-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DTCvr1B8/XKlltUzHoVqqr1dEwhLLs1pZBjkc7wFv9pIn6u/7I0l/lfAwgND/w8Y BWbhEAqASQYbHCyWojBksw== 0000029332-00-000009.txt : 20000517 0000029332-00-000009.hdr.sgml : 20000517 ACCESSION NUMBER: 0000029332-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXIE GROUP INC CENTRAL INDEX KEY: 0000029332 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 620183370 STATE OF INCORPORATION: TN FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02585 FILM NUMBER: 637123 BUSINESS ADDRESS: STREET 1: 1100 S WATKINS ST CITY: CHATTANOOGA STATE: TN ZIP: 37404 BUSINESS PHONE: 6156982501 MAIL ADDRESS: STREET 1: 1100 S WATKINS ST CITY: CHATTANOOGA STATE: TN ZIP: 37404 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE YARNS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE MERCERIZING CO DATE OF NAME CHANGE: 19670524 10-Q 1 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 April 1, 2000 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 April 28, 2000 Common Stock, $3 Par Value 10,747,058 shares Class B Common Stock, $3 Par Value 795,970 shares Class C Common Stock, $3 Par Value 0 shares 1 THE DIXIE GROUP, INC. INDEX Part I. Financial Information: Page No. Consolidated Condensed Balance Sheets -- April 1, 2000 and December 25, 1999 3 Consolidated Statements of Operations -- Three Months Ended April 1, 2000 and March 27, 1999 5 Consolidated Condensed Statements of Cash Flows -- Three Months Ended April 1, 2000 and March 27, 1999 6 Consolidated Statement of Stockholder's Equity -- Three Months Ended April 1, 2000 8 Notes to Consolidated Condensed Financial Statements 9 Management's Discussion and Analysis of Results of Operations and Financial Condition 14 Part II. Other Information: Item 1 - Legal Proceedings 17 Item 2 - Changes in Securities and Use of Proceeds 17 Item 3 - Defaults Upon Senior Securities 17 Item 4 - Submission of Matters to a Vote of Security Holders 17 Item 5 - Other Information 18 Item 6 - Exhibits and Reports on Form 8-K 18 2 PART I - ITEM 1 FINANCIAL INFORMATION THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) April 1, December 25, 2000 1999 _____________ ____________ (dollar amounts in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,413 $ 12,541 Accounts receivable (less allowance for doubtful accounts of $1,736 for 2000 and $1,831 for 1999) 18,996 19,454 Inventories 120,857 104,042 Net assets held for sale 457 457 Other 14,148 14,471 _____________ ____________ TOTAL CURRENT ASSETS 167,871 150,965 PROPERTY, PLANT AND EQUIPMENT 321,520 307,766 Less accumulated amortization and depreciation (139,984) (134,180) _____________ ____________ NET PROPERTY, PLANT AND EQUIPMENT 181,536 173,586 INTANGIBLE ASSETS (less accumulated amortization of $6,585 for 2000 and $6,190 for 1999) 51,862 52,460 OTHER ASSETS 15,107 14,890 _____________ ____________ TOTAL ASSETS $ 416,376 $ 391,901 _____________ ____________ _____________ ____________ See Notes to Consolidated Condensed Financial Statements. 3 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) April 1, December 25, 2000 1999 _____________ ____________ (dollar amounts in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 35,068 $ 53,590 Accrued expenses 20,091 26,241 Accrued losses of discontinued operations 3,276 3,461 Current portion of long-term debt 13,824 13,460 _____________ ____________ TOTAL CURRENT LIABILITIES 72,259 96,752 LONG-TERM DEBT Senior indebtedness 113,425 60,961 Subordinated notes 42,857 45,238 Convertible subordinated debentures 37,237 37,237 _____________ ____________ TOTAL LONG-TERM DEBT 193,519 143,436 OTHER LIABILITIES 10,355 10,295 DEFERRED INCOME TAXES 23,508 23,508 STOCKHOLDERS' EQUITY Common Stock ($3 par value per share) authorized 80,000,000 shares - issued and outstanding, 14,265,296 shares for 2000 and 14,264,277 shares for 1999 42,796 42,793 Class B Common Stock ($3 par value per share) authorized 16,000,000 shares - issued and outstanding, 795,970 shares for 2000 and 1999 2,388 2,388 Common Stock Subscribed - 646,230 shares for 2000 and 620,516 shares for 1999 1,939 1,861 Additional paid-in capital 136,260 136,144 Stock subscriptions receivable (5,649) (5,456) Unearned stock compensation (453) (489) Retained earnings (deficit) (3,843) (2,659) Accumulated other comprehensive income (412) (412) _____________ ____________ 173,026 174,170 Less Common Stock in treasury at cost - 3,516,798 shares for 2000 and 3,511,829 shares for 1999 (56,291) (56,260) _____________ ____________ TOTAL STOCKHOLDERS' EQUITY 116,735 117,910 _____________ ____________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 416,376 $ 391,901 _____________ ____________ _____________ ____________ See Notes to Consolidated Condensed Financial Statements. 4 THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended ______________________________ April 1, March 27, 2000 1999 _____________ _____________ (dollar amounts in thousands, except per share data) Net sales $ 131,574 $ 141,224 Cost of sales 106,199 112,014 _____________ _____________ GROSS PROFIT 25,375 29,210 Selling and administrative expenses 23,160 20,470 Other expense - net 132 1,120 _____________ _____________ INCOME BEFORE INTEREST AND TAXES 2,083 7,620 Interest expense 4,002 3,346 _____________ _____________ INCOME (LOSS) BEFORE INCOME TAXES (1,919) 4,274 Income tax provision (benefit) (735) 1,694 _____________ _____________ Net Income (Loss) $ (1,184) $ 2,580 _____________ _____________ _____________ _____________ Earnings per Share: Basic Earnings (Loss) per share: Income (loss) from continuing operations $ (0.10) $ 0.23 Income from discontinued operations - - Net Income (Loss) $ (0.10) $ 0.23 _____________ ____________ Shares outstanding 11,474 11,282 Diluted Earnings (Loss) per share: Income (loss) from continuing operations $ (0.10) $ 0.22 Income from discontinued operations - - Net Income (Loss) $ (0.10) $ 0.22 _____________ ____________ Shares outstanding 11,474 11,627 Dividends per share: Common Stock $ -- $ -- Class B Common Stock $ -- $ -- See Notes to Consolidated Condensed Financial Statements. 5 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended ______________________________ April 1, March 27, 2000 1999 _____________ _____________ (dollar amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (1,184) $ 2,580 Depreciation and amortization 6,429 6,260 Provision (benefit) for deferred income taxes --- 1 Gain on property, plant and equipment disposals (352) --- _____________ _____________ 4,893 8,841 Changes in operating assets and liabilities, net of effects of business combination (40,967) (17,684) _____________ _____________ NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (36,074) (8,843) CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from sale of property, plant, and equipment 617 --- Net proceeds from assets held for sale --- 9,943 Purchase of property, plant, and equipment: Continuing operations (14,091) (4,745) Discontinued operations --- (657) Net cash paid in business combinations --- (32,194) _____________ ____________ NET CASH USED IN INVESTING ACTIVITIES (13,474) (27,653) See Notes to Consolidated Condensed Financial Statements. 6 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED) Three Months Ended ______________________________ April 1, March 27, 2000 1999 _____________ _____________ (dollar amounts in thousands) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in credit line borrowings 55,745 36,612 Payments on term loan (2,908) (1,500) Payments on subordinated notes (2,381) --- Other (36) 351 _____________ _____________ NET CASH PROVIDED BY FINANCING ACTIVITIES 50,420 35,463 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 872 (1,033) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,541 2,815 _____________ _____________ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,413 $ 1,782 _____________ _____________ _____________ _____________ SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 3,957 $ 4,122 ____________ _____________ ____________ _____________ Income taxes paid, net of tax refunds (received) $ (33) $ 967 ____________ _____________ ____________ _____________ See Notes to Consolidated Condensed Financial Statements. 7
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars 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 BALANCE AT DECEMBER 25, 1999 $45,181 $1,861 $136,144 $(5,945) $ (2,659) $ (412) $(56,260) $117,910 Common Stock acquired for treasury - 4,969 shares (31) (31) Common Stock subscribed - 45,714 shares 138 203 (341) - Stock subscriptions settled - 20,000 shares (60) (87) 147 - Amortization of restricted Stock grants 36 36 Other 3 1 4 Net income (loss) for the period (1,184) (1,184) BALANCE AT APRIL 1, 2000 $45,184 $1,939 $136,260 $(6,102) $ (3,843) $ (412) $(56,291) $116,735
See notes to consolidated financial statements. 8 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 months ended April 1, 2000 are not necessarily indicative of the results that may be expected for the entire year. Cash and Cash Equivalents: Cash and highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents. Credit and Market Risk: The Company sells floorcovering products and, prior to July 1999, sold 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. The Company invests its excess cash in short-term investments and has not experienced any losses on those investments. NOTE B - INVENTORIES Inventories are stated at the lower of cost or market. At December 25, 1999 and April 1, 2000, the last-in, first-out (LIFO) cost method was used for approximately 80% of total inventories and the first-in, first-out (FIFO) cost method was used for approximately 20% of total inventories. Inventories are summarized as follows: April 1, December 25, 2000 1999 _____________ ____________ At FIFO cost: Raw materials $ 39,196 $ 31,664 Work-in-process 19,160 18,389 Finished goods 57,562 49,121 Supplies, repair parts, and other 2,051 1,835 _____________ ____________ 117,969 101,009 LIFO value over FIFO value 2,888 3,033 _____________ ____________ Total inventories $ 120,857 $ 104,042 _____________ ____________ _____________ ____________ 9 NOTE C - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: April 1, March 27, 2000 1999 Income (loss) from continuing operations (1) $ (1,184) $ 2,580 Income from discontinued operations (1) - - --------- --------- Net income (loss) $ (1,184) $ 2,580 _________ _________ _________ _________ Denominator for calculation of basic earnings per share - weighted average shares (2) 11,474 11,282 Effect of dilutive securities: Stock options - 200 Stock subscriptions - 145 Denominator for calculation of diluted earnings per share - weighted average shares adjusted --------- --------- for potential dilution (3) 11,474 11,627 _________ _________ _________ _________ Basic Earnings (Loss) per share: Income (loss) from continuing operations $ (0.10) $ 0.23 Income from discontinued operations - - --------- --------- Net Income (loss) $ (0.10) $ 0.23 _________ _________ _________ _________ Diluted Earnings (Loss) per share: Income (loss) from continuing operations $ (0.10) $ 0.22 Income from discontinued operations - - --------- --------- Net Income (loss) $ (0.10) $ 0.22 _________ _________ _________ _________ Dividends per share: Common Stock $ -- $ -- Class B Common Stock $ -- $ -- (1) No adjustments needed for diluted calculation. (2) Includes Common and Class B Common shares in thousands. (3) Because their effects are anti-dilutive, excludes shares issuable pursuant to certain grants under stock option, stock subscription, and restricted stock plans and the assumed conversion of subordinated debentures into shares of Common Stock as follows: 3,298 shares in 2000 and 2,634 shares in 1999. 10 NOTE D - LONG TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists of the following: April 1, December 25, 2000 1999 Senior indebtedness: Credit line borrowings $ 85,818 $ 30,073 Term loan 33,438 36,346 Other 731 740 -------- -------- Total senior indebtedness 119,987 67,159 Subordinated notes 47,619 50,000 Convertible subordinated debentures 39,737 39,737 -------- -------- Total long-term debt 207,343 156,896 Less current portion (13,824) (13,460) Total long-term debt (less current -------- -------- portion) $193,519 $143,436 ________ ________ ________ ________ 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 beginning on March 31, 1998, and a $60.0 million, 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. 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. The Company's subordinated notes are unsecured, bear interest at 9.96% to 10.61% payable semiannually, and are due in semiannual installments of $2,381 which commenced 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. The payment of future dividends is currently limited to 50% of aggregate consolidated net income subsequent to December 25, 1999. As of April 1, 2000, the most restrictive covenants under the revolving credit and term-loan agreement limit available borrowing capacity to $9.3 million (including amounts available under short-term credit lines). 11 NOTE E - SEGMENT DATA The Company's floorcovering operations are segmented around product similarities between its Carpet Manufacturing and Floorcovering Base Materials businesses. The Company's Carpet Manufacturing operations supply carpet and rugs to the factory-built housing and recreational vehicle markets through Carriage Carpets, to consumers through major retailers under the Bretlin and Globaltex brands, through select distributors under the Alliance Mills name and to higher-end residential and commercial customers serviced by Masland Carpets. The Company's Floorcovering Base Materials operations supply extruded plied and heat-set filament and spun yarns, through Candlewick Yarns, to the Company's Carpet Manufacturing segment and, to a lesser extent, to specialty carpet yarn markets. The following table reflects selected operating data relating to the two reportable segments of the Company: Quarter Ended April 1, March 27, 2000 1999 SALES TO EXTERNAL CUSTOMERS Carpet Manufacturing $111,557 $108,132 Floorcovering Base Materials 19,212 31,806 Other 805 1,286 ------- ------- Total sales to external customers $131,574 $141,224 INTERSEGMENTAL SALES Carpet Manufacturing $ 2,443 $ 2,153 Floorcovering Base Materials 32,941 20,141 Other 2,790 1,905 ------- ------- Total intersegmental sales $ 38,174 $ 24,199 OPERATING PROFIT (Internal E.B.I.T.) Carpet Manufacturing $ 2,415 $ 6,390 Floorcovering Base Materials (1,266) 1,216 Other 934 14 ------- ------- Total operating profit (Internal E.B.I.T.) 2,083 7,620 Interest expense 4,002 3,346 Consolidated income (loss) before income ------- ------- taxes from continuing operations $ (1,919) $ 4,274 _______ _______ _______ _______ IDENTIFIABLE ASSETS Carpet Manufacturing $311,595 $292,889 Floorcovering Base Materials 82,215 76,051 Other 22,109 22,504 Assets of discontinued operations 457 457 ------- ------- Total consolidated assets $416,376 $391,901 12 NOTE F - RECENT EVENTS On March 28, 2000, the Company announced that it had signed a letter of intent to acquire privately held, high-end carpet and rug maker Fabrica International and its interests in Chroma Systems Partners' dyeing and finishing operations. The transaction is subject to regulatory approval, due diligence review and execution of a definitive purchase agreement. The Company anticipates closing the transaction before the end of June 2000. Fabrica, headquartered in Santa Ana, California, with estimated 2000 sales in excess of $50 million, manufactures and sells high-end luxury carpet and rugs to carpet retailers, interior designers, manufacturers of luxury yachts, furniture stores and other markets. 13 PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following is presented to update the discussion of results of operations and financial condition included in the Company's 1999 Annual Report. (dollar amounts in thousands, except per share data) RESULTS OF OPERATIONS The Company reported a net loss for the quarter ended April 1, 2000 of $1,184 or $.10 per diluted share, on sales of $131,574. The comparable 1999 period reflected net income of $2,580, or $.22 per diluted share, on sales of $141,224. The decline in sales and net income for the period is discussed in the Company's segment analysis below. The Company's floorcovering operations are segmented around product similarities between its Carpet Manufacturing and Floorcovering Base Materials businesses. The Company's Carpet Manufacturing operations supply carpet and rugs to the factory-built housing and recreational vehicle markets through Carriage Carpets, to consumers through major retailers under the Bretlin and Globaltex brands, through select distributors under the Alliance Mills name and to higher-end residential and commercial customers serviced by Masland Carpets. The Company's Floorcovering Base Materials operations supply extruded plied and heat-set filament and spun yarns, through Candlewick Yarns, to the Company's Carpet Manufacturing segment and, to a lesser extent, to specialty carpet yarn markets. The following table reflects selected operating data relating to the two reportable segments of the Company: Quarter Ended April 1, March 27, 2000 1999 SALES TO EXTERNAL CUSTOMERS Carpet Manufacturing $111,557 $108,132 Floorcovering Base Materials 19,212 31,806 Other 805 1,286 ------- ------- Total sales $131,574 $141,224 OPERATING PROFIT (Internal E.B.I.T.) Carpet Manufacturing $ 2,415 $ 6,390 Floorcovering Base Materials (1,266) 1,216 Other 934 14 ------ ------ Total operating profit (Internal E.B.I.T.) $ 2,083 $ 7,620 14 Sales to external customers in the Company's Carpet Manufacturing segment for the quarter ended April 1, 2000 were $111,557, an increase of $3,425 or 3.2% over the comparable period in 1999. The increase was a result of increased volume in our high-end commercial and residential business of over 10% and our home center/mass merchant business of over 20% which more than offset a decline in sales to the factory-built housing market. Operating profits in the Carpet Manufacturing segment were $2,415 in the first quarter of 2000 compared with $6,380 in the first quarter of 1999. The profitability decrease was a result of lower shipment volume to the factory-built housing industry, inefficiencies created due to rapid expansion in our home center business, higher raw material costs and marketing costs and other expenses associated with the start-up of the Company's Alliance Mills distributor partnership. Sales to external customers in the Company's Floorcovering Base Materials segment for the quarter ended April 1, 2000 were $19,212, a decrease of $12,594 or 39.6% below the comparable period in 1999. The decrease was a result of the sale of the Ulmer, SC plant in July 1999, greater utilization of yarn capacity by our carpet operations and the shift of a number of the Company's external yarn programs from a full package basis to a conversion basis, in which the customer supplies fiber for yarn processing. Operations in the Floorcovering Base Materials segment resulted in a loss of $1,266 in the first quarter of 2000 compared with an operating profit of $1,216 in the first quarter of 1999. The profitability decrease was principally a result of cost associated with realignment and expansion of the Company's yarn manufacturing facilities, expansion of the Company's extrusion capacity and higher raw material prices. A number of the Company's suppliers, whose products are petroleum based, increased prices of raw materials purchased by each of the Company's two reportable segments in the first quarter of 2000. The Company's ability to recover raw material cost increases varied according to the market served. Selling and administrative expenses were $23,160, or 17.6% of sales, in the first quarter of 2000 compared with $20,470, or 14.5% of sales, in the first quarter of 1999. The increase resulted from growth in the high-end residential, commercial and home center businesses, which have higher selling and administrative expenses. Also, selling and administrative expenses were impacted by marketing costs and other expenses associated with the start-up of the Company's Alliance Mills distributor partnership. Selling and administrative expenses increased as a percent of sales because of the decline in external sales of floorcovering base materials. Such external sales have relatively small selling and administrative expenses per dollar of sales. Interest expense was $4,002 which was an increase of $656 or 19.6% over the comparable period in 1999 due an increase in interest rates and an increase in debt from higher working capital. LIQUIDITY AND CAPITAL RESOURCES During the first three months of 2000, the Company's long-term debt increased $50,447 from the 1999 year-end level. The increase resulted from expenditures of $14,091 for property, plant and equipment and $36,074 of funds used by operating activities, net of $617 of proceeds from sale of 15 property, plant and equipment. The majority of the capital expenditures in the first quarter of 2000 were focused on the Company's yarn restructuring, extrusion expansion and Bretlin's new distribution center. Working capital increased as a result of higher inventory levels during the quarter and higher levels of accounts payable and accrued expenses at the end of 1999. The Company increased its inventory in response to anticipated disruptions in manufacturing related to the Company's planned rationalization of its yarn facilities, extrusion expansion and completion of Bretlin's new distribution center At April 1, 2000, the Company's debt consisted of $39.7 million of convertible subordinated debentures, $47.6 million of subordinated notes, $33.4 million of senior term loans and $85.8 million of credit line indebtedness, principally under the Company's senior credit agreement. Annual payments for the convertible subordinated debentures, the subordinated notes and the senior term loan are approximately $13.6 million in 2000. The Company's unsecured credit agreement was replaced in March 1998 and provides for a revolving credit of up to $100.0 million through a five-year commitment period and a $60.0 million seven-year term loan. Under the terms of the credit agreement, borrowing capacity is permanently reduced by 50% of the net cash proceeds from certain significant asset sales. Accordingly, the term loan has been reduced by $14.0 million as a result of asset sales in 1999. Interest rates available under the credit agreement 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 0.5%. As of April 1, 2000, the available unused borrowing capacity under the Company's credit agreements (including amounts available under short-term credit lines) was $9.3 million. 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. Currently, payment of dividends is limited to 50% of aggregate consolidated net income subsequent to December 25, 1999. 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. This agreement expires in October 2000. The Company is currently in the process of replacing this facility with an accounts receivable sales facility where costs will vary with interest rates. The Company anticipates completion of an agreement for the replacement facility by mid year 2000. Availability under the Company's existing debt arrangements, the anticipated replacement of the accounts receivable sale arrangement and operating cash flows are expected to be adequate to finance the Company's anticipated liquidity requirements. However, significant additional cash expenditures beyond normal requirements could require the supplementation or replacement of the Company's credit facilities. There can be no assurance that any such additional credit will be available on terms as favorable as the Company's current credit facilities. 16 YEAR 2000 SYSTEMS ISSUES The Company has not experienced any significant system related year 2000 conversion issues. The Company believes it identified all information technology systems that could be impacted by the year 2000 issue. Incremental costs associated with all aspects of year 2000 compliance and remediation were not material. FORWARD - LOOKING INFORMATION This Quarterly Report on Form 10-Q 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 its historical results or those expressed in the forward-looking statements. These risks include, among others, market risks relating to interest rates, raw material prices, the loss of a significant customer or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets served by the Company and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. 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. 17 Item 5 - Other Information On March 28, 2000, the Company announced that it had signed a letter of intent to acquire privately held, high-end carpet and rug maker Fabrica International and its interests in Chroma Systems Partners' dyeing and finishing operations. The transaction is subject to regulatory approval, due diligence review and execution of a definitive purchase agreement. The Company anticipates closing the transaction before the end of June 2000. Fabrica, headquartered in Santa Ana, California, with estimated 2000 sales in excess of $50 million, manufactures and sells high-end luxury carpet and rugs to carpet retailers, interior designers, manufacturers of luxury yachts, furniture stores and other markets. 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 April 1, 2000. 18 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) May 16, 2000 ____________________ (Date) /s/GARY A. HARMON __________________________ Gary A. Harmon Vice President and Chief Financial Officer /s/D. EUGENE LASATER __________________________ D. Eugene Lasater Controller 19 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT AND FOR THE THREE MONTHS ENDED APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-30-2000 APR-01-2000 13,413 0 20,732 1,736 120,857 167,871 321,520 139,984 416,376 72,259 193,519 45,184 0 0 71,551 416,376 131,574 131,574 106,199 106,199 0 0 4,002 (1,919) (735) (1,184) 0 0 0 (1,184) (0.10) (0.10)
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