-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QeVP+ammV9KyY6Dd5FQK2PAvHQZ1sycIgx3QjaeXJAukVe12ADuQGkF9SqbRAfBU WKeM6L5eJ2uWtKt/02A8EQ== 0000029332-99-000012.txt : 19991110 0000029332-99-000012.hdr.sgml : 19991110 ACCESSION NUMBER: 0000029332-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990925 FILED AS OF DATE: 19991109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXIE GROUP INC CENTRAL INDEX KEY: 0000029332 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 620183370 STATE OF INCORPORATION: TN FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02585 FILM NUMBER: 99744528 BUSINESS ADDRESS: STREET 1: 1100 S WATKINS ST CITY: CHATTANOOGA STATE: TN ZIP: 37404 BUSINESS PHONE: 6156982501 MAIL ADDRESS: STREET 1: P O BOX 751 CITY: CHATTANOOGA STATE: TN ZIP: 37401 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE YARNS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE MERCERIZING CO DATE OF NAME CHANGE: 19670524 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 25, 1999 Commission File Number 0-2585 THE DIXIE GROUP, INC. (Exact name of registrant as specified in its charter) Tennessee 62-0183370 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1100 South Watkins Street Chattanooga, Tennessee 37404 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (423) 698-2501 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of October 29, 1999 Common Stock, $3 Par Value 10,817,974 shares Class B Common Stock, $3 Par Value 795,970 shares Class C Common Stock, $3 Par Value 0 shares THE DIXIE GROUP, INC. INDEX Part I. Financial Information: Page No. Item 1 - Financial Statements: Consolidated Condensed Balance Sheets -- September 25, 1999 and December 26, 1998 3 Consolidated Statements of Income -- Three and Nine Months Ended September 25, 1999 and September 26, 1998 5 Consolidated Condensed Statements of Cash Flows -- Nine Months Ended September 25, 1999 and September 26, 1998 6 Consolidated Statement of Stockholder's Equity -- Three and Nine Months Ended September 25, 1999 8 Notes to Consolidated Condensed Financial Statements 9 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20 Part II. Other Information: Item 1 - Legal Proceedings 20 Item 2 - Changes in Securities and Use of Proceeds 20 Item 3 - Defaults Upon Senior Securities 20 Item 4 - Submission of Matters to a Vote of Security Holders 20 Item 5 - Other Information 20 Item 6 - Exhibits and Reports on Form 8-K 21 PART I - ITEM 1 FINANCIAL INFORMATION THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) September 25, December 26, 1999 1998 _____________ ____________ (dollar amounts in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,592 $ 2,815 Accounts receivable (less allowance for doubtful accounts of $3,781 in 1999 and $1,294 in 1998) 21,851 8,364 Inventories 96,830 72,671 Net assets held for sale 457 67,508 Other 16,835 14,810 _____________ ____________ TOTAL CURRENT ASSETS 143,565 166,168 PROPERTY, PLANT AND EQUIPMENT 298,102 265,702 Less accumulated amortization and depreciation (135,714) (120,517) _____________ ____________ NET PROPERTY, PLANT AND EQUIPMENT 162,388 145,185 INTANGIBLE ASSETS (less accumulated amortization of $5,788 in 1999 and $4,687 in 1998) 51,293 52,394 OTHER ASSETS 16,908 10,899 _____________ ____________ TOTAL ASSETS $ 374,154 $ 374,646 _____________ ____________ _____________ ____________ See Notes to Consolidated Condensed Financial Statements. THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) September 25, December 26, 1999 1998 _____________ ____________ (dollar amounts in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 36,441 $ 39,264 Accrued expenses 17,231 24,028 Accrued losses of discontinued operations 8,272 12,649 Current portion of long-term debt 18,479 9,645 _____________ ____________ TOTAL CURRENT LIABILITIES 80,423 85,586 LONG-TERM DEBT Senior indebtedness 63,495 64,466 Subordinated notes 45,238 50,000 Convertible subordinated debentures 37,237 39,737 _____________ ____________ TOTAL LONG-TERM DEBT 145,970 154,203 OTHER LIABILITIES 11,097 11,869 DEFERRED INCOME TAXES 21,936 22,998 STOCKHOLDERS' EQUITY Common Stock ($3 par value per share) authorized 80,000,000 shares - issued and outstanding, 14,262,027 shares in 1999 and 14,071,629 shares in 1998 42,786 42,215 Class B Common Stock ($3 par value per share) authorized 16,000,000 shares - issued and outstanding, 795,970 shares in 1999 and 735,228 shares in 1998 2,388 2,206 Common Stock Subscribed - 242,941 shares in 1999 and 573,463 shares in 1998 729 1,720 Additional paid-in capital 133,920 134,720 Stock subscriptions receivable (2,107) (3,719) Unearned stock compensation (659) (716) Accumulated deficit (5,722) (19,850) Accumulated other comprehensive income (799) (799) _____________ ____________ 170,536 155,777 Less Common Stock in treasury at cost - 3,445,503 shares in 1999 and 3,442,900 shares in 1998 (55,808) (55,787) _____________ ____________ TOTAL STOCKHOLDERS' EQUITY 114,728 99,990 _____________ ____________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 374,154 $ 374,646 _____________ ____________ _____________ ____________ See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended __________________________ __________________________ September 25, September 26, September 25, September 26, 1999 1998 1999 1998 ________ ________ ________ ________ (dollar amounts in thousands, except per share data) Net sales $142,589 $120,387 $435,926 $369,477 Cost of sales 111,713 97,560 342,821 295,145 ________ ________ ________ ________ GROSS PROFIT 30,876 22,827 93,105 74,332 Selling and administrative expenses 22,267 16,850 64,626 51,951 Other expense - net 317 919 2,457 2,999 ________ ________ ________ ________ INCOME BEFORE INTEREST AND TAXES 8,292 5,058 26,022 19,382 Interest expense 3,173 2,417 9,972 7,745 ________ ________ ________ ________ INCOME BEFORE INCOME TAXES 5,119 2,641 16,050 11,637 Income tax provision 2,050 991 6,341 4,397 ________ ________ ________ ________ Income from Continuing Operations $ 3,069 $ 1,650 $ 9,709 $ 7,240 Loss from Discontinued Operations - (1,444) - (1,853) Income (loss) from Disposal of Discontinued Operations - - 4,419 (14,717) Net Income (loss) $ 3,069 $ 206 $ 14,128 $ (9,330) ________ ________ ________ ________ ________ ________ ________ ________ Earnings per Share: Basic Earnings per share: Income from continuing operations $ 0.27 $ 0.15 $ 0.86 $ 0.64 Loss from discontinued operations - (0.13) - (0.16) Income (loss) from disposal of discontinued operations ____ - _ - _ 0.39 __ (1.31) Net Income (loss) $___0.27 $ 0.02 $_ 1.25 $ (.83) ________ ________ ________ ________ Shares outstanding 11,390 11,268 11,318 11,264 Diluted Earnings per share: Income from continuing operations $ 0.26 $ 0.14 $ 0.83 $ 0.61 Loss from discontinued operations - (0.12) - (0.16) Income (loss) from disposal of discontinued operations ____ - _ - _ 0.37 _ (1.23) Net Income (loss) $___0.26 $ 0.02 $ 1.20 $ (0.78) ________ ________ ________ ________ Shares outstanding 11,857 11,706 11,733 11,929 Dividends per share: Common Stock $ -- $ 0.05 $ -- $ .15 Class B Common Stock $ -- $ 0.05 $ -- $ .15
See Notes to Consolidated Condensed Financial Statements. THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended ______________________________ September 25, September 26, 1999 1998 _____________ _____________ (dollar amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 14,128 $ (9,330) Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations: (Income) loss on disposal of discontinued operations (4,419) 14,717 Depreciation and amortization 16,945 13,491 (Benefit) provision for deferred income taxes (1,358) 139 (Gain) loss on property, plant and equipment disposals (53) 246 ___________ ___________ 25,243 19,263 Changes in operating assets and liabilities including discontinued operations, net of effects of business combination (23,053) 848 ___________ ___________ NET CASH PROVIDED BY OPERATING ACTIVITIES 2,190 20,111 CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from sale of property, plant, and equipment 91 112 Net proceeds from assets held for sale 57,380 --- Purchase of property, plant, and equipment (23,845) (17,933) Net cash paid in business combinations (32,194) --- ___________ __________ NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 1,432 (17,821) See Notes to Consolidated Condensed Financial Statements. THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED) Nine Months Ended ______________________________ September 25, September 26, 1999 1998 _____________ _____________ (dollar amounts in thousands) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in credit line borrowings 16,921 4,176 Payments on subordinated debentures (2,500) (2,545) Payments on term loan (14,000) (2,125) Dividends paid --- (1,701) Other 734 12 ___________ ___________ NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES OF CONTINUING OPERATIONS 1,155 (2,183) INCREASE IN CASH AND CASH EQUIVALENTS 4,777 107 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,815 1,848 ___________ ___________ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,592 $ 1,955 ___________ ___________ ___________ ___________ SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 11,289 $ 9,897 __________ ___________ __________ ___________ Income taxes paid, net of tax refunds received $ 10,837 $ 1,962 __________ ___________ __________ ___________ See Notes to Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollar amounts in thousands) Common Stock Accumulated and Common Additional Retained Other Common Total Class B Stock Paid-In Earnings Comprehensive Stock In Stockholders' Stock Subscribed Capital Other (Deficit) Income Treasury Equity BALANCE AT DECEMBER 26, 1998 $44,421 $1,720 $134,720 $(4,435) $(19,850) $ (799) $(55,787) $ 99,990 Common Stock acquired for treasury - 800 shares (6) (6) Common Stock sold under stock option and restricted stock grant plan - 2,250 shares 7 7 14 Net income for the quarter 2,580 2,580 BALANCE AT MARCH 27, 1999 $44,428 $1,720 $134,727 $(4,435) $(17,270) $ (799) $(55,793) $102,578 Common Stock acquired for treasury - 800 shares (6) (6) Common Stock sold under stock option and restricted stock grant plan - 11,250 shares 34 38 72 Common Stock subscribed - 185,176 shares 556 966 (1,522) --- Amortization of restricted stock grants 40 40 Net income for the quarter 8,479 8,479 BALANCE AT JUNE 26, 1999 $44,462 $2,276 $135,731 $(5,917) $(8,791) $ (799) $(55,799) $111,163 Common Stock acquired for treasury - 1,003 shares (9) (9) Common Stock sold under stock option and restricted stock grant plan - 74,243 shares 222 267 489 Stock subscriptions settled - 515,698 490 (1,547) (2,078) 3,135 --- Amortization of restricted stock grants 16 16 Net income for the quarter 3,069 3,069 BALANCE AT SEPTEMBER 25, 1999 $45,174 $ 729 $133,920 $(2,766) $(5,722) $ (799) $(55,808) $114,728 See notes to consolidated financial statements.
THE DIXIE GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (dollar amounts in thousands, except per share data) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements which do not include all of the information and footnotes required in annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 25, 1999 are not necessarily indicative of the results that may be expected for the entire year. Discontinued Operations: Financial statements for 1998 have been restated to report results of discontinued operations separately from results of continuing operations. Disclosures included herein pertain to the Company's continuing operations unless noted otherwise. A portion of interest cost not attributable to any specific operation of the Company is allocated to discontinued operations based on the ratio of net assets discontinued to the sum of consolidated net assets plus consolidated debt (exclusive of debt attributable to specific operations). Credit and Market Risk: For the periods presented, the Company sold floorcovering products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses including potential losses on receivables sold. The Company invests its excess cash in short-term investments and has not experienced any losses on those investments. NOTE B - CASH AND CASH EQUIVALENTS On October 15, 1993, the Company entered into a seven-year agreement under which it sold a $45,000 undivided interest in a revolving pool of its trade accounts receivable. No further interest has been sold under this agreement subsequent to the original sale. At September 25, 1999 and December 26, 1998, the $45,000 interest sold is reflected as a reduction of accounts receivable in the Company's consolidated balance sheet. Cash receipts from the collections of trade accounts receivables are retained by the trustee to fund certain cost of the program and to provide short-term credit support for the facility when the amount of receivables in the revolving pool of trade accounts receivable are below certain levels. Such funds are invested in liquid, highly rated securities by the trustee and are restricted as to use by the Company. At September 25, 1999, cash receipts retained by the trustee amounted to $14,138 and are included in Cash and Cash Equivalents in the Company's Condensed Consolidated Balance Sheet. NOTE C - INVENTORIES Substantially all inventories are stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market. Inventories are summarized as follows: September 25, December 26, 1999 1998 _____________ ____________ At current cost: Raw materials $ 27,826 $ 21,424 Work-in-process 18,313 11,636 Finished goods 46,408 34,796 Supplies, repair parts, and other 1,816 1,631 ____________ ___________ 94,363 69,487 LIFO value over current cost 2,467 3,184 ____________ ___________ $ 96,830 $ 72,671 ____________ ___________ ____________ ___________ NOTE D - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended __________________ _________________ Sept 25, Sept 26, Sept 25, Sept 26, 1999 1998 1999 1998 Income from continuing operations(1) $ 3,069 $ 1,650 $ 9,709 $ 7,240 (Loss) from discontinued operations(1) - (1,444) - (1,853) Income (loss) from disposal of discontinued operations(1) ______- _______ __4,419 (14,717) Net income (loss) $ 3,069 $ 206 $14,128 $(9,330) _______ _______ _______ _______ Denominator for calculation of basic earnings per share - weighted average shares(2) 11,390 11,268 11,318 11,264 Effect of dilutive securities: Stock options 184 263 166 438 Stock subscriptions 283 175 249 227 Denominator for calculation of diluted earnings per share - weighted average shares adjusted for potential dilution(3) 11,857 11,706 11,733 11,929 Basic Earnings per share: Income from continuing operations $ 0.27 $ 0.15 $ 0.86 $ .64 Loss from discontinued operations - (0.13) - (.16) Income (loss) from disposal of discontinued operations _ ___- ___ __- _ 0.39 _ (1.31) Net Income (loss) $ 0.27 $ 0.02 $ 1.25 $ (0.83) _______ _______ _______ _______ Three Months Ended Nine Months Ended __________________ _________________ Sept 25, Sept 26, Sept 25, Sept 26, 1999 1998 1999 1998 Diluted Earnings per share: Income from continuing operations $ 0.26 $ 0.14 $ 0.83 $ 0.61 Loss from discontinued operations - $ (0.12) - (0.16) Income (loss) from disposal of discontinued operations ___- ___- 0.37 (1.23) Net Income (loss) $ 0.26 $ 0.02 $ 1.20 $ (0.78) _______ _______ _______ _______ Dividends per share: Common Stock $ -- $ .05 $ -- $ .15 Class B Common Stock $ -- $ .05 $ -- $ .15 (1) No adjustments needed for diluted calculation. (2) Includes Common and Class B Common shares. (3) Because their effects are anti-dilutive, this calculation excludes shares issuable pursuant to certain grants under stock option, stock subscription, and restricted stock plans whose grant price was greater than the average market price of common shares outstanding during the periods presented and the assumed conversion of subordinated debentures into shares of Common Stock as follows: 1,655 shares in 1999 and 1,801 shares in 1998. NOTE E - LONG TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists of the following: September 25, December 26, 1999 1998 Senior indebtedness: Credit line borrowings $ 30,953 $ 14,000 Term loan 43,000 57,000 Other 759 611 Total senior indebtedness 74,712 71,611 Subordinated notes 50,000 50,000 Convertible subordinated debentures 39,737 42,237 Total long-term debt 164,449 163,848 Less current portion (18,479) (9,645) Total long-term debt (less current portion) $145,970 $154,203 The Company's unsecured revolving credit and term-loan facility provides for revolving credit of up to $100.0 million through a five-year commitment period and a $60.0 million, seven-year term-loan. The Company's remaining indebtedness under the term loan was $43.0 million at September 25, 1999, with $43.7 million of additional borrowing capacity available under the revolving credit line as of such date. The agreement contains financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends, and certain other financial ratios. Interest rates available under the facility may be selected by the Company from a number of options which effectively allow for borrowing at rates equal to or lower than the greater of the lender's prime rate, or the federal funds rate plus 0.5% per annum. Commitment fees, ranging from 0.25% to 0.375% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. On April 2, 1998, the Company completed an agreement with the Development Authority of LaFayette, Georgia to obtain up to $7.0 million from the Authority under a development bond issuance. Amounts received by the Company are secured by a letter of credit issued by the Company's senior lenders in favor of the Development Authority. The value of the letter of credit reduces the Company's availability under its revolving credit and term-loan facility. The proceeds were used to finance the real property, machinery and equipment needs of the Company's synthetic materials recycling center in LaFayette, Georgia. The Company's subordinated notes are unsecured, bear interest payable semiannually at 9.96% to 10.61% based on the Company's financial ratios, and are due in semiannual installments of $2,381 beginning February 1, 2000. The Company's convertible subordinated debentures bear interest at 7% payable semiannually, are due in 2012, and are convertible by the holder into shares of Common Stock of the Company at an effective conversion price of $32.20 per share, subject to adjustment under certain circumstances. Mandatory sinking fund payments, which commenced May 15, 1998, will retire $2,500 principal amount of the debentures annually and approximately 70% of the debentures prior to maturity. The convertible debentures are subordinated in right of payment to all other indebtedness of the Company. The Company's long-term debt and credit agreements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends and certain other financial ratios. Restrictions set forth in the Company's subordinated note agreement have limited the Company's ability to pay dividends due to losses associated with the disposal of the Company's textile and apparel operations. Absent a waiver from the lender or an amendment, future dividends can only be paid to the extent of 50% of the excess of aggregate consolidated net income subsequent to the end of the fiscal quarter when the Company first meets the required ratios of interest coverage and debt to earnings before interest, taxes, depreciation and amortization as defined by the subordinated note agreement. As of September 25, 1999, the most restrictive covenants under the revolving credit and term-loan agreement limit available borrowing capacity to $43.7 million. NOTE F - DISCONTINUED OPERATIONS In the second quarter of 1999, the Company finalized the sale of its specialty yarns operations completing the disposal of its textile products business segment. The specialty yarns operations were accounted for as discontinued operations since 1998. In connection therewith, the Company recognized a gain on disposal of $4,419 (net of related income taxes of $2,825) in the second quarter of 1999. The gain resulted from favorable adjustments to amounts accrued at the end of the preceding year for estimated future operating results, including related exit costs, of the discontinued segment through the disposal date. The textile products business segment had pretax operating income, exclusive of exit costs, of $2,659 from the beginning of 1999 through the disposal date, versus a previously accrued estimated loss of $2,600. Proceeds from disposal of the textile products business segment received in 1999 through September 25, 1999 amounted to $47,396 of cash, excluding account receivables, account payables and accrued expenses retained by the Company. Additionally, the Company received an $8,000 face value note from one of the purchasers. The note matures in 2003, has a stated interest rate of 10.5% with interest payable monthly and is subordinated to the maker's senior indebtedness. The value of the note included in the proceeds was estimated to be $5,049 with an effective discount rate of 25%. At September 25, 1999, the remaining assets of the textile products business segment consisted of account receivables of $1,994; and liabilities consisted of accounts payable and accrued expenses of $8,670. NOTE G - BUSINESS COMBINATION In early 1999, the Company acquired the assets and assumed certain liabilities of Multitex Corporation of America, Inc. ("Multitex"), a Dalton, Georgia carpet and carpet yarn producer, for approximately $30,444 cash, plus future payments keyed to revenue growth. The acquisition was accounted for as a purchase effective January 8, 1999, and accordingly, the results of operations of Multitex subsequent to January 8, 1999 are included in the Company's consolidated financial statements. The total purchase price of $30,444 was allocated to the net assets acquired based on their estimated fair market values. A summary of the net assets acquired as of the purchase date is as follows: Current Assets $18,170 Property, Plant and Equipment 20,295 Other Non-Current Assets 470 Current Liabilities (8,491) Net assets acquired $30,444 The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition of Multitex had occurred at the beginning of 1998 after giving effect to certain adjustments, including the elimination of sales between the Company and Multitex and related profit, adjustments for interest expense on debt to finance the acquisition, depreciation expense on adjusted fixed asset values and income taxes. The pro forma results are presented for comparative purposes only and do not purport to be indicative of future results or of the results that would have occurred had the acquisition taken place at the beginning of 1998. Pro forma information is not presented for the current year, as the effects of the pro forma adjustments are not material. Three months ended Nine months ended September 26, 1998 September 26, 1998 Net sales $143,112 $435,075 Income from continuing operations 2,061 7,886 Net income (loss) 617 (8,682) Basic earnings per share: Income from continuing operations 0.18 0.70 Net income (loss) 0.05 (0.77) Diluted earnings per share: Income from continuing operations 0.18 0.66 Net income (loss) 0.05 (0.73) NOTE H - SEGMENT DATA The Company has two reportable segments in its continuing operations: Carpet Manufacturing and Floorcovering Base Materials. Each reportable segment is organized around product similarities. The Company's Carpet Manufacturing segment contains three operating businesses that manufacture and supply carpets and rugs to the manufactured housing and recreational vehicle markets through Carriage Carpets, to home consumers through major retailers under the Bretlin/Globaltex name and to higher-end residential and commercial customers serviced by Masland. The Floorcovering Base Materials segment manufactures and sells specialty carpet yarn through Candlewick to external customers and transfers a significant portion of its unit volume to the Company's Carpet Manufacturing segment. The following table reflects selected operating data relating to the two industries served by the Company: Three Months Ended Nine Months Ended Sept 25, Sept 26, Sept 25, Sept 26, 1999 1998 1999 1998 SALES TO EXTERNAL CUSTOMERS Carpet Manufacturing $112,528 98,288 $337,409 $297,399 Floorcovering Base Materials 29,453 21,482 95,937 70,074 Other ____608 ____617 __2,580 __2,004 Total sales to external customers $142,589 $120,387 $435,926 $369,477 INTERSEGMENTAL SALES Carpet Manufacturing $ 3,235 573 $ 7,179 $ 1,246 Floorcovering Base Materials 27,489 17,018 74,530 48,271 Other __2,556 __2,780 7,239 7,816 Total intersegmental sales $ 33,280 $ 20,371 $ 88,948 $ 57,333 OPERATING PROFIT (E.B.I.T.) Carpet Manufacturing $ 7,204 $ 4,408 $ 22,125 $ 16,894 Floorcovering Base Materials 521 643 3,298 2,471 Other ____567 ______7 ____599 _____17 Total operating profit (E.B.I.T.) 8,292 5,058 26,022 19,382 Interest expense __3,173 __2,417 __9,972 __7,745 Consolidated income before income taxes from continuing operations $ 5,119 $ 2,641 $ 16,050 $ 11,637 As of September 25, December 26, 1999 1998 IDENTIFIABLE ASSETS Carpet Manufacturing $275,010 $229,900 Floorcovering Base Materials 72,215 54,348 Other 26,472 22,890 Net assets held for sale _ 457 _67,508 Total consolidated assets $374,154 $374,646 NOTE I - ASSETS HELD FOR SALE On July 23, 1999, the Company sold its Ulmer, South Carolina, carpet yarn spinning facility for approximately $10.0 million. The yarn spinning facility sold was recently acquired as part of the Company's purchase of Multitex and had been reported on the Consolidated Condensed Balance Sheet as Assets Held for Sale. PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following analysis is presented to update the discussion of results of operations and financial condition included in the Company's 1998 Annual Report (dollar amounts in thousands, except per share data). RESULTS OF OPERATIONS Quarter Ended September 25, 1999 Compared to Quarter Ended September 26, 1998 The Company reported net income for the quarter ended September 25, 1999 of $3,069, or $0.26 per diluted share, on sales of $142,589. Results for the 1998 comparable period reflected net income of $206, or $0.02 per diluted share, on sales of $120,387. The quarter ended September 26, 1998 included a net loss from discontinued operations of $1,444, or $0.12 per diluted share. Sales increased over 1998 in most of the Company's continuing operations led by the acquisition of Globaltex Carpets, a division of Multitex, in January 1999. The income growth was caused by the sales growth and improved productivity resulting in higher operating margins in the Company's existing businesses versus last year. These productivity gains have more than offset higher interest expense and other costs associated with the Company's acquisitions. The Company has two reportable segments in its continuing operations: Carpet Manufacturing and Floorcovering Base Materials. Each reportable segment is organized around product similarities. The Company's Carpet Manufacturing segment contains three operating businesses that manufacture and supply carpets and rugs to: the factory-built housing and recreational vehicle markets through Carriage Carpets; to home consumers through major retailers under the Bretlin/Globaltex name and to higher-end residential and commercial customers serviced by Masland. The Floorcovering Base Materials segment manufactures and sells specialty carpet yarn through Candlewick to external customers and sells a significant portion of its unit volume to the Company's Carpet Manufacturing segment. The following table reflects selected operating data relating to the two industries served by the Company: Three Months Ended September 25, September 26, 1999 1998 SALES Carpet Manufacturing $115,763 $ 98,861 Floorcovering Base Materials 56,942 38,500 Eliminations and Other (30,116) (16,974) Total sales $142,589 $120,387 OPERATING PROFIT (E.B.I.T.) Carpet Manufacturing $ 7,204 $ 4,408 Floorcovering Base Materials 521 643 Other ____567 7 Total operating profit (E.B.I.T.) $ 8,292 $ 5,058 Sales in the Company's Carpet Manufacturing segment for the quarter ended September 25, 1999 were $115,763, an increase of $16,902, or 17.1%, over the comparable period in 1998. The increase was primarily a result of increased volume resulting from the Multitex acquisition in January 1999. Operating profits in the Carpet Manufacturing segment were $7,204 in the third quarter of 1999 compared with $4,408 in the third quarter of 1998. The profitability increase was a result of the sales volume increase and improved productivity. Sales in the Company's Floorcovering Base Materials segment for the quarter ended September 25, 1999 were $56,942, an increase of $18,442, or 47.9%, over the comparable period in 1998. The increase was primarily a result of increased volume resulting from the Multitex acquisition in January 1999. Operating profits in the Floorcovering Base Materials segment were $521 in the third quarter of 1999 compared with $643 in the third quarter of 1998. The profitability decrease was a result of increased raw material (fiber) costs, higher percentage of production for internal use and restructuring expenses associated with the Multitex acquisition which more than offset the affect of the sales volume increase. Selling and administrative expenses were $22,267, or 15.6% of sales, in the third quarter of 1999 compared with $16,850, or 14.0% of sales, in the third quarter of 1998. The increase resulted from sales volume growth in home center and high-end markets and reflects the higher cost to service these areas of the Company's businesses. Interest expense was $3,173, which was an increase of $756, or 31.3%, over the comparable period in 1998 due to the increase in debt caused by the acquisition of Multitex. Nine Months Ended September 25, 1999 Compared to Nine Months Ended September 26, 1998 The Company reported net income for the nine months ended September 25, 1999 of $14,128, or $1.20 per diluted share, on sales of $435,926. Results for the 1998 comparable period resulted in a net loss of $9,330, or $0.78 per diluted share, on sales of $369,477. The nine months ended September 25, 1999 includes a net gain of $4,419, or $0.37 per diluted share, from the disposal of the Company's Textile segment. The nine months ended September 26, 1998 included a net loss from discontinued operations of $1,853, or $0.16 per diluted share, and a net loss of $14,717, or $1.23 per diluted share, on the disposal of the Company's Textile segment. Sales increased over 1998 in most of the Company's continuing operations primarily led by the acquisition of Globaltex Carpets, a division of Multitex, in January 1999. The income growth in 1999 resulted from the additional sales and improved productivity resulting in higher operating margins in the Company's existing businesses versus last year and came despite higher interest expense and other costs associated with the Company's acquisitions. The following table reflects selected operating data relating to the two industries served by the Company: Nine Months Ended September 25, September 26, 1999 1998 SALES Carpet Manufacturing $344,588 $298,645 Floorcovering Base Materials 170,467 118,345 Eliminations and Other (79,129) (47,513) Total sales $435,926 $369,477 Nine Months Ended September 25, September 26, 1999 1998 OPERATING PROFIT (E.B.I.T.) Carpet Manufacturing $ 22,125 $ 16,894 Floorcovering Base Materials 3,298 2,471 Other ____599 _____17 Total operating profit (E.B.I.T.) $ 26,022 $ 19,382 Sales in the Company's Carpet Manufacturing segment for the nine months ended September 25, 1999 were $344,588, an increase of $45,943 or 15.4% over the comparable period in 1998. The increase was a result of increased volume resulting from the Multitex acquisition in January 1999. Operating profits in the Carpet Manufacturing segment were $22,125 in the first nine months of 1999 compared with $16,894 in the first nine months of 1998. The profitability increase was a result of the sales volume increase and improved productivity. Sales in the Company's Floorcovering Base Materials segment for the nine months ended September 25, 1999 were $170,467, an increase of $52,122 or 44.0% over the comparable period in 1998. The increase was a result of increased volume primarily resulting from the Multitex acquisition in January 1999. Operating profits in the Floorcovering Base Materials segment were $3,298 in the first nine months of 1999 compared with $2,471 in the first nine months of 1998. The profitability increase was a result of the sales volume increase and improved productivity. Selling and administrative expenses were $64,626, or 14.8% of sales, in the first nine months of 1999 compared with $51,951, or 14.1% of sales, in the first nine months of 1998. The increase resulted from higher selling expenses associated with growth in home center and high-end markets and reflects the higher cost to service these areas of the Company's businesses. Interest expense was $9,972, which was an increase of $2,227 or 28.8% over the comparable period in 1998 due to the increase in debt caused by the acquisition of Multitex. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 1999, the Company's long-term debt increased $601 from the 1998 year-end level. During this period, the Company spent $23,845 for capital expenditures and $32,194 for acquisitions. Cash proceeds from the sale of assets held for sale amounted to $57,380 and cash provided by operating activities was $2,190. The Company's unsecured revolving credit and term-loan facility provides for revolving credit of up to $100.0 million through a five-year commitment period and a $60.0 million, seven-year term-loan. The Company's remaining indebtedness under the term loan was $43.0 million at September 25, 1999, with $43.7 million of additional borrowing capacity available under the revolving credit line as of such date. The agreement contains financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends, and certain other financial ratios. Interest rates available under the facility may be selected by the Company from a number of options which effectively allow for borrowing at rates equal to or lower than the greater of the lender's prime rate, or the federal funds rate plus 0.5% per annum. Commitment fees, ranging from 0.25% to 0.375% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. On April 2, 1998, the Company completed an agreement with the Development Authority of LaFayette, Georgia to obtain up to $7.0 million from the Authority under a development bond issuance. Amounts received by the Company are secured by a letter of credit issued by the Company's lead lender in favor of the Development Authority. The value of the letter of credit reduces the Company's availability under its revolving credit and term-loan facility. The proceeds are to be used for financing real property and machinery and equipment needs of the Company's recycling center in LaFayette, Georgia. On April 26, 1999, the Company announced that it would make additional investments totaling $20.0 million to expand the Company's capability in filament carpet yarn extrusion over the next 18 months. During the first nine months of 1999, approximately $6.1 million has been spent on the extrusion expansion, which has been funded by cash flow from operations and additional line of credit borrowing. Additionally, on July 23, the Company sold to Mohawk Industries its Ulmer, South Carolina, carpet yarn spinning facility for approximately $10.0 million. The yarn spinning facility sold was recently acquired as part of the Company's purchase of Multitex. Funds for the additional investments are anticipated to be provided for by cash flow from operations and, if necessary, from borrowing on the Company's lines of credit. Available unused borrowing capacity under the Company's revolving credit and term-loan agreement was $43.7 million at September 25, 1999. The Company considers its unused debt availability and operating cash flows to be adequate to fund its anticipated liquidity needs, which include increased amounts for capital expenditures to support sales growth and market needs. YEAR 2000 SYSTEMS ISSUES The Company believes it has identified all its information technology systems that were not year 2000 compliant. Incidental to year 2000 issues, the Company developed a plan for the conversion of its hardware platform and the acquisition or development of business process software to be utilized and centrally maintained across each of its operating businesses. Each of these new systems is designed to be year 2000 compliant. Certain modules due for implementation in the second and third quarters of 1999 have been completed or are near completion. Those non-compliant applications, which will not be replaced before year 2000, are in the process of modifications for year 2000 compliance. The majority of the modifications have been completed and the remaining modifications are expected to be completed and tested early in the fourth quarter of 1999. Each operating business identified those non-information systems that contain embedded technology that could be impacted by the year 2000 issue. The Company is substantially complete in its state of readiness related to those systems. The Company identified those third parties through written or direct communications with whom it has a material relationship or whose relationship is substantially dependant on information technology. The Company has no known unresolved issues that could have a material impact on its on-going business. Incremental costs associated with all aspects of year 2000 assessment and remediation were less than $200 in 1998 and the Company has spent approximately $75 in the first nine months of 1999. The Company does not anticipate a material increase in year 2000 assessment and remediation expenditures in the fourth quarter of 1999 and expects total expenditures for 1999 to approximate $100. The Company has not deferred any information technology projects as a result of personnel or financial resource allocation toward year 2000 compliance issues. Based on the overall state of readiness, the Company feels it is reasonably unlikely that any material impact will result from non-compliant information technology systems issues that are within the Company's control. Non-compliance resulting in service interruptions by electrical power service providers would result in the worst case for the Company due to its dependency on electrical sourcing for productive output. The Company has discussed with each of its electrical service providers the state of their year 2000 compliance programs. Based on the information supplied by these providers, the Company does not anticipate any service interruptions as a result of their year 2000 systems readiness. The Company has not developed a formal contingency plan due to its state of readiness. Progress will continue to be monitored by management and plans altered if deemed appropriate. PART I - ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For the periods presented, the Company sold floorcovering products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses including potential losses on receivables sold. The Company invests its excess cash in short-term investments and has not experienced any losses on those investments. PART II. OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities and Use of Proceeds None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information On October 7, 1999, the Company announced that Glenn A. Berry, Executive Vice President and Chief Financial Officer of The Dixie Group, resigned to pursue private business interests, effective October 8, 1999. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (i) Exhibits Incorporated by Reference None. (ii) Exhibits Filed with this Report None (b) Reports on Form 8-K No reports on Form 8-K have been filed by the registrant during the three month period ended September 25, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE DIXIE GROUP, INC. __________________________ (Registrant) November 9, 1999 ____________________ (Date) /s/Dan K. Frierson __________________________ Dan K. Frierson Chairman of the Board and CEO /s/D. EUGENE LASATER __________________________ D. Eugene Lasater Controller EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-25-1999 SEP-25-1999 7,592 0 25,632 3,781 96,830 143,565 298,102 135,714 374,154 80,423 145,970 42,786 0 0 71,942 374,154 435,926 435,926 342,821 342,821 0 0 9,972 16,050 6,341 9,709 4,419 0 0 14,128 1.25 1.20
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