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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 28, 2002
OR
Commission File Number 0-2585
|
|
345-B Nowlin Lane, Chattanooga, TN |
37421 |
(423) 510-7000 Registrant's telephone number, including area code |
|
|
|
Title of Each Class |
Name of Each Exchange on Which Registered |
Securities Registered Pursuant to Section 12(g) of the Act: |
|
Common Stock, $3.00 Par Value |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. |
|
Yes [x] |
No [ ] |
UNITED STATES
SECURITIES AND EXCHANGE COMMSSION
Washington, D. C. 20549
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes [ ] |
No [ X ] |
The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 28, 2002 (the last business day of the registrant's most recently completed fiscal second quarter) was $64,245,646. The aggregate market value was computed by reference to the closing price of the stock on such date. In making this calculation, the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 10% of a class of outstanding Common Stock, and no other persons, are affiliates. No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act.
Class |
Outstanding as of March 7, 2003 |
Common Stock, $3.00 Par Value |
10,972,982 shares |
Class B Common Stock, $3.00 Par Value |
795,970 shares |
Class C Common Stock, $3.00 Par Value |
0 shares |
Documents Incorporated By Reference.
Specified portions of the following documents are incorporated by reference:
Proxy Statement of the registrant for annual meeting of shareholders to be held May 1, 2003 (PART III).
PART I
ITEM 1. BUSINESS
General
We are a leading floorcovering manufacturer and are currently ranked as the fifth largest carpet company in the United States. Our business is focused on meeting the special floorcovering needs of customers in a variety of markets, including high-end residential, high-end commercial, factory-built and modular housing, needlebond and tufted indoor/outdoor carpet, as well as recreational vehicle and exposition/trade show installations.
Our Recent History
Beginning with the acquisitions of Carriage Carpets, Bretlin, Inc. and Masland Carpets, Inc. in 1993, we embarked on a transition that included both the sale of all of our traditional textile products businesses and continuous expansion in the soft floorcovering industry. Subsequent acquisitions included Patrick Carpet Mills in 1994, Danube Carpet Mills, Inc. and certain needlebond assets of General Felt Industries, Inc. in 1997 and Ideal Fibers, Inc. in late 1998. In January 1999, we acquired the assets of Multitex Corporation of America, Inc. (Globaltex) and Graphic Technologies, Inc. In 2000, we acquired Fabrica International and an interest in the dyeing and finishing operations of Chroma Systems Partners. This process transformed us from a textile producer into a leading floorcovering manufacturer and supplier to customers in the specialty markets served by each of our business units.
From 1995 through 1999, the strategic realignment that drove our expansion into the soft floorcovering industry produced consistent growth for us, resulting in compounded annual growth rates of 13% in revenues and 18% in operating earnings.
This transformation of our company, however, did not come without its own significant challenges. During 2000 and 2001, our profitability was adversely impacted by a number of factors, including both operational inefficiencies in the assimilation of certain of our North Georgia carpet acquisitions and a significant decline in the factory-built and modular housing industry.
We responded to these challenges by consolidating our North Georgia manufacturing and distribution operations and reorganizing them under a streamlined management structure. We have succeeded in achieving significant sales growth in our high-end, higher margin businesses to reduce the impact on the Company of cyclical downturns in the factory-built and modular housing market. Since June of 2000 through the end of fiscal 2002, we have achieved significant reductions in our overall workforce (31%) and inventory levels (24%). Since its high point in August 2000, our indebtedness (including amounts advanced under our prior accounts receivable securitization program) was reduced by 44%. We believe these achievements have positioned us for more profitable growth in the periods ahead as we build on the competitive strengths that we have established in a variety of markets within the floorcovering industry.
Our Business Units
Fabrica
Fabrica, founded in 1977, manufactures and markets luxurious residential carpet and custom rugs, at selling prices that we believe are approximately five times the average for the soft floorcovering industry, to interior decorators and designers, selected retailers and furniture stores, luxury home builders and manufacturers of luxury motor coaches and yachts. Fabrica is among the leading premium brands in the domestic marketplace, known for styling innovation and unique colors and patterns. Fabrica is viewed by the trade as a premier brand and resource for very high-end carpet. Fabrica also is known as a styling trend-setter and a market leader in the very high-end residential sector. Since its acquisition in July 2000, sales have continued to grow and now accounts for approximately 11% of our sales.
Masland
Masland Carpets, founded in 1866, manufactures and markets design-driven specialty carpets and rugs for the high-end residential and high-end commercial marketplaces. Its residential broadloom carpet products are marketed at selling prices that we believe are approximately four times the average for the soft floorcovering industry. Its products are marketed through the architectural, specifier and interior design communities, to consumers through specialty floorcovering showrooms and directly to corporate end-users. Masland accounts for approximately 27% of our sales, divided equally between high-end residential and high-end commercial markets. Masland has strong brand recognition within the high-end residential and high-end commercial markets. Masland competes in each of these markets through innovative styling, color, product design, quality and service.
Since we acquired Masland in July 1993, its sales have grown from $48 million to approximately $136 million in 2002. This growth has been driven in part by Masland's successful entrance into the high-end commercial carpet business, which reported approximately $68 million of sales in 2002.
A recent independent study by Kurt Salmon Associates, a management consulting firm specializing in the consumer soft-goods industry, surveyed opinion within the domestic architectural and interior design communities. The results of this study support our belief that Masland and Fabrica are highly regarded, primary resources in the high-end and very high-end residential and high-end commercial markets, well known for innovative styling and color.
North Georgia Operations
Carriage Carpets, founded in 1969, manufactures and markets tufted broadloom carpet specifically designed to meet the needs of its customers in the factory-built and modular housing, recreational vehicle and exposition/trade show industries. Carriage is known for its ability to provide its customers with specialized floorcovering solutions including exact widths, coordinated colors and outstanding service. Carriage's specialty products are designed to maximize efficiency and minimize waste for its customers. Carriage accounts for approximately 27% of our sales.
Our focus on developing solutions which cater to the requirements of customers who utilize floorcovering products in specialized applications has led to a significant market share in the factory-built and modular housing industries, that we believe is approximately two-thirds.
Bretlin, founded in 1981, manufactures and markets needlebond indoor/outdoor carpet, runners, floor mats, decorative accent rugs, industrial fabrics and carpet pads, as well as tufted indoor/outdoor carpet, to home centers, mass merchants and selected independent floorcovering retailers and distributors. Bretlin, which accounts for approximately 13% of our sales, has only one significant domestic competitor for its needlebond floorcovering products.
Dixie Home is a new name chosen in 2003 through which we market an array of tufted broadloom residential carpet to home centers, mass merchant retailers and selected retailers and distributors under the Globaltex, Metro Mills, and private label brands. We have also developed a collection of high-end differentiated tufted broadloom residential carpet products at selling prices which we believe range from two to three times the average for the soft floorcovering industry. These products are marketed under the Dixie Home name, have been well received in the market place and are intended to significantly increase our sales and presence with retailers and distributors. Dixie Home currently accounts for approximately 15% of our sales.
Candlewick, purchased in 1952, develops and produces a complex variety of innovative filament and spun yarns for our internal needs and external customers. Our carpet manufacturing operations utilizes approximately 78% of Candlewick's unit production volume. Candlewick's external specialty yarn sales presently account for approximately 7% of our sales, and the portion of Candlewick's capacity devoted to external sales could be converted for use by our other businesses without requiring further significant capital investment. Its expertise and experience in the development of new, uniquely-styled proprietary yarns are key factors in the ability of our carpet businesses to consistently develop specialized, targeted products that are believed to be difficult for our competitors to readily duplicate.
Candlewick is managed as part of our North Georgia operations. We have, however, historically regarded our businesses as segmented between floorcovering products and carpet yarns (floorcovering base materials) (see Note O to our consolidated financial statements for the year ended December 28, 2002).
Industry
The carpet and rug industry has two primary markets, residential and commercial, with the residential market making up the largest portion of the industry's sales. A substantial portion of industry shipments is made in response to replacement demand. Residential products consist of broadloom carpets, rugs and bathmats in a broad range of styles, colors and textures. Commercial products consist primarily of broadloom carpets for a variety of institutional applications such as office buildings, restaurant chains, schools and other commercial establishments. The carpet industry also manufactures carpet for the automotive, recreational vehicle and small boat and other industries.
The Carpet and Rug Institute (the "CRI") is the national trade association representing carpet and rug manufacturers. Based on information compiled by the CRI, the domestic carpet and rug industry is composed of fewer than 100 manufacturers, with a significant majority of the industry's production concentrated in a limited number of manufacturers. The carpet industry has undergone substantial consolidation in recent years. We believe that these consolidations provide us with opportunities to capitalize on our competitive strengths in selected markets, as discussed in greater detail above, where styling, product differentiation and focused service can add value to selected customers.
Competition
The floorcovering industry is highly competitive. We compete with other carpet manufacturers and manufacturers of other types of floorcoverings. Although the industry recently has experienced consolidation, a large number of manufacturers remain. We believe that we are the largest manufacturer for the factory-built and modular housing market, a leading manufacturer of indoor/outdoor needlebond carpet and a design and market leader in the high-end residential and high-end commercial markets. However, a number of competitors manufacture these products and some of these competitors have greater financial resources than we do.
We believe the principal competitive factors in our primary floorcovering markets are quality, design, service, product performance and pricing. In the high-end residential and high-end commercial markets, carpet competes with various other types of floorcoverings. We compete with innovative styling, color, product design, quality and service with the Masland, Fabrica and Dixie Home brands. In the home center/mass merchant broadloom market, where we face several competitors, our Globaltex and Metro Mills brands compete on the basis of their product differentiation, service and speed of delivery. In the factory-built and modular housing and the recreational vehicle and exposition/trade show markets, Carriage competes with its ability to provide specialized floorcovering solutions and its own trucking fleet, which insures that the critical delivery schedules of its customers are met.
We believe we have competitive advantages in several areas. Our focus on diverse markets has allowed us to establish a strong presence in several specialized segments of the soft floorcovering industry and will make us less vulnerable to economic downturns affecting customers in any single market or industry. We have an attractive portfolio of brands that we believe are well known and highly regarded by customers in each of the markets in which we compete. In addition, we have established longstanding relationships with key suppliers in our industry and customers in most of our markets. Finally, our reputation for innovative design excellence and our experienced management team also enhances our competitive position.
Backlog
Sales order backlog is not material to an understanding of our business, due to relatively short lead times for order fulfillment for the markets served by the vast majority of our production.
Trademarks
Our floorcovering businesses own a variety of trademarks under which our products are marketed. Among such trademarks, the names "Masland" and "Fabrica" are of greatest importance to our business. We believe that we have taken adequate steps to protect our interest in all such trademarks. Trademark registrations in the United States are valid for a period of 10 years and are renewable for additional 10-year periods as long as the mark remains in actual use.
Customer and Product Concentration
We do not believe that we have any single class of products that accounts for more than 10 percent of our sales. However, our sales may be classified by significant markets, and such information for the past three years is summarized as follows:
|
2002 |
2001 |
2000 |
|
High-end residential |
25% |
23% |
19% |
Sales to The Home Depot were approximately 14% of our consolidated net sales in 2002 and 15% in 2001 and 2000.
Seasonality
Within the varied markets which we serve there are a number of seasonal production cycles, but our business, as a whole, is not considered to be significantly affected by seasonal factors. Our sales volume and working capital requirements have historically reached their highest levels in the second and third quarters of the year.
Environmental
Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report.
Raw Materials
We obtain our raw materials from a number of domestic suppliers. Man-made fibers are purchased from major chemical companies. Where possible, we pass raw material price increases through to our customers; however, there can be no assurance that price increases can be passed through to customers and that increases in raw material prices will not have an adverse effect on profitability. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report. Although our procurement of raw materials is subject to variations in price and availability, we believe that our sources of raw materials are adequate and that we are not materially dependent on any single supplier. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report.
Utilities
We use electricity as our principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. We have not experienced any material problem in obtaining adequate supplies of electricity, natural gas or oil. Energy shortages of extended duration could have an adverse effect on our operations, and price volatility could negatively impact future earnings. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report.
Employment Level
As of December 28, 2002, we employ approximately 2,850 associates in our continuing operations.
Available Information
Our internet address is www.thedixiegroup.com. We make the following reports filed by us with the Securities and Exchange Commission available, free of charge, on our website under the heading "Investor Relations":
The contents of our website are not a part of this report.
ITEM 2. PROPERTIES
The following table lists the Company's facilities according to location, type of operation and approximate total floor space as of March 7, 2003:
Administrative: |
|
Approximate |
Calhoun, GA |
Administrative |
28,000 |
Manufacturing and Distribution: |
|
|
Atmore, AL |
Carpet Manufacturing, Distribution |
537,000 |
|
||
In the opinion of the Company, its manufacturing facilities are well maintained and the machinery is efficient and competitive. Operations at each plant generally vary between 120 hours and 168 hours per week. Substantially all of the Company's owned properties are subject to mortgages which secure the outstanding borrowings under the Company's senior credit agreement and senior secured notes. |
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of 2002 to a vote of the shareholders.
Pursuant to instruction G of Form 10-K the following is included as an unnumbered item to PART I. EXECUTIVE OFFICERS OF THE REGISTRANT |
|
Name, Age and Position |
Business Experience During Past Five Years |
Daniel K. Frierson, 61 |
Director since 1973, Chairman of the Board since 1987 and Chief Executive Officer since 1980. He serves on the Company's Executive Committee and Chairman of the Company's Retirement Plans Committee. He also serves as Director of Astec Industries, Inc. headquartered in Chattanooga, Tennessee; Printpack, Inc., headquartered in Atlanta, Georgia; and Louisiana-Pacific Corporation headquartered in Portland, Oregon. |
Gary A. Harmon, 57 |
Vice President and Chief Financial Officer since January 2000. Treasurer 1993 to 2000. Director of Tax and Financial Planning, 1985 to 1993. |
David E. Polley, 68 |
Vice President of Marketing since November of 2002. President, Residential Division of Mohawk Industries, Inc. from 1998 to 2002. President of World Carpets from 1991 to 1998. Prior to 1991, President of Lee's Residential Carpet Business. |
Philip H. Barlow, 53 |
Vice President and President of North Georgia Operations since December 2000. Vice President and President of Carriage Industries, Inc., 1993 to December 2000. Vice President of Sales and Marketing, Carriage, 1988 to 1993. Director of Sales and Marketing, Carriage, 1986 to 1988. |
Kenneth L. Dempsey, 44 |
Vice President and President, Masland Carpets since January 1997. Vice President of Marketing, Masland, 1991 to 1996. |
Paul K. Frierson, 65 |
Director since 1988. Vice President and President, Candlewick Yarns since 1989. Served as Executive Vice President of Candlewick Yarns from 1984 - 1989. He is a member of the Company's Retirement Plans Committee. |
Royce R. Renfroe, 56 |
Vice President since May 2001. President of Fabrica since 1998. Previous experience included serving as President and Chief Executive Officer of Bentley Mills, Division of Interface, Inc. |
W. Derek Davis, 52 |
Vice President of Human Resources since January 1991. Corporate Employee Relations Director, 1990 to 1991. |
Jon A. Faulkner, 42 |
Vice President of Planning and Development since February 2002. Executive Vice President of Sales and Marketing for Steward, Inc. from 1997 to 2002. |
D. Eugene Lasater, 52 |
Controller since 1988. |
Starr T. Klein, 60 |
Secretary since November 1992. Assistant Secretary, 1987 to 1992. |
The executive officers of the registrant are elected annually by the Board of Directors at its first meeting held after each annual meeting of the Company's shareholders. |
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the National Market System with the NASDAQ symbol DXYN. No market exists for the Company's Class B Common Stock.
As of March 7, 2003, the total number of record holders of the Company's Common Stock was approximately 2,800, including an estimated 2,000 shareholders who hold the Company's Common Stock in nominee names, but excluding 2,529 participants in the Company's 401(k) plan who may direct the voting of the shares allocated to their accounts. The total number of holders of the Company's Class B Common Stock was 15. Quarterly Financial Data, Dividends and Price Range of Common Stock for the four quarterly periods in the years ended December 28, 2002 and December 29, 2001 are as follows:
THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
(unaudited)
(dollars in thousands, except per share data)
2002 QUARTER |
1ST |
2ND |
3RD |
4TH |
Net Sales |
$123,324 |
$139,977 |
$125,680 |
$118,536 |
Gross Profit |
27,882 |
34,464 |
30,804 |
27,358 |
Income from continuing operations |
496 |
3,036 |
2,412 |
2,327 |
Net income (loss) |
496 |
3,036 |
2,412 |
(1,378) |
Basic earnings per share: |
||||
Income from continuing operations |
0.04 |
0.26 |
0.21 |
0.20 |
Net income (loss) |
0.04 |
0.26 |
0.21 |
(0.12) |
Diluted earnings per share: |
||||
Income from continuing operations |
0.04 |
0.25 |
0.20 |
0.20 |
Net income (loss) |
0.04 |
0.25 |
0.20 |
(0.12) |
Dividends: |
||||
Common Stock |
--- |
--- |
--- |
--- |
Class B Common Stock |
--- |
--- |
--- |
--- |
Common Stock Prices: |
||||
High |
4.80 |
7.19 |
6.00 |
4.50 |
Low |
4.15 |
4.60 |
3.00 |
3.12 |
2001 QUARTER |
1ST |
2ND |
3RD |
4TH |
Net Sales |
$133,097 |
$145,493 |
$132,289 |
$123,719 |
Gross Profit |
26,266 |
30,844 |
29,366 |
27,501 |
Income (loss) from continuing operations |
(2,701) |
188 |
223 |
2,807 |
Net income (loss) |
(2,701) |
188 |
223 |
2,807 |
Basic earnings per share: |
||||
Income (loss) from continuing operations |
(0.24) |
0.02 |
0.02 |
0.24 |
Net income (loss) |
(0.24) |
0.02 |
0.02 |
0.24 |
Diluted earnings per share: |
||||
Income (loss) from continuing operations |
(0.24) |
0.02 |
0.02 |
0.24 |
Net income (loss) |
(0.24) |
0.02 |
0.02 |
0.24 |
Dividends: |
||||
Common Stock |
--- |
--- |
--- |
--- |
Class B Common Stock |
--- |
--- |
--- |
--- |
Common Stock Prices: |
||||
High |
3.75 |
5.35 |
5.05 |
5.03 |
Low |
2.34 |
3.06 |
3.80 |
4.14 |
Totals of the quarterly information for each of the years reflected above may not necessarily equal the annual totals. During the fourth quarter of 2002, the Company recorded a non-cash, after-tax charge of $3,705, or $0.32 per diluted share, on discontinued operations to fully reserve a note received in 1999 when the Company's textile cotton yarn and dyeing operations were sold.
The discussion of restrictions on payment of dividends is included in Note G and Note Q to the Consolidated Financial Statements included herein.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS OPERATIONS |
2002 |
2001 |
2000 (1) |
1999 (2) |
1998 |
Net sales |
$ 507,517 |
$ 534,598 |
$ 568,081 |
$ 597,869 |
$ 510,962 |
Income (loss) from continuing operations |
|||||
before income taxes |
12,461 |
1,074 |
(15,877) |
20,370 |
14,700 |
Income tax provision (benefit) |
4,191 |
557 |
(5,727) |
7,971 |
5,592 |
Income (loss) from continuing operations |
8,270 |
517 |
(10,150) |
12,399 |
9,108 |
Depreciation and amortization (3) |
21,319 |
24,007 |
23,440 |
22,330 |
18,701 |
Dividends |
--- |
--- |
--- |
--- |
1,701 |
Capital expenditures (3) |
7,129 |
12,133 |
50,664 |
35,327 |
33,363 |
FINANCIAL POSITION |
|||||
Assets |
$ 416,646 |
$ 386,188 |
$ 423,206 |
$ 391,901 |
$ 374,646 |
Working capital |
67,572 |
37,649 |
61,295 |
54,213 |
80,582 |
Long-term debt: |
|||||
Senior indebtedness |
75,408 |
85,798 |
112,286 |
60,961 |
64,466 |
Subordinated notes |
30,952 |
35,714 |
40,476 |
45,238 |
50,000 |
Convertible subordinated debentures |
29,737 |
32,237 |
34,737 |
37,237 |
39,737 |
Stockholders' equity |
111,352 |
106,225 |
108,291 |
117,910 |
99,990 |
PERCENT |
|||||
Income (loss) from continuing operations |
|||||
to sales |
1.6% |
0.1% |
(1.8)% |
2.1% |
1.8% |
Income (loss) from continuing operations |
|||||
to average equity |
7.5% |
0.5% |
(9.0)% |
11.0% |
8.1% |
PER SHARE |
|||||
Income (loss) from continuing operations: |
|||||
Basic |
$ 0.71 |
$ 0.04 |
$ (0.88) |
$ 1.09 |
$ 0.81 |
Diluted |
0.70 |
0.04 |
(0.88) |
1.06 |
0.77 |
Dividends: |
|||||
Common Stock |
--- |
--- |
--- |
--- |
0.15 |
Class B Common Stock |
--- |
--- |
--- |
--- |
0.15 |
Book value |
9.46 |
9.05 |
9.41 |
10.21 |
8.80 |
GENERAL |
|||||
Weighted average common shares |
|||||
outstanding: |
|||||
Basic |
11,723,192 |
11,669,144 |
11,473,210 |
11,355,175 |
11,267,418 |
Diluted |
11,820,827 |
11,747,740 |
11,473,210 |
11,681,650 |
11,809,281 |
Number of shareholders (4) |
2,800 |
3,000 |
3,500 |
3,500 |
3,900 |
Number of associates |
2,850 |
3,200 |
3,800 |
3,600 |
3,100 |
(1) Includes the results of operations of Fabrica and the equity earnings of Chroma subsequent to July 1, 2000.
(2) Includes the results of operations of Graphic Technologies and Globaltex subsequent to their acquisitions on January 21, 1999, and January 8, 1999, respectively.
(3) Excludes discontinued operations.
(4) The approximate number of record holders of the Company's Common Stock for 1998 through 2002 includes Management's estimate of shareholders who held the Company's Common Stock in nominee names as follows: 1998 - 3,000 shareholders; 1999 - 2,500 shareholders; 2000 - 2,500 shareholders; 2001 - 2,100 shareholders; 2002 - 2,000 shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report.
OVERVIEW
During the three-year period ended December 28, 2002, we acquired Fabrica International "Fabrica" (together with a 50% interest in Chroma Systems Partners "Chroma"). We also sold our carpet yarn extrusion operation, two dyeing facilities, a carpet yarn plant and a number of assets that were not part of our floorcovering operations.
Our business principally consists of manufacturing, selling and distributing products for the soft floorcovering industry. These businesses are segmented between floorcovering products and floorcovering base materials (carpet yarns). Our floorcovering products' operations supply carpet and rugs to high-end residential and high-end commercial customers through Fabrica International and Masland Carpets. Our North Georgia carpet operations supply high-end tufted products to residential customers through Dixie Home and tufted and needlebond floorcovering products to the factory-built and modular housing, recreational vehicle and exposition/trade show markets through Carriage Carpets and to consumers through major retailers under the Bretlin, Globaltex and private label brands. Our carpet yarn operations supply plied and heat-set filament and spun yarns primarily to our carpet manufacturing business and, to a lesser extent, to external specialty carpet yarn markets through Candlewick Yarns.
During 2000, we initiated an extensive restructuring effort in our North Georgia carpet business to address a number of problems that were negatively impacting operations. We had made several acquisitions that were not promptly assimilated, which led to an inefficient operating structure with overlapping management responsibilities. In addition, we experienced difficulty supporting rapid growth due to an aggressive expansion of our home center sales. At the same time, demand for carpet by the factory-built and modular housing industry significantly declined. We responded to these issues with a strategy aimed at simplifying our operations and reorganizing our North Georgia business under one management structure. The reorganization reduced employment at all levels, including, 120 salaried personnel and allowed us to gain better control of operations and to reduce cost, inventory, and debt. We also consolidated three tufting operations into one facility, the production of three dyeing operations into one facil
ity and multiple distribution centers into one facility. Two smaller dyeing facilities were sold and three information systems were combined. From June 30, 2000 through the end of 2002, we achieved the following results: a 31% reduction in workforce and a 24% reduction in inventories. From its high point in August 2000, we reduced debt $116.0 million, or 44% (including amounts advanced under our prior accounts receivable securitization program).
The dollar volumes and percentages of our net sales to The Home Depot were approximately $71 million, or 14%, in 2002, $82 million, or 15%, in 2001, and $85 million, or 15%, in 2000. The loss of The Home Depot business could have a material adverse effect on our operations.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America.
Certain estimates and assumptions are made when preparing financial statements. These estimates and assumptions affect various matters, including:
These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are often beyond management's control. As a result, actual amounts could differ from estimates made in preparing the financial statements.
The SEC issued disclosure guidance for accounting policies that management identifies as most critical. These critical accounting policies, as determined in accordance with the SEC guidance, are those that are both most important to the portrayal of a company's financial condition and results and require management's most difficult, subjective, and complex judgment, often as a result of the need to make estimates about inherently uncertain matters that may change in subsequent periods.
We believe the following accounting policies require us to use significant judgments and estimates in preparing our consolidated financial statements and represent our critical accounting policies as described above. Other significant accounting policies are discussed in Note A to our Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain elements of our operating results as a percentage of net sales for the periods indicated:
|
Fiscal Year Ended |
||
|
December 28, 2002 |
December 29, 2001 |
December 30, 2000 |
|
|
|
|
Net sales |
100.0% |
100.0 % |
100.0% |
Cost of sales |
76.3% |
78.7 % |
82.8% |
Gross profit |
23.7% |
21.3 % |
17.2% |
Selling and administrative expenses |
18.1% |
18.0 % |
17.0% |
Other (income) expense - net |
0.0% |
(0.2)% |
0.0% |
Operating income |
5.6% |
3.5 % |
0.2% |
Results for the years ended December 28, 2002, December 29, 2001, and December 30, 2000 were affected by a number of unusual gains and losses associated with facility consolidations, plant shutdowns, workforce reductions, asset sales and asset write-downs. The following table summarizes the increase (decrease) in operating income, by cost category, as a result of these unusual items for each period presented:
|
Fiscal Year Ended |
||
|
December 28, 2002 |
December 29, 2001 |
December 30, 2000 |
|
(dollars in millions) |
||
|
|
|
|
Cost of sales |
$ (0.7) |
$ (0.7) |
$ (8.7) |
Selling and administrative expenses |
--- |
(0.9) |
(6.0) |
Other (income) expense - net |
0.7 |
3.8 |
2.7 |
Net increase (decrease) in operating income |
--- |
2.2 |
(12.0) |
Excluding the effect of these unusual items described above, the following table sets forth certain elements of our operating results as a percentage of net sales for the periods indicated:
|
Fiscal Year Ended |
||
|
December 28, 2002 |
December 29, 2001 |
December 30, 2000 |
|
|
|
|
Net sales |
100.0 % |
100.0% |
100.0% |
Cost of sales |
76.1 % |
78.5 % |
81.3 % |
Gross profit |
23.9 % |
21.5 % |
18.7 % |
Selling and administrative expenses |
18.1 % |
17.9 % |
15.9 % |
Other (income) expense - net |
0.1 % |
0.5 % |
0.4 % |
Operating income |
5.6 % |
3.1 % |
2.4 % |
Fiscal Year Ended December 28, 2002, Compared with Fiscal Year Ended December 29, 2001
Net Sales. Net sales for the year ended December 28, 2002 were $507.5 million, a decline of 5.1% from $534.6 million for the year ended December 29, 2001. Sales in our carpet business declined 2.7%. Carpet sales for the year ended December 28, 2002 were very soft in our home center/mass merchant markets principally due to a significant decline in sales to The Home Depot, and also soft in commercial markets. Sales improved in our high-end residential markets and factory-built and modular housing markets, compared with 2001 levels. Sales in our carpet yarn business declined 27.3%. The lower carpet yarn sales reflect our strategy to de-emphasize our external carpet yarn sales to supply raw materials to support our carpet operations. Our carpet manufacturing operations utilized approximately 78% of our carpet yarn production in the fiscal year 2002.
Cost of Sales. Despite the decline in sales, cost of sales decreased significantly as a percentage of sales in both our carpet and carpet yarn businesses. As a result, gross margin increased to 23.7% for the year ended December 28, 2002, compared to 21.3% for the year ended December 29, 2001. This improvement is principally attributable to cost reduction programs implemented during the year ending December 28, 2002 to reduce our workforce, and improve efficiencies and asset utilization. We also increased the portion of our total sales derived from higher margin products during fiscal 2002.
Selling and Administrative Expenses. Selling and administrative expenses decreased $4.3 million ($3.4 million, excluding severance costs incurred in 2001) in the twelve-month period ended December 28, 2002, compared with the same period in 2001. These costs as a percentage of sales were slightly higher in 2002 as a result of lower sales.
Other (Income) Expense - Net. Other (income) expense - net reflected a lower level of net gains from asset sales in the year ended December 28, 2002 compared with the year ended December 29, 2001. Excluding the non-recurring net gains of $0.7 million in fiscal 2002 and $3.8 million in fiscal 2001, other (income) expense - net improved $2.2 million. The improvement in fiscal 2002 is principally due to the elimination of goodwill amortization and the reduction in expenses associated with our prior accounts receivable securitization program.
Interest Expense. Interest expense decreased for the year ended December 28, 2002, compared with the same period in 2001 due to lower levels of debt.
Income Tax Provision (Benefit). Our effective income tax rate was 33.6% for the year ended December 28, 2002 and 51.9% for the year ended December 29, 2001. The change in the effective tax rates is principally due to the relationship of non-deductible goodwill amortization and other non-deductible costs to pre-tax earnings in each of these reporting periods. Additionally, the year 2002 included an income tax benefit of $0.4 million due to a contribution deduction, for income tax purposes, related to the sale of a carpet yarn facility that was closed.
Net Income. Income from continuing operations for fiscal 2002 was $8.3 million, or $0.70 per diluted share. Net income for fiscal 2002 was $4.6 million, or $0.39 per diluted share, and included a loss on disposal of discontinued operations of $3.7 million, or $0.31 per diluted share, to fully reserve a note received in 1999 when we sold our cotton yarn and dyeing textile operations. This compared with net income of $0.5 million, or $0.04 per diluted share, for fiscal 2001.
Fiscal Year Ended December 29, 2001, Compared with Fiscal Ended December 30, 2000
Net Sales. Net sales for the year ended December 29, 2001 were $534.6 million, down 5.9% from $568.1 million for the year ended December 30, 2000. Our 2001 fiscal year included 50 operating weeks versus 51 operating weeks in the 2000 fiscal year. The acquisition of Fabrica on July 1, 2000 increased fiscal year 2001 carpet sales by $26.4 million compared with fiscal year 2000. Excluding Fabrica's sales and adjusting for the number of operating weeks in each fiscal year, carpet sales declined 5.9%. The most significant decline in our fiscal 2001 carpet sales was in the factory-built and modular housing market, where sales declined over 20%. Our sales to the factory-built and modular housing industry began showing positive comparisons to the prior fiscal year in the fourth quarter of fiscal 2001.
During 2001, external carpet yarn sales declined 30.7%. The decline in our external carpet yarn sales reflects our strategy to de-emphasize our external carpet yarn sales to supply raw materials to support our carpet operations and softness in demand for carpet yarns throughout the carpet industry. Our carpet manufacturing operations, in fiscal 2001, utilized approximately 70% of our carpet yarn production.
Cost of Sales. Cost of sales as a percentage of net sales significantly declined in the fiscal year 2001 due to the effect on our cost structure of the consolidation of our North Georgia carpet operations, the acquisition of Fabrica on July 1, 2000 and the unusual costs incurred in the fiscal year 2000. As a result, gross margin increased to 21.3% for the fiscal year ended December 29, 2001, compared to 17.2% for the fiscal year ended December 30, 2000.
Selling and Administrative Expenses. Selling and administrative expenses decreased $0.2 million in the fiscal year 2001, compared with the fiscal year 2000. This decrease reflects an $8.1 million increase in cost due to a full year of Fabrica's results being included in the fiscal year 2001, which was more than offset by a $3.1 million reduction in cost in our other operations and a $5.2 million reduction in costs related to the restructuring and consolidation of operations in the fiscal year 2000. As a percentage of sales, these expenses increased due to the lower net sales and higher selling and administrative costs associated with Fabrica's high-end business.
Other (Income) Expense - Net. Other (income) expense - net improved to $0.9 million of income for the fiscal year 2001, compared with $0.2 million of income for the fiscal year 2000. This change is principally the result of larger net gains from the sale of assets in fiscal 2001.
Interest Expense. Interest expense increased in fiscal 2001 due to higher interest rates.
Income Tax Provision (Benefit). Our effective tax rate was 51.9% in fiscal 2001 and a benefit of 36.1% for fiscal 2000. The effective tax rates differ from the statutory tax rates principally due to the relationship of non-deductible goodwill amortization and other non-deductible expenses to pre-tax earnings in each fiscal year and due to net operating losses that could not be carried back to prior years for state income tax purposes in fiscal 2000.
Net Income. Net income for the fiscal year ending December 29, 2001 was $0.5 million, or $0.04 per diluted share, compared with a loss from continuing operations of $10.2 million, or $0.88 per diluted share, for the fiscal year ending December 30, 2000. The net loss for fiscal 2000 was $9.3 million, or $0.81 per diluted share, and included a gain on disposal of discontinued operations of $0.8 million, or $0.07 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
On May 14, 2002, we entered into a secured revolving credit and term-loan facility to replace our prior senior credit facility and our accounts receivable securitization program. The credit facility provided revolving credit of up to $110.0 million through a five-year commitment period and a $40.0 million term loan.
On March 14, 2003, we issued $37.0 million of senior secured notes, amended our senior credit facility and settled the $50.0 million obligation that was due in April 2003 to the former shareholders of Fabrica International. The Fabrica obligation was settled through a cash payment of $49.8 million, reflecting an early payment discount.
Interest on the senior secured notes is payable monthly in cash at LIBOR plus 10%, or, if LIBOR is unavailable, at a base rate plus 8%, in either event not to exceed 14% during the last fifteen months prior to the maturity of the notes, plus a 3% per annum Payment-In-Kind ("PIK") interest component which is settled quarterly by the addition of the accrued PIK interest to the notes' principal balance then outstanding. The outstanding principal and all accrued and unpaid interest is due at maturity of the notes on May 13, 2007. The notes rank pari passu with all of our senior indebtedness and are secured by a second priority lien in substantially all of our assets, junior only to liens we granted to secure borrowings under our senior credit facility. The senior credit facility and the senior secured notes are senior to our subordinated debt.
The amended senior credit facility reduced the revolving credit loan commitments to $90.0 million and increased amounts that can be borrowed under our borrowing base formula by approximately $10.0 million. The existing term loan was reissued at its outstanding balance and an additional $4.5 million term loan was issued, bringing the aggregate balance of the term loan portion of the facility to $38.3 million. The term loans are payable in quarterly installments of $1.4 million beginning May 1, 2003 and are due in May 2007. Interest rates available under the amended senior facility may be selected from a number of options that effectively allow for borrowing at rates ranging from the lender's prime rate plus .25% to the lender's prime rate plus 1.25% for base rate loans, or at rates ranging from LIBOR plus 2.50% to LIBOR plus 3.75% for LIBOR loans. Commitment fees, ranging from .375% to .50% per annum, are payable on the average daily unused balance of the revolving credit faci
lity. The level of our accounts receivable and inventories limits borrowing availability under the revolving credit facility. The senior credit facility is secured by a first priority lien in substantially all of our assets.
Our credit agreements contain financial covenants relating to fixed charges, interest and debt coverage and net worth and among other things, limit future acquisitions and sales of assets, capital expenditures, and the payment of dividends. After completing the transactions, including payment of the obligation to the former shareholders of Fabrica International, the unused borrowing capacity under our credit facility was $19.4 million.
During the three-year period ended December 28, 2002, cash flows generated from operating activities (excluding amounts advanced under our prior accounts receivable securitization) were $83.1 million. These funds were supplemented by $60.1 million from asset sales and $10.0 million from highly liquid investments. During this three-year period, funds were used to finance our operations, and to invest $69.9 million in capital assets and $28.9 million in business acquisitions, and to retire (including amounts advanced under our prior accounts receivable securitization) $52.5 million of debt.
Proceeds from the sale of assets were $33.5 million in 2002, $6.6 million in 2001, and $20.0 million in 2000. The assets sold consisted primarily of an extrusion operation and a carpet yarn facility in 2002, and real estate in 2000 and machinery, dyeing facilities and real estate in 2001. The assets sold in 2000 included $15.0 million for machinery and equipment that were leased back to us under an operating lease for a period of four years at an annual lease cost of $2.9 million. We have an option to extend the lease for an additional year.
Capital expenditures for the fiscal year 2002 were $7.1 million, while depreciation and amortization was $21.3 million. We expect capital expenditures to be approximately $13.0 million or less for the fiscal year 2003 while depreciation and amortization is expected to be approximately $20.8 million.
The Fabrica asset purchase agreement also provides for an additional contingent amount of up to $2.5 million to be paid in April 2005 if Fabrica's cumulative earnings before interest and taxes for the five-year period beginning January 2000 exceed certain levels. We expect that any contingent payments that may become due under the cumulative earnings test would be treated as additional costs of the acquisition.
The acquisition of our interest in Chroma Systems Partners in 2000 is subject to a purchase price adjustment generally equal to our share of Chroma's income or loss for the three years ending June 30, 2003, less $1.8 million. A significant portion of the amounts due by us as a result of this adjustment is paid monthly.
The 1999 acquisition of Multitex Corporation of America, Inc. ("Globaltex") provides for certain contingent obligations related to revenue growth of a specific customer through 2003. Such obligations were $1.2 million, $1.5 million, and $1.6 million for fiscal years ended 2002, 2001 and 2000, respectively.
We believe our operating cash flows, proceeds from the senior notes issued on March 14, 2003 and credit availability under the amended senior credit facility are adequate to finance our normal liquidity requirements.
The following table contains a summary of the Company's future minimum payments under contractual obligations as of December 28, 2002.
|
Payments Due By Period |
||||||
|
2003 |
2004 |
2005 |
2006 |
2007 |
Thereafter |
Total |
|
(dollars in millions) |
||||||
Long-term debt |
$ 13.3 |
$ 13.0 |
$ 13.0 |
$ 13.0 |
$ 65.5 |
$ 31.6 |
$ 149.4 |
Capital leases |
--- |
--- |
--- |
--- |
--- |
--- |
--- |
Operating leases |
6.8 |
4.9 |
2.0 |
1.0 |
0.7 |
1.7 |
17.1 |
Purchase commitments |
--- |
--- |
--- |
--- |
--- |
--- |
--- |
|
$ 20.1 |
$ 17.9 |
$ 15.0 |
$ 14.0 |
$ 66.2 |
$ 33.3 |
$ 166.5 |
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets." SFAS 142 provides that goodwill and certain other intangible assets no longer will be amortized but be tested for impairment at least annually. SFAS 142 applies to all existing goodwill and intangible assets, beginning with fiscal years starting after December 15, 2001. During 2002, we tested our year-end 2001 goodwill for impairment and determined that there was no indication of impairment. Goodwill was also tested for impairment in the fourth quarter of 2002 and there was no indication of impairment. At December 28, 2002, our unamortized goodwill amounted to $100,492, representing 24.1% of total assets.
In April 2002, the FASB issued SFAS 145, which contains provisions that supercede previously issued accounting pronouncements. Among such provisions was new guidance related to income statement classification for debt extinguishment costs. Adoption is required for companies with fiscal years beginning after May 15, 2002, with early adoption encouraged. We adopted the provisions of SFAS 145 during the quarter ended June 29, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities". SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)". This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this Statement is not expected to have a significant impact on the Company's financial statements.
During 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 (SFAS 148) "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation", to provide alternate methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on the reporting of net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about these effects in interim financial information. The annual disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002.
CERTAIN FACTORS AFFECTING THE COMPANY'S PERFORMANCE
In addition to the other information provided in this Report, the following risk factors should be considered when evaluating results of our operations, future prospects and an investment in shares of our Common Stock. Any of these factors could cause our actual financial results during any period to differ materially from our historical results, and could give rise to events that might have a material adverse effect on our business, financial condition and results of operations.
The floorcovering industry is cyclical and prolonged declines in residential or commercial construction activity, corporate remodeling and refurbishment, or in the factory-built housing industry, could have a material adverse effect on our business.
The U.S. floorcovering industry is cyclical and is influenced by a number of general economic factors. The floorcovering industry in general is dependent on residential and commercial construction activity, including new construction as well as remodeling. In addition, sales of certain of the Company's principal products are significantly influenced by sales of factory-built housing, recreational vehicles and yachts. New construction activity, as well as sales in the factory-built housing, recreational vehicle and yachting industries, all are cyclical in nature. To a somewhat lesser degree, this also is true with residential and commercial remodeling. A prolonged decline in any of these industries could have a material adverse effect on our business, financial condition and results of operations. The level of activity in these industries is significantly affected by numerous factors, all of which are beyond the our control, including:
We believe we are the largest producer of carpeting for the factory-built housing industry. Approximately 20% of our total net sales being made to customers in the factory-built and modular housing industries. Production in the factory-built housing industry significantly declined during the years 2000 and 2001 and remained at depressed levels throughout 2002. There are indications that conditions in the industry could further deteriorate before they improve. The U.S. construction, factory-built housing and other industries have experienced significant downturns in the past, which have adversely affected suppliers to these industries, including suppliers of floorcoverings. These industries could experience similar downturns in the future, which could have a negative impact on our business, financial condition and results of operations.
We face intense competition in our industry, which could decrease demand for our products and could have a material adverse effect on our profitability.
The floorcovering industry is highly competitive. We face competition from a number of domestic manufacturers and independent distributors of floorcovering products and, in certain product areas, foreign manufacturers. There has been a significant consolidation within the floorcovering industry during recent years which has caused a number of our existing and potential competitors to be larger and have greater resources and access to capital than we do. Maintaining our competitive position may require us to make substantial investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities, which may be limited by restrictions set forth in our credit facilities. Competitive pressures may also result in decreased demand for our products and in the loss of market share. In addition, we face, and will continue to face, pressure on sales prices of our products from competitors. As a result of any of these factors, there could be a material ad
verse effect on our sales and profitability.
The loss of our business with The Home Depot, Inc. could have a material adverse effect on our sales and profitability.
Sales to The Home Depot, Inc. represented approximately 14% of the total dollar volume of our sales in the fiscal year 2002. We believe that our relationship with The Home Depot is good, but we cannot assure you that we will be able to maintain this relationship. Our reliance on The Home Depot may significantly influence our negotiations with them. We do not have long-term contracts with The Home Depot, and there can be no assurance that The Home Depot will continue to purchase our products in historical quantities or at all. The loss of, or a significant reduction in, this business could have a material adverse effect on our sales and profitability.
Raw material prices may increase.
The cost of raw materials has a significant impact on our profitability. In particular our business requires the purchase of large volumes of nylon fiber, filament, synthetic backing, polyester, polypropylene, wool fibers, latex and dyes. Increases in the cost of these raw materials could materially adversely affect our business, results of operations and financial condition if we are unable to pass these increases through to our customers. Prices of raw materials have increased in early 2003 and additional increases have been announced for many raw materials we use. We believe we will be successful in increasing prices to pass along raw material and other costs; however, it could take several months to recoup these increases in the marketplace, and there can be no assurance that we will successfully recover such raw material price increases.
Unanticipated termination or interruption of our arrangements with third-party suppliers of nylon yarn could have a material adverse effect on us.
Nylon yarn is the principal raw material used in our floorcovering products. The unanticipated termination or interruption of our supply arrangements could have a material adverse effect on us.
We may be responsible for environmental cleanup costs.
Various federal, state and local environmental laws govern the use of our facilities. These laws govern such matters as:
Our operations also are governed by laws relating to workplace safety and worker health, which, among other things, establish noise standards and regulate the use of hazardous materials and chemicals in the workplace. We have taken and will continue to take steps to comply with these laws. If we fail to comply with present or future environmental or safety regulations, we could be subject to future liabilities. However, we cannot insure that complying with these environmental or health and safety laws and requirements will not adversely affect our business, results of operations and financial condition. Future laws, ordinances or regulations could give rise to additional compliance or remediation costs, which could have a material adverse affect on our business, results of operations and financial condition.
Acts of Terrorism.
Our business could be materially adversely affected as a result of international conflicts or acts of terrorism. Terrorist acts or acts of war may cause damage or disruption to our facilities, employees, customers, suppliers, and distributors, which could have a material adverse affect on our business, results of operations or financial condition. Such conflicts also may cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of supplies and distribution of product.
FORWARD-LOOKING INFORMATION
This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include the use of terms or phrases that include such terms as "expects," "estimated," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such terms or phrases relate to, among other matters, our future financial performance, business prospects, growth, strategies or liquidity. The following important factors may affect our future results of and could cause those results to differ materially from our historical results. These risks include, in addition to those detailed above under the heading "Certain Factors Affecting the Company's Performance", the cost and availability of capital, raw material and transportation costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant custom er or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and other risks detailed from time to time in our filings with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is party to interest rate swap agreements through March 11, 2005. Under the interest rate swap agreements, the Company pays a fixed rate of interest times a notional principal amount, and receives in return an amount equal to a specified variable rate of interest times the same notional principal. The interest rate swap agreements' fair value is reflected on the balance sheet and related gains and losses are deferred in "Accumulated other comprehensive loss". As of December 28, 2002, the Company had an interest rate swap agreement outstanding for $70,000. Under the terms of the swap agreement, the Company paid a fixed rate of interest of 6.75% through March 10, 2003 and will pay 3.24% thereafter. Any interest rate differential realized is recognized as an adjustment to interest expense over the life of the swap agreement.
Unrealized losses in "Accumulated other comprehensive loss" at December 29, 2001 were $2,457, net of taxes. During 2002, losses in "Accumulated other comprehensive loss" decreased by amounts that were reclassified into earnings in the amount of $2,003, net of taxes, and increased by $1,035, net of taxes, related to a new interest rate swap agreement. This activity resulted in net unrealized losses in "Accumulated other comprehensive loss" of $1,489, net of taxes, at December 28, 2002. During the next 12 months, the Company expects this cost to impact earnings approximately $871, net of taxes. Based on the Company's $70,000 interest rate swap agreement, a 10% fluctuation in the variable rate would result in an annual after-tax economic impact of approximately $61.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The supplementary financial information required by ITEM 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the Financial Statements are included in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Plan Category |
(a) |
(b) |
(c) |
|
|
|
|
|
|
|
|
(1) |
Does not include shares subject to outstanding subscriptions to purchase 330,150 shares of Common Stock under the Company's Stock Ownership Plan for senior executives at a weighted average subscription price of $8.76 per share. Also, does not include 20,000 shares of Common Stock issued pursuant to restricted stock grants under the Company's 2000 Stock Incentive Plan, with a weighted average grant date value of $4.20 per share. |
(2) |
Includes the aggregate weighted average of (i) the exercise price per share for outstanding options to purchase 1,319,698 shares of Common Stock under the Company's 1990 Incentive Stock Plan and 2000 Stock Incentive Plan and (ii) the price per share of the Common Stock on the grant date for each of 48,330 Performance Units issued under the Directors' Stock Plan (each unit equivalent to one share of Common Stock). |
(3) |
Excludes outstanding subscriptions to purchase 369,182 shares of Common Stock under the Company's Core Leadership Team Stock Subscription Plan issued at a weighted average subscription price of $5.79 per share. There are no outstanding options, warrants or rights to purchase securities under such plan. |
(4) |
There was no fixed limit on the number of shares authorized for issuance, however; the Company has no plans to issue any additional subscriptions under either the Core Leadership Team Stock Subscription Plan or the Stock Ownership Plan. |
The Core Leadership Team Stock Subscription Plan is the Company's only non-shareholder approved equity compensation plan. The Plan allows certain non-executive management to subscribe at the then-current market price for shares of Common Stock up to that number of shares having a fair market value equal to one third of the participant's base salary. Each participant's subscription is due generally in 2004, subject to the Company's right to extend the subscription payment date for any participant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions Between the Company and Directors and Officers" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 1, 2003 is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within ninety (90) days prior to the date of this report, an evaluation was performed under the supervision and with the participation of the Company's management, including the President and Chief Executive Officer ("CEO"), and the Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective in bringing to their attention material information relating to the Company required to be included in the Company's periodic SEC filings. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the most recent evaluation conducted by the CEO and CFO.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - The response to this portion of Item 15 is submitted as a separate section of this report.
(3) Listing of Exhibits:
(i) Exhibits Incorporated by Reference:
EXHIBIT NO. |
EXHIBIT DESCRIPTION |
(3.1) |
Restated Charter of The Dixie Group, Inc. |
(4.1) |
Loan Agreement, dated February 6, 1990 between Dixie Yarns, Inc. and New York Life Insurance Company and New York Life Annuity Corporation. |
(4.2) |
Form of Indenture, dated May 15, 1987 between Dixie Yarns, Inc. and Morgan Guaranty Trust Company of New York as Trustee. |
(4.3) |
Amendment to 9.96% Senior Subordinated Notes due February 1, 2010. |
(4.4) |
Letter Agreement dated February 17, 1998 re: Amendment to 9.96% Senior Subordinated Notes due February 1, 2010. |
(4.5) |
Waiver Letter dated August 17, 1998 from New York Life Insurance and Annuity Corporation. |
(4.6) |
Waiver Letter dated August 17, 1998 from New York Life Insurance Company. |
(4.7) |
Loan and Security Agreement and Forms of Notes dated May 14, 2002 by and among The Dixie Group, Inc., Fleet Capital Corporation, as "Agent", General Electric Capital Corporation, as "Documentation Agent", and Congress Financial Corporation (Southern), as "Co-Agent". |
(10.1) |
Asset Purchase Agreement dated as of August 29, 1997 among The Dixie Group, Inc., Bretlin, Inc., Foamex L.P. and General Felt Industries, Inc. |
(10.2) |
Dixie Yarns, Inc. Incentive Stock Plan as amended. * |
(10.3) |
Form of Non-qualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. * |
(10.4) |
Form of Amendment to Non-qualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. * |
(10.5) |
Form of Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan as amended. * |
(10.6) |
Form of Stock Rights and Restrictions Agreement for Restricted Stock Award Under Incentive Stock Plan as amended. * |
(10.7) |
The Dixie Group, Inc. Stock Ownership Plan as amended. * |
(10.8) |
Form of Stock Subscription Agreement Under Stock Ownership Plan of The Dixie Group, Inc. * |
(10.9) |
The Dixie Group, Inc. Director's Stock Plan. * |
(10.10) |
Asset Purchase Agreement dated January 8, 1999, by and between Multitex Corporation of America and The Dixie Group, Inc. |
(10.11) |
The Dixie Group, Inc. New Non-qualified Retirement Savings Plan effective August 1, 1999. * |
(10.12) |
The Dixie Group, Inc. Deferred Compensation Plan Amended and Restated Master Trust Agreement effective as of August 1, 1999. * |
(10.13) |
Asset Purchase Agreement dated as of May 7, 1999, between R. L. Stowe Mills, Inc., and The Dixie Group, Inc. |
(10.14) |
Stock Purchase Agreement dated as of July 1, 2000, by and among the Company and the stockholders of Fabrica International, Inc. named therein. |
(10.15) |
Stock Purchase Agreement dated as of July 1, 2000, by and among the Company and all of the stockholders of Chroma Technologies, Inc. |
(10.16) |
Pledge and Security Agreement, dated July 1, 2000, by and among the Company and Scott D. Guenther. |
(10.17) |
Pledge and Security Agreement, dated July 1, 2000, by and among the Company, Albert A. Frink, the Albert A. Frink and Denise Frink Charitable Remainder Unitrust and the Albert A. Frink Loving Trust. |
(10.18) |
The Dixie Group, Inc. Stock Incentive Plan. * |
(10.19) |
Amended and restated stock purchase agreement by and among The Dixie Group, Inc., and Scott D. Guenther, Royce R. Renfroe, and the Albert A. Frink and Denise Frink Charitable Remainder Unitrust and the Albert A. Frink Loving Trust dated September 8, 2000. |
(10.20) |
Pledge and security agreement dated September 8, 2000. |
(10.21) |
Form of Stock Option Agreement under The Dixie Group, Inc. Stock Incentive Plan. * |
(10.22) |
The Dixie Group, Inc. 2001 Leadership & Performance Incentive Award Plan and Form of Individual Award thereunder. * |
(10.23) |
Asset Purchase Agreement dated May 1, 2002, by and among Candlewick Yarns, Inc., Bretlin, Inc., The Dixie Group, Inc., CAF Extrusion, Inc. and Collins and Aikman Floorcovering, Inc. |
(ii) |
|
Exhibits Filed with this Report: |
(3.2) |
Amended and Restated By-Laws of The Dixie Group, Inc. |
(4.8) |
Letter Agreement, dated September 17, 2002, amending Loan and Security Agreement dated May 14, 2002. |
(4.9) |
Letter Agreement, dated January 21, 2003, amending Loan and Security Agreement dated May 14, 2002. |
(4.10) |
Letter Agreement, dated March 7, 2003, amending Loan and Security Agreement dated May 14, 2002. |
(10.24) |
The Dixie Group, Inc. Core Leadership Team Stock Subscription Plan. * |
(10.25) |
Form of Stock Subscription Agreement under The Dixie Group, Inc. Core Leadership Team Stock Subscription Plan. * |
(10.26) |
The Dixie Group, Inc. 2002 Leadership and Performance Incentive Award Plan. * |
(21) |
Subsidiaries of the Registrant. |
(23) |
Consent of Ernst & Young LLP. |
(99.1) |
CEO Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(99.2) |
CFO Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Indicates a management contract or compensatory plan or arrangement. |
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(b) |
Reports on Form 8-K |
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(i) |
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No reports on Form 8-K have been filed by the registrant during the last quarter of the period covered by this report. |
(c) |
Exhibits - The response to this portion of Item 15 is submitted as a separate section of this report. See Item 15 (a) (3) (ii) above. |
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(d) |
Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 27, 2003 |
The Dixie Group, Inc. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ DANIEL K. FRIERSON Daniel K. Frierson |
Chairman of the Board, |
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Certifications
I, Daniel K. Frierson, Chief Executive Officer of The Dixie Group, Inc. certify that:
1. I have reviewed this annual report on Form 10-K of The Dixie Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 2003 |
/s/ Daniel K. Frierson Chief Executive Officer The Dixie Group, Inc. |
I, Gary A. Harmon, Chief Financial Officer of The Dixie Group, Inc. certify that:
1. I have reviewed this annual report on Form 10-K of The Dixie Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 2003 |
/s/ Gary A. Harmon Chief Financial Officer The Dixie Group, Inc. |
ANNUAL REPORT ON FORM 10-K |
ITEM 8, ITEM 15 (a) (1) AND (2) AND ITEM 15(d) |
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES |
FINANCIAL STATEMENTS |
FINANCIAL STATEMENT SCHEDULES |
YEAR ENDED DECEMBER 28, 2002 |
THE DIXIE GROUP, INC. |
CHATTANOOGA, TENNESSEE |
FORM 10-K - ITEM 15(a) (1) and (2) |
The following consolidated financial statements of The Dixie Group, Inc. and subsidiaries are included in Item 8: |
Report of Independent Auditors |
Consolidated balance sheets - December 28, 2002 and December 29, 2001 |
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Report of Independent Auditors
ERNST & YOUNG LLP |
Chattanooga, Tennessee
February 20, 2003, except for note Q,
as to which the date is March 14, 2003
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
December 28, |
December 29, |
||||
2002 |
2001 |
||||
ASSETS |
------------------ |
------------------ |
|||
CURRENT ASSETS |
|||||
Cash and cash equivalents |
$ 2,440 |
$ 1,412 |
|||
Accounts receivable (less allowance for doubtful |
|||||
accounts of $3,290 for 2002 and $2,524 for 2001) |
40,158 |
18,144 |
|||
Inventories |
95,113 |
92,899 |
|||
Assets held for sale |
14 |
2,271 |
|||
Other |
8,592 |
9,538 |
|||
------------------ |
------------------ |
||||
TOTAL CURRENT ASSETS |
146,317 |
124,264 |
|||
PROPERTY, PLANT AND EQUIPMENT |
|||||
Land and improvements |
5,992 |
6,028 |
|||
Buildings and improvements |
75,665 |
75,350 |
|||
Machinery and equipment |
211,349 |
240,273 |
|||
------------------ |
------------------ |
||||
293,006 |
321,651 |
||||
Less accumulated amortization and depreciation |
(149,432) |
(144,397) |
|||
------------------ |
------------------ |
||||
NET PROPERTY, PLANT AND EQUIPMENT |
143,574 |
177,254 |
|||
GOODWILL (less accumulated amortization of $9,103) |
100,492 |
50,197 |
|||
INVESTMENT IN AFFILIATE |
13,458 |
12,575 |
|||
OTHER ASSETS |
12,805 |
21,898 |
|||
------------------ |
------------------ |
||||
TOTAL ASSETS |
$ 416,646 |
$ 386,188 |
|||
========== |
========== |
||||
See accompanying notes to the consolidated financial statements. |
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
December 28, |
December 29, |
||||
2002 |
2001 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
-------------------- |
-------------------- |
|||
CURRENT LIABILITIES |
|||||
Accounts payable |
$ 37,458 |
$ 42,547 |
|||
Accrued expenses |
27,993 |
29,571 |
|||
Current portion of long-term debt |
13,294 |
14,497 |
|||
----------------- |
------------------ |
||||
TOTAL CURRENT LIABILITIES |
78,745 |
86,615 |
|||
LONG-TERM DEBT |
|||||
Senior indebtedness |
75,408 |
85,798 |
|||
Subordinated notes |
30,952 |
35,714 |
|||
Convertible subordinated debentures |
29,737 |
32,237 |
|||
----------------- |
----------------- |
||||
TOTAL LONG-TERM DEBT |
136,097 |
153,749 |
|||
ACCRUED PURCHASE CONSIDERATION |
50,000 |
--- |
|||
OTHER LIABILITIES |
16,529 |
14,960 |
|||
DEFERRED INCOME TAXES |
23,923 |
24,639 |
|||
STOCKHOLDERS' EQUITY |
|||||
Common Stock ($3 par value per share): Authorized |
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80,000,000 shares, issued - 14,292,234 shares |
|||||
for 2002 and 14,226,315 shares for 2001 |
42,877 |
42,679 |
|||
Class B Common Stock ($3 par value per share): |
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Authorized 16,000,000 shares, issued - 795,970 |
|||||
shares for 2002 and 2001 |
2,388 |
2,388 |
|||
Common Stock subscribed - 699,332 shares for |
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2002 and 802,557 shares for 2001 |
2,098 |
2,408 |
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Additional paid-in capital |
132,724 |
132,922 |
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Stock subscriptions receivable |
(5,029) |
(5,429) |
|||
Unearned stock compensation |
(82) |
(44) |
|||
Accumulated deficit |
(6,903) |
(11,468) |
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Accumulated other comprehensive loss |
(3,036) |
(3,762) |
|||
----------------- |
----------------- |
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165,037 |
159,694 |
||||
Less Common Stock in treasury at cost - 3,319,252 |
|||||
shares for 2002 and 3,281,109 shares for 2001 |
(53,685) |
(53,469) |
|||
----------------- |
------------------ |
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TOTAL STOCKHOLDERS' EQUITY |
111,352 |
106,225 |
|||
----------------- |
----------------- |
||||
Commitments - Note N |
|||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 416,646 |
$ 386,188 |
|||
========== |
========== |
||||
See accompanying notes to the consolidated financial statements. |
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Year Ended |
|||||||
-------------------------------------------------------------------------------- |
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December 28, 2002 |
December 29, 2001 |
December 30, 2000 |
|||||
------------------ |
------------------ |
------------------ |
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NET SALES |
$ 507,517 |
$ 534,598 |
$ 568,081 |
||||
Cost of sales |
387,010 |
420,622 |
470,437 |
||||
------------------ |
------------------ |
------------------ |
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GROSS PROFIT |
120,507 |
113,976 |
97,644 |
||||
Selling and administrative expenses |
92,042 |
96,316 |
96,471 |
||||
Other (income) expenses - net |
(22) |
(947) |
(161) |
||||
------------------ |
------------------- |
------------------- |
|||||
INCOME BEFORE INTEREST AND TAXES |
28,487 |
18,607 |
1,334 |
||||
Interest expense |
16,026 |
17,533 |
17,211 |
||||
------------------ |
------------------ |
------------------ |
|||||
INCOME (LOSS) BEFORE TAXES |
12,461 |
1,074 |
(15,877) |
||||
Income tax provision (benefit) |
4,191 |
557 |
(5,727) |
||||
------------------ |
------------------ |
------------------ |
|||||
INCOME (LOSS) FROM CONTINUING |
|||||||
OPERATIONS |
8,270 |
517 |
(10,150) |
||||
INCOME (LOSS) ON DISPOSAL OF |
|||||||
DISCONTINUED OPERATIONS |
(3,705) |
--- |
824 |
||||
NET INCOME (LOSS) |
$ 4,565 |
$ 517 |
$ (9,326) |
||||
========= |
========= |
========= |
|||||
BASIC EARNINGS (LOSS) PER SHARE: |
|||||||
Income (loss) from continuing operations |
$ 0.71 |
$ 0.04 |
$ (0.88) |
||||
Income (loss) on disposal of discontinued operations |
(0.32) |
--- |
0.07 |
||||
------------------ |
------------------ |
------------------ |
|||||
Net income (loss) |
$ 0.39 |
$ 0.04 |
$ (0.81) |
||||
DILUTED EARNINGS (LOSS) PER SHARE: |
|||||||
Income (loss) from continuing operations |
$ 0.70 |
$ 0.04 |
$ (0.88) |
||||
Income (loss) on disposal of discontinued operations |
(0.31) |
--- |
0.07 |
||||
------------------ |
------------------ |
------------------ |
|||||
Net income (loss) |
$ 0.39 |
$ 0.04 |
$ (0.81) |
||||
DIVIDENDS PER SHARE: |
|||||||
Common Stock |
--- |
--- |
--- |
||||
Class B Common Stock |
--- |
--- |
--- |
||||
|
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended |
|||||||
----------------------------------------------------------------------- |
|||||||
December 28, 2002 |
December 29, 2001 |
December 30, 2000 |
|||||
------------------- |
------------------- |
------------------- |
|||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|||||||
Income (loss) from continuing operations |
$ 8,270 |
$ 517 |
$ (10,150) |
||||
Income (loss) on disposal of discontinued operations |
(3,705) |
--- |
824 |
||||
------------------- |
------------------- |
------------------- |
|||||
Net income (loss) |
4,565 |
517 |
(9,326) |
||||
Adjustments to reconcile net income (loss) to net cash |
|||||||
(used in) provided by operating activities: |
|||||||
Depreciation and amortization |
21,319 |
24,007 |
23,440 |
||||
Provision (benefit) for deferred income taxes |
843 |
(1,271) |
3,647 |
||||
Net gain on property, plant and equipment disposals and impairments |
(3,642) |
(4,330) |
(2,661) |
||||
Asset valuation loss - discontinued operations |
6,133 |
--- |
--- |
||||
Changes in operating assets and liabilities, net of |
|||||||
effects of business combinations: |
|||||||
Accounts receivable |
(22,014) |
(6,367) |
12,653 |
||||
Inventories |
(2,214) |
22,045 |
(5,122) |
||||
Other current assets |
(1,520) |
10,591 |
(2,286) |
||||
Other assets |
2,602 |
(1,419) |
(3,564) |
||||
Accounts payable and accrued expenses |
(12,144) |
(926) |
(16,793) |
||||
Other liabilities |
2,961 |
(1,432) |
(150) |
||||
------------------- |
------------------- |
------------------- |
|||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
(3,111) |
41,415 |
(162) |
||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|||||||
Net proceeds from sales of property, plant and equipment |
33,496 |
6,564 |
20,008 |
||||
Purchase of property, plant and equipment |
(7,129) |
(12,133) |
(50,664) |
||||
Cash payments in connection with business combinations |
(1,678) |
(1,987) |
(10,923) |
||||
Investment in affiliate |
(1,136) |
(1,323) |
(11,894) |
||||
------------------- |
------------------- |
------------------- |
|||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
23,553 |
(8,879) |
(53,473) |
||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|||||||
Net (payments) borrowings on previous credit and term loan facility |
(84,351) |
(26,358) |
51,290 |
||||
Net borrowings on current credit and term loan facility |
74,066 |
--- |
--- |
||||
Payments on subordinated indebtedness |
(7,262) |
(7,262) |
(7,262) |
||||
Other |
(1,867) |
(95) |
(343) |
||||
------------------- |
------------------- |
------------------- |
|||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
(19,414) |
(33,715) |
43,685 |
||||
------------------- |
------------------- |
------------------- |
|||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
1,028 |
(1,179) |
(9,950) |
||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
1,412 |
2,591 |
12,541 |
||||
------------------- |
------------------- |
------------------- |
|||||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
$ 2,440 |
$ 1,412 |
$ 2,591 |
||||
=========== |
=========== |
=========== |
|||||
See accompanying notes to the consolidated financial statements. |
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
Common Stock and Class B Comm Stock |
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Paid-In Capital |
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Accumulated Other Comprehensive Loss |
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--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
----------------- |
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Balance at December 25, 1999 |
$ 45,181 |
$ 1,861 |
$ 136,144 |
$ (5,945) |
$ (2,659) |
$ (412) |
$ (56,260) |
$ 117,910 |
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Common Stock acquired for treasury - 7,949 shares |
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Common Stock sold under stock option plan - 2,038 shares |
|
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|
||||||||||||
Common Stock subscribed - 355,389 shares |
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|
|||||||||||
Stock subscriptions cancelled - 184,119 shares |
|
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|
--- |
|||||||||||
Amortization of restricted stock grants |
190 |
190 |
|||||||||||||
Restricted stock grants cancelled - 40,000 shares |
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|
|||||||||||
Other comprehensive loss |
(133) |
(133) |
|||||||||||||
Net loss for the year |
(9,326) |
(9,326) |
|||||||||||||
--------------- |
--------------- |
----------------- |
-------------- |
---------------- |
--------------- |
--------------- |
----------------- |
||||||||
Balance at December 30, 2000 |
45,067 |
2,375 |
135,116 |
(5,434) |
(11,985) |
(545) |
(56,303) |
108,291 |
|||||||
Common Stock acquired for treasury - 191,668 shares |
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Re-issuance of treasury shares - 430,337 shares |
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|
||||||||||||
Common Stock subscribed - 14,015 shares |
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|
|||||||||||
Stock subscriptions cancelled - 3,244 shares |
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|
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Amortization of restricted stock grants |
50 |
50 |
|||||||||||||
Other comprehensive loss |
(3,217) |
(3,217) |
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Net income for the year |
517 |
517 |
|||||||||||||
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
||||||||
Balance at December 29, 2001 |
45,067 |
2,408 |
132,922 |
(5,473) |
(11,468) |
(3,762) |
(53,469) |
106,225 |
|||||||
Common Stock acquired for treasury - 113,858 shares |
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Re-issuance of treasury shares - 75,715 shares |
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|
||||||||||||
Settle stock subscriptions 45,919 shares |
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|
||||||||||
Restricted stock grant issued - 20,000 shares |
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|
|||||||||||
Amortization of restricted stock grants |
46 |
46 |
|||||||||||||
Other comprehensive income |
726 |
726 |
|||||||||||||
Net income for the year |
4,565 |
4,565 |
|||||||||||||
--------------- |
--------------- |
--------------- |
-------------- |
--------------- |
--------------- |
--------------- |
--------------- |
||||||||
Balance at December 28, 2002 |
$ 45,265 |
$ 2,098 |
$ 132,724 |
$ (5,111) |
$ (6,903) |
$ (3,036) |
$ (53,685) |
$ 111,352 |
|||||||
======= |
======= |
======= |
======= |
======= |
======= |
======= |
======= |
||||||||
See accompanying notes to the consolidated financial statements. |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: The Company's business consists of manufacturing, selling and distributing finished carpet, rugs and carpet yarns.
Principles of Consolidation: The consolidated financial statements include the accounts of The Dixie Group, Inc. and its wholly-owned subsidiaries (the "Company"), except for the Company's special purpose accounts receivable financing subsidiary prior to its termination in May 2002 (see Note D). Significant intercompany accounts and transactions have been eliminated in consolidation. The Company's 50% interest in Chroma Systems Partners is accounted for on the equity method. The Company utilizes the equity method of accounting for 50% or less investments when the Company exercises significant influence but does not control the investee.
Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Discontinued Operations: The financial statements separately report discontinued operations and the results of continuing operations (see Note C). Disclosures included herein pertain to the Company's continuing operations unless noted otherwise.
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 to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses, including potential losses on receivables sold (see Note D). The Company invests its excess cash in short-term investments and has not experienced any losses on those investments.
Inventories: Inventories are stated at the lower of cost or market. The last-in, first-out (LIFO) cost method was used to determine cost for substantially all inventories at December 28, 2002 and December 29, 2001.
Inventories are summarized as follows: |
|
|
|
|
2002 |
|
2001 |
Raw materials |
$ 25,624 |
|
$ 24,018 |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Property, Plant and Equipment
: Property, plant and equipment is stated at the lower of cost or impaired value. Provision for depreciation and amortization of property, plant and equipment has been computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets, ranging from 10 to 40 years for buildings and improvements, and 3 to 10 years for machinery and equipment. Applicable statutory recovery methods are used for income tax purposes. Depreciation and amortization of property, plant and equipment for financial reporting purposes totaled $19,913 in 2002, $21,340 in 2001 and $21,223 in 2000.
|
Year Ended |
||||
|
2002 |
|
2001 |
|
2000 |
Net income (loss), as reported |
$ 4,565 |
|
$ 517 |
|
$ (9,326) |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Impairment of Assets: The Company reviews assets for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. The Company evaluates recoverability of its long-lived assets by comparing estimated future undiscounted cash flows with the carrying value of the related assets to determine if impairment exists. Impairment, if any, is then measured by comparing carrying value to market value or estimated future discounted cash flows of the underlying assets.
Stock-Based Compensation: As permitted under Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation", the Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly, recognizes no compensation expense for the stock option grants as long as the exercise price is equal to or more than the fair value of the shares at the date of grant.
During 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 (SFAS 148) "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation", to provide alternate methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on the reporting of net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about these effects in interim financial information. The annual disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002.
The following pro forma summary presents the Company's net income (loss) and earnings (loss) per share which would have been reported had the Company determined stock compensation cost using the alternative fair value method of accounting set forth under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". The pro forma impact on net income (loss) shown below may not be representative of future effects.
|
Year Ended |
||||
|
2002 |
|
2001 |
|
2000 |
Net income (loss), as reported |
$ 4,565 |
|
$ 517 |
|
$ (9,326) |
Stock compensation expense under SFAS 123, net of taxes |
(666) |
|
(790) |
|
(887) |
Adjusted net income (loss) |
3,899 |
|
(273) |
|
(10,213) |
|
|
|
|
|
|
Basic earnings (loss) per share, as reported |
0.39 |
|
0.04 |
|
(0.81) |
Stock compensation expense under SFAS 123, net of taxes |
(0.06) |
|
(0.06) |
|
(0.08) |
Adjusted basic earnings (loss) per share |
0.33 |
|
(0.02) |
|
(0.89) |
|
|
|
|
|
|
Diluted earnings (loss) per share, as reported |
0.39 |
|
0.04 |
|
(0.81) |
Stock compensation expense under SFAS 123, net of taxes |
(0.06) |
|
(0.06) |
|
(0.08) |
Adjusted diluted earnings (loss) per share |
0.33 |
|
(0.02) |
|
(0.89) |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted - average assumptions:
2002 Grants |
2001 Grants (1) |
2000 Grants |
|
Expected life |
5 years |
--- |
5 years |
(1) There were no options granted during 2001.
Transfers of Financial Assets: The Company adopted Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" in 2001. The Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Adoption of the statement did not have a material effect on the consolidated results of operations or financial position of the Company.
Derivatives and Hedging Activities: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which was amended by Statement of Financial Accounting Standards Nos. 137 and 138. In January 2001, the Company adopted the provisions of SFAS 133. As required by SFAS 133, the 2000 consolidated financial statements were not restated but were prepared in accordance with the applicable accounting guidance for derivatives and hedging instruments in effect at that time.
The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes. The Company uses derivative instruments; currently interest rate swaps, to minimize interest rate volatility.
All derivatives that are designated as cash flow hedges are linked to specific liabilities on the balance sheet. The Company assesses, both at inception and on an ongoing basis, whether the derivatives that are used in the hedging transaction are highly effective in offsetting changes in cash flows of the hedged items. When it is determined that a derivative is not highly effective, the derivative expires, or is sold, terminated, or exercised, the Company discontinues hedge accounting for that specific hedge instrument.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The Company is party to interest rate swap agreements through March 11, 2005. Under the interest rate swap agreements, the Company pays a fixed rate of interest times a notional principal amount, and receives in return an amount equal to a specified variable rate of interest times the same notional principal. The interest rate swap agreements' fair value is reflected on the balance sheet and related gains and losses are deferred in other comprehensive income. As of December 28, 2002, the Company had an interest swap agreement outstanding for $70,000. Under the terms of the swap agreement, the Company pays a fixed interest rate of 6.75% through March 10, 2003 and 3.24% thereafter. Unrealized losses in other comprehensive income at December 29, 2001 were $2,457, net of taxes. During 2002, losses in other comprehensive income decreased by amounts that were reclassified into earnings in the amount of $2,003, net of taxes, and increased by $1,035, net of taxes, related to a new interest rate swap agreement
. This activity resulted in net unrealized losses in other comprehensive income of $1,489, net of taxes, at December 28, 2002. During the next 12 months, the Company expects to reclassify into earnings approximately $871, net of taxes.
Recent Accounting Pronouncements: In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No, 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", FASB Statement No. 44, " Accounting for Intangible Assets of Motor Carriers", FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements", and amends FASB Statement No. 13, "Accounting for Leases." SFAS No. 145 requires that gains and losses related to debt extinguishments should only be classified as extraordinary items if they meet certain criteria. The provisions of this Statement became effective beginning May 15, 2002. The financial statements included herein reflect the adoption of SFAS No. 145.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this Statement is not expected to have a significant impact on the Company's financial statements.
NOTE B - BUSINESS COMBINATIONS AND INVESTMENT IN AFFILIATE
On July 1, 2000, the Company acquired 90% of the capital stock of Fabrica International ("Fabrica"), a privately held California corporation. On September 8, 2000, the Company acquired the remaining 10% of the capital stock of Fabrica.
The Company acquired the stock of Fabrica for $9,246 cash. The agreement provides for the payment of contingent consideration of $50,000 in 2003 if Fabrica's cumulative gross sales for the period of April 1, 2000 through June 30, 2003 exceed certain levels. The sales level was reached in the Company's second quarter of fiscal 2002 and the Company recorded additional goodwill and accrued purchase consideration of $50,000 which will become due in April 2003. The agreement also provides for an additional contingent amount of up to $2,500 to be paid in April 2005 if Fabrica's cumulative earnings before interest and taxes for the five-year period beginning January 1, 2000 exceed specified levels. The Company's investment in
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Fabrica secures the seller's right to the $50,000 contingency consideration. Any contingent amounts that may become payable under the agreement will be treated as an additional cost of the acquisition.
The acquisition of Fabrica was accounted for under the purchase method of accounting for business combinations and accordingly, the results of operations of Fabrica subsequent to June 30, 2000 are included in the Company's consolidated financial statements.
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 period presented after giving effect to certain adjustments, including interest expense on debt to finance the acquisition, depreciation expense on the fair value of fixed assets acquired and related income taxes. The pro forma results are presented for comparative purposes only and do not purport to be indicative of future results or the results that would have occurred had the acquisition taken place at the beginning of the periods presented.
|
|
2000 |
Net sales |
$ 593,890 |
On July 1, 2000, the Company acquired a one-third interest in Chroma Systems Partners ("Chroma"). The initial investment in Chroma was $11,000 paid in cash on July 3, 2000. Upon withdrawal of a partner from Chroma on September 30, 2000, the Company's interest in Chroma increased to 50%, without further investment. Consideration paid for the Company's interest in Chroma is subject to an adjustment generally equal to the Company's share of Chroma's income or loss for the three years ending June 30, 2003, less $1,800. Such adjustment amounted to $1,117 in 2002, $919 in 2001 and $861 in 2000. The Company's investment in Chroma secures the seller's right to the Fabrica sales contingency consideration and any contingent consideration that becomes due under the Chroma agreement. At December 28, 2002 and December 29, 2001, the carrying value of the Chroma investment was approximately $11,267 and $10,242; respectively, greater than the Company's 50% interest in Chroma's reported net asset
s. The Company's equity in the earnings and distributions received from Chroma were $864 and $1,289; respectively, in 2002, $556 and $1,141; respectively, in 2001, and $617 and $1,086; respectively, in 2000. The Company's proportionate share of earnings in Chroma are reflected in "Other (income) expenses - net" in the Company's consolidated financial statements.
Purchases by the Company from Chroma were $5,962 in 2002, $5,400 in 2001 and $2,611 in 2000. Profit eliminations related to such purchases totaled $596 in 2002, $540 in 2001 and $337 in 2000.
NOTE C - DISCONTINUED OPERATIONS
In June 1999, the Company completed the sale of its discontinued textile knit fabric, apparel and specialty yarns (textile products) operations and the Company received a note as part of the consideration. The note matures in July 2003 and is subordinated to the maker's senior indebtedness. The Company's assessment of the financial condition of the issuer and further deterioration of economic conditions in the textile industry indicated an impairment of the carrying value of the note. As a result, the Company fully reserved the carrying value of the note during 2002 which resulted in a non-cash charge of $3,705, after tax.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Following is summary financial information for the Company's discontinued textile products operations: |
|
2002 |
2001 |
2000 |
Net sales |
$ --- |
$ --- |
$ --- |
The gain on disposal in 2000 resulted from favorable adjustments to amounts accrued as of the end of the preceding year for exit costs.
NOTE D - SALE OF ACCOUNTS RECEIVABLE
The Company's accounts receivable securitization program provided up to $60,000 of funding prior to May 14, 2002 when the program was terminated and all amounts borrowed under the arrangement were re-paid (see Note G). Under the agreement, a significant portion of the Company's accounts receivable were sold, on a revolving basis, to a special purpose wholly-owned subsidiary, which assigned such receivables to an independent issuer of receivables-backed commercial paper as security for amounts borrowed by the special purpose subsidiary.
The transaction was accounted for as a sale of accounts receivable. Accordingly, the undivided interest in receivables sold under the agreement was excluded from the Company's balance sheet. Amounts sold under this arrangement were $25,951 at December 29, 2001. The Company's retained interest in the accounts receivable was stated at the estimated amount to be received upon the collection of the receivables and was included in the balance sheet as accounts receivable.
Proceeds from the sale of accounts receivable were less than the face amount of the accounts receivable sold by an amount that approximates the variable financing cost of receivables-backed commercial paper plus administrative fees typical in such transactions. These costs, which were approximately $334 for 2002, $2,310 for 2001 and $3,479 for 2000, are included in "Other (income) expense - net". The Company serviced the receivables sold and maintained an allowance for doubtful accounts based upon the expected collectibility of all of the accounts receivable generated by the Company.
Portions of the Company's accounts receivable were factored without recourse to financial institutions. At December 28, 2002 and December 29, 2001 such amounts were $4,223 and $4,532, respectively.
NOTE E - ACCRUED EXPENSES
Accrued expenses exceeding 5% of current liabilities include the following:
|
2002 |
|
2001 |
|
2000 |
Compensation and benefits |
$ 11,645 |
|
$ 11,752 |
|
$ 10,866 |
The Company's self-insured Workers' Compensation program is collateralized by a $1,500 letter of credit.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE F - PRODUCT WARRANTY RESERVES
The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by market and uses of its products. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The warranty liability is primarily based on historical claim rates, nature of claims and the associated cost.
Changes in the Company's product liability during fiscal 2002 are as follows:
Reserve balance at beginning of period |
$ 1,062 |
|||||
Warranty liabilities accrued during 2002 |
6,856 |
|||||
Warranty liabilities settled during the period |
(6,800) |
|||||
Changes for pre-existing warranty liabilities |
104 |
|||||
Reserve balance at end of period |
$ 1,222 |
NOTE G - LONG-TERM DEBT AND CREDIT ARRANGEMENTS (SEE NOTE Q)
Long-term debt consists of the following:
|
2002 35,243 374 81,440 35,714 32,237 149,391 (13,294) $ 136,097 ======== |
|
2001 $ 61,694 22,657 8,682 93,033 40,476 34,737 168,246 (14,497) $ 153,749 ======== |
|
On May 14, 2002, the Company entered into a senior revolving credit and term loan facility to replace its 1998 senior credit facility and its accounts receivable securitization program. The credit agreement provides the lender with a security interest in substantially all of the Company's assets. The new credit facility provides revolving credit of up to $110,000 through a five-year commitment period and a $40,000 term loan. Borrowing availability under the revolving credit facility is limited by the level of the Company's accounts receivable and inventory. The term loan is payable in quarterly installments of $1,429 beginning August 1, 2002 and is due in May 2007. Interest rates available under the facility may be selected from a number of options that effectively allow for borrowing at rates ranging from the lender's prime rate to the lender's prime rate plus 1.0% for base rate loans, or at rates ranging from LIBOR plus 2.25% to LIBOR plus 3.5% for LIBOR loans. The effective annual interest rate on borr owings under the revolving credit and term loan agreements were 9.17 % for 2002 and 8.49% for 2001. The average interest rate on debt outstanding under these agreements were 9.03% at December 28, 2002 and 8.96% at December 29, 2001. Commitment fees, ranging from .375% to .50% per annum, are payable on the average daily unused balance of the revolving credit facility.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The Company's subordinated notes are unsecured, bear interest at 9.96% to 10.61% payable semi-annually, and are due in semi-annual installments of $2,381 which commenced February 1, 2000.
The Company's convertible subordinated debentures bear interest at 7% payable semi-annually, 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.
Approximate maturities of long-term debt for each of the five years succeeding December 28, 2002 are $13,294 in 2003, $13,003 in 2004, $13,004 in 2005, $12,978 in 2006, $65,471 in 2007 and $31,641 thereafter.
Interest payments for continuing operations were $15,473 in 2002, $16,596 in 2001 and $17,447 in 2000.
The Company's long-term debt and credit arrangements contain financial covenants relating to fixed charges, total debt, net worth and among other matters, limits future acquisitions, capital expenditures, and does not permit the payment of dividends.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
All of the Company's financial instruments are held or issued for purposes other than trading. The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
|
2002 |
|
2001 |
||||
|
Carrying Amount |
|
|
|
Carrying Amount |
|
|
Financial assets |
|
|
|
|
|
|
|
The fair values of the Company's long-term debt were estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE I - PENSION AND POSTRETIREMENT BENEFIT PLANS
Pension Benefits |
Postretirement Benefits |
||||||
2002 |
2001 |
2002 |
2001 |
||||
Change in benefit obligation: |
|||||||
Benefit obligation at beginning of year |
$ 6,806 |
$ 6,606 |
$ 3,059 |
$ 2,861 |
|||
Service cost |
116 |
103 |
60 |
55 |
|||
Interest cost |
405 |
407 |
173 |
221 |
|||
Participant contributions |
--- |
--- |
57 |
28 |
|||
Actuarial (gain) loss |
55 |
239 |
(626) |
144 |
|||
Benefits paid |
(1,142) |
(549) |
(234) |
(250) |
|||
Change in plan provisions |
--- |
--- |
(1,156) |
--- |
|||
Benefit obligation at end of year |
6,240 |
6,806 |
1,333 |
3,059 |
|||
Change in plan assets: |
|||||||
Fair value of plan assets at beginning of year |
2,364 |
2,984 |
--- |
--- |
|||
Actual return on plan assets |
(434) |
(457) |
--- |
--- |
|||
Employer contribution |
1,240 |
386 |
177 |
222 |
|||
Participant contributions |
--- |
--- |
57 |
28 |
|||
Benefits paid |
(1,142) |
(549) |
(234) |
(250) |
|||
Fair value of plan assets at end of year |
2,028 |
2,364 |
--- |
--- |
|||
Funded status: |
(4,212) |
(4,442) |
(1,333) |
(3,059) |
|||
Unrecognized prior service cost |
97 |
103 |
(1,156) |
--- |
|||
Unrecognized actuarial (gain) loss |
2,417 |
2,036 |
(623) |
(109) |
|||
Net amount recognized |
$ (1,698) |
$ (2,303) |
$ (3,112) |
$ (3,168) |
|||
======= |
======= |
======= |
======= |
||||
Amounts recognized in the statement of financial |
|||||||
Accrued benefit liability |
$ (4,212) |
$ (4,442) |
$ (3,112) |
$ (3,168) |
|||
Accumulated other comprehensive income |
2,514 |
2,139 |
--- |
--- |
|||
Net amount recognized |
$ (1,698) |
$ (2,303) |
$ (3,112) |
$ (3,168) |
|||
======= |
======= |
======= |
====== |
||||
Weighted-average assumptions as of year-end: |
|||||||
Discount rate |
6.03% |
6.08% |
6.99% |
7.25% |
|||
Expected return on plan assets |
7.50% |
7.50% |
--- |
--- |
|||
There were no shares of the Company's Common Stock included in plan assets at December 28, 2002 or December 29, 2001.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Costs charged to continuing operations for all pension and postretirement plans are summarized as follows:
Pension Benefits |
Postretirement Benefits |
|||||||||||
Components of net periodic benefit costs: |
2002 |
2001 |
2000 |
2002 |
2001 |
2000 |
||||||
Defined benefit plans |
||||||||||||
Service cost |
$ 117 |
$ 103 |
$ 92 |
$ 60 |
$ 55 |
$ 48 |
||||||
Interest cost |
330 |
232 |
436 |
173 |
221 |
209 |
||||||
Expected return on plan assets |
(84) |
(79) |
(357) |
--- |
--- |
--- |
||||||
Recognized net actuarial loss |
54 |
40 |
10 |
(52) |
(34) |
(26) |
||||||
Settlement loss |
207 |
42 |
75 |
(60) |
(59) |
(26) |
||||||
624 |
338 |
256 |
121 |
183 |
205 |
|||||||
Defined contribution pension plan |
929 |
1,676 |
3,006 |
--- |
--- |
--- |
||||||
Net periodic benefit cost |
$ 1,553 |
$ 2,014 |
$ 3,262 |
$ 121 |
$ 183 |
$ 205 |
||||||
====== |
====== |
====== |
====== |
====== |
====== |
NOTE J - INCOME TAXES
2002 |
2001 |
2000 |
|||||||||
Current |
Deferred |
Current |
Deferred |
Current |
Deferred |
||||||
Federal |
$ 2,096 |
$ 1,848 |
$(1,437) |
$ 2,330 |
$(9,125) |
$ 3,600 |
|||||
State |
139 |
108 |
(113) |
(223) |
(249) |
47 |
|||||
Total |
$ 2,235 |
$ 1,956 |
$(1,550) |
$ 2,107 |
$(9,374) |
$ 3,647 |
|||||
====== |
====== |
====== |
====== |
====== |
====== |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of those assets and liabilities.
DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Significant components of the Company's deferred tax liabilities and assets are as follows:
2002 |
2001 |
|||||
Deferred tax liabilities: |
||||||
Property, plant and equipment |
$ 28,853 |
$ 33,728 |
||||
Inventories |
1,823 |
--- |
||||
Intangible assets |
1,889 |
1,219 |
||||
Other |
3,146 |
2,848 |
||||
Total deferred tax liabilities |
35,711 |
37,795 |
||||
Deferred tax assets: |
||||||
Inventories |
--- |
22 |
||||
Post-retirement benefits |
5,443 |
5,532 |
||||
Other employee benefits |
1,108 |
1,613 |
||||
Losses from discontinued operations |
5 |
37 |
||||
Alternative minimum tax |
2,204 |
3,687 |
||||
Net operating loss carryforward |
--- |
2,857 |
||||
Allowances for bad debts, |
||||||
claims, and discounts |
3,621 |
2,699 |
||||
Other |
2,629 |
2,397 |
||||
Total deferred tax assets |
15,010 |
18,844 |
||||
Net deferred tax liabilities |
$ 20,701 |
$ 18,951 |
||||
====== |
====== |
Differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income from continuing operations are reconciled as follows:
2002 |
2001 |
2000 |
||||||
Statutory rate applied to income from |
|
|
|
|||||
Plus state income taxes net of federal tax effect |
161 |
(219) |
(482) |
|||||
Total statutory provision (benefit) |
4,522 |
157 |
(6,039) |
|||||
Increase (decrease) attributable to: |
||||||||
Nondeductible amortization of and impairment adjustments to intangible assets |
|
|
|
|||||
Nondeductible portion of travel and entertainment |
212 |
220 |
246 |
|||||
Income exclusion on foreign sales |
(105) |
--- |
--- |
|||||
Contributions |
(423) |
--- |
--- |
|||||
Other items |
(15) |
(26) |
(127) |
|||||
Total tax provision |
$ 4,191 |
$ 557 |
$ (5,727) |
|||||
====== |
====== |
====== |
Income tax refunds received; net of income tax payments, for continuing and discontinued operations were $439 in 2002, $6,447 in 2001 and $5,348 in 2000.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE K - COMMON STOCK AND EARNINGS PER SHARE
Holders of Class B Common Stock have the right to twenty votes per share on matters that are submitted to Shareholders for approval and to dividends in an amount not greater than dividends declared and paid on Common Stock. Class B Common Stock is restricted as to transferability and may be converted into Common Stock on a one share for one share basis. The Company's Charter also authorizes 200,000,000 shares of Class C Common Stock, $3 par value per share, and 16,000,000 shares of Preferred Stock. No shares of Class C Common Stock or Preferred Stock have been issued.
The following table sets forth the computation of basic and diluted earnings per share from continuing operations:
|
2002 |
|
2001 |
|
2000 |
Income (loss) from continuing operations (1) |
$ 8,270 |
|
$ 517 |
|
$ (10,150) |
Denominator for calculation of diluted earnings per share - weighted average shares adjusted for potential dilution (2) (3) |
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
(1) No adjustments needed in the numerator for diluted calculations.
(2) Includes Common and Class B Common shares in thousands.
(3) Because their effects are anti-dilutive, excludes shares under restricted stock plans and shares issuable under stock option, and stock subscription plans, whose grant price is greater than the average market price of Common Shares outstanding at the end of the relevant period, and excludes shares issuable on conversion of subordinated debentures into shares of Common Stock. Aggregate shares excluded were 3,089 in 2002, 1,927 shares in 2001 and 3,687 shares in 2000.
NOTE L - STOCK PLANS
The Company's 2000 Incentive Stock Plan reserved 1,936,500 shares of Common Stock for sale or award to key associates or to the outside directors of the Company under stock options, stock appreciation rights, restricted stock performance grants, or other awards. Outstanding options are generally exercisable at a cumulative rate of 25% per year after the second year from the date the options are granted and generally expire after ten years from the date of grant. Options outstanding were granted at prices at or above market price on the date of grant.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
In October 2001, the Company canceled outstanding options previously issued under its 1990 Incentive Stock Plan which had exercise prices ranging from $6.00 to $14.30 per share. On May 2, 2002, the Company issued a reduced number of options to each holder based on a specific exchange scale and at an exercise price equal to the market price of the Company's Common Stock on the date such options were issued.
A summary of the option activity for the three years ended December 28, 2002:
|
|
|
|
|
Weighted - Average Fair |
Outstanding at December 25, 1999 |
1,714,601 |
|
$ 7.92 |
|
|
Granted at market price |
290,500 |
|
4.13 |
|
$ 2.10 |
Cancelled |
(1,059,750) |
|
8.79 |
|
|
Exercised |
--- |
|
--- |
|
|
Options exercisable at: |
|
|
|
|
|
The following table summarizes information about stock options at December 28, 2002:
Options Outstanding |
||||||
Range of Exercise Prices |
|
|
|
Weighted-Average Remaining Contractual Life |
|
Weighted-Average Exercise Price |
$ 3.875 - $ 4.875 |
|
424,850 |
|
7.6 years |
|
$ 4.28 |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Option Exercisable |
||||
Range of Exercise Prices |
|
Number of shares |
|
Weighted-Average Exercise Price |
$ 3.875 - $ 4.875 |
|
121,875 |
|
$ 4.45 |
In August 1996, the Company's Board of Directors adopted a stock ownership plan applicable to selected management of the Company for the purpose of encouraging each participant to make a significant investment in the Company's Common Stock. Pursuant to the plan, at December 28, 2002, 699,332 shares were subscribed at a weighted-average price of $7.19 per share, at December 29, 2001, 802,557 shares were subscribed at a weighted-average price of $6.76 per share, and at December 30, 2000, 791,786 shares were subscribed at a weighted-average price of $6.74 per share. All shares were subscribed at prevailing market prices at subscription date.
The Company also has a stock purchase plan which authorizes 108,000 shares of Common Stock for purchase by supervisory associates at the market price prevailing at the time of purchase. At December 28, 2002, 27,480 shares remained available for issue. Shares sold under this plan are held in escrow until paid for and are subject to repurchase agreements which give the Company the right of first refusal at the time of sale.
NOTE M - COMPREHENSIVE INCOME
Comprehensive income is as follows:
|
2002 |
|
2001 |
|
2000 |
Net income (loss) |
$ 4,565 |
|
$ 517 |
|
$ (9,326) |
Other comprehensive income (loss): |
|
|
|
|
|
Unrealized gain (loss) on interest rate swap agreements, net of tax of $619 in 2002 and $992 in 2001 |
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of SFAS 133, net of tax of $579 |
|
|
|
|
|
|
|
|
|
|
|
Change in additional minimum pension liability, net of tax of $133 in 2002, $486 in 2001 and $85 in 2000 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
$ 5,291 |
|
$ (2,700) |
|
$ (9,459) |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE N - COMMITMENTS
The Company leases certain buildings, machinery and equipment under operating leases. Commitments for minimum rentals under non-cancelable leases are as follows:
2003 |
$ 6,757 |
The Company was a party to two operating leases with related parties which were assumed by the Company as part of acquisitions made in 1999 and 2000. Rent paid to related parties during 2002, 2001 and 2000 was approximately $1,029, $997 and $736, respectively. In 2003, one of the leases was terminated and interest held by the lessor in the other lease was sold.
Rental expense in 2002, 2001 and 2000 amounted to approximately $8,584, $9,590 and $7,127, respectively.
NOTE O - SEGMENT INFORMATION
The Company has two reportable segments in its continuing operations: carpet manufacturing and floorcovering base materials. Each reportable segment is organized around product similarities. The carpet manufacturing segment contains three operating businesses that manufacture and sell finished carpet and rugs. The floorcovering base materials segment manufactures and sells yarn to external customers and transfers a significant portion of its unit volumes to the Company's carpet manufacturing segment.
The profit performance measure for the Company's segments is defined as internal EBIT (earnings before interest, taxes, and other non-segment items). Income from equity investees of $864 in 2002, $556 in 2001 and $617 in 2000 are reflected in the profit performance of the carpet manufacturing segment. Assets measured in each reportable segment include long-lived assets and goodwill, inventories at current cost, and accounts receivable (without reductions for receivables sold under the Company's accounts receivable securitization program). The carrying amount of goodwill included in the carpet manufacturing segment was $100,492, $49,150, and $49,819 for years ended 2002, 2001 and 2000, respectively. The carrying amount of goodwill included in the floorcovering base materials segment was $0, $1,047 and $1,076 for years ended 2002, 2001 and 2000, respectively.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Allocations of corporate and administrative expenses are used in the determination of segment profit performance; however, assets of the corporate departments are not used in the segment asset performance measurement. All expenses incurred for the amortization of goodwill are recognized in segment profit performance measurement. Goodwill amortization expense in the carpet manufacturing segment was $1,605 in 2001 and $1,516 in 2000. Such expense in the Company's floorcovering base material segment was $28 in 2001 and $28 in 2000. Goodwill was not subject to amortization in 2002.
|
Net Sales - External Customers |
|
Profit Performance |
||||
|
2002 36,757 $507,517 ======= |
2001 50,544 $534,598 ======== |
2000 74,372 $568,081 ======== |
|
2002 7,825 35,692 |
2001 (1,098) 14,507 |
2000 (2,490) (3,734) |
Interest expense |
|
|
|
|
16,026 |
17,533 |
17,211 |
Consolidated income (loss) from continuing operations before income taxes |
|
|
|
|
|
|
|
(1) Includes pre-tax gains of $7,701 from the disposition of certain long-lived assets during 2002.
(2) Includes the write-off of "internal use" computer software costs of $3,614, related to software not put in service, and deferred financing costs of $2,769 during 2002.
(3) Includes a pre-tax gain of $4,143 from the sale of real estate during 2001.
(4) Includes pre-tax gains of $3,700 for the sale of real estate and the Company's aircraft during 2000.
Note: All of the items above in footnotes 1 - 4 are classified in "Other (income) expenses - net" in the Company's consolidated financial statements.
|
Capital Expenditures |
|
Depreciation and Amortization |
||||
|
2002 1,084 18 $ 7,129 ====== |
2001 769 1,757 $12,133 ====== |
2000 18,478 6,753 $50,664 ======= |
|
2002 4,939 1,479 $21,319 ======= |
2001 6,686 3,186 $24,007 ====== |
2000 6,788 2,427 $23,440 ====== |
|
|
|
|
|
|
|
|
DIXIE GROUP, INC. |
|||||||
|
|
|
Assets Used In Performance Measurement |
||||
Reportable Segments: |
|
|
|
|
2002 38,421 378,303 38,329 14 $416,646 ======= |
2001 $294,550 61,516 356,066 27,851 2,271 $386,188 ======= |
2000 73,621 399,107 24,031 68 $423,206 ======= |
The dollar volumes and percentages of the Company's net sales to The Home Depot were approximately $71,000, or 14% in 2002, $82,000, or 15%, in 2001 and $85,000, or 15%, in 2000. The loss of The Home Depot business could have a material adverse effect on the Company's operations. Substantially all of the Company's sales were to domestic customers and all substantial assets were domestically based for the periods presented. Approximately 78% of the unit production volume of the Company's floorcovering base materials segment is sold to the Company's carpet manufacturing segment at cost. Intersegment sales from the Company's floorcovering base materials group to the Company's carpet manufacturing group were $150,127 in 2002, $140,583 in 2001 and $137,328 in 2000.
NOTE P - ASSETS HELD FOR SALE
At December 29, 2001, the Company held for sale its Lemoore, California carpet yarn processing facility which was included in the Company's floorcovering base materials segment. During 2002, the Company sold this facility for an amount which approximated its carrying value of $2,271.
NOTE Q - SUBSEQUENT EVENTS
On March 14, 2003, the Company issued $37,000 of senior secured notes, amended its senior credit facility and settled the $50,000 obligation with the former shareholders of Fabrica International due on April 1, 2003. The obligation was settled through a cash payment of $49,784, reflecting an early payment discount of $216. Because this obligation was settled using long-term financing, the $50,000 accrued purchase consideration has been classified as a long term liability on the Company's balance sheet at December 28, 2002.
The interest on the senior secured notes is payable monthly in cash at LIBOR plus 10%, or, if LIBOR is unavailable, at a base rate plus 8%, in either event not to exceed 14% during the last fifteen months prior to the maturity of the notes, plus a 3% per annum Payment-In-Kind ("PIK") interest component which is settled quarterly by the addition of the accrued PIK interest to the notes principal balance then outstanding. The outstanding principal and all accrued and unpaid interest is due at maturity of the notes on May 13, 2007. The notes rank pari passu with all of our senior indebtedness and are secured by a second priority lien in substantially all of our assets, junior only to liens we granted to secure borrowings under our senior credit facility. The senior credit facility and the senior secured notes are senior to the Company's subordinated debt.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The amended senior credit facility reduced the revolving credit loan commitments to $90,000 and increased amounts that can be borrowed under our borrowing base formula by approximately $10,000. It also reissues a term loan for the outstanding balance of the existing term loan and includes an additional $4,551 term loan, bringing the balance of the term loan portion of the facility to $38,333. The term loans are payable in quarterly installments of $1,369 beginning May 1, 2003 and are due in May 2007. Interest rates available under the amended senior facility may be selected from a number of options that effectively allow for borrowing at rates ranging from the lender's prime rate plus .25% to the lender's prime rate plus 1.25% for base rate loans, or at rates ranging from LIBOR plus 2.50% to LIBOR plus 3.75% for LIBOR loans. Commitment fees, ranging from .375% to .50% per annum, are payable on the average daily unused balance of the revolving credit facility. The Company's
level of accounts receivable and inventories limits borrowing availability under the revolving credit facility. The senior credit facility is secured by a first priority lien in substantially all of the Company's assets.
The Company's credit agreements contain financial covenants relating to fixed charges, interest and debt coverage and net worth and among other things, limit future acquisitions, capital expenditures, and the payment of dividends. After completing the transactions, including payment of the obligation to the former shareholders of Fabrica International, the unused borrowing capacity under the Company's credit facilities was approximately $19,400.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE DIXIE GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
|
|
Additions Charged to Costs and Expenses |
|
|
|
|||||
Year ended December 28, 2002: |
||||||||||
Reserves deducted from asset accounts: |
||||||||||
Allowance for doubtful accounts |
$ 2,524 |
$ 1,257 |
$ --- |
$ 491 |
(1) |
$ 3,290 |
||||
Provision to reduce inventories to net |
||||||||||
realizable value |
6,281 |
--- |
--- |
101 |
(2) |
6,180 |
||||
Provision to reduce assets held for sale |
||||||||||
to estimated fair market value |
948 |
--- |
--- |
38 |
(3) |
910 |
||||
Reserve for note receivable associated |
||||||||||
discontinued operations |
1,867 |
6,133 |
--- |
--- |
8,000 |
|||||
Year ended December 29, 2001: |
||||||||||
Reserves deducted from asset accounts: |
||||||||||
Allowance for doubtful accounts |
$ 2,164 |
$ 1,048 |
$ --- |
$ 688 |
(1) |
$ 2,524 |
||||
Provision to reduce inventories to net |
||||||||||
realizable value |
6,894 |
--- |
--- |
613 |
(2) |
6,281 |
||||
Provision to reduce assets held for sale |
||||||||||
to estimated fair market value |
948 |
--- |
--- |
--- |
948 |
|||||
Reserve for note receivable associated |
||||||||||
discontinued operations |
1,867 |
--- |
--- |
1,867 |
||||||
Year ended December 30, 2000: |
||||||||||
Reserves deducted from asset accounts: |
||||||||||
Allowance for doubtful accounts |
$ 1,831 |
$ 305 |
$ 450 |
(4) |
$ 422 |
(1) |
$ 2,164 |
|||
Provision to reduce inventories to net |
||||||||||
realizable value |
4,441 |
1,686 |
(2) |
767 |
(4) |
--- |
6,894 |
|||
Provision to reduce assets held for sale |
||||||||||
to estimated fair market value |
1,187 |
--- |
--- |
239 |
(3) |
948 |
||||
Reserve for note receivable associated |
||||||||||
discontinued operations |
2,589 |
--- |
--- |
722 |
(5) |
1,867 |
||||
(1) Uncollectible accounts written off, net of recoveries. |
||||||||||
(2) Current year provision or reserve reductions for inventories sold. |
||||||||||
(3) Reserve reductions for assets sold. |
||||||||||
(4) Increase in reserves in connection with business combinations. |
||||||||||
(5) Decrease in current year provision. |
ANNUAL REPORT ON FORM 10-K
ITEM 15 (c)
EXHIBITS
EXHIBIT NO. |
|
|
(3.1) |
Restated Charter of The Dixie Group, Inc. |
Incorporated by reference to Exhibit (3) to Dixie's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997. * |
(3.2) |
Amended and Restated By-Laws of Dixie Yarns, Inc. |
Filed herewith. |
(4.1) |
Loan Agreement, dated February 6, 1990 between Dixie Yarns, Inc. and New York Life Insurance Company and New York Life Annuity Corporation. |
Incorporated by reference to Exhibit (4d) to Dixie's Annual Report on Form 10-K for the year ended December 30, 1989. * |
(4.2) |
Form of Indenture, dated May 15, 1987 between Dixie Yarns, Inc. and Morgan Guaranty Trust Company of New York as Trustee. |
Incorporated by reference to Exhibit 4.2 to Amendment No. 1 of Dixie's Registration Statement No. 33-14078 on Form S-3, dated May 19, 1987. * |
(4.3) |
Amendment to 9.96% Senior Subordinated Notes due February 1, 2010. |
Incorporated by reference to Exhibit (4l) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(4.4) |
Letter Agreement dated February 17, 1998 re: Amendment to 9.96% Senior Subordinated Notes due February 1, 2010. |
Incorporated by reference to Exhibit (4m) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(4.5) |
Waiver Letter dated August 17, 1998 from New York Life Insurance and Annuity Corporation. |
Incorporated by reference to Exhibit (4o) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(4.6) |
Waiver Letter dated August 17, 1998 from New York Life Insurance Company. |
Incorporated by reference to Exhibit (4p) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(4.7) |
Loan and Security Agreement and Forms of Notes dated May 14, 2002 by and among The Dixie Group, Inc., Fleet Capital Corporation, as "Agent", General Electric Capital Corporation, as "Documentation Agent", and Congress Financial Corporation (Southern), as "Co-Agent". |
Incorporated by reference to Exhibit (4.1) to Dixie's Current Report on Form 8-K dated May 14, 2002. * |
(4.8) |
Letter Agreement, dated September 17, 2002, amending Loan and Security Agreement dated May 14, 2002 |
Filed herewith. |
(4.9) |
Letter Agreement, dated January 21, 2003, amending Loan and Security Agreement dated May 14, 2002 |
Filed herewith. |
(4.10) |
Letter Agreement, dated March 7, 2003, amending Loan and Security Agreement dated May 14, 2002 |
Filed herewith. |
(10.1) |
Asset Purchase Agreement dated as of August 29, 1997 among The Dixie Group, Inc., Bretlin, Inc., Foamex L.P. and General Felt Industries, Inc. |
Incorporated by reference to Exhibit (2) to Dixie's Current Report on Form 8-K dated August 29, 1997. * |
(10.2) |
Dixie Yarns, Inc. Incentive Stock Plan as amended. ** |
Incorporated by reference to ANNEX A to Dixie's Proxy Statement dated March 27, 1998 for its 1998 Annual Meeting of Shareholders. * |
(10.3) |
Form of Non-qualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. ** |
Incorporated by reference to Exhibit (10a) to Dixie's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995. * |
(10.4) |
Form of Amendment to Non-qualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. ** |
Incorporated by reference to Exhibit (10b) to Dixie's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995. * |
(10.5) |
Form of Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan as amended. ** |
Incorporated by reference to Exhibit (10b) to Dixie's Annual Report on Form 10-K for the year ended December 28, 1996. * |
(10.6) |
Form of Stock Rights and Restrictions Agreement for Restricted Stock Award Under Incentive Stock Plan as amended. ** |
Incorporated by reference to Exhibit (10v) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(10.7) |
The Dixie Group, Inc. Stock Ownership Plan as amended. ** |
Incorporated by reference to Exhibit (10w) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(10.8) |
Form of Stock Subscription Agreement Under Stock Ownership Plan of The Dixie Group, Inc. ** |
Incorporated by reference to Exhibit (10x) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(10.9) |
The Dixie Group, Inc. Director's Stock Plan. ** |
Incorporated by reference to Exhibit (10y) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997. * |
(10.10) |
Asset Purchase Agreement dated January 8, 1999, by and between Multitex Corporation of America and The Dixie Group, Inc. |
Incorporated by reference to Exhibit (10) to Dixie's Quarterly Report on Form 10-Q for the quarter ended March 27, 1999. * |
(10.11) |
The Dixie Group, Inc. New Non-qualified Retirement Savings Plan effective August 1, 1999. ** |
Incorporated by reference to Exhibit (10.1) to Dixie's Quarterly Report on Form 10-Q for the quarter ended June 26, 1999. * |
(10.12) |
The Dixie Group, Inc. Deferred Compensation Plan Amended and Restated Master Trust Agreement effective as of August 1, 1999. ** |
Incorporated by reference to Exhibit (10.2) to Dixie's Quarterly Report on Form 10-Q for the quarter ended June 26, 1999. * |
(10.13) |
Asset Purchase Agreement dated as of May 7, 1999, between R. L. Stowe Mills, Inc., and The Dixie Group, Inc. |
Incorporated by reference to Exhibit (10.3) to Dixie's Quarterly Report on Form 10-Q for the quarter ended June 26, 1999. * |
(10.14) |
Stock Purchase Agreement dated as of July 1, 2000, by and among the Company and the stockholders of Fabrica International, Inc. named therein. |
Incorporated by reference to Exhibit (2.1) to Dixie's Current Report on Form 8-K dated July 1, 2000. * |
(10.15) |
Stock Purchase Agreement dated as of July 1, 2000, by and among the Company and all of the stockholders of Chroma Technologies, Inc. |
Incorporated by reference to Exhibit (2.2) to Dixie's Current Report on Form 8-K dated July 1, 2000. * |
(10.16) |
Pledge and Security Agreement, dated July 1, 2000, by and among the Company and Scott D. Guenther. |
Incorporated by reference to Exhibit (10.1) to Dixie's Current Report on Form 8-K dated July 1, 2000. * |
(10.17) |
Pledge and Security Agreement, dated July 1, 2000, by and among the Company, Albert A. Frink, the Albert A. Frink and Denise Frink Charitable Remainder Unitrust and the Albert A. Frink Loving Trust. |
Incorporated by reference to Exhibit (10.2) to Dixie's Current Report on Form 8-K dated July 1, 2000. * |
(10.18) |
The Dixie Group, Inc. Stock Incentive Plan. ** |
Incorporated by reference to Annex A to Dixie's Proxy Statement dated April 6, 2000 for its 2000 Annual Meeting of Shareholders. * |
(10.19) |
Amended and restated stock purchase agreement by and among The Dixie Group, Inc., and Scott D. Guenther, Royce R. Renfroe, and the Albert A. Frink and Denise Frink Charitable Remainder Unitrust and the Albert A. Frink Loving Trust dated September 8, 2000. |
Incorporated by reference to Exhibit (10.1) to Dixie's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. * |
(10.20) |
Pledge and security agreement dated September 8, 2000. |
Incorporated by reference to Exhibit (10.2) to Dixie's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. * |
(10.21) |
Form of Stock Option Agreement under The Dixie Group, Inc. Stock Incentive Plan. ** |
Incorporated by reference to Exhibit (10.23) to Dixie's Annual Report on Form 10-K for the year ended December 29, 2001. * |
(10.22) |
The Dixie Group, Inc. 2001 Leadership & Performance Incentive Award Plan and Form of Individual Award thereunder. ** |
Incorporated by reference to Exhibit (10.24) to Dixie's Annual Report on Form 10-K for the year ended December 29, 2001.s * |
(10.23) |
Asset Purchase Agreement dated May 1, 2002, by and among Candlewick Yarns, Inc., Bretlin, Inc., The Dixie Group, Inc., CAF Extrusion, Inc. and Collins and Aikman Floorcovering, Inc. |
Incorporated by reference to Exhibit (10.1) to Dixie's Quarterly Report on Form 10-Q for the quarter ended June 29, 2002. * |
(10.24) |
The Dixie Group, Inc. Core Leadership Team Stock Subscription Plan. ** |
Filed herewith. |
(10.25) |
Form of Stock Subscription Agreement under The Dixie Group, Inc. Core Leadership Team Stock Subscription Plan. ** |
Filed herewith. |
(10.26) |
The Dixie Group, Inc. 2002 Leadership and Performance Incentive Award Plan. ** |
Filed herewith. |
(21) |
Subsidiaries of the Registrant. |
Filed herewith. |
(23) |
Consent of Ernst & Young LLP. |
Filed herewith. |
|
|
|
(99.1) |
CEO Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Filed herewith. |
(99.2) |
CFO Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Filed herewith. |
|
|
|
* Commission File No. 0-2585.
** Indicates a management contract or compensatory plan or arrangement.
BYLAWS
OF
THE DIXIE GROUP, INC.
(A Tennessee for profit corporation)
INDEX |
Page |
||
Article 1: General Provisions |
|||
1.1 |
State of Incorporation |
1 |
|
1.2 |
Gender and Number |
1 |
|
1.3 |
Headings |
1 |
|
1.4 |
Required by Law |
1 |
|
Article 2: Offices |
1 |
||
Article 3: Meetings of Shareholders |
|||
3.1 |
Annual Meeting |
2 |
|
3.2 |
Special Meetings |
2 |
|
3.3 |
Notice of Meeting |
2 |
|
3.4 |
Waiver of Notice |
3 |
|
3.5 |
Place of Meetings |
4 |
|
3.6 |
Fixing of Record Date |
4 |
|
3.7 |
Quorum |
4 |
|
3.8 |
Organization |
5 |
|
3.9 |
Conduct of Business |
5 |
|
3.10 |
Voting |
6 |
|
3.11 |
Proxies |
6 |
|
3.12 |
Shareholder's List |
7 |
|
3.13 |
Action by Consent of Shareholders |
8 |
|
3.14 |
Proper Business at Annual Meeting |
8 |
|
Article 4: Board of Directors |
|||
4.1 |
General Powers |
10 |
|
4.2 |
Number and Qualification |
10 |
|
4.3 |
Election and Term of Office . |
10 |
|
4.4 |
Meetings |
11 |
|
4.5 |
Notice of Meetings of Board of Directors |
11 |
|
4.6 |
Quorum and Vote |
12 |
|
4.7 |
Presumption of Assent |
12 |
|
4.8 |
Compensation of Directors |
13 |
|
4.9 |
Participation in Meetings by Conference Telephone |
13 |
|
4.10 |
Action by Consent of Directors |
13 |
|
Article 5: Committees |
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5.1 |
Committees . |
14 |
|
5.2 |
Conduct of Business . |
15 |
|
Article 6: Officers |
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6.1 |
Number |
16 |
|
6.2 |
Chairman |
16 |
|
6.3 |
President |
17 |
|
6.4 |
Vice President |
17 |
|
6.5 |
Treasurers |
17 |
|
6.6 |
Secretary |
18 |
|
6.7 |
Delegation of Authority |
18 |
|
6.8 |
Election and Term |
18 |
|
6.9 |
Compensation |
18 |
|
6.10 |
Action with Respect to Securities of Other Corporations |
19 |
|
Article 7: Resignations, Removals and Vacancies |
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7.1 |
Resignations |
19 |
|
7.2 |
Removal of Officers |
19 |
|
7.3 |
Removal of Directors |
20 |
|
7.4 |
Vacancies |
20 |
|
Article 8: Contracts, Checks, Deposits and Funds |
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8.1 |
Authorization |
20 |
|
8.2 |
Funds |
21 |
|
8.3 |
Audits |
21 |
|
8.4 |
Bond |
22 |
|
Article 9: Capital Stock |
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9.1 |
Share Certificates |
22 |
|
9.2 |
Transfers of Shares |
23 |
|
9.3 |
Loss of Certificates |
23 |
|
9.4 |
Regulations |
23 |
|
Article 10: Notices |
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10.1 |
Notices |
23 |
|
10.2 |
Waiver of Notice |
24 |
|
Article 11: Indemnification |
25 |
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Article 12: Miscellaneous |
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12.1 |
Corporate Seal |
26 |
|
12.2 |
Facsimile Signatures |
26 |
|
12.3 |
Reliance upon Books, Reports and Records |
26 |
|
12.4 |
Fiscal Year |
26 |
|
12.5 |
Time Periods |
27 |
|
Article 13: Amendments |
27 |
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ARTICLE 1
GENERAL PROVISIONS
1.1 State of Incorporation. This corporation is incorporated under the laws of the State of Tennessee. Any reference to "this state" means the State of Tennessee, and any reference to "the laws of this state" includes the Tennessee Business Corporation Act.
1.2 Gender and Number. Any use of the masculine includes the feminine and the neuter; and any use of the singular includes the plural, whenever such meanings are appropriate.
1.3 Headings. The headings appearing at the beginning of each Article and Section in these bylaws are intended only as an index and are not to be construed to vary the meaning of the provision to which they refer.
1.4 Required by Law. The term "required by law" shall mean as required from time to time by the Tennessee Business Corporation Act or the Charter of the corporation. The term "required by applicable federal or state law" shall mean in addition to the above any other applicable federal or state law, including specifically any securities laws.
ARTICLE 2
OFFICES
The corporation shall maintain a registered office in the state of Tennessee and a registered agent as required by law. The corporation may have such other offices without restrictions as to location as the Board of Directors may designate or as the business of the corporation may require.
ARTICLE 3
MEETINGS OF SHAREHOLDERS
3.1 Annual Meeting. The annual meeting of the shareholders shall be held at such place, date and time as may be designated by the Board of Directors or the Chairman. Unless the date and time is otherwise specified by the Board of Directors or the Chairman, the annual meeting shall be held on the first (1st) Thursday in May of each year, or as close thereto as practicable.
3.2 Special Meetings. The Board of Directors or the Chairman may call special meetings of the shareholders, for any purpose or purposes described in the notice of the meeting. In addition, a special meeting shall be called if the holders of stock representing at least ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting, sign, date, and deliver to the Secretary a written demand for the meeting describing the purpose or purposes for which it is to be held.
3.3 Notice of Meeting. Notice of the place, date, and time of all meetings of the shareholders shall be given, not less than ten (10) days nor more than two (2) months before the date on which the meeting is to be held, to each shareholder entitled to vote at such meeting, except as otherwise provided herein or required by law. Notice of a special meeting of shareholders must include a description of the purpose or purposes for which the meeting is called. Notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called, unless otherwise required by federal or state law.
When a meeting is adjourned to another place, date or time, notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting before adjournment; provided, however, that if a new record date for the adjourned meeting is or must be fixed, notice of the adjourned meeting must be given to persons who are shareholders as of the new record date. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.
3.4 Waiver of Notice. A shareholder may waive any notice required herein or required by law before or after the date and time stated in the notice. The waiver must be in writing, signed by the shareholder entitled to the notice, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting (or promptly upon the shareholder's arrival) objects to holding the meeting or transacting business at the meeting. Additionally, by attendance at any meeting, a shareholder waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
3.5 Place of Meetings. The location for any meeting of the shareholders shall be the principal business office of the corporation in or out of this state unless the Board of Directors or Chairman designates another location for that meeting. The Board of Directors or Chairman may permit shareholders to participate in a meeting by, or conduct a meeting through the use of, any means of communication by which all shareholders participating may simultaneously hear each other during the meeting.
3.6 Fixing of Record Date. The Board of Directors may fix a future record date for the determination of shareholders entitled to notice and to vote or to take any other action at any meeting of shareholders. The record date is to be not more than seventy (70) days prior to the meeting or other action requiring a determination of eligible shareholders. When a determination of shareholders entitled to vote or take other action at a meeting has been made as provided in this Section 3.6, that determination applies to any adjournment or continuation of that meeting unless a new record date for that meeting is fixed by the Board of Directors, which the Board of Directors must do if the meeting is adjourned to a date more than four (4) months after the date fixed for the original meeting.
3.7 Quorum. At any meeting of the shareholders, the holders of a majority of all of the votes entitled to be cast as a single voting group upon a matter to be considered at the meeting, present in person or by proxy, shall constitute a quorum for all purposes related to that matter, except to the extent that the presence of a larger number is required by law.
If a quorum is not present at any meeting, the chairman of the meeting or the holders of a majority of the votes of such voting group entitled to be cast upon a matter to be considered who are present, in person or by proxy, may adjourn the meeting, without notice other than announcement at the meeting, to another place, date, or time until a quorum shall be present or represented, unless a new record date is set for such meeting, and except as otherwise required by law. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
3.8 Organization. The Chairman, or in his absence such person as the Board of Directors may have designated or, in the absence of such designation, such person as may be chosen by the holders of a majority of the votes entitled to be cast on any matter who are present, in person or by proxy, shall call to order any meeting of the shareholders and act as chairman of the meeting. In the absence of the Secretary of the corporation, the secretary of the meeting shall be such person as the acting chairman appoints.
3.9 Conduct of Business. Except as may be otherwise required by law, the chairman of any meeting of shareholders shall determine the order of business and the procedure at the meeting, including regulation of the manner of voting and the conduct of discussion.
3.10 Voting. Each shareholder of record of Common Stock is entitled to one (1) vote for each share of Common Stock having voting power and registered in his name on the books of the corporation. Each shareholder of record of Class B Common Stock is entitled to twenty (20) votes for each share of Class B Common Stock having voting power and registered in his name on the books of the corporation. Each shareholder of record of Class C Common Stock is entitled to one-twentieth (1/20) vote for each share of Class C Common Stock having voting power and registered in his name on the books of the corporation. Unless a different requirement is prescribed by these Bylaws, or required by law, whenever any corporate action is to be taken by vote of the shareholders, it may be authorized by the affirmative vote of a majority of the votes present at the meeting entitled to be cast on such matter.
3.11 Proxies. A shareholder may vote such shareholder's shares in person or by proxy. A shareholder may appoint a proxy by executing a writing that authorizes another person or persons to vote or otherwise act on the shareholder's behalf. Execution may be accomplished by any reasonable means, including facsimile transmission, either personally or by an attorney-in-fact in the case of an individual shareholder or by an authorized officer, director, employee, agent or attorney-in-fact in the case of any other shareholder. Any copy, facsimile transmission or other reliable reproduction of such writing or transmission may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission. An appointment of a proxy is effective when received by t
he Secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless another period is expressly provided in the appointment form. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and is coupled with an interest. In the case of a proxy not made irrevocable as above provided, the death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises the proxy's authority under the appointment.
3.12 Shareholders' List. A complete list of shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order for each class of stock and showing the address of each such shareholder and the number of shares registered in his name, shall be open to the examination of any such shareholder, for any purpose germane to the meeting, during ordinary business hours, beginning two (2) business days after notice of the meeting is given, either at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held.
The shareholder list shall also be available at the meeting of shareholders and shall be open for inspection by any shareholder or the shareholder's agent or attorney during the meeting and any adjournment thereof. This list shall presumptively determine the identity of the shareholders entitled to vote at the meeting and the number of shares held by each of them.
3.13 Action by Consent of Shareholders. Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting if all the shareholders entitled to vote on the action consent to taking such action without a meeting and the affirmative vote of the number of shareholders necessary to approve such action do so. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each shareholder entitled to vote on the action in one (1) or more counterparts, indicating each signing shareholder's vote or abstention on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
3.14 Proper Business at Annual Meeting. At any annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before such meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by or at the direction of the Board of Directors or by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation, must be a shareholder of the corporation of record at the time of the delivery of said notice and must be entitled to vote at the meeting. To be timely, a shareholder's notice must be delivered to, or mailed and received at, the principal executive office of the corporation, not less than one hundred twenty (120) days before the
date of the prior year proxy statement. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, including the complete text of any resolutions to be presented at the meeting with respect to such business, and the reasons for conducting such business at the annual meeting, (ii) the name and address of record of the shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder and such beneficial owner, (iv) any material interest of the shareholder and such beneficial owner in such business and (v) a representation that the shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such busin
ess. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that such business was not properly brought before the meeting in accordance with these provisions, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
ARTICLE 4
BOARD OF DIRECTORS
4.1 General Powers. The Board of Directors shall exercise all corporate powers of the corporation not reserved to the shareholders either by law or in the Charter. The management of the business and affairs of the corporation shall be exercised by or under authority of the Board of Directors.
4.2 Member and Qualification. The number of directors shall be fixed by the Board of Directors, and unless otherwise fixed shall be ten (10). Accordingly, the number of directors may be increased or decreased by the Board of Directors, from time to time, in accordance with law. Directors need not be shareholders or residents of Tennessee.
4.3 Election and Term of Office. Each director shall be elected at the annual meeting of the shareholders for a term of one (1) year and shall serve until his successor is elected and qualified or his earlier resignation or removal, except as otherwise provided by these Bylaws or required by law. No person shall be eligible to be elected as a director following such person reaching seventy-five (75) years of age, unless otherwise determined by the Board of Directors.
4.4 Meetings. The annual meeting of Board of Directors shall be held as soon as practicable after the adjournment of the annual meeting of shareholders. The Board of Directors may also designate more frequent intervals for regular meetings. The location for any meeting of the Board of Directors shall be the principal office of the corporation unless the Board of Directors, Chairman or President designates another location for that meeting. The Chairman, President or any two (2) directors may call special meetings at any time.
4.5 Notice of Meetings of Board of Directors. The annual and all regular meetings of the Board of Directors may be held without notice. Notice of the place, date, and time of any special meeting shall be given each director not less than two (2) days before the meeting. The notice need not describe the purpose of the special meeting unless required by the Charter or these Bylaws. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one (1) adjournment.
A director may waive any notice required before or after the date and time stated in the notice. Except as otherwise provided herein, the waiver must be in writing, signed by the director entitled to the notice, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
4.6 Quorum and Vote. The presence of a majority of the directors constitutes a quorum for the transaction of business. Once a quorum is present, it is not broken by the subsequent withdrawal of any of those present. Unless otherwise required by law, the Charter or these Bylaws, the vote of a majority of the directors present at a meeting at which a quorum is present is the act of the Board of Directors.
4.7 Presumption of Assent. A director who is present at a meeting of the Board of Directors is presumed to have concurred in any action taken at the meeting unless: (1) the director objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; (2) the director's dissent or abstention from the action is entered in the minutes of the meeting; or (3) the director delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the Secretary immediately after the adjournment of the meeting. The right of dissent or abstention is not available to a director who voted in favor of the action.
4.8 Compensation of Directors. Directors shall receive such compensation for their services as is approved by the Board of Directors and the Board of Directors may authorize reimbursement of expenses incurred in the performance of their duties. Such authorization may prescribe the procedure for approval and payment of such expenses by designated officers of the corporation. Nothing herein precludes a director from serving the corporation in any other capacity and receiving compensation for such services.
4.9 Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee through the use of any means of communication by which all directors participating in the meeting may simultaneously hear each other during the meeting, if the meeting is a telephonic meeting or if such participation is otherwise permitted by the Chairman.
4.10 Action by Consent of Directors. Whenever the Board of Directors or any committee thereof is required or permitted to take any action, such action may be taken without a meeting. If all directors consent to taking such action without a meeting, the affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the board. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director in one (1) or more counterparts, indicating each signing director's vote or abstention on the action, and shall be included in the minutes or filed with the corporate records reflecting the action taken. Action taken in this manner is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed in this manner has the effect of a meeting vote and may be described as such in any document.
ARTICLE 5
COMMITTEES
5.1 Committees. The Board of Directors, by a resolution adopted by a majority of the entire Board of Directors, may create one (1) or more committees, consisting of one (1) or more directors. Except as otherwise limited by this Section 5.1, any committee may be delegated such authority as the Board of Directors deems desirable. However, no committee may exercise the authority of the Board of Directors to do any of the following:
(a) Amend the Charter
(b) Adopt, amend or repeal the bylaws;
(c) Submit to shareholders any action that, as required by law, needs shareholders' authorization;
(d) Fill vacancies in the Board of Directors or in any committee;
(e) Adopt a plan of distribution of the corporate assets except according to a formula or a method specifically prescribed by the Board of Directors;
(f) Authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors;
(g) Authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits specifically prescribed by the Board of Directors.
Each committee serves at the pleasure of the Board of Directors.
5.2 Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided by these Bylaws, the Board of Directors or required by law. No notice shall be required for regularly scheduled meetings of each committee; a majority of the members shall constitute a quorum unless the committee shall consist of two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present.
ARTICLE 6
OFFICERS
6.1 Number. The officers of the corporation shall consist of a Chairman, a President, a Secretary, and such other officers as the Board of Directors may deem necessary. Any two or more positions may be held by the same person, except that the position of Secretary may not be held by the same person who holds the position of either Chairman or President.
6.2 Chairman. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the Chairman shall have the responsibility for the general management and control of the business and affairs of the corporation and shall perform all duties and have all powers which are otherwise delegated to him by the Board of Directors. He shall have power to sign all share certificates, contracts and other instruments of the corporation which are authorized or to delegate such authority to other officers of the corporation, and he shall have general supervision and direction of all of the other officers, employees and agents of the corporation. He may appoint non-elective officers, who shall hold office at the pleasure of the Chairman.
6.3 President. Subject to the provisions of these Bylaws, the direction of the Board of Directors, and the direction of the Chairman, the President shall have such responsibilities for the operations of the corporation and other authority as are delegated to him by the Board of Directors or the Chairman. He shall perform the duties of and exercise the powers of the Chairman in the event of the Chairman's absence or disability.
6.4 Vice President. Each vice-president shall have such powers and duties as may be delegated to him by the Board of Directors or the Chairman.
6.5 Chief Financial Officer. The Executive Vice-President, Chief Financial Officer, or Senior Vice-President, Chief Financial Officer, shall have responsibility for finance and related administrative functions, including supervision of the offices of Treasurer and Controller.
6.6 Treasurer. The Treasurer shall have the responsibility for maintaining the financial records of the corporation and shall have custody of all monies and securities of the corporation. He shall make such disbursements of the funds of the corporation as are authorized and shall render from time to time an accounting of all such transactions and of the financial condition of the corporation. The Treasurer shall also perform such other duties as the Board of Directors or the Chairman may from time to time prescribe.
6.7 Secretary. The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the shareholders and the Board of Directors. He shall have charge of the corporate books and shall perform such other duties as the Board of Directors or the Chairman may from time to time prescribe. In the absence of an appointment by the Board of Directors or the Chairman, the Secretary shall be responsible for keeping minutes of the directors and shareholders meetings, and shall authenticate all records of the corporation when and as the need for such authentication arises.
6.8 Delegation of Authority. The Board of Directors may from time to time alter, restrict remove or delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provisions hereof.
6.9 Election and Term. The Board of Directors shall elect the officers at its annual meeting. Each officer serves until the expiration of the term for which he is elected and thereafter until his successor has been elected and qualified or until his earlier resignation or removal. An officer need not be a director.
6.10 Compensation. The Board of Directors may fix compensation of the officers and employees of the corporation. The Board of Directors may delegate to any committee or to any officer the authority to fix such compensation except an officer may not fix his own compensation.
6.11 Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman or any officer of the corporation authorized by the Chairman shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of shareholders of or with respect to any action of shareholders of any other corporation in which this corporation may hold securities and otherwise to exercise any and all rights and powers which this corporation may possess by reason of its ownership of securities in such other corporation.
ARTICLE 7
RESIGNATIONS, REMOVALS AND VACANCIES
7.1 Resignations. Any director may resign at any time by giving written notice to the Board of Directors, the Chairman, the President or the corporation. Any officer may resign at any time by giving written notice to the corporation. Any such resignation takes effect at the time specified therein, or, if no time is specified, then upon its delivery.
7.2 Removal of Officers. The Board of Directors may remove any officer or agent at any time with or without cause. The Chairman may remove any officer or agent of the corporation at any time except where prohibited by the Board of Directors.
7.3 Removal of Directors. One or more of the directors may be removed with or without cause at any time by vote of the shareholders or, for cause, by vote of a majority of the entire Board of Directors. The shareholders or the Board of Directors may remove a director only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meetings is removal of directors.
7.4 Vacancies. Vacancies occurring in any office or directorship for any reason, may be filled for the unexpired term by the vote of a majority of the directors then in office, even if less than a quorum exists, and the elected director or officer shall serve until the next annual meeting and until his successor is elected and qualified or his sooner resignation. A vacancy that will occur at a specific later date may be filled before the vacancy occurs but the new director or officer may not take office until the vacancy occurs.
ARTICLE 8
CONTRACTS, CHECKS, DEPOSITS AND FUNDS
8.1 Authorization. The Board of Directors may authorize any officer or agent to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation and the execution of all orders for the payment of money and evidences of indebtedness issued in the name of the corporation; and such authority may be general or confined to specific instances.
8.2 Funds. All funds of the corporation not otherwise utilized shall be deposited to the credit of the corporation in such depositories as the Board of Directors may select or as may be designated by the Chairman, Treasurer or such other officer or agent of the corporation to whom such power is delegated by the Board of Directors. Unless otherwise provided by the Board of Directors, (a) all checks, drafts, orders for the withdrawal of corporation funds from any depository of the corporation, notes, other instruments evidencing obligations or borrowings of funds by the corporation shall be signed by any two (2) of the following officers, the Chairman, President, Vice Presidents, Secretary, Treasurer and Controller, (b) all orders for the purchase or sale of securities by or on behalf of the corporation, including the endorsement of stocks and/or bonds, shall be signed by the Chairman, President, Chief Financial Officer, or Treasurer.
8.3 Audits. For every fiscal year, the accounts of the corporation will be audited by an independent certified public accountant selected by the Board of Directors or the Audit Committee of the Board of Directors. The report of the audit shall be submitted to the Board of Directors or the Audit Committee, as appropriate.
8.4 Bond. At the direction of the Board of Directors, any officer or employee of the corporation may be bonded. The corporation will pay the expense of furnishing any such bond.
ARTICLE 9
CAPITAL STOCK
9.1 Share Certificates. Shares shall be represented by certificates. Share certificates shall be signed (which signatures may be facsimile signatures) by any two (2) officers of the corporation so designated by the Board of Directors, and, in the absence of such designation, by the Chairman or President and the Secretary. At a minimum, each share certificate must state on its face:
(a) the name of the corporation and that it is organized under the laws of Tennessee;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if any, the certificate represents; and
(d) either on the front or back, that the corporation will furnish the shareholder upon written request and without charge the designations, relative rights, preferences, and limitations applicable to each class of shares and the variations in rights, preferences and limitations determined for each series, and the authority for the board of directors to determine variations for future series, if any.
9.2 Transfers of Shares. Transfers of shares shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated for such purpose, but such shares are subject to any restriction on transfer imposed by the charter or by applicable federal or state law. Except where a certificate is issued in accordance with Section 9.3 of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.
9.3 Loss of Certificates. In the case of the loss, theft, mutilation, or destruction of a share certificate, a new certificate may be issued upon such terms as the Board of Directors prescribes, including a requirement for proof of such loss, theft or destruction and the giving of a bond or bonds of indemnity against any loss that may be suffered by the corporation.
9.4 Regulations. The issue, transfer, conversion and registration of certificates for shares shall be governed by such other regulations as the Board of Directors may establish.
ARTICLE 10
NOTICES
10.1 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any shareholder, director, officer, employee or agent shall be in writing, except that oral notice is effective if it is reasonable under the circumstances, and may in every instance be communicated in person, by telephone, telegraph, teletype, facsimile transmission or other form of wire or wireless communication, by hand delivery; by private carrier or mail, postage paid; or by sending such notice by prepaid telegram or mailgram. If these forms of personal notice are impracticable, notice may be communicated by newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcasting. Any such notice shall be addressed to shareholders at their last known address as the same appears on the books of the corporation. Any such notice is effective at the earliest of the following: when received, on the date show
n on a return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee, or five (5) days after deposit in the United States mail, if mailed correctly addressed and with first class postage affixed thereto.
10.2 Waiver of Notice. Whenever any notice is required to be given to any shareholder or director of the corporation, a written waiver of that notice signed by each person entitled to notice, whether signed before or after the time stated therein, is equivalent to the giving of notice. A shareholder's or director's attendance at a meeting waives any required notice to him of the meeting unless he objects at the beginning of the meeting (or promptly upon his arrival) to holding the meeting and does not thereafter vote for or assent to the action taken at the meeting. A shareholder's or director's attendance at a meeting waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder or director objects to considering the matter when it is presented.
ARTICLE 11
INDEMNIFICATION
Any director or officer, or the executor or administrator of any director or officer, is entitled to indemnification against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, and to the advance of expenses incurred in defending against any such liability, to the fullest extent permissible under the laws of this state.
The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article 11.
ARTICLE 12
MISCELLANEOUS
12.1 Corporate Seal. The corporation may have a corporate seal, which may be adopted or altered by the Board of Directors. The presence or absence of a seal on any instrument, or its addition thereto, does not affect the character, validity, or legal effect of that instrument.
12.2 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
12.3 Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, attorneys, independent certified public accountants, appraisers or other independent experts.
12.4 Fiscal Year. The fiscal year of the corporation shall be as fixed by the Board of Directors.
12.5 Time Periods. In applying any provision of these bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
ARTICLE 13
AMENDMENTS
These bylaws may be amended or repealed by the Board of Directors, unless otherwise required by law, or by the shareholders.
September 17, 2002
The Dixie Group, Inc.
185 South Industrial Boulevard
Calhoun, Georgia 30701
Attention: Chairman
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement dated May 14, 2002 (as at any time amended, the "Loan Agreement"), by and among The Dixie Group, Inc., a Tennessee corporation ("Borrower"); each of the subsidiaries of Borrower as guarantors ("Guarantors"); Fleet Capital Corporation, a Rhode Island corporation ("Agent"), in its capacity as collateral and administrative agent for the various financial institutions party thereto from time to time (the "Lenders"); Lenders; General Electric Capital Corporation, as Documentation Agent ("Documentation Agent"); and Congress Financial Corporation (Southern), as Co-Agent ("Co-Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Loan Agreement.
Borrower, Guarantors, Agent, Lenders, Documentation Agent and Co-Agent desire to amend the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, for and in consideration of TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows:
(a) By deleting Section 9.3.2 of the Loan Agreement and by substituting in lieu thereof the following new Section 9.3.2:
9.3.2. Debt Coverage Ratio. Maintain a Debt Coverage Ratio, on a Consolidated basis, of not more than (i) 4.0 to 1.0 for (a) Borrower's Fiscal Quarter ending June 30, 2002, (b) Borrower's two Fiscal Quarters ending September 30, 2002, (c) Borrower's three Fiscal Quarters ending December 31, 2002, (d) Borrower's four Fiscal Quarters ending March 31, 2003 and (ii) 4.25 to 1.0 for Borrower's 4 Fiscal Quarters ending June 30, 2003, and (iii) 4.0 to 1.0 thereafter, as of the end of each Fiscal Quarter, for the four Fiscal Quarters ending with such period.
(b) By deleting the definition of "Debt Coverage Ratio" that is contained in Appendix A to the Loan Agreement and by substituting in lieu thereof the following new definition:
Debt Coverage Ratio - for any period, the ratio of (a) Borrower's total Funded Debt, to (b) Borrower's EBITDA, with EBITDA calculated based upon (i) for the second Fiscal Quarter of 2002 multiplied by 4, (ii) for the second and third Fiscal Quarters of 2002 multiplied by 2, and (iii) for the second, third and fourth Fiscal Quarters of 2002, divided by 3 and multiplied by 4.
2. Ratification and Reaffirmation. Borrower and each Guarantor hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower's and such Guarantor's covenants, duties, indebtedness and liabilities under the Loan Documents.
3. Governing Law; Successors and Assigns. This letter agreement shall be governed by and construed in accordance with the internal laws of the State of Georgia. This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
4. No Novation. Except as otherwise expressly provided in this letter agreement, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This letter agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.
5. Counterparts. This letter agreement may be executed in any number of counterparts and by different parties to this letter agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.
FLEET CAPITAL CORPORATION,
as Agent and a Lender
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION, as Documentation
Agent and a Lender
By: /s/ C. Mark Smith
Title: Duly Authorized Signatory
CONGRESS FINANCIAL
CORPORATION (SOUTHERN),
as Co-Agent and a Lender
By: /s/ Fred Ernst
Title: Vice President
TRANSAMERICA BUSINESS
CAPITAL CORPORATION, as a Lender
By: /s/ Dennis C. Snyder
Title: Senior Vice President
LASALLE BUSINESS CREDIT, INC., as a Lender
By: /s/ Robert Corsentino
Title: Senior Vice President
ACCEPTED AND AGREED TO:
THE DIXIE GROUP, INC.
("Borrower")
By: /s/ Gary A. Harmon
Title: Vice President and Chief Financial Officer
FABRICA INTERNATIONAL
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
BRETLIN, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
CANDLEWICK YARNS, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
CHROMA TECHNOLOGIES, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
DIXIE GROUP LOGISTICS, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
January 21, 2003
The Dixie Group, Inc.
185 South Industrial Boulevard
Calhoun, Georgia 30701
Attention: Chairman
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement dated May 14, 2002, as amended by that certain letter agreement dated September 17, 2002 (as at any time amended, the "Loan Agreement"), by and among The Dixie Group, Inc., a Tennessee corporation ("Borrower"); each of the subsidiaries of Borrower as guarantors ("Guarantors"); Fleet Capital Corporation, a Rhode Island corporation ("Agent"), in its capacity as collateral and administrative agent for the various financial institutions party thereto from time to time (the "Lenders"); Lenders; General Electric Capital Corporation, as Documentation Agent ("Documentation Agent"); and Congress Financial Corporation (Southern), as Co-Agent ("Co-Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Loan Agreement.
Borrower, Guarantors, Agent, Lenders, Documentation Agent and Co-Agent desire to amend the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, for and in consideration of TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment to Loan Agreement. The Loan Agreement is hereby amended by deleting the definition of "Fabrica Payment Reserve" from Appendix A to the Loan Agreement and by substituting the following new definition in lieu thereof:
Fabrica Payment Reserve - a reserve to be implemented 20 days prior to the date on which any portion of the Fabrica Payment is due in an amount equal to the portion of the Fabrica Payment due on such twentieth day.
2. Ratification and Reaffirmation. Borrower and each Guarantor hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower's and such Guarantor's covenants, duties, indebtedness and liabilities under the Loan Documents.
3. Governing Law; Successors and Assigns. This letter agreement shall be governed by and construed in accordance with the internal laws of the State of Georgia. This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
4. No Novation. Except as otherwise expressly provided in this letter agreement, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This letter agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.
5. Counterparts. This letter agreement may be executed in any number of counterparts and by different parties to this letter agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.
FLEET CAPITAL CORPORATION,
as Agent and a Lender
By: /s/ Elizabeth L. Waller
Title: Senior Vice President
LASALLE BUSINESS CREDIT, INC., as a Lender
By: /s/ Dan Gallagher
Title: Senior Vice President
ACCEPTED AND AGREED TO:
THE DIXIE GROUP, INC.
("Borrower")
By: /s/ Gary A. Harmon
Title: Vice President & Chief Financial Officer
FABRICA INTERNATIONAL
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
BRETLIN, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
CANDLEWICK YARNS, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President
CHROMA TECHNOLOGIES, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: President
DIXIE GROUP LOGISTICS, INC.
("Guarantor")
By: /s/ Gary A. Harmon
Title: Vice President