<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 2000
THE DIXIE GROUP, INC.
---------------------
(Exact name of Registrant as specified in its charter)
Tennessee 0-2585 62-0183370
--------- ------ ----------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
345-B Nowlin Lane, Chattanooga, Tennessee 37421
----------------------------------------- -----
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (423) 510-7000
<PAGE> 2
The Dixie Group, Inc. (the "Registrant" or "Dixie") hereby amends its Current
Report on Form 8-K dated July 1, 2000 by inserting the Financial Statements of
the business acquired and pro forma financial information as required by Article
3 of Regulation S-X and Article 11 of Regulation S-X, respectively.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Report of Independent Accountants
Balance Sheets as of December 31, 1999 and 1998
Statements of Net Income for the years ended December 31, 1999 and
1998
Statements of Stockholders' Equity for the years ended December
31, 1999 and 1998
Statements of Cash Flows for the years ended December 31, 1999 and
1998
Notes to Financial Statements
Condensed Balance Sheets as of June 30, 2000 and December 31, 1999
(unaudited)
Condensed Statements of Income for the six months ended June 30,
2000 and June 30, 1999 (unaudited)
Condensed Statements of Cash Flows for the six months ended June
30, 2000 and June 30, 1999 (unaudited)
Notes to Condensed Financial Statements (unaudited)
(b) Pro Forma Financial Information.
Pro Forma Statement of Operations for the six months ended July 1,
2000 (unaudited)
Pro Forma Statement of Operations for the year ended December 25,
1999 (unaudited)
(c) Exhibits.
none
1
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
The Stockholders
Fabrica International
We have audited the accompanying balance sheets of Fabrica International as of
December 31, 1999 and 1998 and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Fabrica International as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information in
Schedules 1 through 6 are presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ KUSHNER, SMITH, JOANOU & GREGSON, LLP
March 17, 2000
3
<PAGE> 4
FABRICA INTERNATIONAL
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current assets
Cash $ -- $ 1,920,364
Accounts receivable - trade 443,871 380,997
Accounts receivable - factored (Note 2) 4,135,322 2,136,059
Accounts receivable - other (Note 3) 256,105 16,451
Inventory (Note 4) 5,382,739 3,516,141
Income taxes receivable 135,000 --
Current portion of note receivable - stockholder 250,000 --
Prepaid expenses 50,608 15,138
Deferred income taxes (Note 8) 120,000 233,000
------------ ------------
Total current assets 10,773,645 8,218,150
------------ ------------
Property and equipment (Notes 5 and 15) 7,531,634 5,844,929
Less accumulated depreciation and amortization (3,593,058) (3,034,005)
------------ ------------
Net property and equipment 3,938,576 2,810,924
------------ ------------
Other assets
Investment (Note 6) 8,950 8,950
Note receivable - stockholder (Note 7) 500,000 --
Cash surrender value of life insurance 200,747 174,864
Deposits 32,000 --
Deferred income taxes (Note 8) 55,000 132,000
------------ ------------
Total other assets 796,697 315,814
------------ ------------
$ 15,508,918 $ 11,344,888
============ ============
</TABLE>
(Balance sheets continued on the following page)
4
<PAGE> 5
FABRICA INTERNATIONAL
BALANCE SHEETS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current liabilities
Bank overdraft (Note 9) $ 99,163 $ --
Accounts payable - trade 3,853,157 2,215,638
Accounts payable - related party (Note 10) 31,001 128,027
Accrued liabilities (Note 12) 2,712,516 1,778,730
Advance deposits 435,694 518,874
Current portion of long-term debt 125,892 106,160
Current portion of notes payable - stockholders -- 730,000
Income taxes payable (Note 8) -- 1,050,000
------------ ------------
Total current liabilities 7,257,423 6,527,429
Long-term liabilities
Notes payable - stockholders (Note 14) -- 240,000
Long-term debt (Notes 11 and 13) 744,570 876,325
------------ ------------
Total liabilities 8,001,993 7,643,754
------------ ------------
Commitments with related and unrelated parties and
subsequent events (Notes 15 and 16)
Stockholders' equity
Common stock, no par value, authorized; 540,000
shares, issued and outstanding 43,844 shares 1,036,075 36,075
Retained earnings 6,586,900 3,781,109
Accumulated other comprehensive income:
Unrealized (loss) on available-for-sale securities
(Note 6) (116,050) (116,050)
------------ ------------
Total stockholders' equity 7,506,925 3,701,134
------------ ------------
$ 15,508,918 $ 11,344,888
============ ============
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
FABRICA INTERNATIONAL
STATEMENTS OF NET INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Gross sales $ 44,987,814 $ 35,047,262
Less freight, discounts and allowances (2,003,091) (1,500,684)
------------ ------------
Net sales 42,984,723 33,546,578
Cost of sales 24,773,175 20,126,185
------------ ------------
Gross profit 18,211,548 13,420,393
Operating expenses
Warehouse 1,103,711 997,503
Selling 8,480,162 6,696,971
General and administrative 3,761,705 2,885,931
------------ ------------
Total operating expenses 13,345,578 10,580,405
------------ ------------
Operating income 4,865,970 2,839,988
------------ ------------
Other income (expense)
(Loss) on sale of property and equipment -- (9,724)
Interest income 31,877 20,845
Interest (expense) (165,543) (204,689)
Other income -- 139,431
------------ ------------
Total other income (expense) (133,666) (54,137)
------------ ------------
Income before income taxes 4,732,304 2,785,851
Provision for income taxes (Note 8) 1,926,513 1,151,711
------------ ------------
Net income $ 2,805,791 $ 1,634,140
============ ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
FABRICA INTERNATIONAL
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OTHER TOTAL
ISSUED AND COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING STOCK EARNINGS INCOME EQUITY
------------ ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 39,460 $ 36,075 $2,146,969 $ (116,050) $ 2,066,994
Net income for the year ended
December 31, 1998 -- -- 1,634,140 -- 1,634,140
---------- ---------- ---------- ---------- -----------
Balance at December 31, 1998 39,460 36,075 3,781,109 (116,050 3,701,134
Issuance of common stock 4,384 1,000,000 -- -- 1,000,000
Net income for the year ended
December 31, 1999 -- -- 2,805,791 -- 2,805,791
---------- ---------- ---------- ---------- -----------
Balance at December 31, 1999 43,844 $1,036,075 $6,586,900 $ (116,050) $ 7,506,925
========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
FABRICA INTERNATIONAL
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 40,682,932 $ 35,321,697
Cash paid to suppliers and employees (38,200,066) (32,181,659
Interest received 31,877 20,845
Interest paid (165,543) (204,689)
Other income received -- 139,431
Income taxes paid (1,850,000) (19,850)
------------ ------------
Net cash provided from operating activities 499,200 3,075,775
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received from note receivable -- 51,978
Acquisition of property and equipment (1,686,704) (1,130,188)
------------ ------------
Net cash (applied) from investing activities (1,686,704) (1,078,210)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on note payable to bank -- (94,886)
Proceeds from capital contribution 250,000 --
Proceeds from amounts borrowed from stockholders -- 480,000
Repayments on amounts borrowed from stockholders (970,000) (425,000)
Principal repayments on long-term debt (112,023) (37,315)
------------ ------------
Net cash (applied) from financing activities (832,023) (77,201)
------------ ------------
Net increase (decrease) in cash (2,019,527) 1,920,364
Cash at beginning of year 1,920,364 --
------------ ------------
Cash (overdraft) at end of year $ (99,163) $ 1,920,364
============ ============
</TABLE>
(Statements of cash flows continued on the following page)
8
<PAGE> 9
FABRICA INTERNATIONAL
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 2,805,791 $ 1,634,140
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation and amortization 559,052 483,441
Loss on sale of property and equipment -- 9,724
Provision for deferred income taxes 190,000 57,000
----------- -----------
3,554,843 2,184,305
----------- -----------
Changes in assets and liabilities (Increase) decrease in:
Accounts receivable - trade (62,874) 99,253
Accounts receivable - factored (1,999,263) 171,601
Accounts receivable - other (239,654) 3,581
Inventory (1,866,598) (286,725)
Income taxes receivable (135,000) --
Prepaid expenses (35,470) 6,272
Cash surrender value of life insurance (25,883) (26,147)
Deposits (32,000) --
Increase (decrease) in:
Accounts payable - trade 1,540,493 (863,370)
Accrued liabilities 933,786 688,399
Advance deposits (83,180) 102,606
Income taxes payable (1,050,000) 996,000
----------- -----------
(3,055,643) 891,470
----------- -----------
Net cash provided from operating activities $ 499,200 $ 3,075,775
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
On June 30, 1998, $578,301 of the outstanding balance on the line of credit was
converted into a term loan.
See accompanying notes to financial statements
9
<PAGE> 10
FABRICA INTERNATIONAL
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
During the year ended December 31, 1999, 4,384 shares of the ownership in the
Company were purchased by an employee for $1,000,000. The employee paid $250,000
in cash, and the remaining $750,000 was set up as a note receivable due from
stockholder (Note 7).
See accompanying notes to financial statements
10
<PAGE> 11
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company's principal activity is the manufacture of high
quality residential carpeting and custom hand-crafted rugs.
CONCENTRATIONS OF CREDIT RISKS - The Company provides its services to customers
throughout the United States and internationally. The Company's sales are not
materially dependent on a single customer or small group of customers. The
Company performs ongoing credit evaluations on its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
TRADE RECEIVABLES - Current earnings are charged with an allowance for doubtful
accounts based on experience and any unusual circumstances that may affect the
ability of customers to meet their obligations. Trade receivables are reflected
in the balance sheets net of such accumulated allowances. Because the Company
sells the majority of their outstanding trade receivables to its factor without
recourse, no allowance for doubtful accounts has been provided.
INVENTORY - Inventory is stated at the lower of cost (first-in, first-out) or
market value. Cost includes materials, direct labor and an allocable portion of
direct and indirect manufacturing overhead. Market is determined by comparison
with recent purchases or net realizable value.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
of property and equipment is provided on the straight-line and accelerated
methods over the following estimated useful lives, in years, of the respective
assets:
<TABLE>
<S> <C>
Building 39
Machinery and equipment 5 to 10
Furniture and fixtures 5 to 10
Computer equipment 5 to 10
Automobiles 3
</TABLE>
Leasehold improvements are amortized over the life of the lease or the estimated
useful life of the improvements, whichever is shorter.
Maintenance and repairs are charged to expense as incurred. Renewals and
improvements of a major nature are capitalized. At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any gains or losses are reflected
in income.
(Note 1 continued on the following page)
11
<PAGE> 12
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - The Company provides for income taxes based upon earnings
reported for financial statement purposes. Deferred income taxes are provided
for temporary differences between book and taxable income.
SAMPLE COSTS - Sample costs are charged to expense as incurred. Income from the
sale of sample books is recognized in the period in which the sale occurs.
VACATION EXPENSE - Hourly employees earn credits during the current year for
future vacation benefits. The expense and corresponding liability are accrued
when the vacations are earned rather than when the vacations are paid.
PROFIT SHARING PLAN - The Company has a "401(k)" Retirement Savings Plan that
covers substantially all employees. Employees may elect to contribute up to 20%
of compensation to the maximum deferred amount allowed by tax laws. The Company
will match 100% of the employee's contributions up to $100 and will match an
additional 25% of employee's contributions up to $400. The Company also has the
option to make discretionary profit sharing contributions. Contributions of
$75,881 and $68,510 were made for the years ended December 31, 1999 and 1998,
respectively.
INVESTMENT - The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1997. Statement No. 115 requires
that management determine the appropriate classification of securities at the
date of adoption, as well as review securities on an individual basis when
acquired. The appropriateness of such classifications are reassessed at each
balance sheet date.
The investment securities have been classified into the following classification
which has the following accounting policy:
Available-for-sale securities: These securities consist of marketable
equity securities and are stated at fair value. Any unrealized holding
gains and losses are reported as a separate component of stockholder's
equity.
(Note 1 continued on the following page)
12
<PAGE> 13
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT (CONTINUED) - Prior to the adoption of Statement No. 115, the Company
stated its equity securities at the lower of their aggregate cost or market,
with unrealized losses on current portfolio charged to income. Interest is
recognized in income as accrued, and dividends on marketable equity securities
is recognized in income when declared. Realized gains and losses, including
losses from declines in value of specific securities determined by management to
be other-than-temporary, are included in income. Realized gains and losses are
determined on the basis of the specific securities sold.
USE OF ESTIMATES - The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME - Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), requires that total comprehensive
income be reported in the financial statements. Total comprehensive income is
presented on the Statement of Income.
RECLASSIFICATION - The financial statements for the year ended December 31, 1998
reflect certain reclassifications which have no effect on net income, to conform
to classifications adopted at the year ended December 31, 1999. The December 31,
1998 financial statements have been conformed to the December 31, 1999
presentation.
13
<PAGE> 14
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 2 - ACCOUNTS RECEIVABLE - FACTORED
The Company has an agreement with a factor which provides for the sale of a
substantial portion of its trade account receivables. These receivables are sold
primarily without recourse, net of discount. The factor receives all cash
collections and is paid a fee for administrating the accounts sold. Under the
terms of the agreement, the Company pays a factoring commission and interest
charges on all unmatured funds advanced by the factor. At December 31, 1999 and
1998 there were no receivables factored with recourse. The Company is obligated
to repurchase all or any of the recourse receivables whether matured or not at
the request of the factor. At December 31, 1999 and 1998 accounts receivable -
factored consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Total factored receivables $ 4,316,569 $ 2,971,015
Less receivables advanced (181,247) (834,956)
----------- -----------
$ 4,135,322 $ 2,136,059
=========== ===========
</TABLE>
NOTE 3 - ACCOUNTS RECEIVABLE - OTHER
Accounts receivable - other at December 31, 1999 and 1998 is comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Rebates-yarn support $ 236,982 $ 2,462
Backcharges 18,353 7,410
Other 770 6,579
------------ ------------
$ 256,105 $ 16,451
============ ============
</TABLE>
14
<PAGE> 15
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 4 - INVENTORY
Inventory at December 31, 1999 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials $2,136,202 $ 924,151
Work-in-process 725,152 600,400
Finished goods 2,521,385 1,991,590
---------- ----------
$5,382,739 $3,516,141
========== ==========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 is comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Building $ 1,016,000 $ 1,016,000
Machinery and equipment 4,221,641 3,255,002
Furniture and fixtures 313,121 304,014
Computer equipment 220,562 182,940
Automobiles 73,633 34,125
Leasehold improvements 1,218,011 928,690
Construction in progress 468,666 124,158
----------- -----------
7,531,634 5,844,929
Less accumulated depreciation
and amortization (3,593,058) (3,034,005)
----------- -----------
$ 3,938,576 $ 2,810,924
=========== ===========
</TABLE>
NOTE 6 - INVESTMENT
The following is a summary of the Company's investment in debt and marketable
securities as of December 31, 1999:
<TABLE>
<CAPTION>
NET
UNREALIZED
COST LOSS FAIR VALUE
------------- -------------- --------------
<S> <C> <C> <C>
Available for sale securities $ 125,000 $ 116,050 $ 8,950
============= ============== ==============
</TABLE>
15
<PAGE> 16
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 7 - NOTE RECEIVABLE - STOCKHOLDER
Note receivable due from stockholder at December 31, 1999 and 1998 consists of
the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
6.0% note receivable from stockholder, unsecured, annual payments of
$250,000 plus interest, through maturity in September 2002 $ 750,000 $ --
Less: current portion (250,000) --
------------ ------------
$ 500,000 $ --
============ ============
</TABLE>
NOTE 8 - INCOME TAXES
Deferred income taxes result from temporary timing differences arising from the
capitalization of computer software costs for financial statement purposes while
a current deduction is taken for tax purposes, and the use of the accelerated
cost recovery system for tax purposes while estimated useful lives are used for
financial statement purposes, the use of the reserve method for uncollectible
receivables for financial statement purposes while the direct write-off method
is used for tax purposes, and the inventory adjustment for uniform
capitalization rules for Federal tax purposes with no corresponding adjustment
for financial statement purposes.
The tax provision for the years ended December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current
Federal $ 1,486,513 $ 894,711
State 250,000 200,000
----------- -----------
1,736,513 1,094,711
----------- -----------
Deferred
Federal 48,000 35,000
State 142,000 22,000
----------- -----------
190,000 57,000
----------- -----------
$ 1,926,513 $ 1,151,711
=========== ===========
</TABLE>
16
<PAGE> 17
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 9 - BANK OVERDRAFT
Bank overdraft at December 31, 1999 represents a technical overdraft created by
the amount of checks issued exceeding the balance of cash on deposit recorded in
the records of the Company.
NOTE 10 - ACCOUNTS PAYABLE - RELATED PARTY
At December 31, 1999 and 1998, amounts of $31,001 and $128,027, respectively,
were due to a company related through common ownership. These amounts are
expected to be paid through the ordinary course of business.
NOTE 11 - NOTE PAYABLE TO BANK
The Company maintains short-term unsecured revolving lines of credit with two
separate banks to assure credit availability.
The Company's first revolving line of credit is personally guaranteed by the
stockholders of the Company and permits indebtedness up to $1,000,000 of which
none was advanced at December 31, 1999 and 1998. This revolving line of credit
matures on May 17, 2000. The outstanding principal balance bears interest at a
rate per annum of the bank's prime rate. The bank's prime rate at December 31,
1999 was 8.5%.
Along with this revolving line of credit, the Company entered into an equipment
line of credit on May 14, 1999 that permits indebtedness up to $2,500,000 of
which none was advanced at December 31, 1999. This equipment line of credit
matures on November 14, 2000 and at that time any indebtedness will be converted
into a term loan and the loan would be secured by the equipment financed. The
outstanding principal balance bears interest at a rate per annum of the bank's
prime rate.
The Company had an additional $1,000,000 equipment revolving line of credit
which is personally guaranteed by the stockholders. This line commenced December
1, 1997 and the outstanding amount at maturity on June 30, 1998 was converted to
a term loan. The balance outstanding on this equipment term loan at December 31,
1999 and 1998 was $440,280 and $546,354, respectively (Note 13).
(Note 11 continued on the following page)
17
<PAGE> 18
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 11 - NOTE PAYABLE TO BANK (CONTINUED)
Under the terms of this note payable to the bank, the Company is required to
maintain minimum levels of annual profits, current and cash flow coverage
ratios, and a maximum level of debt to net worth. Expenditures exceeding certain
amounts for property and equipment acquisitions, additional lease obligations
and loans, advances or investments require prior consent of the bank. The
Company was in compliance with all of the aforementioned covenants at December
31, 1999.
The second revolving line of credit is personally guaranteed by the stockholders
of the Company and permits indebtedness up to $1,000,000 of which none was
advanced at December 31, 1999 and 1998. This revolving line of credit matured on
May 31, 1999 and was subsequently renewed through May 31, 2000. The outstanding
principal balance of this line of credit bears interest at a rate per annum of
the bank's prime rate minus 1.0%. The bank's prime rate at December 31, 1999 was
8.5%.
NOTE 12 - ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Insurance $ 44,912 $ 82,925
Salaries, wages and commissions 1,991,940 1,342,835
Sales and excise tax payable 12,646 72,661
Vacation 103,426 51,671
Payroll taxes 85,665 74,838
Profit sharing 50,000 85,063
Other 423,927 68,737
---------- ----------
$2,712,516 $1,778,730
========== ==========
</TABLE>
18
<PAGE> 19
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 13 - LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
2.25% plus LIBOR equipment term loan payable to bank, payable in monthly
installments, including interest, through maturity in August 2003,
secured by equipment (Note 11) $ 440,280 $ 546,354
7.25% mortgage loan payable to mortgage company, payable in monthly
installments of $3,070 including interest, through maturity in January
2026, secured by property 430,182 436,131
--------- ---------
870,462 982,485
Less current portion (125,892) (106,160)
--------- ---------
$ 744,570 $ 876,325
========= =========
</TABLE>
The aggregate maturities of long-term debt for the remaining years are as
follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
2000 125,892
2001 126,327
2002 126,796
2003 87,276
2004 7,765
Thereafter 396,406
--------
$870,462
========
</TABLE>
19
<PAGE> 20
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 14 - NOTES PAYABLE - STOCKHOLDERS
Notes payable to stockholders at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
12.0% note payable to stockholder, interest payable monthly, entire principal
and unpaid interest due at maturity in December 2000, secured by second deed of
trust, paid in full in December 1999 $ -- $ 120,000
12.0% note payable to stockholder, interest payable monthly, entire principal
and unpaid interest due at maturity in December 2000, secured by second deed of
trust, paid in full in June 1999 -- 120,000
12.0% note payable to stockholder, interest payable monthly, entire principal
and unpaid interest due upon demand, subordinate to bank debt, paid in full in
December 1999 -- 240,000
12.0% note payable to stockholder, interest payable monthly, entire principal
and unpaid interest due upon demand, subordinate to bank debt, paid in full in
June 1999 -- 240,000
10.0% note payable to stockholder, interest payable monthly, entire principal
and unpaid interest due upon demand, subordinate to bank debt, paid in full in
June 1999 -- 250,000
-------- ---------
-- 970,000
Less current portion -- (730,000)
-------- ---------
$ -- $ 240,000
======== =========
</TABLE>
20
<PAGE> 21
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 15 - COMMITMENTS WITH RELATED AND UNRELATED PARTIES
OPERATING LEASES AS LESSEE
The Company's operations are conducted in facilities leased under a
noncancelable lease agreement, classified as an operating lease from related
parties. The Company is required to pay property taxes and common area charges
(landscaping, maintenance and property insurance). The agreement expired in
October 1999. A new lease agreement was entered into with the same related
parties in October 1999. The new lease agreement expires on December 31, 2006
and provides for base monthly rents of $45,627.
Rent expense paid to this related party for years ended December 31, 1999 and
1998 was $480,672 and $458,391, respectively.
The Company entered into a noncancelable operating lease agreement with an
unrelated party for additional facilities in December 1999. The lease agreement
expires in August 2004 and provides for base monthly rents of $31,770,
increasing to $34,047 in January 2002. The Company also rents showroom
facilities from unrelated parties on a month to month basis. Monthly rent
payments range from $697 to $824.
In addition, the Company leases automotive equipment under noncancelable lease
agreements. The lease agreements require monthly payments ranging from $1,460 to
$2,270 and expire by January 2002.
Total rent expense on the aforementioned operating leases for the years ended
December 31, 1999 and 1998 was $546,615 and $478,010, respectively.
Future minimum rental commitments for all noncancelable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
2000 $ 962,174
2001 946,284
2002 957,548
2003 956,088
2004 785,853
Thereafter 1,095,048
----------
$5,702,995
==========
</TABLE>
21
<PAGE> 22
FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 16 - SUBSEQUENT EVENTS
Effective March 15, 2000, the stockholders have entered into a letter of intent
to sell all of their outstanding and issued capital stock of Fabrica
International to the Dixie Group, Inc.
This sale will be subject to the satisfactory completion of buyer's and its
lender's due diligence investigation and the approval of the buyer's Board of
Directors. The proposed sale is expected to be completed by June 30, 2000.
22
<PAGE> 23
FABRICA INTERNATIONAL
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Current Assets
Cash $ -- $ --
Accounts receivable - trade 272,000 443,871
Accounts receivable - factored 4,747,000 4,135,322
Accounts receivable - other 462,000 256,105
Inventory 5,551,000 5,382,739
Income taxes receivable -- 135,000
Current portion of note receivable - stockholder 250,000 250,000
Prepaid expenses 1,311,000 50,608
Deferred income taxes 120,000 120,000
------------- -------------
Total current assets 12,713,000 10,773,645
------------- -------------
Property and equipment 8,770,000 7,531,634
Less accumulated depreciation and amortization (3,930,000) (3,593,058)
------------- -------------
Net property and equipment 4,840,000 3,938,576
------------- -------------
Other assets
Investment 9,000 8,950
Note receivable - stockholder 250,000 500,000
Cash surrender value of life insurance -- 200,747
Deposits 32,000 32,000
Deferred income taxes 55,000 55,000
------------- -------------
Total other assets 346,000 796,697
-------------
$ 17,899,000 $ 15,508,918
============= =============
</TABLE>
(Balance sheets continued on the following page)
See accompanying notes to condensed financial statements.
23
<PAGE> 24
FABRICA INTERNATIONAL
CONDENSED BALANCE SHEETS
(CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Current liabilities
Bank overdraft $ 807,000 $ 99,163
Accounts payable - trade 3,374,000 3,853,157
Accounts payable - related party -- 31,001
Accrued liabilities 4,863,000 2,712,516
Advance deposits -- 435,694
Current portion of long-term debt 170,000 125,892
------------- -------------
Total current liabilities 9,214,000 7,257,423
Long-term liabilities
Long-term debt 773,000 744,570
------------- -------------
Total liabilities 9,987,000 8,001,993
------------- -------------
Stockholders' equity
Common stock, no par value, authorized; 540,000
shares, issued and outstanding 43,844 shares 1,036,000 1,036,075
Retained earnings 7,032,000 6,586,900
Accumulated other comprehensive income:
Unrealized (loss) on available-for-sale securities (116,000) (116,050)
------------- -------------
Total stockholders' equity 7,952,000 7,506,925
-------------
$ 17,939,000 $ 15,508,918
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
24
<PAGE> 25
FABRICA INTERNATIONAL
STATEMENTS OF NET INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
June 30, June 30,
2000 1999
------------- -------------
<S> <C> <C>
Gross sales $ 26,065,000 $ 20,938,000
Less freight, discounts and allowances 900,000 1,099,000
------------- -------------
Net sales 25,165,000 19,839,000
Cost of sales 11,865,000 10,173,000
------------- -------------
Gross profit 13,300,000 9,666,000
Operating expenses
Selling 8,306,000 5,901,000
General and administrative 4,004,000 1,719,000
------------- -------------
Total operating expenses 12,310,000 7,620,000
------------- -------------
Operating income 990,000 2,046,000
------------- -------------
Other income (expense)
Interest (expense) (63,000) (80,000)
Other income (expense) (145,000) 14,000
------------- -------------
Total other income (expense) (208,000) (66,000)
------------- -------------
Income before income taxes 782,000 1,980,000
Provision for income taxes 337,000 22,000
------------- -------------
Net income $ 445,000 $ 1,958,000
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
25
<PAGE> 26
FABRICA INTERNATIONAL
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
-------------------------------------
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided (applied) from operating activities $ 1,229,000 $ (1,337,484)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash (applied) from investing activities (1,262,000) (518,395)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided (applied) from financing activities 33,000 (64,485)
------------ ------------
Net (decrease) in cash -- (1,920,364)
Cash (overdraft) at beginning of year -- 1,920,364
------------ ------------
Cash (overdraft) at end of year $ -- $ --
============ ============
</TABLE>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED APPLIED OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Six months ended
-------------------------------------
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 445,000 $ 1,958,000
Adjustments to reconcile net income to net cash
Provided from operating activities
Depreciation and amortization 360,000 282,135
------------ ------------
Total 805,000 2,240,135
Changes in assets and liabilities
(Increase) decrease in assets (1,489,000) (3,606,350)
Increase (decrease) in liabilities 1,913,000 28,731
------------ ------------
Total 424,000 (3,577,619)
Net cash provided (applied) from operating activities $ 1,229,000 $ (1,337,484)
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
26
<PAGE> 27
FABRICA INTERNATIONAL
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and footnotes for the year ended
December 31, 1999.
Note 2 - Allowance for Doubtful Accounts
At June 30, 2000, accounts receivable have been reduced by $400,000 to reflect
an allowance for claims and returns.
Note 3 - Inventory
Inventory at June 30, 2000 is comprised of the following:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
--------------- -----------------
<S> <C> <C>
Raw Materials $ 1,859,000 $ 2,136,202
Work in Process 942,000 725,152
Finished Goods 2,750,000 2,521,385
------------ ------------
$ 5,551,000 $ 5,382,739
</TABLE>
Note 4 - Subsequent Event
On July 1, 2000, The Dixie Group, Inc. acquired 90% of the outstanding capital
stock of the Company.
27
<PAGE> 28
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition of Fabrica had occurred at the beginning of the
periods presented after giving effect to certain adjustments. Adjustments
include reclassifications of certain sales related costs to conform to the
Company's presentation, employee related expenses for salaries and bonus
arrangements and interest expense on debt to finance the acquisition,
depreciation expense on adjusted fixed asset values and related income taxes,
and certain reclassifications of expenses to reflect the Dixie Group's
presentation. The pro forma results are presented for comparative purposes only
and do not purport to be indicative of future results or the results that would
have occurred had the acquisition taken place at the beginning of the periods
presented. The pro forma information below does not include information
pertaining to the equity investment in Chroma. The pro forma information should
be read in conjunction with the consolidated financial statements of The Dixie
Group, Inc. included in The Dixie Group's 1999 annual report (which is included
in The Dixie Group's Form 10-K for the year ended December 25, 1999), The Dixie
Group's quarterly report on Form 10-Q for the quarter ended July 1, 2000 and the
financial statements of The Dixie Group, Inc. and Fabrica included elsewhere
herein.
28
<PAGE> 29
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 1, 2000
(Unaudited)
<TABLE>
<CAPTION>
Actual
----------------------- Pro Forma Pro Forma
Dixie Group Fabrica Adjustments Combined
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 272,232 $ 25,165 $ -- $297,397
Cost of sales 217,505 11,865 -- 229,370
--------- -------- -------- --------
GROSS PROFIT 54,727 13,300 -- 68,027
Selling and administrative expenses 46,569 12,310 (2,450) 56,429
Other (income) expense - net (138) 145 -- 7
--------- -------- -------- --------
INCOME BEFORE INTEREST AND TAXES 8,296 845 2,450 12,221
Interest expense 8,115 63 245 8,423
--------- -------- -------- --------
INCOME BEFORE INCOME TAXES 181 782 2,205 3,168
Income tax provision 111 337 858 1,306
--------- -------- -------- --------
Income from Continuing Operations $ 70 $ 445 $ 1,347 $ 1,862
Income from Disposal of Discontinued
Operations -- -- -- --
--------- -------- -------- --------
Net Income $ 70 $ 445 $ 1,347 $ 1,862
========= ======== ======== ========
Earnings per Share:
Basic Earnings per share:
Income from continuing operations $ 0.01 $ 0.16
Income from disposal of
discontinued operations -- --
--------- --------
Net Income $ 0.01 $ 0.16
========= ========
Shares outstanding 11,472 11,472
Diluted Earnings per share:
Income from continuing operations $ 0.01 $ 0.16
Income from disposal of
discontinued operations -- --
--------- --------
Net Income $ 0.01 $ 0.16
========= ========
Shares outstanding 11,490 11,490
</TABLE>
<PAGE> 30
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 25, 1999
(Unaudited)
<TABLE>
<CAPTION>
Actual
----------------------- Pro Forma Pro Forma
Dixie Group Fabrica Adjustments Combined
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $579,466 $ 42,985 $ 78 $622,529
Cost of sales 456,360 24,773 (2,543) 478,590
---------- -------- ----------- ---------
GROSS PROFIT 123,106 18,212 2,621 143,939
Selling and administrative expenses 87,604 13,346 1,171 102,121
Other expense - net 2,081 (32) -- 2,049
---------- -------- ----------- ---------
INCOME BEFORE INTEREST AND TAXES 33,421 4,898 1,450 39,769
Interest expense 13,051 166 490 13,707
---------- -------- ----------- ---------
INCOME BEFORE INCOME TAXES 20,370 4,732 960 26,062
Income tax provision 7,971 1,927 351 10,249
---------- -------- ----------- ---------
INCOME FROM CONTINUING OPERATIONS 12,399 2,805 609 15,813
INCOME ON DISPOSAL OF DISCONTINUED
OPERATIONS 4,792 -- -- 4,792
---------- -------- ----------- ---------
NET INCOME $ 17,191 $ 2,805 $ 609 $ 20,605
========== ======== =========== =========
Basic earnings per share:
Income from continuing operations $ 1.09 $ 1.39
Income on disposal of discontinued operations 0.42 0.42
---------- ---------
Net income $ 1.51 $ 1.81
========== =========
Shares Outstanding 11,355 11,355
Diluted earnings per share
Income from continuing operations $ 1.06 $ 1.35
Income on disposal of discontinued operations 0.41 0.41
---------- ---------
Net income $ 1.47 $ 1.76
========== =========
Shares Outstanding 11,682 11,682
</TABLE>
<PAGE> 31
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 hereunto duly authorized.
Date: September 15, 2000 THE DIXIE GROUP, INC.
By: /s/ Gary A Harmon
--------------------------------
Gary A. Harmon
Chief Financial Officer
