductions for receivables sold under the Company's accounts
receivable sales agreement).
Allocations of corporate general and administrative expenses are used in
the determination of segment profit performance; however, assets of the
corporate departments are not used in the segment asset performance
measurement. All expenses incurred for the amortization of goodwill are
recognized in segment profit performance measurement; however, only
selected intangible assets are included in the asset performance
measurement.
Net Sales - External Customers Profit Performance
1998 1997 1996 1998 1997 1996
Reportable Segments:
Carpet
Manufacturing $401,826 $340,271 $280,735 $24,454 $21,337 $15,877
Floorcovering
Base Materials 94,586 91,815 82,378 3,108 3,349 4,162
Intersegment
eliminations 7 - 17
Segment total $496,412 $432,086 $363,113 27,569 24,686 20,056
Interest expense 10,263 8,886 7,596
Cost of A/R
sales program 2,900 2,898 2,900
Other non-segment
(income) (294) (1,124) (177)
Consolidated income
before taxes
from continuing
operations $14,700 $14,026 $ 9,737
Capital Depreciation
Expenditures and Amortization
1998 1997 1996 1998 1997 1996
Reportable Segments:
Carpet
Manufacturing $23,099 $15,803 $ 9,892 $14,542 $12,883 $ 9,987
Floorcovering
Base Materials 10,219 3,158 1,124 3,359 2,298 3,718
Corporate and
Shared Services 45 222 1,079 800 628 1,026
Total Continuing
operations $33,363 $19,183 $12,095 $18,701 $15,809 $14,731
Assets Used in
Performance Measurement
1998 1997 1996
Reportable Segments:
Carpet
Manufacturing $229,937 $222,056 $155,016
Floorcovering
Base Materials 54,463 51,680 49,300
Assets in Performance Measurement 284,400 273,736 204,316
Assets Not in Segment Measurements:
Other operating assets 22,738 112,878 123,819
Assets of discontinued operations 67,508
Total Consolidated Assets $374,646 $386,614 $328,135
No single customer's net sales exceeded 10% of the Company's consolidated
net sales in 1998 or 1997. Net sales to one customer in the Company's
Carpet Manufacturing segment exceeded 10% of the Company's consolidated net
sales in 1996. Substantially all of the Company's sales were to domestic
customers and all assets domestically based for the periods presented. A
substantial majority of the unit production volume of the Company's
Floorcovering Base Materials segment is directed into the Carpet
Manufacturing segment. A significant portion of the units are processed by
the Base Materials group on a conversion basis only (costs to manufacture)
and are recorded in intersegment sales at the conversion value. The
remaining transfers are recorded on a full-package basis (raw materials
plus conversion costs) with either cost or an arms length price as the
transfer value, depending on the product. Intersegment sales from the
Company's Floorcovering Base Materials group to the Company's Carpet
Manufacturing group were $62,545 in 1998, $49,798 in 1997, and $46,432 in
1996.
NOTE O--SUBSEQUENT EVENT
In early 1999, the Company acquired the assets and business of Multitex
Corporation of America, Inc., a Dalton, Georgia, carpet and carpet yarn
producer for approximately $30,444 cash, plus future payments keyed to
revenue growth.
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE DIXIE GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
(1) (2)
DESCRIPTION Balance at Charged to Charged to Deductions- Balance at
Beginning of Costs and Other Accounts Describe End of Period
Period Expenses -Describe
Year ended December 26, 1998:
Reserves deducted from asset
accounts:
Allowance for doubtful
<S> <C> <C> <C> <C> <C>
accounts $ 3,207 $ 888 $ -0- $ 323 (2) $ 3,772 (5)
Provision to reduce
inventories to net
realizable value 7,664 -0- -0- 2,692 (3) 4,972 (5)
Provision to reduce
assets held for sale
to estimated fair
market value 16,200 11,635 -0- 13,351 (4) 14,484
Year ended December 27, 1997:
Reserves deducted from asset
accounts:
Allowance for doubtful
accounts $ 3,614 $ 386 $ -0- $ 793 (2) $ 3,207
Provision to reduce
inventories to net
realizable value 7,346 -0- 2,447 (1) 2,129 (3) 7,664
Provision to reduce assets
held for sale to estimated
fair market value 18,564 -0- -0- 2,364 (4) 16,200
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE DIXIE GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
(1) (2)
DESCRIPTION Balance at Charged to Charged to Deductions- Balance at
Beginning of Costs and Other Accounts Describe End of Period
Period Expenses -Describe
Year ended December 28, 1996:
Reserves deducted from asset
accounts:
Allowance for doubtful
<S> <C> <C> <C> <C> <C>
accounts $ 3,156 $ 1,538 $-0- $ 1,080 (2) $ 3,614
Provision to reduce
inventories to net
realizable value 9,668 -0- -0- 2,322 (3) 7,346
Provision to reduce assets
held for sale to estimated
fair market value 23,005 13,425 -0- 17,866 (4) 18,564
<FN>
(1) Increase in reserves in connection with business combinations.
(2) Uncollectible accounts written off, net of recoveries.
(3) Provision for current items net of reductions for previous items.
(4) Reserve reductions for assets sold.
(5) Includes amounts related to discontinued businesses.
</TABLE>
ANNUAL REPORT ON FORM 10-K
ITEM 14 (c)
EXHIBITS
YEAR ENDED DECEMBER 26, 1998
THE DIXIE GROUP, INC.
CHATTANOOGA, TENNESSEE
Exhibit Index
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(3a) Restated Charter of The Incorporated by reference to
Dixie Group, Inc. Exhibit (3) to Dixie's Quarterly
Report on Form 10-Q for the
quarter ended March 29, 1997.*
(3b) Amended and Restated By- Incorporated by reference to
Laws of Dixie Yarns, Inc. Exhibits (3b) and (3c) to Dixie's
Annual Report on Form 10-K for
the year ended December 29,
1990.*
(4a) Second Amended and Restated Incorporated by reference to
Revolving Credit and Term Exhibit (4a) to Dixie's Annual
Loan Agreement, dated Report on Form 10-K for the
January 31, 1992, by and year ended December 28, 1991.*
among Dixie Yarns, Inc. and
Trust Company Bank, NationsBank
of North Carolina, N.A. and
Chemical Bank.
(4b) Loan Agreement, dated Incorporated by reference to
February 6, 1990 between Exhibit (4d) to Dixie's Annual
Dixie Yarns, Inc. and New Report on Form 10-K for the
York Life Insurance Company year ended December 30, 1989.*
and New York Life Annuity
Corporation.
(4c) Form of Indenture, dated Incorporated by reference to
May 15, 1987 between Dixie Exhibit 4.2 to Amendment No. 1
Yarns, Inc. and Morgan of Dixie's Registration
Guaranty Trust Company of Statement No. 33-140 78 on Form
New York as Trustee. S-3, dated May 19, 1987.
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(4d) Revolving Credit Loan Incorporated by reference to
Agreement dated as of Exhibit (4d) to Dixie's Annual
September 16, 1991 by Report on Form 10-K for the
and among Ti-Caro, Inc. and year ended December 28, 1991.*
Trust Company Bank,
individually and as agent,
NCNB National Bank, and
Chemical Bank.
(4e) First Amendment to Revolving Incorporated by reference to
Credit Loan Agreement dated Exhibit (4e) to Dixie's Annual
as of August 19, 1992 by and Report on Form 10-K for the
among Ti-Caro, Inc., T-C year ended December 26, 1992.*
Threads, Inc. and Trust
Company Bank, individually
and as agent, NCNB National
Bank, and Chemical Bank.
(4f) First Amendment, dated Incorporated by reference to
August 25, 1993 to Second Exhibit (4f) to Dixie's Annual
Amended and Restated Report on Form 10-K for the year
Revolving Credit and Term ended December 25, 1993.*
Loan Agreement dated
January 31, 1992, by and among
Dixie Yarns, Inc. and Trust
Company Bank, NationsBank of
North Carolina, N.A. and
Chemical Bank.
(4g) Third Amended and Restated Incorporated by reference to
Credit Agreement dated Exhibit (4) to Dixie's Quarterly
March 31, 1995. Report on Form 10-Q for the
quarter ended April 1, 1995.*
(4h) Waiver and First Amendment Incorporated by reference to
to Credit Agreement dated Exhibit (4h) to Dixie's Annual
February 27, 1996. Report on Form 10-K for the year
ended December 30, 1995.*
(4i) Waiver and Modification Incorporated by reference to
Agreement dated Exhibit (4i) to Dixie's Annual
November 1, 1996. Report on Form 10-K for the year
ended December 28, 1996.*
(4j) Waiver Letter dated Incorporated by reference to
December 13, 1996. Exhibit (4j) to Dixie's Annual
Report on Form 10-K for the year
ended December 28, 1996.*
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(4k) Second Amendment dated Incorporated by reference to
September 7, 1997 to the Exhibit (4) to Dixie's Quarterly
Third Amended and Restated Report on Form 10-Q for the
Credit Agreement dated quarter ended September 27, 1997.*
March 31, 1995.
(4l) Amendment to 9.96% Senior Incorporated by reference to
Subordinated Notes due Exhibit (4l) to Dixie's Annual
February 1, 2010. Report on Form 10-K for the
year ended December 27, 1997.*
(4m) Letter agreement dated Incorporated by reference to
February 17, 1998 re: Exhibit (4m) to Dixie's Annual
Amendment to 9.96% Senior Report on Form 10-K for the
Subordinated Notes due year ended December 27, 1997.*
February 1, 2010.
(4n) Credit agreement dated Incorporated by reference to
as of March 31, 1998 by Exhibit (4) to Dixie's Quarterly
and among The Dixie Report on Form 10-Q for the
Group, Inc., SunTrust quarter ended March 28, 1998.*
Bank, Atlanta, and
NationsBank, N.A. and
Form of Revolving Credit
Note, Form of Term Note
And Form of Swing Line
Note.
(4o) Waiver letter dated Incorporated by reference to
August 17, 1998 from Exhibit (4a) to Dixie's Quarterly
New York Life Insurance Report on Form 10-Q for the
And Annuity Corporation. quarter ended September 26, 1998.*
(4p) Waiver letter dated Incorporated by reference to
August 17, 1998 from Exhibit (4b) to Dixie's Quarterly
New York Life Insurance Report on Form 10-Q for the
Company. quarter ended September 26, 1998.*
(4q) Second Amendment to 9.96% Filed herewith.
Senior Subordinated Notes
due February 1, 2010.
(4r) First Amendment to Credit Filed herewith.
Agreement dated
December 26, 1998.
(10a) Dixie Yarns, Inc. Nonquali- Incorporated by reference to
fied Defined Contribution Exhibit (10c) to Dixie's Annual
Plan. Report on Form 10-K for the
year ended December 26, 1992.*
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10b) Dixie Yarns, Inc. Nonquali- Incorporated by reference to
fied Employee Savings Plan. Exhibit (10d) to Dixie's Annual
Report on Form 10-K for the
year ended December 26, 1992.*
(10c) Dixie Yarns, Inc. Incentive Incorporated by reference to
Compensation Plan. Exhibit (10e) to Dixie's Annual
Report on Form 10-K for the
year ended December 26, 1992.*
(10d) Pooling and Servicing Incorporated by reference to
Agreement dated as of Exhibit (2a) to Dixie's
October 15, 1993, among Current Report on Form 8-K
Dixie Yarns, Inc., Dixie dated October 15, 1993.*
Funding, Inc. and
NationsBank of Virginia,
N.A. (as Trustee).
(10e) Annex X - Definitions, to Incorporated by reference to
Pooling and Servicing Exhibit (2b) to Dixie's
Agreement dated as of Current Report on Form 8-K
October 15, 1993, among dated October 15, 1993.*
Dixie Yarns, Inc., Dixie
Funding, Inc. and
NationsBank of Virginia,
N.A. (as Trustee).
(10f) Series 1993-1 Supplement, Incorporated by reference to
dated as of October 15, Exhibit (2c) to Dixie's
1993, to Pooling and Current Report on Form 8-K
Servicing Agreement dated as dated October 15, 1993.*
of October 15, 1993, among
Dixie Yarns, Inc., Dixie
Funding, Inc. and
NationsBank of Virginia,
N.A. (as Trustee).
(10g) Certificate Purchase Incorporated by reference to
Agreement dated October 15, Exhibit (2d) to Dixie's
1993, among Dixie Yarns, Current Report on Form 8-K
Inc., Dixie Funding, Inc. dated October 15, 1993.*
and New York Life Insurance
and Annuity Corporation.
(10h) Certificate Purchase Incorporated by reference to
Agreement dated October 15, Exhibit (2e) to Dixie's
1993, among Dixie Yarns, Current Report on Form 8-K
Inc., Dixie Funding, Inc. dated October 15, 1993.*
and John Alden Life
Insurance Company.
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10i) Certificate Purchase Incorporated by reference to
Agreement dated October 15, Exhibit (2f) to Dixie's
1993, among Dixie Yarns, Current Report on Form 8-K
Inc., Dixie Funding, Inc. dated October 15, 1993.*
and John Alden Life
Insurance Company of New
York.
(10j) Certificate Purchase Incorporated by reference to
Agreement dated October 15, Exhibit (2g) to Dixie's
1993, among Dixie Yarns, Current Report on Form 8-K
Inc., Dixie Funding, Inc. dated October 15, 1993.*
and Keyport Life Insurance
Company.
(10k) Asset Purchase Agreement Incorporated by reference to
dated May 23, 1996, by and Exhibit (2a) to Dixie's Current
among T-C Threads, Inc. Report on Form 8-K dated
d/b/a Threads USA, Threads June 3, 1996.*
of Puerto Rico, Inc.,
Productos para la Industria
de la Maquila, S. A., PRIMA,
Hilos y Accessorios, S. A.
de C. V., and Dixie Yarns,
Inc. and American & Efird,
Inc.
(10l) Amendment, dated May 31, Incorporated by reference to
1996, to Asset Purchase Exhibit (2b) to Dixie's Current
Agreement dated May 23, Report on Form 8-K dated
1996, by and among T-C June 3, 1996.*
Threads, Inc. d/b/a Threads
USA, Threads of Puerto Rico,
Inc., Productos para la
Industria de la Maquila,
S. A., PRIMA, Hilos y
Accessorios, S. A. de C. V.,
and Dixie Yarns, Inc. and
American & Efird, Inc.
(10m) Second Amendment, dated Incorporated by reference to
June 3, 1996, to Asset Exhibit (2c) to Dixie's Current
Purchase Agreement dated Report on Form 8-K dated
May 23, 1996, by and among June 3, 1996.*
T-C Threads, Inc., d/b/a
Threads USA, Threads of
Puerto Rico, Inc., Productos
para la Industria de la
Maquila, S. A., PRIMA, Hilos
y Accessorios, S. A. de
C. V., and Dixie Yarns, Inc.
and American & Efird, Inc.
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10n) Yarn and Finished Goods Incorporated by reference to
Agreement dated as of Exhibit (2d) to Dixie's Current
June 3, 1996, by and among Report on Form 8-K dated
T-C Threads, Inc. d/b/a June 3, 1996.*
Threads USA, Threads of
Puerto Rico, Inc., Productos
para la Industria de la
Maquila, S. A., PRIMA, Hilos
y Accessorios, S. A. de
C. V., and Dixie Yarns, Inc.
and American & Efird, Inc.
(10o) Accounts Receivable Incorporated by reference to
Agreement dated as of Exhibit (2e) to Dixie's Current
June 3, 1996, by and among Report on Form 8-K dated
T-C Threads, Inc. d/b/a June 3, 1996.*
Threads USA, Threads of
Puerto Rico, Inc., Productos
para la Industria de la
Maquila, S. A., PRIMA, Hilos
y Accessorios, S. A. de
C. V., and Dixie Yarns, Inc.
and American & Efird, Inc.
(10p) Noncompetition Agreement Incorporated by reference to
dated as of June 3, 1996, by Exhibit (2f) to Dixie's Current
and among T-C Threads, Inc. Report on Form 8-K dated
d/b/a Threads USA, Threads June 3, 1996.*
of Puerto Rico, Inc.,
Productos para la Industria
de la Maquila, S. A., PRIMA,
Hilos y Accessorios, S. A.
de C. V., and Dixie Yarns,
Inc. and American & Efird,
Inc.
(10q) Asset Purchase Agreement Incorporated by reference to
dated as of August 29, 1997 Exhibit (2) to Dixie's Current
among The Dixie Group, Inc., Report on Form 8-K dated
Bretlin, Inc., Foamex L.P. August 29, 1997.
and General Felt Industries,
Inc.
(10r) Dixie Yarns, Inc. Incentive Incorporated by reference to
Stock Plan as amended. ANNEX A to Dixie's Proxy Statement
dated March 27, 1998 for its 1998
Annual Meeting of Shareholders.
(10s) Form of Nonqualified Stock Incorporated by reference to
Option Agreement Under the Exhibit (10a) to Dixie's Quarterly
Dixie Yarns, Inc. Incentive Report on Form 10-Q for the
Stock Plan. quarter ended July 1, 1995.*
*Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10t) Form of Amendment to Incorporated by reference to
Nonqualified Stock Option Exhibit (10b) to Dixie's Quarterly
Agreement Under the Dixie Report on Form 10-Q for the
Yarns, Inc. Incentive Stock quarter ended July 1, 1995.*
Plan.
(10u) Form of Stock Option Incorporated by reference to
Agreement Under the Dixie Exhibit (10b) to Dixie's Annual
Yarns, Inc. Incentive Report on Form 10-K for the
Stock Plan as amended. year ended December 28, 1996.*
(10v) Form of Stock Rights and Incorporated by reference to
Restrictions Agreement Exhibit (10v) to Dixie's Annual
for Restricted Stock Award Report on Form 10-K for the
Under Incentive Stock Plan year ended December 27, 1997.*
as Amended.
(10w) The Dixie Group, Inc. Stock Incorporated by reference to
Ownership Plan as Exhibit (10w) to Dixie's Annual
amended. Report on Form 10-K for the
year ended December 27, 1997.*
(10x) Form of Stock Subscription Incorporated by reference to
Agreement Under Stock Exhibit (10x) to Dixie's Annual
Ownership Plan of The Report on Form 10-K for the
Dixie Group, Inc. year ended December 27, 1997.*
(10y) The Dixie Group, Inc. Incorporated by reference to
Directors Stock Plan Exhibit (10y) to Dixie's Annual
Report on Form 10-K for the
year ended December 27, 1997.*
(21) Subsidiaries of the Incorporated by reference to
Registrant. Exhibit (21) to Dixie's Annual
Report on Form 10-K for the
Year ended December 27, 1997.*
(23) Consent of Ernst & Young LLP. Filed herewith.
*Commission File No. 0-2585
EXHIBIT (4q)
SECOND AMENDMENT TO 9.96% SENIOR SUBORDINATED
NOTES DUE FEBRUARY 1, 2010
This Amendment, effective as of December 26, 1998, shall constitute
the Second Amendment to the 9.96% Senior Subordinated Notes due February 1,
2010, by and between New York Life Insurance Company, or registered
assigns, and Dixie Yarns, Inc. dated February 6, 1990, in the aggregate
principal amount of $50,000,000 and the related Loan Agreement dated
February 6, 1990, by and between the same parties, which is incorporated
therein by reference (together the "NYL NOTES"). All defined terms herein
shall have the same meaning as in the NYL Notes unless a different meaning
is clearly set forth herein.
WHEREAS, Dixie Yarns, Inc. (the "COMPANY"), whose name has been
changed to The Dixie Group, Inc., and New York Life Insurance Company or
registered assigns (the "HOLDERS") have agreed to certain amendments to
the terms of the NYL Notes as set forth herein; and
WHEREAS, the parties hereto desire to amend the NYL Notes to reflect
the amendments agreed upon by them.
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
to be bound hereby, agree as follows:
1. Section 9, paragraph (A) of the NYL Notes is hereby deleted in its
entirety and the following is substituted therefor:
(A) FUNDED INDEBTEDNESS OF THE COMPANY. The Company will not
borrow or incur additional Funded Indebtedness if, immediately after giving
effect thereto, the aggregate principal amount of Funded Indebtedness would
exceed the percentage ratio set forth in the table below of the
Capitalization of the Company; except that nothing in this paragraph (A)
shall prohibit the renewal or refinancing of any Funded Indebtedness
heretofore or hereafter incurred or assumed in compliance with this
paragraph (A), provided such renewal or refinancing shall not result in an
increase in the outstanding principal amount of such Funded Indebtedness.
PERIOD RATIO
Fiscal year 1999 70.0%
Fiscal year 2000 and thereafter 67.5%
For the purpose of this paragraph only, Funded Indebtedness shall mean
as of any date of determination the sum of all indebtedness, whether senior
or subordinated indebtedness, (including the 7% Convertible Subordinated
Debentures due 2012), which would in accordance with generally accepted
accounting principles constitute long term or short term debt, any amount
of off-balance sheet financing that is not shown on the balance sheet as
debt, (including the 6.08% Trade Receivable-Backed Certificates, Series
1993-1), all reimbursement obligations under any letters of credit or
acceptances (excluding letters of credit incurred in the ordinay course by
another person other than with respect to Indebtedness of such person for
money borrowed, including, without limitation, letters of credit issued for
workers compensation and other insurance liabilities and trade letters of
credit), all guarantees of obligations of another person, whether direct or
indirect, contingent or otherwise, including but not limited to an
obligation of such other person to purchase or otherwise acquire, or
otherwise insure any creditor against loss in respect of, Indebtedness of
any other person for borrowed money, and any amount representing mandatory
dividend rights on capital stock or other equity of the Company.
Capitalization shall mean as of any date of determination Funded
Indebtedness plus Stockholders Equity (Net Worth) as reflected on the
consolidated balance sheet of the Company plus an amount of $31,400,000
incurred with respect to the write-down of assets of T-C Threads, Inc. and
its Subsidiaries.
2. Section 9, paragraph (F) of the NYL Notes is hereby deleted in its
entirety and the following is substituted therefor:
(F) DIVIDENDS. The Company will not declare or pay, or set apart
any funds for the payment of, any dividends (other than dividends paid or
payable in capital stock of the Company) on any shares of capital stock of
the Company, by reduction of the Company's capital surplus or otherwise,
or make any other distribution in respect of any shares of capital stock of
the Company (hereinafter defined as "DIVIDEND ACTION OR PAY DIVIDENDS"),
until (i) the Company's Interest Coverage Ratio for the Applicable Period
immediately preceding such Dividend Action is less than 1.50 to 1; and (ii)
the ratio of Total Debt to EBITDA is less than 3-to-1. From and after the
first date the ratio of Total Debt to EBITDA is less than 3-to-1, the
Company may Pay Dividends not to exceed in the aggregate an amount equal to
fifty percent (50%) of aggregate Consolidated net income accrued subsequent
to the end of the fiscal quarter when the Company first obtains a ratio of
Total Debt to EBITDA Less than 3-to-1. If at any time after the first date
in which the Company becomes eligible to Pay Dividends, the ratio of Total
Debt to EBITDA exceed 4-to-1, then the Company shall no longer be allowed
to Pay Dividends until and unless the ratio of Total Debt to EBITDA is
again less than 4-to-1. Thereafter the Company may Pay Dividends in an
aggregate amount not to exceed fifty percent (50%) of aggregate
Consolidated net income accrued subsequent to the end of the fiscal quarter
when the Company first obtained a ratio of Total Debt to EBITDA less than
3-to-1. The determination of the Interest Coverage Ratio and the ratio of
Total Debt to EBITDA as referenced herein shall be made from the financial
statements provided by the Company pursuant to the requirements of the NYL
Notes at the end of each fiscal quarter calculating the Interest Coverage
Ratio and the ratio of Total Debt to EBITDA for the period consisting of
the immediately preceding four fiscal quarters (the "Applicable Period").
For the purpose of determining the Company's compliance with these
obligations, Interest Coverage Ratio shall mean (I) Consolidated net income
as defined in the NYL Notes plus, to the extent deducted in determining
such Consolidated net income, interest expense of the Company and its
subsidiaries for the Applicable Period and any provision for taxes for such
period (whether paid or deferred), exclusive of any non-cash gains or
losses from the disposals of segments recorded in the fiscal year ended
December 26, 1998 ("EBIT"), to (ii) interest expense, of the Company and
its subsidiaries, for the Applicable Period and, the ratio of Total Debt to
EBITDA shall mean, with respect to the Applicable Period, the ratio of (I)
Consolidated Total Debt as defined in the NYL Notes divided by (ii)
EBITDA. EBITDA shall mean the Company's EBIT plus depreciation and
amortization for such Applicable Period. The calculation of EBIT and
EBITDA for any Applicable Period will include, in addition to the Company's
EBIT and EBITDA, the pre-acquisition EBIT and EBITDA of any business,
substantially all of the assets of which are acquired by the Company during
such Applicable Period, calculated on a trailing basis using audited
information where available.
3. Section 9, paragraph (G) of the NYL Notes is hereby deleted in its
entirety and the following is substituted therefor:
(G) MINIMUM NET WORTH. The Company will not permit its
consolidated Net Worth, measured at the end of each fiscal quarter, at any
time to be less than 90% of the amount of consolidated Net Worth measured
at the end of the Company's fiscal year ended December 26, 1998 (such
amount to be furnished by the Company in writing to the Holders as soon as
practicable after the Company determines such amount but, in any event, not
later than March 31, 1999), plus fifty percent (50%) of the aggregate
cumulative Consolidated net income (excluding losses), for any fiscal
quarter from and after December 26, 1998; provided however, that net losses
for any fiscal quarter during a fiscal year may be offset to the extent of
the net income during another fiscal quarter in the same fiscal year, but
net losses for any fiscal year shall not be offset against net income for
any other fiscal year and any such net losses shall not reduce the amount
of the minimum net worth requirements at the beginning of such fiscal year.
4. ADDITIONAL INTEREST. As consideration for the amendments of the
NYL Notes as herein provided for, the Company agrees to pay to the holders
as additional interest on the principal amount outstanding under the NYL
Notes, an amount determined by increasing the 9.96% per annum rate of
interest by the applicable amount determined from the chart set forth
below, which is based on the Company's ratio of Total Debt to EBITDA. The
applicable increase in the interest rate, if any, shall be effective the
first day of the calendar month following the end of the fiscal quarter for
which the ratio has been determined. The initial interest adjustment will
take place on the effective date of the Second Amendment and remain in
effect at least through the Company's first fiscal quarter 1999.
Ratio of Total Amount of Interest
Debt to EBITDA Rate Increase
>4.5 .65%
>4.0; <4.5 .50%
>3.5; <4.0 .35%
>3.0; <3.5 .20%
<3.0 0%
The ratio of Total Debt to EBITDA shall be determined using the same method
used in Section 9, Paragraph (F).
5. As consideration for the amendments of the NYL Notes as herein
provided for, the Company agrees to pay to the holders, to be divided
ratably between them, an additional fee in the amount of $250,000.
6. Notwithstanding the provisions of Section 9(B) and (D) of the NYL
Notes, all wholly owned subsidiaries of the Company that have assets of
$1,000,000 or more, except for Dixie Funding, Inc., shall guarantee the NYL
Notes and shall be permitted to guarantee the Senior Indebtedness of the
Company. All such guarantees of such Subsidiaries of the Company of the
NYL Notes shall be subordinated to the obligations of the subsidiaries
under the guarantee of the Senior Indebtedness in the same manner and to
the same extent as are the NYL Notes are subordinated to the Senior
Indebtedness, and such subordination provisions shall be expressly set
forth in any such guarantees of the NYL Notes.
7. The Company shall provide calculations of and a certificate of
compliance with the Dividends, Minimum Net Worth and Funded Indebtedness
requirements set forth herein and the Additional Interest payment required
herein as soon as reasonably possible, and in any event within 60 days
after the close of each of the first three fiscal quarters of the Company
in each fiscal year and within 90 days after the close of each fiscal year
of the Company.
This Second Amendment shall replace and supercede the previous Amendment to
the NYL Notes. In all other respects except as specifically amended
herein, the NYL Notes shall remain in effect as on the date hereof
unchanged. This amendment has been approved in accordance with the
provisons of Section 10 of NYL Notes and has been approved by 66-2/3% of
the NYL Note holders as evidenced by their signatures hereto.
The Dixie Group, Inc., formerly
Dixie Yarns, Inc.
By: Gary A. Harmon
Its: Treasurer
New York Life Insurance New York Life Insurance
Company and Annuity Corporation
By: Steven M. Benevento By: Steven M. Benevento
Its: Director Its: Director
EXHIBIT (r)
FIRST AMENDMENT TO CREDIT AGREEEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT effective as of December 26,
1998 (this "Amendment"), by and among The Dixie Group, Inc., a Tennessee
corporation (the "Borrower"), SunTrust Bank, Atlanta, a Georgia banking
corporation ("SunTrust"), the other banks and lending institutions listed
on the signature pages hereof, and any assignees of SunTrust or such other
banks and lending institutions which become "Lenders" as provided herein
(SunTrust, and such other banks, lending institutions, and assignees
referred to collectively as "Lenders"), SUNTRUST BANK, ATLANTA, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent") and NATIONSBANK, N.A., as documentation agent for
the Lenders (in such capacity, the "Documentation Agent").
WITNESSETH:
Whereas, Borrower, the Lenders, the Administrative Agent and the
Documentation Agent are parties to that certain Credit Agreement, dated as
of March 31, 1998 (as amended or modified, the "Agreement");
Whereas, Borrower, the Lenders, the Administrative Agent and the
Documentation Agent have agreed to make certain modifications to the
Agreement subject to the terms, conditions and requirements set forth in
this Amendment.
Now, Therefore, in consideration of the terms and conditions contained
herein, the parties hereto, intending to be legally bound, hereby amend the
Agreement as follows:
A. DEFINITIONS
Capitalized terms used but not otherwise defined herein shall have the
meanings given to such terms in the Agreement, as amended by this
Amendment.
B. AMENDMENTS TO THE AGREEMENT
1. Section 1.01, of the Agreement is hereby amended by replacing the
definitions of "Interest Expense" and "Net Income" in their entirety
with the following definitions:
"Interest Expense" shall mean, for any period, interest expense
as determined according to GAAP, calculated on a consolidated basis
for the Consolidated Companies, and shall include, without
duplication, all Interest Expense of any Person accrued prior to the
date such Person becomes a Subsidiary of Borrower or is merged into or
consolidated with Borrower or any of its Subsidiaries, or such
Person's assets are acquired by any Consolidated Company.
"Net Income" shall have the meaning afforded such term by GAAP,
calculated on a consolidated basis for the Consolidated Companies, and
shall include, without duplication, all Net Income of any Person
accrued prior to the date such Person becomes a Subsidiary of Borrower
or is merged into or consolidated with Borrower or any of its
Subsidiaries, or such Person's assets are acquired by any Consolidated
Company.
2. Section 8.11 of the Agreement is hereby amended as follows:
(a) Subsection (b) is hereby amended by replacing such
subsection in its entirety with the following:
(b) LEVERAGE RATIO. Its Leverage Ratio (i) to be greater
than 0.675 to 1.00 as of the last day of Borrower's fiscal quarters
ending on December 26, 1998 and March 27, 1999; and (ii) to be greater
than 0.65 to 1.00 as of the last day of each fiscal quarter of the
Borrower thereafter.
(b) Subsection (d) is hereby amended by replacing such
subsection in its entirety with the following:
(d) CONSOLIDATED NET WORTH. Fail to maintain as of the
last day of each fiscal quarter of Borrower, Consolidated Net Worth
equal to or greater than the Minimum Compliance Level plus, for each
of the first three fiscal quarters of each fiscal year of Borrower,
50% of the Consolidated Net Income of the Borrower earned during the
current fiscal year, calculated on a cumulative basis for such fiscal
year; provided, however, in the event that the Consolidated Companies
suffer a net loss for any year-to-date fiscal period, Consolidated
Net Income shall be deemed to be $0. The "Minimum Compliance Level"
shall as of any date of determination, be equal to the sum of (x) the
greater of 90% of (i) Consolidated Net Worth as of December 26, 1998
(such amount to be furnished by the Borrower to the Administrative
Agent as soon as practicable after Borrower determines such amount) or
(ii) $90,000,000 plus (y) an additional amount calculated as of the
last day of each fiscal year of Borrower, commencing with fiscal year
1999 and added to the Minimum Compliance Level then in effect as of
the last day of such fiscal year, equal to 50% of the Consolidated Net
Income for such fiscal year of Borrower then ending; provided,
however, in the event that the Consolidated Companies suffer a net
loss for any fiscal year, Consolidated Net Income shall be deemed to
be $0, and further provided that amounts calculated pursuant to clause
(y) above shall be permanent increases in the Minimum Compliance Level
so that in no event shall the Minimum Compliance Level at any date of
determination be less than the amount required at any preceding date
of determination.
3. The Agreement is hereby amended by replacing all references to
"Consolidated Net Income" with the term "Net Income".
C. CONSENT
The Lenders hereby consent to the Borrower's execution and delivery of
the Second Amendment to 9.96% Senior Subordinated Note Due February 1,
2010, by and between the Borrower and New York Life Insurance Company
effective as of December 26, 1998, substantially in the form of Exhibit A
attached hereto.
D. MISCELLANEOUS
1. Representations and Warranties. The Borrower hereby represents
and warrants to the Lenders and the Administrative Agent that:
(a) the execution, delivery and performance of this Amendment
(1) is within its corporate power; (2) has been duly authorized by all
necessary corporate action and shareholder action; (3) does not conflict
with, or result in the breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of its properties or assets or the properties
and assets of any of its Subsidiaries pursuant to, the charter or articles
of organization or similar document, or By-Laws or operating agreement or
similar document of the Borrower, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Borrower is
subject and (4) does not require the consent, permission, authorization,
order or license of any governmental authority or Person;
(b) this Amendment has been duly executed and delivered for the
benefit of or on behalf of the Borrower and constitutes a legal, valid and
binding obligation of Borrower, enforceable against the Borrower in
accordance with its terms except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium and other
laws affecting creditors' rights and remedies in general; and
(c) after giving effect to this Amendment, all representations
and warranties set forth in Article VI of the Agreement are true and
correct in all material respects and no Default or Event of Default has
occurred and is continuing as of the date hereof.
2. Survival. Except as expressly provided herein, the Agreement
shall continue in full force and effect, and the unamended terms and
conditions of the Agreement as expressly incorporated herein and ratified
and confirmed in all respects. This Amendment is not intended to be or to
create, nor shall it be construed as, a novation or an accord and
satisfaction.
3. Effect of Amendment. From and after the date hereof, references
to the Agreement shall be references to the Agreement as amended hereby.
4. Entire Understanding. This Amendment constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof. Neither this amendment nor any provision hereof may be changed,
waived, discharged, modified or terminated orally, but only by an
instrument in writing signed by the parties required to be a party thereto
pursuant to the Agreement.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED IN ALL RESPECTS
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
GEORGIA(WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF)
AND ALL APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which, taken together, shall constitute one and the same document, and
shall be effective as of the date first above written.
7. Severability. In the event that any part of this Amendment shall
be found to be illegal or in violation of public policy, or for any reason
unenforceable at law, such finding shall not invalidate any other part
thereof.
8. Reimbursement of Administrative Agent. Borrower shall reimburse
the Administrative Agent for the reasonable fees and expenses of counsel
for the Administrative Agent in connection with this Amendment.
WITNESS the hand and seal of the parties hereto through their duly
authorized officers, as of the date first above written.
THE DIXIE GROUP, INC.
By: Glenn A. Berry
Vice President and Chief Financial Officer
By: Gary A. Harmon
Treasurer
Attest: Starr T. Klein
Secretary
Address: [CORPORATE SEAL]
The Dixie Group, Inc.
1100 Watkins Street
Chattanooga, Tennessee 37404
Attn: Mr. Gary A. Harmon
Telephone: (423) 493-7241
Facsimile: (423) 493-7353
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT]
SUNTRUST BANK, ATLANTA, individually and
as Administrative Agent
By: Laura Kahn
Title: Senior Vice President
By: Kelley E. Brunson
Title: Banking Officer
Address:
SunTrust Bank, Atlanta
25 Park Place, 23rd Floor
Atlanta, Georgia 30303
Attn: Mr. Bradley J. Staples
Telephone: (404) 230-5099
Facsimile: (404) 575-2594
Payment Office:
25 Park Place, 23rd Floor
Atlanta, Georgia 30303
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT]
NATIONSBANK, N.A., individually and
as Documentation Agent
By: David H. Dinkins
Title: Vice President
Address:
100 North Tryon Street, 8th Floor
Charlotte, NC 28255
Attn: Mr. David Dinkins
Telephone: (704) 386-2951
Facsimile: (704) 386-1270
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT]
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By: Michael D. Ross
Title: Group Vice President
Address:
420 North 20th Street, 11th Floor
Birmingham, AL 35203
Attn: Mr. Alex Morton
Telephone: (205) 254-4990
Facsimile: (205) 254-8270
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT]
FIRST UNION NATIONAL BANK
By: David Silander
Title: Vice President
Address:
302 South College Street, 5th Floor
Charlotte, NC 28288-0737
Attn: Mr. David Silander
Telephone: (704) 383-5124
Facsimile: (704) 374-4973
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT]
THE CHASE MANHATTAN BANK
By: James A. Knight
Title: Vice President
Address:
111 West 40th Street, 10th Floor
New York, NY 10018
Attn: Mr. James A. Knight
Telephone: (212) 403-5102
Facsimile: (212) 403-5112
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT]
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-30473) pertaining to the Employee Stock Purchase Plan of
The Dixie Group, Inc., the Registration Statement (Form S-8 No. 33-59564)
pertaining to options to acquire Common Stock of The Dixie Group, Inc.
issued in connection with the acquisition of Carriage Industries, Inc., the
Registration Statement (Form S-8 No. 33-42615) pertaining to the Incentive
Stock Option Plan of The Dixie Group, Inc., and Post-Effective Amendment
Number 2 to the Registration Statements (Form S-8 No. 2-20604 and No. 2-
56744) pertaining to the Employee Stock Purchase Plan and Employee Stock
Option Plan of The Dixie Group, Inc. of our report dated February 17, 1999,
with respect to the consolidated financial statements and schedule of The
Dixie Group, Inc. included in the Annual Report (Form 10-K) for the year
ended December 26, 1998.
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT
AND FOR THE TWELVE MONTHS ENDED DECEMBER 26, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> DEC-26-1998
<CASH> 2,815
<SECURITIES> 0
<RECEIVABLES> 9,658
<ALLOWANCES> 1,294
<INVENTORY> 72,671
<CURRENT-ASSETS> 166,168
<PP&E> 265,702
<DEPRECIATION> 120,517
<TOTAL-ASSETS> 374,646
<CURRENT-LIABILITIES> 85,586
<BONDS> 154,203
<COMMON> 44,421
0
0
<OTHER-SE> 55,569
<TOTAL-LIABILITY-AND-EQUITY> 374,646
<SALES> 496,412
<TOTAL-REVENUES> 496,412
<CGS> 397,004
<TOTAL-COSTS> 397,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,263
<INCOME-PRETAX> 14,700
<INCOME-TAX> 5,592
<INCOME-CONTINUING> 9,108
<DISCONTINUED> (30,110)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,002)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.78)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT
AND FOR THE TWELVE MONTHS ENDED DECEMBER 27, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, AS RESTATED FOR
DISCONTINUED OPERATIONS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 1,848
<SECURITIES> 0
<RECEIVABLES> 32,657
<ALLOWANCES> 3,207
<INVENTORY> 82,661
<CURRENT-ASSETS> 135,936
<PP&E> 373,449
<DEPRECIATION> 199,027
<TOTAL-ASSETS> 386,614
<CURRENT-LIABILITIES> 67,885
<BONDS> 160,810
<COMMON> 44,321
0
0
<OTHER-SE> 76,923
<TOTAL-LIABILITY-AND-EQUITY> 386,614
<SALES> 432,086
<TOTAL-REVENUES> 432,086
<CGS> 345,416
<TOTAL-COSTS> 345,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,886
<INCOME-PRETAX> 14,026
<INCOME-TAX> 5,214
<INCOME-CONTINUING> 8,812
<DISCONTINUED> 2,807
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,619
<EPS-PRIMARY> 1.03
<EPS-DILUTED> .99
</TABLE>
