<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 25, 1999
Commission File Number 0-2585
THE DIXIE GROUP, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0183370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 South Watkins Street
Chattanooga, Tennessee 37404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 698-2501
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of October 29, 1999
Common Stock, $3 Par Value 10,817,974 shares
Class B Common Stock, $3 Par Value 795,970 shares
Class C Common Stock, $3 Par Value 0 shares
<PAGE>
THE DIXIE GROUP, INC.
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets --
September 25, 1999 and December 26, 1998 3
Consolidated Statements of Income --
Three and Nine Months Ended September 25, 1999
and September 26, 1998 5
Consolidated Condensed Statements of Cash Flows --
Nine Months Ended September 25, 1999
and September 26, 1998 6
Consolidated Statement of Stockholder's Equity --
Three and Nine Months Ended September 25, 1999 8
Notes to Consolidated Condensed Financial Statements 9
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition 16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20
Part II. Other Information:
Item 1 - Legal Proceedings 20
Item 2 - Changes in Securities and Use of Proceeds 20
Item 3 - Defaults Upon Senior Securities 20
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 21
<PAGE>
PART I - ITEM 1
FINANCIAL INFORMATION
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 25, December 26,
1999 1998
_____________ ____________
(dollar amounts in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,592 $ 2,815
Accounts receivable (less allowance for
doubtful accounts of $3,781 in 1999
and $1,294 in 1998) 21,851 8,364
Inventories 96,830 72,671
Net assets held for sale 457 67,508
Other 16,835 14,810
_____________ ____________
TOTAL CURRENT ASSETS 143,565 166,168
PROPERTY, PLANT AND EQUIPMENT 298,102 265,702
Less accumulated amortization and
depreciation (135,714) (120,517)
_____________ ____________
NET PROPERTY, PLANT AND EQUIPMENT 162,388 145,185
INTANGIBLE ASSETS (less accumulated
amortization of $5,788 in 1999
and $4,687 in 1998) 51,293 52,394
OTHER ASSETS 16,908 10,899
_____________ ____________
TOTAL ASSETS $ 374,154 $ 374,646
_____________ ____________
_____________ ____________
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 25, December 26,
1999 1998
_____________ ____________
(dollar amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 36,441 $ 39,264
Accrued expenses 17,231 24,028
Accrued losses of discontinued operations 8,272 12,649
Current portion of long-term debt 18,479 9,645
_____________ ____________
TOTAL CURRENT LIABILITIES 80,423 85,586
LONG-TERM DEBT
Senior indebtedness 63,495 64,466
Subordinated notes 45,238 50,000
Convertible subordinated debentures 37,237 39,737
_____________ ____________
TOTAL LONG-TERM DEBT 145,970 154,203
OTHER LIABILITIES 11,097 11,869
DEFERRED INCOME TAXES 21,936 22,998
STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share)
authorized 80,000,000 shares -
issued and outstanding,
14,262,027 shares in 1999 and
14,071,629 shares in 1998 42,786 42,215
Class B Common Stock ($3 par value per share)
authorized 16,000,000 shares -
issued and outstanding, 795,970 shares
in 1999 and 735,228 shares in 1998 2,388 2,206
Common Stock Subscribed - 242,941 shares
in 1999 and 573,463 shares in 1998 729 1,720
Additional paid-in capital 133,920 134,720
Stock subscriptions receivable (2,107) (3,719)
Unearned stock compensation (659) (716)
Accumulated deficit (5,722) (19,850)
Accumulated other comprehensive income (799) (799)
_____________ ____________
170,536 155,777
Less Common Stock in treasury at cost -
3,445,503 shares in 1999 and
3,442,900 shares in 1998 (55,808) (55,787)
_____________ ____________
TOTAL STOCKHOLDERS' EQUITY 114,728 99,990
_____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 374,154 $ 374,646
_____________ ____________
_____________ ____________
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
__________________________ __________________________
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
________ ________ ________ ________
(dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $142,589 $120,387 $435,926 $369,477
Cost of sales 111,713 97,560 342,821 295,145
________ ________ ________ ________
GROSS PROFIT 30,876 22,827 93,105 74,332
Selling and administrative expenses 22,267 16,850 64,626 51,951
Other expense - net 317 919 2,457 2,999
________ ________ ________ ________
INCOME BEFORE INTEREST AND TAXES 8,292 5,058 26,022 19,382
Interest expense 3,173 2,417 9,972 7,745
________ ________ ________ ________
INCOME BEFORE INCOME TAXES 5,119 2,641 16,050 11,637
Income tax provision 2,050 991 6,341 4,397
________ ________ ________ ________
Income from Continuing Operations $ 3,069 $ 1,650 $ 9,709 $ 7,240
Loss from Discontinued Operations - (1,444) - (1,853)
Income (loss) from Disposal of
Discontinued Operations - - 4,419 (14,717)
Net Income (loss) $ 3,069 $ 206 $ 14,128 $ (9,330)
________ ________ ________ ________
________ ________ ________ ________
Earnings per Share:
Basic Earnings per share:
Income from continuing operations $ 0.27 $ 0.15 $ 0.86 $ 0.64
Loss from discontinued operations - (0.13) - (0.16)
Income (loss) from disposal of
discontinued operations ____ - _ - _ 0.39 __ (1.31)
Net Income (loss) $___0.27 $ 0.02 $_ 1.25 $ (.83)
________ ________ ________ ________
Shares outstanding 11,390 11,268 11,318 11,264
Diluted Earnings per share:
Income from continuing operations $ 0.26 $ 0.14 $ 0.83 $ 0.61
Loss from discontinued operations - (0.12) - (0.16)
Income (loss) from disposal of
discontinued operations ____ - _ - _ 0.37 _ (1.23)
Net Income (loss) $___0.26 $ 0.02 $ 1.20 $ (0.78)
________ ________ ________ ________
Shares outstanding 11,857 11,706 11,733 11,929
Dividends per share:
Common Stock $ -- $ 0.05 $ -- $ .15
Class B Common Stock $ -- $ 0.05 $ -- $ .15
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
______________________________
September 25, September 26,
1999 1998
_____________ _____________
(dollar amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 14,128 $ (9,330)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities of continuing
operations:
(Income) loss on disposal of
discontinued operations (4,419) 14,717
Depreciation and amortization 16,945 13,491
(Benefit) provision for deferred
income taxes (1,358) 139
(Gain) loss on property, plant and
equipment disposals (53) 246
___________ ___________
25,243 19,263
Changes in operating assets and
liabilities including discontinued
operations, net of effects of
business combination (23,053) 848
___________ ___________
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,190 20,111
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of
property, plant, and equipment 91 112
Net proceeds from assets held for sale 57,380 ---
Purchase of property, plant, and equipment (23,845) (17,933)
Net cash paid in business combinations (32,194) ---
___________ __________
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 1,432 (17,821)
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
- CONTINUED
(UNAUDITED)
Nine Months Ended
______________________________
September 25, September 26,
1999 1998
_____________ _____________
(dollar amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in credit
line borrowings 16,921 4,176
Payments on subordinated debentures (2,500) (2,545)
Payments on term loan (14,000) (2,125)
Dividends paid --- (1,701)
Other 734 12
___________ ___________
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES OF CONTINUING OPERATIONS 1,155 (2,183)
INCREASE IN CASH AND CASH
EQUIVALENTS 4,777 107
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,815 1,848
___________ ___________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 7,592 $ 1,955
___________ ___________
___________ ___________
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 11,289 $ 9,897
__________ ___________
__________ ___________
Income taxes paid, net of
tax refunds received $ 10,837 $ 1,962
__________ ___________
__________ ___________
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollar amounts in thousands)
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 26, 1998 $44,421 $1,720 $134,720 $(4,435) $(19,850) $ (799) $(55,787) $ 99,990
Common Stock acquired for treasury -
800 shares (6) (6)
Common Stock sold under stock
option and restricted stock grant
plan - 2,250 shares 7 7 14
Net income for the quarter 2,580 2,580
BALANCE AT MARCH 27, 1999 $44,428 $1,720 $134,727 $(4,435) $(17,270) $ (799) $(55,793) $102,578
Common Stock acquired for treasury -
800 shares (6) (6)
Common Stock sold under stock
option and restricted stock grant
plan - 11,250 shares 34 38 72
Common Stock subscribed -
185,176 shares 556 966 (1,522) ---
Amortization of restricted
stock grants 40 40
Net income for the quarter 8,479 8,479
BALANCE AT JUNE 26, 1999 $44,462 $2,276 $135,731 $(5,917) $(8,791) $ (799) $(55,799) $111,163
Common Stock acquired for treasury -
1,003 shares (9) (9)
Common Stock sold under stock
option and restricted stock grant
plan - 74,243 shares 222 267 489
Stock subscriptions settled -
515,698 490 (1,547) (2,078) 3,135 ---
Amortization of restricted
stock grants 16 16
Net income for the quarter 3,069 3,069
BALANCE AT SEPTEMBER 25, 1999 $45,174 $ 729 $133,920 $(2,766) $(5,722) $ (799) $(55,808) $114,728
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(dollar amounts in thousands, except per share data)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements which do not include all of the information
and footnotes required in annual financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 25, 1999 are not
necessarily indicative of the results that may be expected for the entire year.
Discontinued Operations: Financial statements for 1998 have been restated to
report results of discontinued operations separately 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).
Credit and Market Risk: For the periods presented, the Company sold
floorcovering 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. The Company invests its excess cash in short-term
investments and has not experienced any losses on those investments.
NOTE B - CASH AND CASH EQUIVALENTS
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 September 25, 1999 and December 26, 1998, the $45,000
interest sold is reflected as a reduction of accounts receivable in the
Company's consolidated balance sheet. Cash receipts from the collections of
trade accounts receivables are retained by the trustee to fund certain cost of
the program and to provide short-term credit support for the facility when the
amount of receivables in the revolving pool of trade accounts receivable are
below certain levels. Such funds are invested in liquid, highly rated
securities by the trustee and are restricted as to use by the Company. At
September 25, 1999, cash receipts retained by the trustee amounted to $14,138
and are included in Cash and Cash Equivalents in the Company's Condensed
Consolidated Balance Sheet.
<PAGE>
NOTE C - INVENTORIES
Substantially all inventories are stated at the lower of cost, determined by the
last-in, first-out (LIFO) method, or market. Inventories are summarized as
follows:
September 25, December 26,
1999 1998
_____________ ____________
At current cost:
Raw materials $ 27,826 $ 21,424
Work-in-process 18,313 11,636
Finished goods 46,408 34,796
Supplies, repair parts, and other 1,816 1,631
____________ ___________
94,363 69,487
LIFO value over current cost 2,467 3,184
____________ ___________
$ 96,830 $ 72,671
____________ ___________
____________ ___________
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
__________________ _________________
Sept 25, Sept 26, Sept 25, Sept 26,
1999 1998 1999 1998
Income from continuing operations(1) $ 3,069 $ 1,650 $ 9,709 $ 7,240
(Loss) from discontinued operations(1) - (1,444) - (1,853)
Income (loss) from disposal of
discontinued operations(1) ______- _______ __4,419 (14,717)
Net income (loss) $ 3,069 $ 206 $14,128 $(9,330)
_______ _______ _______ _______
Denominator for calculation of
basic earnings per share -
weighted average shares(2) 11,390 11,268 11,318 11,264
Effect of dilutive securities:
Stock options 184 263 166 438
Stock subscriptions 283 175 249 227
Denominator for calculation of
diluted earnings per share -
weighted average shares adjusted
for potential dilution(3) 11,857 11,706 11,733 11,929
Basic Earnings per share:
Income from continuing operations $ 0.27 $ 0.15 $ 0.86 $ .64
Loss from discontinued operations - (0.13) - (.16)
Income (loss) from disposal of
discontinued operations _ ___- ___ __- _ 0.39 _ (1.31)
Net Income (loss) $ 0.27 $ 0.02 $ 1.25 $ (0.83)
_______ _______ _______ _______
<PAGE>
Three Months Ended Nine Months Ended
__________________ _________________
Sept 25, Sept 26, Sept 25, Sept 26,
1999 1998 1999 1998
Diluted Earnings per share:
Income from continuing operations $ 0.26 $ 0.14 $ 0.83 $ 0.61
Loss from discontinued operations - $ (0.12) - (0.16)
Income (loss) from disposal of
discontinued operations ___- ___- 0.37 (1.23)
Net Income (loss) $ 0.26 $ 0.02 $ 1.20 $ (0.78)
_______ _______ _______ _______
Dividends per share:
Common Stock $ -- $ .05 $ -- $ .15
Class B Common Stock $ -- $ .05 $ -- $ .15
(1) No adjustments needed for diluted calculation.
(2) Includes Common and Class B Common shares.
(3) Because their effects are anti-dilutive, this calculation excludes shares
issuable pursuant to certain grants under stock option, stock subscription, and
restricted stock plans whose grant price was greater than the average market
price of common shares outstanding during the periods presented and the assumed
conversion of subordinated debentures into shares of Common Stock as follows:
1,655 shares in 1999 and 1,801 shares in 1998.
NOTE E - LONG TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
September 25, December 26,
1999 1998
Senior indebtedness:
Credit line borrowings $ 30,953 $ 14,000
Term loan 43,000 57,000
Other 759 611
Total senior indebtedness 74,712 71,611
Subordinated notes 50,000 50,000
Convertible subordinated debentures 39,737 42,237
Total long-term debt 164,449 163,848
Less current portion (18,479) (9,645)
Total long-term debt (less current portion) $145,970 $154,203
The Company's unsecured revolving credit and term-loan facility provides for
revolving credit of up to $100.0 million through a five-year commitment period
and a $60.0 million, seven-year term-loan. The Company's remaining indebtedness
under the term loan was $43.0 million at September 25, 1999, with $43.7 million
of additional borrowing capacity available under the revolving credit line as of
such date. The agreement contains financial covenants relating to minimum net
worth, the ratio of debt to capitalization, payment of dividends, and certain
other financial ratios. Interest rates available under the facility may be
selected by the Company from a number of options which effectively allow for
borrowing at rates equal to or lower than the greater of the lender's prime
rate, or the federal funds rate plus 0.5% per annum. Commitment fees, ranging
from 0.25% to 0.375% per annum on the revolving credit line are payable on the
average daily unused balance of the revolving credit facility.
<PAGE>
On April 2, 1998, the Company completed an agreement with the Development
Authority of LaFayette, Georgia to obtain up to $7.0 million from the Authority
under a development bond issuance. Amounts received by the Company are secured
by a letter of credit issued by the Company's senior lenders 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
were used to finance the real property, machinery and equipment needs of the
Company's synthetic materials recycling center in LaFayette, Georgia.
The Company's subordinated notes are unsecured, bear interest payable
semiannually at 9.96% to 10.61% based on the Company's financial ratios, 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 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 September 25, 1999, the most restrictive covenants under the revolving
credit and term-loan agreement limit available borrowing capacity to $43.7
million.
NOTE F - DISCONTINUED OPERATIONS
In the second quarter of 1999, the Company finalized the sale of its specialty
yarns operations completing the disposal of its textile products business
segment. The specialty yarns operations were accounted for as discontinued
operations since 1998. In connection therewith, the Company recognized a gain
on disposal of $4,419 (net of related income taxes of $2,825) in the second
quarter of 1999. The gain resulted from favorable adjustments to amounts
accrued at the end of the preceding year for estimated future operating results,
including related exit costs, of the discontinued segment through the disposal
date. The textile products business segment had pretax operating income,
exclusive of exit costs, of $2,659 from the beginning of 1999 through the
disposal date, versus a previously accrued estimated loss of $2,600.
Proceeds from disposal of the textile products business segment received in 1999
through September 25, 1999 amounted to $47,396 of cash, excluding account
receivables, account payables and accrued expenses retained by the Company.
Additionally, the Company received an $8,000 face value note from one of the
purchasers. The note matures in 2003, has a stated interest rate of 10.5% with
interest payable monthly and is subordinated to the maker's senior indebtedness.
The value of the note included in the proceeds was estimated to be $5,049 with
an effective discount rate of 25%.
<PAGE>
At September 25, 1999, the remaining assets of the textile products business
segment consisted of account receivables of $1,994; and liabilities consisted of
accounts payable and accrued expenses of $8,670.
NOTE G - BUSINESS COMBINATION
In early 1999, the Company acquired the assets and assumed certain liabilities
of Multitex Corporation of America, Inc. ("Multitex"), a Dalton, Georgia carpet
and carpet yarn producer, for approximately $30,444 cash, plus future payments
keyed to revenue growth. The acquisition was accounted for as a purchase
effective January 8, 1999, and accordingly, the results of operations of
Multitex subsequent to January 8, 1999 are included in the Company's
consolidated financial statements. The total purchase price of $30,444 was
allocated to the net assets acquired based on their estimated fair market
values.
A summary of the net assets acquired as of the purchase date is as follows:
Current Assets $18,170
Property, Plant and Equipment 20,295
Other Non-Current Assets 470
Current Liabilities (8,491)
Net assets acquired $30,444
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition of Multitex had occurred at the beginning of
1998 after giving effect to certain adjustments, including the elimination of
sales between the Company and Multitex and related profit, adjustments for
interest expense on debt to finance the acquisition, depreciation expense on
adjusted fixed asset values and income taxes. The pro forma results are
presented for comparative purposes only and do not purport to be indicative of
future results or of the results that would have occurred had the acquisition
taken place at the beginning of 1998. Pro forma information is not presented
for the current year, as the effects of the pro forma adjustments are not
material.
<PAGE>
Three months ended Nine months ended
September 26, 1998 September 26, 1998
Net sales $143,112 $435,075
Income from continuing operations 2,061 7,886
Net income (loss) 617 (8,682)
Basic earnings per share:
Income from continuing operations 0.18 0.70
Net income (loss) 0.05 (0.77)
Diluted earnings per share:
Income from continuing operations 0.18 0.66
Net income (loss) 0.05 (0.73)
NOTE H - SEGMENT DATA
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 Company's Carpet Manufacturing
segment contains three operating businesses that manufacture and supply
carpets and rugs to the manufactured housing and recreational vehicle markets
through Carriage Carpets, to home consumers through major retailers under the
Bretlin/Globaltex name and to higher-end residential and commercial customers
serviced by Masland. The Floorcovering Base Materials segment manufactures and
sells specialty carpet yarn through Candlewick to external customers and
transfers a significant portion of its unit volume to the Company's Carpet
Manufacturing segment.
The following table reflects selected operating data relating to the two
industries served by the Company:
Three Months Ended Nine Months Ended
Sept 25, Sept 26, Sept 25, Sept 26,
1999 1998 1999 1998
SALES TO EXTERNAL CUSTOMERS
Carpet Manufacturing $112,528 98,288 $337,409 $297,399
Floorcovering Base Materials 29,453 21,482 95,937 70,074
Other ____608 ____617 __2,580 __2,004
Total sales to external customers $142,589 $120,387 $435,926 $369,477
INTERSEGMENTAL SALES
Carpet Manufacturing $ 3,235 573 $ 7,179 $ 1,246
Floorcovering Base Materials 27,489 17,018 74,530 48,271
Other __2,556 __2,780 7,239 7,816
Total intersegmental sales $ 33,280 $ 20,371 $ 88,948 $ 57,333
OPERATING PROFIT (E.B.I.T.)
Carpet Manufacturing $ 7,204 $ 4,408 $ 22,125 $ 16,894
Floorcovering Base Materials 521 643 3,298 2,471
Other ____567 ______7 ____599 _____17
Total operating profit (E.B.I.T.) 8,292 5,058 26,022 19,382
Interest expense __3,173 __2,417 __9,972 __7,745
Consolidated income before income
taxes from continuing operations $ 5,119 $ 2,641 $ 16,050 $ 11,637
<PAGE>
As of
September 25, December 26,
1999 1998
IDENTIFIABLE ASSETS
Carpet Manufacturing $275,010 $229,900
Floorcovering Base Materials 72,215 54,348
Other 26,472 22,890
Net assets held for sale _ 457 _67,508
Total consolidated assets $374,154 $374,646
NOTE I - ASSETS HELD FOR SALE
On July 23, 1999, the Company sold its Ulmer, South Carolina, carpet yarn
spinning facility for approximately $10.0 million. The yarn spinning facility
sold was recently acquired as part of the Company's purchase of Multitex and had
been reported on the Consolidated Condensed Balance Sheet as Assets Held for
Sale.
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following analysis is presented to update the discussion of results of
operations and financial condition included in the Company's 1998 Annual Report
(dollar amounts in thousands, except per share data).
RESULTS OF OPERATIONS
Quarter Ended September 25, 1999 Compared to Quarter Ended September 26, 1998
The Company reported net income for the quarter ended September 25, 1999 of
$3,069, or $0.26 per diluted share, on sales of $142,589. Results for the 1998
comparable period reflected net income of $206, or $0.02 per diluted share, on
sales of $120,387. The quarter ended September 26, 1998 included a net loss
from discontinued operations of $1,444, or $0.12 per diluted share.
Sales increased over 1998 in most of the Company's continuing operations led by
the acquisition of Globaltex Carpets, a division of Multitex, in January 1999.
The income growth was caused by the sales growth and improved productivity
resulting in higher operating margins in the Company's existing businesses
versus last year. These productivity gains have more than offset higher
interest expense and other costs associated with the Company's acquisitions.
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 Company's Carpet Manufacturing
segment contains three operating businesses that manufacture and supply carpets
and rugs to: the factory-built housing and recreational vehicle markets through
Carriage Carpets; to home consumers through major retailers under the
Bretlin/Globaltex name and to higher-end residential and commercial customers
serviced by Masland. The Floorcovering Base Materials segment manufactures and
sells specialty carpet yarn through Candlewick to external customers and sells a
significant portion of its unit volume to the Company's Carpet Manufacturing
segment.
The following table reflects selected operating data relating to the two
industries served by the Company:
Three Months Ended
September 25, September 26,
1999 1998
SALES
Carpet Manufacturing $115,763 $ 98,861
Floorcovering Base Materials 56,942 38,500
Eliminations and Other (30,116) (16,974)
Total sales $142,589 $120,387
OPERATING PROFIT (E.B.I.T.)
Carpet Manufacturing $ 7,204 $ 4,408
Floorcovering Base Materials 521 643
Other ____567 7
Total operating profit (E.B.I.T.) $ 8,292 $ 5,058
<PAGE>
Sales in the Company's Carpet Manufacturing segment for the quarter ended
September 25, 1999 were $115,763, an increase of $16,902, or 17.1%, over the
comparable period in 1998. The increase was primarily a result of increased
volume resulting from the Multitex acquisition in January 1999. Operating
profits in the Carpet Manufacturing segment were $7,204 in the third quarter of
1999 compared with $4,408 in the third quarter of 1998. The profitability
increase was a result of the sales volume increase and improved productivity.
Sales in the Company's Floorcovering Base Materials segment for the quarter
ended September 25, 1999 were $56,942, an increase of $18,442, or 47.9%, over
the comparable period in 1998. The increase was primarily a result of increased
volume resulting from the Multitex acquisition in January 1999. Operating
profits in the Floorcovering Base Materials segment were $521 in the third
quarter of 1999 compared with $643 in the third quarter of 1998. The
profitability decrease was a result of increased raw material (fiber) costs,
higher percentage of production for internal use and restructuring expenses
associated with the Multitex acquisition which more than offset the affect of
the sales volume increase.
Selling and administrative expenses were $22,267, or 15.6% of sales, in the
third quarter of 1999 compared with $16,850, or 14.0% of sales, in the third
quarter of 1998. The increase resulted from sales volume growth in home center
and high-end markets and reflects the higher cost to service these areas of the
Company's businesses.
Interest expense was $3,173, which was an increase of $756, or 31.3%, over the
comparable period in 1998 due to the increase in debt caused by the acquisition
of Multitex.
Nine Months Ended September 25, 1999 Compared to
Nine Months Ended September 26, 1998
The Company reported net income for the nine months ended September 25, 1999 of
$14,128, or $1.20 per diluted share, on sales of $435,926. Results for the 1998
comparable period resulted in a net loss of $9,330, or $0.78 per diluted share,
on sales of $369,477. The nine months ended September 25, 1999 includes a net
gain of $4,419, or $0.37 per diluted share, from the disposal of the Company's
Textile segment. The nine months ended September 26, 1998 included a net loss
from discontinued operations of $1,853, or $0.16 per diluted share, and a net
loss of $14,717, or $1.23 per diluted share, on the disposal of the Company's
Textile segment.
Sales increased over 1998 in most of the Company's continuing operations
primarily led by the acquisition of Globaltex Carpets, a division of Multitex,
in January 1999. The income growth in 1999 resulted from the additional sales
and improved productivity resulting in higher operating margins in the Company's
existing businesses versus last year and came despite higher interest expense
and other costs associated with the Company's acquisitions.
The following table reflects selected operating data relating to the two
industries served by the Company:
Nine Months Ended
September 25, September 26,
1999 1998
SALES
Carpet Manufacturing $344,588 $298,645
Floorcovering Base Materials 170,467 118,345
Eliminations and Other (79,129) (47,513)
Total sales $435,926 $369,477
<PAGE>
Nine Months Ended
September 25, September 26,
1999 1998
OPERATING PROFIT (E.B.I.T.)
Carpet Manufacturing $ 22,125 $ 16,894
Floorcovering Base Materials 3,298 2,471
Other ____599 _____17
Total operating profit (E.B.I.T.) $ 26,022 $ 19,382
Sales in the Company's Carpet Manufacturing segment for the nine months ended
September 25, 1999 were $344,588, an increase of $45,943 or 15.4% over the
comparable period in 1998. The increase was a result of increased volume
resulting from the Multitex acquisition in January 1999. Operating profits
in the Carpet Manufacturing segment were $22,125 in the first nine months of
1999 compared with $16,894 in the first nine months of 1998. The profitability
increase was a result of the sales volume increase and improved productivity.
Sales in the Company's Floorcovering Base Materials segment for the nine months
ended September 25, 1999 were $170,467, an increase of $52,122 or 44.0% over the
comparable period in 1998. The increase was a result of increased volume
primarily resulting from the Multitex acquisition in January 1999. Operating
profits in the Floorcovering Base Materials segment were $3,298 in the first
nine months of 1999 compared with $2,471 in the first nine months of 1998. The
profitability increase was a result of the sales volume increase and improved
productivity.
Selling and administrative expenses were $64,626, or 14.8% of sales, in the
first nine months of 1999 compared with $51,951, or 14.1% of sales, in the first
nine months of 1998. The increase resulted from higher selling expenses
associated with growth in home center and high-end markets and reflects the
higher cost to service these areas of the Company's businesses.
Interest expense was $9,972, which was an increase of $2,227 or 28.8% over the
comparable period in 1998 due to the increase in debt caused by the acquisition
of Multitex.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999, the Company's long-term debt increased
$601 from the 1998 year-end level. During this period, the Company spent
$23,845 for capital expenditures and $32,194 for acquisitions. Cash proceeds
from the sale of assets held for sale amounted to $57,380 and cash provided by
operating activities was $2,190.
The Company's unsecured revolving credit and term-loan facility provides for
revolving credit of up to $100.0 million through a five-year commitment period
and a $60.0 million, seven-year term-loan. The Company's remaining indebtedness
under the term loan was $43.0 million at September 25, 1999, with $43.7 million
of additional borrowing capacity available under the revolving credit line as of
such date. The agreement contains financial covenants relating to minimum net
worth, the ratio of debt to capitalization, payment of dividends, and certain
other financial ratios. Interest rates available under the facility may be
selected by the Company from a number of options which effectively allow for
borrowing at rates equal to or lower than the greater of the lender's prime
rate, or the federal funds rate plus 0.5% per annum. Commitment fees, ranging
from 0.25% to 0.375% per annum on the revolving credit line are payable on the
average daily unused balance of the revolving credit facility.
<PAGE>
On April 2, 1998, the Company completed an agreement with the Development
Authority of LaFayette, Georgia to obtain up to $7.0 million from the Authority
under a development bond issuance. Amounts received by the Company are secured
by a letter of credit issued by the Company's lead lender in favor of the
Development Authority. The value of the letter of credit reduces the Company's
availability under its revolving credit and term-loan facility. The proceeds
are to be used for financing real property and machinery and equipment needs of
the Company's recycling center in LaFayette, Georgia.
On April 26, 1999, the Company announced that it would make additional
investments totaling $20.0 million to expand the Company's capability in
filament carpet yarn extrusion over the next 18 months. During the first nine
months of 1999, approximately $6.1 million has been spent on the extrusion
expansion, which has been funded by cash flow from operations and additional
line of credit borrowing. Additionally, on July 23, the Company sold to Mohawk
Industries its Ulmer, South Carolina, carpet yarn spinning facility for
approximately $10.0 million. The yarn spinning facility sold was recently
acquired as part of the Company's purchase of Multitex. Funds for the
additional investments are anticipated to be provided for by cash flow from
operations and, if necessary, from borrowing on the Company's lines of credit.
Available unused borrowing capacity under the Company's revolving credit and
term-loan agreement was $43.7 million at September 25, 1999. The Company
considers its unused debt availability and operating cash flows to be adequate
to fund its anticipated liquidity needs, which include increased amounts for
capital expenditures to support sales growth and market needs.
YEAR 2000 SYSTEMS ISSUES
The Company believes it has identified all its 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
is designed to be year 2000 compliant. Certain modules due for implementation
in the second and third quarters of 1999 have been completed or are near
completion. Those non-compliant applications, which will not be replaced before
year 2000, are in the process of modifications for year 2000 compliance. The
majority of the modifications have been completed and the remaining
modifications are expected to be completed and tested early in the fourth
quarter of 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 were less than $200 in 1998 and the Company has spent approximately
$75 in the first nine months of 1999. The Company does not anticipate a
material increase in year 2000 assessment and remediation expenditures in the
fourth quarter of 1999 and expects total expenditures for 1999 to approximate
$100. The Company has not deferred any information technology projects as a
result of personnel or financial resource allocation toward year 2000 compliance
issues.
<PAGE>
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 worst case for the Company due to its dependency on electrical
sourcing for productive output. The Company has discussed with each of its
electrical service providers the state of their year 2000 compliance programs.
Based on the information supplied by these providers, the Company does not
anticipate any service interruptions as a result of their year 2000 systems
readiness.
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.
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the periods presented, the Company sold floorcovering 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. The Company
invests its excess cash in short-term investments and has not experienced any
losses on those investments.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
On October 7, 1999, the Company announced that Glenn A. Berry, Executive Vice
President and Chief Financial Officer of The Dixie Group, resigned to pursue
private business interests, effective October 8, 1999.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Exhibits Incorporated by Reference
None.
(ii) Exhibits Filed with this Report
None
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the registrant during the
three month period ended September 25, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DIXIE GROUP, INC.
__________________________
(Registrant)
November 9, 1999
____________________
(Date)
/s/Dan K. Frierson
__________________________
Dan K. Frierson
Chairman of the Board and CEO
/s/D. EUGENE LASATER
__________________________
D. Eugene Lasater
Controller
<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 NINE MONTHS ENDED SEPTEMBER 25, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> SEP-25-1999
<CASH> 7,592
<SECURITIES> 0
<RECEIVABLES> 25,632
<ALLOWANCES> 3,781
<INVENTORY> 96,830
<CURRENT-ASSETS> 143,565
<PP&E> 298,102
<DEPRECIATION> 135,714
<TOTAL-ASSETS> 374,154
<CURRENT-LIABILITIES> 80,423
<BONDS> 145,970
<COMMON> 42,786
0
0
<OTHER-SE> 71,942
<TOTAL-LIABILITY-AND-EQUITY> 374,154
<SALES> 435,926
<TOTAL-REVENUES> 435,926
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