-----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, FNc0CHNAjGqkjoxdx06Vudbb8aOJtrET55ozt2ZHlgOn9PRB2HcqnGdXumS5lPfh hzi7Bxls0BQJZecLJyfltA== 0000029332-00-000003.txt : 20000327 0000029332-00-000003.hdr.sgml : 20000327 ACCESSION NUMBER: 0000029332-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000324 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-K SEC ACT: SEC FILE NUMBER: 000-02585 FILM NUMBER: 577642 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-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 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 25, 1999. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______ to _______. 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 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $3.00 Par Value (Title of Class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 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] -Continued- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Continued) State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 10, 2000: Common Stock - $48,617,014; Class B Common Stock - 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. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding as of March 10, 2000 Common Stock, $3.00 Par Value 10,748,503 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 document are incorporated by reference: Proxy Statement of the registrant for annual meeting of shareholders to be held May 4, 2000 (Part III). PART I ITEM 1. BUSINESS GENERAL Prior to 1993, the Company's business consisted of yarn, thread, and fabrics sold to industrial manufacturers. All products required further processing by the Company's customers before reaching the final consumers. The principal markets served were home furnishings, textile related industrial markets, transportation, and apparel. A component of the Company's yarn business was Candlewick Yarns, a supplier of yarn to carpet and rug manufacturers serving various markets in the floorcovering industry. The Company's total sales in 1992 were $470 million. In 1993, the Company embarked on a strategic plan to divest itself of those textile assets which were considered to limit return potential to its shareholders and to redeploy assets into the floorcovering industry utilizing its strengths in product offerings and development through Candlewick as a value base. From 1993 through 1998, the Company either sold or closed the majority of its textile related 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 textile products operations were accounted for as discontinued operations since 1998. During the same period of textile related asset divestitures, the Company invested in floorcovering related assets with the acquisitions of Carriage Carpets, Bretlin Carpets and Masland Carpets in 1993, RHS Carpet Mills in 1994, Danube Carpet Mills and certain carpet assets of General Felt Industries in 1997, and Ideal Fibers in late 1998. In January 1999, the Company acquired the assets and assumed certain liabilities of Multitex Corporation of America, Inc., a manufacturer who sells carpet under the name Globaltex, and acquired the carpet assets of Graphic Tec, Inc. Sales for 1999 were $569.5 million for continuing operations which consists of the Company's floorcovering businesses. Results for the textile related businesses were reclassified to discontinued operations in the Company's financial statements for the periods presented. Entering 2000, the strategic repositioning to a floorcovering company is expected to provide greater return potential to the Company's shareholders. Approximately 80 percent of the Company's dollar sales volume relate to products that are used by consumers without further processing. THE INDUSTRY INFORMATION - 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 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 less than 100 manufacturers of which the top three account for over 75% of the industry's production. The carpet industry has undergone substantial consolidation at the manufacturing level in recent years. The Company believes the consolidations provide opportunities in selected markets where styling, product differentiation, and focused service can add value to selected customers. THE COMPANY'S BUSINESSES - The Company's businesses are segmented between Carpet Manufacturing and Floorcovering Base Materials (See Note M in the Company's 1999 Consolidated Financial Statements for quantitative segment information). The products of each segment serve carpet and rug markets in the floorcovering industry. The Company's Carpet Manufacturing segment is viewed as a manufacturing, selling, marketing, and distribution resource pool with a wide range of capabilities to serve selected markets with a variety of products. The products are sold in roll or piece goods with a breadth of textures, colors and designs. Products in the Carpet Manufacturing segment, although marketed for diverse applications under different marketing names, are manufactured by similar techniques and are sold through wholesale distribution channels. Businesses in the Company's Carpet Manufacturing segment are described below. Masland Carpets is a manufacturer of specialty carpets and rugs for the high-end residential and commercial marketplaces. Masland's products are marketed to the architectural and interior design community and specialty floorcovering showrooms. Masland competes in each of these markets through quality, service, and innovation in styling and product design. Masland's business includes a product line designed to cater to value oriented commercial customers where style, design, and quality are required. Masland's product lines are marketed by its own sales force. Carriage Industries is a carpet manufacturer supplying tufted broadloom carpet for customers of the manufactured/modular housing, recreational vehicle, van conversion, and exposition trade show industries. Carriage creates specialty products geared to specifications that maximize efficiency and minimize waste for their customers with a just-in-time delivery approach through its own trucking fleet. The acquisition of Danube Carpet Mills increased Carriage's sales in the manufactured housing and recreational vehicle industries and provided the opportunity to be more competitive by expanding its core business. Carriage's product lines are marketed by a staff of salaried sales personnel. Bretlin is a manufacturer of tufted broadloom carpet, indoor/outdoor needlebond carpet and runners, floormats, decorative accent rugs, commercial/industrial polypropylene needlebond carpet, and synthetic fiber cushion. Its products are marketed to home centers, mass merchants, floorcovering groups or co-ops, distributors, and independent floorcovering retailers. The needlebond and artificial turf assets and business acquired from General Felt Industries in October 1997 are complementary to Bretlin's previously existing manufacturing capabilities and product lines. The acquisition of Multitex and Graphic Tec in January 1999 strengthened and expanded Bretlin's position in the home center markets. High service standards in terms of speed and accuracy in filling orders for its customers are key competitive factors for Bretlin. Products of Bretlin are marketed primarily through its own sales force, and to a lesser extent, through commission sales representatives. The Company's Floorcovering Base Materials segment includes Candlewick Yarns and the filament yarn extrusion assets of Ideal Fibers, which were acquired in a start-up phase in the fourth quarter of 1998. Ideal operates as a component of Candlewick. The Base Materials group produces yarns for the carpet industry which are sold for applications in residential and commercial carpet, bath and decorative accent rugs, and automotive floorcovering. A substantial majority of the unit production volume in this segment is utilized in the Company's Carpet Manufacturing group. The basic premise followed in the Company's Floorcovering Base Materials group involves the development and production for sourcing of low costs yarn through yarn spinning or extrusion and finishing to satisfy the Company's internal needs providing the Carpet Manufacturing group a competitive advantage in the marketplace and to supply the industry with products which do not compromise its internal return potential. The Company's sales order backlog position in its floorcovering businesses, excluding Carriage, was approximately $42,400,000 at December 25, 1999 and $38,100,000 at December 26, 1998. Approximately 90% of orders received by Carriage are shipped within the same week. All of the order backlog can reasonably be expected to be filled within the 2000 fiscal year. The Company's floorcovering businesses own a variety of trademarks under which their products are marketed. While such trademarks are important to the Company's businesses, there is no one trademark, other than the name "Masland", which is of material importance to the floorcovering business. CUSTOMER AND PRODUCT CONCENTRATION There was no single class of products exceeding 10 percent of the Company's consolidated sales volume for 1998, 1997, or 1996. Sales to The Home Depot were 10.5% of the Company's consolidated sales in 1999. Although no other single customer accounted for more than 10% of the Company's consolidated net sales in 1999, sales to manufacturers of factory-built housing collectively constituted approximately 22% of the 1999 total. SEASONALITY Within the varied markets serviced by the Company, there are a number of seasonal production cycles, but the Company's business as a whole is not considered to be significantly affected by seasonal factors. Consequently, there are no material impacts on working capital relating to seasonality. ENVIRONMENTAL While compliance with current federal, state and local provisions regulating the discharge of material into the environment may require additional expenditures by the Company, these expenditures are not expected to have a material effect on capital expenditures, earnings or the competitive position of the Company. RAW MATERIALS The Company obtains natural and synthetic raw materials from a number of domestic suppliers. Man-made fibers are purchased from major chemical suppliers. A number of these suppliers, whose products are petroleum based, have announced their desire to increase prices. Where possible, the Company intends to pass through raw material price increases to its customers. Although the Company does not anticipate any interruption in its sources of supply due to these increases, there can be no assurance that such increases can be passed through in the Company's prices or that they will not have an adverse effect on profitability. Although the Company's procurement of raw materials is subject to variations in price and availability due to market conditions and the price of petroleum used to produce man-made fibers, the Company believes that its sources of raw materials are adequate and that it is not materially dependent on any single supplier. UTILITIES The Company uses electricity as its principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. During the past five years the Company has not experienced any material problems in obtaining electricity, natural gas or oil at anticipated prices. Nevertheless, energy shortages of extended duration could have an adverse effect on the Company's operations. EMPLOYMENT LEVEL The Company had approximately 3,600 associates in its continuing operations as of the end of fiscal 1999. 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 10, 2000: Approximate Location Type of Operation Square Feet FLOORCOVERING Administrative: Calhoun, GA Administrative 24,000 Dalton, GA Administrative 12,000 Mobile, AL Administrative 14,000 Total Administrative 50,000 Manufacturing: Atmore, AL Carpet Manufacturing, Distribution 443,000 Calhoun, GA Carpet Manufacturing, Distribution 1,196,000 Needlebond Manufacturing, Distribution 347,000 Carpet Yarn Processing 139,000 Filament Yarn Extrusion 125,000 Chatsworth, GA Carpet Manufacturing 51,000 (1) Dalton, GA Carpet Manufacturing, Distribution 654,000 LaFayette, GA Carpet Padding Manufacturing 73,000 Lemoore, CA Carpet Yarn Processing 322,000 Mobile, AL Rug Manufacturing, Distribution 396,000 Ringgold, GA Carpet Yarn Processing 413,000 Roanoke, AL Filament Yarn Processing 189,000 Total Manufacturing 4,348,000 CORPORATE Administrative: (2) Chattanooga, TN Administrative 41,000 Total 4,439,000 ITEM 2. PROPERTIES - CONTINUED (1) The Company is currently leasing 63,000 square feet for carpet manufacturing. (2) Currently "held for sale". In addition to the facilities listed above, the Company owns or leases various administrative, storage, warehouse and office spaces. 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. There are no material encumbrances on any of the Company's properties. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company or its subsidiaries are a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the fourth quarter of 1999 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 The names, ages, positions and offices held by the executive officers of the registrant as of March 10, 2000, are listed below along with their business experience during the past five years. Name, Age Business Experience During and Position Past Five Years Daniel K. Frierson, 58 Director since 1973, Chairman of Chairman of the Board, the Board since 1987 and Chief and Chief Executive Officer, Executive Officer since 1980. Director, Member of Executive Director of SunTrust Bank, Committee Chattanooga, N.A. Brother of Paul K. Frierson. William N. Fry, IV, 41 President and Chief Operating President and Chief Operating Officer since February 1999. Officer Executive Vice President and Chief Operating Officer, Floorcovering Business from January 1997 to February 1999. Executive Vice President and Chief Operating Officer, Candlewick, Carriage and Bretlin from January 1996 to January 1997. President, Bretlin from January 1995 to January 1996. Executive Vice President, Bretlin from November 1993 to January 1995. Business Analyst, Carriage from July 1993 to November 1993. General Manager, Dyed Yarns from May 1992 to July 1993. Assistant Plant Manager, Chattanooga Finishing from July 1991 to May 1992. Philip H. Barlow, 50 Vice President and President of Vice President and President, Carriage Industries, Inc. since Carriage Industries, Inc. 1993. Vice President of Sales and Marketing, Carriage, 1988 to 1993. Director of Sales and Marketing, Carriage, 1986 to 1988. Kenneth L. Dempsey, 41 Vice President and President, Vice President and President, Masland Carpets, Inc. since Masland Carpets, Inc. January 1997. Vice President of Marketing, Masland, 1991 to 1996. Director of Marketing, The Harbinger Company, Inc., subsidiary of Horizon Industries, Inc., 1982 to 1991. EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED Name, Age Business Experience During and Position Past Five Years Paul K. Frierson, 62 Director since 1988. Vice President Vice President and President, and President, Candlewick Yarns Candlewick Yarns, Director since 1989. Director of NationsBank/Chattanooga. Brother of Daniel K. Frierson. Jeffrey L. Gregg, 36 Vice President and President of Vice President and President, Bretlin, Inc. since January 1998. Bretlin, Inc. Vice President of Operations, Carriage Industries, Inc. from May 1996 to January 1998. Chief Operating Officer and Chief Financial Officer, The Geiger Group, Inc. from July 1991 to April 1996. W. Derek Davis, 49 Vice President of Human Resources Vice President, Human since January 1991. Corporate Resources Employee Relations Director, 1990 to 1991. Gary A. Harmon, 54 Vice President and Chief Vice President and Financial Officer since Chief Financial Officer January 2000. Treasurer Since 1993. Director of Tax and Financial Planning, 1985 to 1993. D. Eugene Lasater, 49 Controller since 1988. Controller Starr T. Klein, 57 Secretary since November 1992. Secretary 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 STOCKHOLDERS MATTERS The Company's Common Stock trades on the over-the-counter National Market System with the NASDAQ symbol DXYN. No market exists for the Company's Class B Common Stock. As of March 10, 2000, the total number of record holders of the Company's Common Stock was approximately 3,500 and the total number of holders of the Company's Class B Common Stock was 15. Management of the Company estimates that there are approximately 2,500 shareholders who hold the Company's Common Stock in nominee names. Dividends and Price Range of Common Stock for the four quarterly periods in the years ended December 25, 1999 and December 26, 1998 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)
1999 Quarter 1st 2nd 3rd 4th Net sales $141,224 $152,113 $142,589 $143,540 Gross profit 29,210 33,019 30,876 30,001 Income from continuing operations 2,580 4,060 3,069 2,690 Net income 2,580 8,479 3,069 3,063 Basic earnings per share: Income from continuing operations .23 .36 .27 .23 Net income .23 .75 .27 .26 Diluted earnings per share: Income from continuing operations .22 .35 .26 .23 Net income .22 .72 .26 .26 Dividends: Common Stock --- --- --- --- Class B Common Stock --- --- --- --- Common Stock prices: High $ 9.19 $ 9.38 $ 9.375 $ 8.125 Low 6.97 7.00 7.125 5.281 1998 Quarter 1st 2nd 3rd 4th Net sales $118,601 $130,489 $120,387 $126,935 Gross profit 23,960 27,544 22,827 25,077 Income from continuing operations 2,247 3,343 1,650 1,868 Net income (loss) 2,472 (12,008) 206 (11,672) Basic earnings (loss) per share: Income from continuing operations .20 .30 .15 .17 Net income (loss) .22 (1.07) .02 (1.03) Diluted earnings (loss) per share: Income from continuing operations .19 .28 .14 .16 Net income (loss) .21 (.99) .02 (1.02) Dividends: Common Stock .05 .05 .05 --- Class B Common Stock .05 .05 .05 --- Common Stock prices: High $ 13.00 $ 14.00 $ 10.00 $ 8.125 Low 9.75 9.75 6.75 4.375
The total of quarterly earnings per share may not equal the annual earnings per share due primarily to Common Stock purchased and issued during the respective periods. Discontinued operations consist of textile products operations. In the second quarter of 1999, results included income of $7,244 ($4,419 or $.37 per diluted share after taxes), resulting 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. In the fourth quarter of 1999, results included income of $611 ($373 or $.03 per diluted share after taxes), resulting from additional 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. In the second quarter of 1998, results included charges of $21,745 ($14,717 or $1.22 per diluted share after taxes), for the loss on the disposition of the knit fabric and apparel business. In the fourth quarter of 1998, results included charges of $17,580 ($13,540 or $1.18 per diluted share after taxes) for the loss on the disposition of the specialty yarns business. The discussion of restrictions on payment of dividends is included in Note F to the Consolidated Financial Statements included herein. ITEM 6. SELECTED FINANCIAL DATA (dollars in thousands, except per share data) The following selected financial data should be read in conjunction with the related consolidated financial statements and notes thereto included under Items 8, 14(a) (1) and (2) and 14 (d) of the report on Form 10-K.
Year Ended December December December December December 25, 1999(1) 26, 1998 27, 1997(2) 28, 1996 30, 1995 Net sales $579,466 $496,412 $432,086 $363,113 $357,145 Income from continuing operations(1)(2) 12,399 9,108 8,812 5,701 4,365 Total assets 391,901 374,646 386,614 328,135 396,997 Long-term debt: Senior indebtedness 60,961 64,466 68,528 34,036 97,383 Subordinated notes 45,238 50,000 50,000 50,000 50,000 Convertible subordinated debentures 37,237 39,737 42,282 44,782 44,782 Per Share: Income from continuing operations: (3) Basic 1.09 .81 .78 .51 .37 Diluted 1.06 .77 .75 .51 .37 Cash dividends declared: Common Stock --- .15 --- --- --- Class B Common Stock --- .15 --- --- ---
(1) Includes the results of operations of Graphic Tec and Multitex subsequent to their acquisitions on January 21, 1999 and January 8, 1999, respectively. (2) Includes the results of operations of Danube and GFI Dalton subsequent to their acquisitions on December 31, 1996 and October 2, 1997, respectively. (3) Income (loss) from continuing operations includes asset valuation losses of $13,074, or $1.17 per share, for the year ended December 28, 1996, and asset valuation losses of $51,058, or $4.35 per share, and casualty insurance gains of $3,298, or $.28 per share, for the year ended December 30, 1995. See Note B, Note K, and Note M to the Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS During the three years ended December 25, 1999, the Company acquired the operating assets and business of Danube Carpet Mills, Inc., a producer of carpet for the factory-built housing industry, General Felt Industries Dalton, Georgia needlebond and artificial turf operations, Ideal Fibers filament yarn assets, Multitex Corporation of America, Inc.'s yarn and tufted carpet business (Multitex) and the graphic carpet business of Graphic Tec, Inc. All of these acquisitions were accounted for as purchase business combinations and their results are included in the Company's consolidated financial statements subsequent to their respective acquisitions. The Company decided to discontinue its textile knit fabric, apparel and specialty yarn business segments in fiscal 1998 and disposed of these operations in late 1998 and 1999. Results of the discontinued textile operations are segregated from the Company's continuing floorcovering operations and accounted for as discontinued operations for all periods presented. Results from the discontinued operations and disposal were income of $4.8 million, or $.41 per diluted share in 1999, a loss of $30.1 million, or $2.55 per diluted share in 1998 and income of $2.8 million, or $.24 per diluted share in 1997. The Company's floorcovering operations are segmented around product similarities between its carpet manufacturing and floorcovering base materials businesses. Its carpet manufacturing operations supply carpet and rugs to the factory-built housing and recreational vehicle markets through Carriage Carpets, to consumers through major retailers under the Bretlin, Globaltex and Alliance Mills names and to higher-end residential and commercial customers serviced by Masland Carpets. Its floorcovering base material operations supply extruded plyed and heat-set filament and spun yarns to the Company's carpet manufacturing segment and to a lesser extent to specialty carpet yarn markets through Candlewick Yarns. The compounded annual growth rates of the Company's floorcovering business were approximately 13% for sales, 24% for EBIT (earnings before interest and taxes) and 24% for income from continuing operations for the five year period ended December 25, 1999. Business combinations accounted for a significant portion of the growth in sales and earnings. 1999 Compared to 1998 - Sales increased 17% to $579.5 million in 1999 compared to 1998. The significant increase in sales is principally attributable to the acquisition of the carpet and yarn processing operations of Multitex in January 1999, expansion into extruded filament yarn in late 1998 and increased sales volume of residential and commercial products at Masland and Bretlin. These improvements more than offset a 5% decline in Carriage's sales. Carriage sales declined due to softness in the factory-built housing market, which is expected to continue through the first half of 2000. Sales to external customers increased 14% for carpet manufacturing and 30% for floorcovering base materials. In the year 2000 the Company anticipates that a higher portion of Candlewick's yarn production will be utilized by the Company's carpet manufacturing operations. Additionally, a number of the Company's carpet yarn sales programs are being converted from a full package basis to a conversion basis in which the customer supplies fiber for yarn processing. Accordingly, the Company anticipates a significant reduction in sales of base materials to external customers as a result of these changes. As a percentage of sales, 1999 gross margins increased 1.2 percentage points to 21.2% and selling expenses increased 0.8 percentage points to 15.1% compared with 1998. These increases are principally attributable to the growth in the carpet manufacturing's home center and high-end residential and commercial businesses and the higher cost required to service these markets. The profit performance measure of the Company's business segments is internal EBIT (earnings before interest, taxes, cost of the Company's A/R sales program and other non-segment income). Internal EBIT for 1999 was $30.0 million, or 6.6% of sales for carpet manufacturing and $3.5 million, or 2.8% of sales for floorcovering base materials. The comparable 1998 internal EBIT was $24.5 million, or 6.1% of sales for carpet manufacturing and $3.1 million, or 3.3% of sales for floorcovering base materials. The improved carpet manufacturing internal EBIT is principally attributable to the sales growth and manufacturing cost reductions. During the last half of 1999, floorcovering base materials began a significant expansion and re-alignment of its facilities to increase yarn processing capacity and lower cost. The costs associated with this expansion and re-alignment negatively impacted margins of this business. Such costs are anticipated to intensify until the project is completed in the first half of 2000. Additionally, a number of the Company's suppliers, whose products are petroleum based, have announced their desire to increase prices. Where possible, the Company intends to pass through raw material price increases to its customers. However, there can be no assurance that such increases can be passed through and significant increases in the cost of raw materials could negatively affect future results. The decrease in "Other expense - net" is due primarily to interest income related to a note received in connection with the sale of the Company's textile specialty yarn business. Interest expense increased $2.8 million in 1999 compared with 1998 due to higher average debt resulting from the January 1999 acquisitions and working capital to support sales growth. Interest expense as a percentage of sales was 2.3% in 1999 and 2.0% in 1998. The effective income tax rate increased to 39.1% in 1999 from 38.0% in 1998 as a result of the phase out of the benefit of lower tax brackets for corporations with pre-tax income in excess of $10.0 million. 1998 Compared to 1997 - Sales increased 15% to $496.4 million in 1998 compared with 1997. Sales improved 18% in the Company's carpet manufacturing segment and 3% for floorcovering base materials. Growth in the carpet manufacturing segment was attributable to increased unit volume that resulted from the acquisition of the needlebond business and artificial turf business of General Felt Industries in late fiscal 1997 and strong growth in higher-end residential and commercial products. Internal EBIT was $24.5 million, or 6.1% of sales for carpet manufacturing and $3.1 million, or 3.3% of sales for floorcovering base materials. The comparable 1997 internal EBIT was $21.3 million, or 6.2% of sales for carpet manufacturing and $3.3 million, or 3.6% of sales for floorcovering base materials. The increase in carpet manufacturing internal EBIT is principally attributable to sales growth. Cost associated with facilities expansion and selling expenses in support of current and anticipated future growth negatively impacted 1998 earnings. Interest expense increased $1.3 million in 1998 compared with 1997. The increase resulted from additional borrowing to support the Company's growth. Interest expense, as a percentage of sales, was 2.0% in 1998 and 1997. LIQUIDITY AND CAPITAL RESOURCES During the three year period ended December 25, 1999, cash flows generated from operating activities were $120.1 million. These funds were supplemented by $69.7 million from asset sales, including $52.1 million from sale of fixed assets and inventories in 1999, and $57.4 million from borrowings under the Company's credit lines. Funds were used to finance the Company's operations, $109.1 million of capital expenditures, $94.5 million for business acquisitions and $31.8 million to retire long-term debt. In October 1993, the Company entered into a seven year agreement under which it sold a $45.0 million undivided interest in a revolving pool of its trade accounts receivable. The sale is reflected as a reduction of accounts receivable in the Company's balance sheets. No further interest has been sold under this agreement subsequent to the original sale. The cost of this program was fixed at 6.08% per annum of the undivided interest sold plus administrative fees typical in such transactions. In addition, the Company is generally at risk for credit losses associated with sold receivables and provides for such losses in the Company's financial statements. This agreement expires in October 2000. The Company is currently in the process of replacing this facility with an accounts receivable sales facility where costs will vary with interest rates. The Company anticipates completion of an agreement for the replacement facility by mid year 2000. At December 25, 1999, the Company's debt consisted of $39.7 million of convertible subordinated debentures, $50.0 million of subordinated notes, $36.3 million of senior term loans and $30.1 million of credit line indebtedness, principally under the Company's senior credit agreement. Annual payments for the convertible subordinated debentures, the subordinated notes and the senior term loan are approximately $13.6 million in 2000 and will average approximately $13.8 million for each of the succeeding four years. The Company's unsecured credit agreement was replaced in March 1998 and provides for a revolving credit of up to $100.0 million through a five-year commitment period and a $60.0 million seven-year term loan. Under the terms of the credit agreement, borrowing capacity is permanently reduced by 50% of the net cash proceeds from certain significant asset sales. Accordingly, the term loan has been reduced by $14.0 million as a result of asset sales in 1999. Interest rates available under the credit agreement may be selected by the Company from a number of options which effectively allow for borrowing at rates equal to or lower than the greater of the lender's prime rate or federal funds rate plus 0.5%. At year-end, the available unused borrowing capacity under the Company's credit agreements (including amounts available under short-term credit lines) was $74.8 million. The Company's long-term debt and credit agreements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends and certain other financial ratios. Currently, payment of dividends is limited to 50% of aggregate consolidated net income subsequent to December 25, 1999. Capital expenditures for the year 2000 are expected to be approximately $45.0 million and to exceed depreciation and amortization by approximately $20.0 million. The primary capital expenditure focus for 2000 will be to expand and optimize extrusion and yarn capacity, build a distribution center to improve service for the Company's home center business and expand the Company's carpet operations. Availability under the Company's existing debt arrangements, the anticipated replacement of the accounts receivable sale arrangement and operating cash flows are expected to be adequate to finance the Company's normal liquidity requirements. However, significant additional cash expenditures beyond normal requirements could require the supplementation or replacement of the Company's credit facilities. There can be no assurance that any such additional credit will be available on terms as favorable as the Company's current credit facilities. The Company's balance sheet contains approximately $52.5 million of unamortized goodwill representing 13.4% of total assets and 44.5% of total equity. All goodwill is the result of acquisitions made in connection with the Company's floorcovering business. The Company's analysis of goodwill did not identify factors related to the estimated future cash flows of the businesses acquired that would appear to limit the life of the goodwill and it is therefore being amortized over 40 years in accordance with Accounting Principles Board Opinion No. 17: Intangible Assets. YEAR 2000 SYSTEMS ISSUES The Company experienced no significant system related year 2000 conversion issues. The Company believes that it identified all information technology systems that could be impacted by the year 2000 issue. Incremental costs associated with all aspects of year 2000 compliance and remediation were not material. FORWARD - LOOKING INFORMATION This Annual Report to Shareholders may contain certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are identified by their use of terms or phases such as "expects", "estimates", "projects", "believes", "anticipates", "intends", and similar terms and phrases. Such terms or phrases relate to, among other matters, the Company's future financial performance, business prospects, growth, strategies, or liquidity. Forward-looking statements involve a number of risks and uncertainties. The following important factors may affect the future results of The Dixie Group, Inc. and could cause those results to differ materially from its historical results or those expressed in the forward-looking statements. These risks include, among others, market risks relating to interest rates, raw material prices, the loss of a significant customer or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets served by the Company and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk-sensitive instruments do not subject the Company to material market risk exposures. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The supplementary financial information as required by Item 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the remaining response is included in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section entitled "Information about Nominees for Directors" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 2000 is incorporated herein by reference. Information regarding the executive officers of the registrant is presented in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation Information" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 2000 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Principal Shareholders", as well as the beneficial ownership table (and accompanying notes) in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 2000 is incorporated herein by reference. 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 4, 2000 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2)-- The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits: (i) Exhibits Incorporated by Reference: (3a) Restated Charter of The Dixie Group, Inc. (3b) Amended and Restated By-Laws of Dixie Yarns, Inc. (4a) Second Amended and Restated Revolving Credit and Term Loan Agreement dated January 31, 1992 by and among Dixie Yarns, Inc., and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4b) Loan Agreement dated February 6, 1990, between Dixie Yarns, Inc. and New York Life Insurance Company and New York Life Insurance and Annuity Corporation. (4c) Form of Indenture, Dated May 15, 1987 between Dixie Yarns, Inc. and Morgan Guaranty Trust Company of New York as trustee. (4d) Revolving Credit Loan Agreement dated as of September 16, 1991 by and among Ti-Caro, Inc. and Trust Company Bank, individually and as Agent, NCNB National Bank and Chemical Bank. (4e) First Amendment to Revolving Credit Loan Agreement dated as of August 19, 1992 by and among Ti-Caro, Inc., T-C Threads, Inc. and Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank. (4f) First Amendment, dated August 25, 1993 to Second Amended and Restated Revolving Credit and Term Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4g) Third Amended and Restated Credit Agreement dated March 31, 1995. (4h) Waiver and First Amendment to Credit Agreement dated February 27, 1996. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (4i) Waiver and Modification Agreement dated November 1, 1996. (4j) Waiver Letter dated December 13, 1996. (4k) Second Amendment dated September 7, 1997 to the Third Amended and Restated Credit Agreement dated March 31, 1995. (4l) Amendment to 9.96% Senior Subordinated notes due February 1, 2010. (4m) Letter agreement dated February 17, 1998 re: Amendment to 9.96% Senior Subordinated Notes due February 1, 2010. (4n) Credit Agreement dated as of March 31, 1998 by and among The Dixie Group, Inc., SunTrust Bank, Atlanta, and NationsBank, N.A. and Form of Revolving Credit Note, Form of Term Note and Form of Swing Line Note. (4o) Waiver letter dated August 17, 1998 from New York Life Insurance and Annuity Corporation. (4p) Waiver letter dated August 17, 1998 from New York Life Insurance Company. (10a) Dixie Yarns, Inc. Nonqualified Defined Contribution Plan. (10b) Dixie Yarns, Inc. Nonqualified Employee Savings Plan. (10c) Dixie Yarns, Inc. Incentive Compensation Plan. (10d) Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10e) Annex X - Definitions, to Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10f) Series 1993-1 Supplement, dated as of October 15, 1993, to Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding Inc. and NationsBank of Virginia, N.A. (as Trustee). (10g) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and New York Life Insurance and Annuity Corporation. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (10h) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and John Alden Life Insurance Company. (10i) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and John Alden Life Insurance Company of New York. (10j) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and Keyport Life Insurance Company. (10k) Asset Purchase Agreement dated May 23, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10l) Amendment, dated May 31, 1996, to Asset Purchase Agreement dated May 23, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10m) Second Amendment, dated June 3, 1996, to Asset Purchase Agreement dated May 23, 1996, by and among T-C Threads, Inc., d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10n) Yarn and Finished Goods Agreement dated as of June 3, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10o) Accounts Receivable Agreement dated as of June 3, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (10p) Noncompetition Agreement dated as of June 3, 1996, by and among T-C Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10q) Asset Purchase Agreement dated as of August 29, 1997 among The Dixie Group, Inc., Bretlin, Inc., Foamex L.P. and General Felt Industries, Inc. (10r) Dixie Yarns, Inc. Incentive Stock Plan as amended. (10s) Form of Nonqualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. (10t) Form of Amendment to Nonqualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. (10u) Form of Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan as amended. (10v) Form of Stock Rights and Restrictions Agreement for Restricted Stock Award Under Incentive Stock Plan as Amended. (10w) The Dixie Group, Inc. Stock Ownership Plan as amended. (10x) Form of Stock Subscription Agreement Under Stock Ownership Plan of The Dixie Group, Inc. (10y) The Dixie Group, Inc. Directors Stock Plan. (10z) Asset Purchase Agreement dated January 8, 1999, by and between Multitex Corporation of America and the Dixie Group, Inc. (10A) The Dixie Group, Inc. New Nonqualified Retirement Savings Plan effective August 1, 1999. (10B) The Dixie Group, Inc. Deferred Compensation Plan Amended and Restated Master Trust Agreement Effective as of August 1, 1999. (10C) Asset Purchase Agreement dated as of May 7, 1999, between R.L. Stowe Mills, Inc. and The Dixie Group, Inc. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (ii) Exhibits filed with this report: (21) Subsidiaries of the Registrant. (23) Consent of Ernst & Young LLP. (27) Financial Data Schedule (b) Reports on Form 8-K -- 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 14 is submitted as a separate section of this report. See Item 14 (a) (3) (ii) above. (d) Financial Statement Schedules -- The response to this portion of Item 14 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. THE DIXIE GROUP, INC. March 24, 2000 BY: /s/DANIEL K. FRIERSON Daniel K. Frierson, Chairman of the Board, and Chief Executive Officer 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. Chairman of the Board, Director and Chief /s/DANIEL K. FRIERSON Executive Officer March 24, 2000 Daniel K. Frierson President, Chief Operating Officer /s/WILLIAM N. FRY, IV and Director March 24, 2000 William N. Fry, IV Vice President, President of Candlewick /s/PAUL K. FRIERSON Yarns and Director March 24, 2000 Paul K. Frierson Vice President and /s/GARY A. HARMON Chief Financial Officer March 24, 2000 Gary A. Harmon /s/D. EUGENE LASATER Controller March 24, 2000 D. Eugene Lasater SIGNATURES -- CONTINUED /s/J. DON BROCK Director March 24, 2000 J. Don Brock /s/PAUL K. BROCK Director March 24, 2000 Paul K. Brock /s/ LOVIC A. BROOKS, JR. Director March 24, 2000 Lovic A. Brooks, Jr. /s/JOHN W. MURREY, III Director March 24, 2000 John W. Murrey, III /s/PETER L. SMITH Director March 24, 2000 Peter L. Smith /s/ROBERT J. SUDDERTH, JR. Director March 24, 2000 Robert J. Sudderth, Jr. ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14 (a)(1) AND (2) AND ITEM 14(d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 25, 1999 THE DIXIE GROUP, INC. CHATTANOOGA, TENNESSEE FORM 10-K--ITEM 14(a)(1) and (2) THE DIXIE GROUP, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 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 25, 1999 and December 26, 1998 Consolidated statements of operations--Years ended December 25, 1999, December 26, 1998, and December 27, 1997 Consolidated statements of cash flows--Years ended December 25, 1999, December 27, 1998, and December 27, 1997 Consolidated statements of stockholders' equity--Years ended December 25, 1999, December 26, 1998, and December 27, 1997 The following consolidated financial statement schedule of The Dixie Group, Inc. and subsidiaries is included in Item 14(d): Schedule II--Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the information is otherwise shown in the financial statements or notes thereto, and therefore have been omitted. Report of Independent Auditors Board of Directors The Dixie Group, Inc. We have audited the accompanying consolidated balance sheets of The Dixie Group, Inc. as of December 25, 1999 and December 26, 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 25, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Dixie Group, Inc. at December 25, 1999 and December 26, 1998, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 25, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Chattanooga, Tennessee February 15, 2000
THE DIXIE GROUP, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) December 25, December 26, 1999 1998 ASSETS CURRENT ASSETS Cash and cash equivalents $ 12,541 $ 2,815 Accounts receivable (less allowance for doubtful accounts of $1,831 for 1999 and $1,294 for 1998) 19,454 8,364 Inventories 104,042 72,671 Net assets held for sale 457 67,508 Other 14,471 14,810 TOTAL CURRENT ASSETS 150,965 166,168 PROPERTY, PLANT AND EQUIPMENT Land and improvements 5,829 5,329 Buildings and improvements 68,885 56,027 Machinery and equipment 233,052 204,346 307,766 265,702 Less accumulated amortization and depreciation (134,180) (120,517) NET PROPERTY, PLANT AND EQUIPMENT 173,586 145,185 INTANGIBLE ASSETS (less accumulated amortization of $6,190 for 1999 and $4,687 for 1998) 52,460 52,394 OTHER ASSETS 14,890 10,899 TOTAL ASSETS $391,901 $374,646
See notes to consolidated financial statements.
THE DIXIE GROUP, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) December 25, December 26, 1999 1998 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 53,590 $ 39,264 Accrued expenses 26,241 24,028 Accrued liabilities of discontinued operations 3,461 12,649 Current portion of long-term debt 13,460 9,645 TOTAL CURRENT LIABILITIES 96,752 85,586 LONG-TERM DEBT Senior indebtedness 60,961 64,466 Subordinated notes 45,238 50,000 Convertible subordinated debentures 37,237 39,737 TOTAL LONG-TERM DEBT 143,436 154,203 OTHER LIABILITIES 10,295 11,869 DEFERRED INCOME TAXES 23,508 22,998 STOCKHOLDERS' EQUITY Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued - 14,264,277 shares for 1999 and 14,071,629 shares for 1998 42,793 42,215 Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued - 795,970 shares for 1999 and 735,228 shares for 1998 2,388 2,206 Common Stock subscribed - 620,516 shares for 1999 and 573,463 shares for 1998 1,861 1,720 Additional paid-in capital 136,144 134,720 Stock subscriptions receivable (5,456) (3,719) Unearned stock compensation (489) (716) Retained earnings (deficit) (2,659) (19,850) Accumulated other comprehensive income (412) (799) 174,170 155,777 Less Common Stock in treasury at cost - 3,511,829 shares for 1999 and 3,442,900 shares for 1998 (56,260) (55,787) TOTAL STOCKHOLDERS' EQUITY 117,910 99,990 Commitments - Note L TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $391,901 $374,646
See notes to consolidated financial statements.
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Years Ended December 25, December 26, December 27, 1999 1998 1997 NET SALES $579,466 $496,412 $432,086 Cost of sales 456,360 397,004 345,416 GROSS PROFIT 123,106 99,408 86,670 Selling and administrative expenses 87,604 71,088 61,475 Other expense - net 2,081 3,357 2,283 INCOME BEFORE INTEREST AND TAXES 33,421 24,963 22,912 Interest expense 13,051 10,263 8,886 INCOME BEFORE INCOME TAXES 20,370 14,700 14,026 Income tax provision 7,971 5,592 5,214 INCOME FROM CONTINUING OPERATIONS 12,399 9,108 8,812 INCOME (LOSS) FROM DISCONTINUED OPERATIONS --- (1,853) 2,807 INCOME (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS 4,792 (28,257) --- NET INCOME (LOSS) $ 17,191 $(21,002) $ 11,619
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (continued) (dollars in thousands, except per share data) Years Ended December 25, December 26, December 27, 1999 1998 1997 Basic earnings (loss) per share: Income from continuing operations $ 1.09 $ .81 $ .78 Income (loss) from discontinued operations --- (0.16) .25 Income (loss) on disposal of discontinued operations .42 (2.51) --- Net income (loss) $ 1.51 $ (1.86) $ 1.03 Diluted earnings (loss) per share: Income from continuing operations $ 1.06 $ .77 $ .75 Income (loss) from discontinued operations --- (.16) .24 Income (loss) on disposal of discontinued operations .41 (2.39) --- Net income (loss) $ 1.47 $ (1.78) $ .99 Dividends per share: Common Stock $ --- $ .15 $ --- Class B Common Stock --- .15 ---
See notes to consolidated financial statements.
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Years Ended December 25, December 26, December 27, 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $ 12,399 $ 9,108 $ 8,812 Income (loss) from discontinued operations 4,792 (30,110) 2,807 Net income (loss) 17,191 (21,002) 11,619 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization: Continuing operations 22,330 18,701 15,809 Discontinued operations --- 6,272 8,686 Provision (benefit) for deferred income taxes 2,045 (7,900) 3,993 Long-lived asset losses- discontinued operations --- 19,992 --- (Gain) loss on property, plant and equipment disposals (160) (56) (211) Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable 23,739 (6,017) (14,821) Inventories (12,685) 2,196 26,361 Other current assets (1,122) 21 (1,370) Other assets (6,129) (1,518) (2,600) Accounts payable and accrued expenses 1,831 6,939 36 Accrued losses of discontinued operations (9,188) 12,649 --- Other liabilities (1,114) 4,167 1,444 NET CASH PROVIDED BY OPERATING ACTIVITIES 36,738 34,444 48,946 CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from sales of property, plant and equipment 52,097 13,078 4,556 Purchase of property, plant and equipment: Continuing operations (35,327) (33,363) (19,183) Discontinued operations (4,385) (9,482) (7,336) Cash payments in connection with business combinations (32,714) --- (61,744) NET CASH (USED IN) INVESTING ACTIVITIES (20,329) (29,767) (83,707) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in credit line borrowings 16,073 4,176 37,135 Payments under term loan facility (20,654) (3,625) (2,500) Payments on subordinated debentures (2,500) (2,545) --- Dividends paid --- (1,701) --- Other 398 (15) (14) NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,683) (3,710) 34,621
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (dollars in thousands) Years Ended December 25, December 26, December 27, 1999 1998 1997 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,726 967 (140) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,815 1,848 1,988 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12,541 $ 2,815 $ 1,848
See notes to consolidated financial statements.
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands, except per share data) 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 28, 1996 $43,836 $ 1,348 $132,475 $(2,190) $(8,766) $(2,668) $(55,485) $108,550 Common Stock acquired for treasury - 30,127 shares (268) (268) Common Stock sold under stock option and Employees' Stock Purchase Plan - 60,925 shares 183 250 433 Common Stock subscribed - 124,677 shares 374 868 (1,242) Stock subscription settled 77 (185) (192) 300 Restricted stock grants - 75,000 shares 225 750 (975) Amortization of restricted stock grants 81 81 Net income for the year 11,619 11,619 Other comprehensive income Change in additional minimum pension liability, net of tax of $530 829 829 Comprehensive income 12,448 BALANCE AT DECEMBER 27, 1997 44,321 1,537 134,151 (4,026) 2,853 (1,839) (55,753) 121,244 Common Stock acquired for treasury - 2,901 shares (34) (34) Common Stock sold under stock option and restricted stock grant plan - 22,759 shares 68 93 161 Common Stock issued upon conversion of convertible subordinated debentures - 1,552 shares 5 45 50 Common Stock subscribed - 60,986 shares 183 405 (588) Restricted stock grants - 9,000 shares 27 26 (53) Amortization of restricted stock grants 232 232 Net loss for the year (21,002) (21,002) Other comprehensive income Change in additional minimum pension liability, net of tax of $533 1,040 1,040 Comprehensive income (loss) (19,962) Dividends - Common Stock and Class B Common Stock $.15 per share (1,701) (1,701) BALANCE AT DECEMBER 26, 1998 $44,421 $1,720 $134,720 $(4,435) $(19,850) $ (799) $(55,787) $ 99,990
THE DIXIE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued) (dollars in thousands, except per share data) 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 - 68,929 shares (473) (473) Common Stock sold under stock option and Employees' Stock Purchase Plan - 89,993 shares 270 318 588 Common Stock subscribed - 562,751 shares 1,688 3,184 (4,872) Stock subscriptions settled - 515,698 shares 490 (1,547) (2,078) 3,135 Amortization of restricted stock grants 227 227 Net income for the year 17,191 17,191 Other comprehensive income Change in additional minimum pension liability, net of tax of $247 387 387 Comprehensive income 17,578 BALANCE AT DECEMBER 25, 1999 $45,181 $1,861 $136,144 $(5,945) $ (2,659) $ (412) $(56,260) $117,910
See notes to 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 Principles of Consolidation: The consolidated financial statements include the accounts of The Dixie Group, Inc. and its wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles 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. 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). Cash and Cash Equivalents: Cash and highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents. See Note D. Credit and Market Risk: The Company sells floorcovering products and, prior to July 1999, sold textile/apparel products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses including potential losses on receivables sold (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 26, 1998. Inventories resulting from a business combination in 1999 comprised 21% of total inventories at December 25, 1999, and such investments are valued using the first-in, first-out (FIFO) method. Inventories are summarized as follows: 1999 1998 At FIFO cost: Raw materials $ 31,664 $ 21,424 Work-in-process 18,389 11,636 Finished goods 49,121 34,796 Supplies, repair parts and other 1,835 1,631 101,009 69,487 LIFO value over FIFO value 3,033 3,184 Total inventories $104,042 $ 72,671 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 tax purposes. Depreciation and amortization of property, plant and equipment for financial reporting purposes totaled $20,482 in 1999, $16,888 in 1998, and $14,407 in 1997. Intangible Assets: Intangible assets represent the excess of the purchase price over the fair market value of identifiable net assets acquired in business combinations and are being amortized using the straight-line method over 40 years. The carrying value of goodwill will be reviewed if facts and circumstances suggest that it may be impaired. Impairment will be measured, and goodwill reduced, for any deficiency of estimated undiscounted cash flows during the amortization period related to the business acquired. Impairment of Assets: Impairment losses are recognized when expected future cash flows are less than the assets' carrying value. In such circumstances, property, plant, and equipment and related intangibles are adjusted to their fair value based on the operating performance and estimated future discounted cash flows of the underlying business. Stock Based Compensation: As permitted under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the Company continues to account for stock based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Earnings per Share: In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share". Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share is computed using the weighted average common shares outstanding including the assumed conversion of Class B Common Stock. Diluted earnings per share considers the effects of all potentially dilutive securities. Earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the provisions of Statement No. 128. Revenue Recognition: The Company recognizes revenue for goods sold at the time title passes to the customer which is normally at the time of shipment. Comprehensive Income: During 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The statement requires that all items required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement displayed with the same prominence as other financial statements. To conform to the statement, the Company has classified the change in the minimum pension liability adjustment as other comprehensive income in its consolidated statements of stockholders' equity and its consolidated balance sheets. Adoption of the statement had no effect on the consolidated results of operations or total stockholders' equity of the Company. Reclassification of the financial statements for all periods presented has been made to conform with the provisions of Statement No. 130. Segment Disclosures: During 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments, as defined by the statement, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The statement requires financial information to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Adoption of the statement had no effect on the consolidated results of operations or financial position of the Company. The Company has identified its floorcovering base materials manufacturing business and its carpet manufacturing business as its reportable segments under Statement No. 131. Comparative information for all years presented has been restated to conform with the provisions of Statement No. 131. Pensions and Other Postretirement Benefits: During 1998, the Company adopted Statement of Financial Accounting Standards No. 132, "Disclosures about Pensions and Other Postretirement Benefits". This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, and requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. Adoption of the statement had no effect on the consolidated results of operations or financial position of the Company. Disclosures for earlier periods provided for comparative purposes have been restated by the Company to conform with the provisions of Statement No. 132. NOTE B - BUSINESS COMBINATIONS In early fiscal 1997, the Company acquired for $20,854 cash the business and operating assets of Danube Carpet Mills, Inc. ("Danube"), a manufacturer of carpet for the factory built housing, recreational vehicle, and van conversion industries. The Danube manufacturing and distribution facilities were closed and their operations merged into existing facilities of the Company's Carriage Carpet and Candlewick Yarns operations. On October 2, 1997, the Company acquired the needlebond and artificial turf assets and business of General Felt Industries based in Dalton, Georgia ("GFI Dalton") for $40,890 cash. The acquired assets and business were merged with the Company's Bretlin operation. 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 $30,964 cash, plus future payments keyed to revenue growth. The acquisitions were accounted for as purchase business combinations, and accordingly, the results of operations of Danube subsequent to December 31, 1996, GFI Dalton subsequent to October 2, 1997 and Multitex subsequent to January 8, 1999, are included in the Company's consolidated financial statements. The purchase price of each acquisition was allocated to the net assets acquired based on their estimated fair market values. The excess amounts of the purchase prices over the estimated fair market value of the net identifiable assets were recorded as intangible assets and are being amortized using the straight-line method over forty years. A summary of net assets acquired is as follows: GFI Multitex Danube Dalton Current assets $18,462 $ 8,363 $ 9,015 Property, plant, and equipment 21,459 4,359 13,550 Other non-current assets 430 --- --- Current liabilities (9,387) (4,703) (2,356) Deferred taxes --- 141 --- Intangible asset --- 12,694 20,681 Net assets acquired $30,964 $20,854 $40,890 The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions of Danube, GFI Dalton and Multitex had occurred at the beginning of the periods presented after giving effect to certain adjustments, including the closure of Danube facilities and consolidation into existing operations, amortization of cost in excess of net tangible assets acquired, interest expense on debt to finance the acquisitions, elimination of sales between the Company and Multitex and related profit, depreciation expense on adjusted fixed asset values 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 of the results that would have occurred had the acquisitions taken place at the beginning of the periods presented. 1998 1997 Net sales $581,408 $547,770 Net income (loss) (20,659) 12,149 Net income (loss) per share: Basic (1.83) 1.08 Diluted (1.75) 1.03 In the fourth quarter of 1998, The Company acquired the assets of Ideal Fibers, a fiber extrusion business, for approximately $4,061 cash. In the first quarter of 1999, the Company acquired Graphic Tec, Inc., a carpet producer, for approximately $1,750 cash. These acquisitions were accounted for as purchases, and accordingly, the results of operations of the acquired companies subsequent to the dates of acquisitions are included in the Company's consolidated financial statements. Pro forma information is not presented, as the effects of the pro forma adjustments are not material. NOTE C - DISCONTINUED OPERATIONS In 1998, the Company decided to discontinue its textile products operations and completed the sale of the related assets in June 1999. Cash proceeds from disposal of the Company's textile products operations were approximately $11,025 in 1998 and $47,396 in 1999, excluding accounts receivable, accounts payable and accrued expenses retained by the Company. Additionally, the Company received an $8,000 face value note as part of the consideration from one of the purchasers in 1999. 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%. Following is summary financial information for the Company's discontinued textile products operations: 1999 1998 1997 Net sales $ 11,832 $184,122 $229,757 Income (loss) from discontinued operations: Before income taxes --- (2,697) 4,776 Income tax provision (benefit) --- (844) 1,969 Net $ --- $(1,853) $ 2,807 Estimated income (loss) on disposal: Before income taxes $ 7,855 (39,325) --- Income tax provision (benefit) 3,063 (11,068) --- Net $ 4,792 (28,257) --- The gain on disposal in 1999 resulted from favorable adjustments to amounts accrued as of the end of the preceding year for exit costs and estimated future operating results. The textile products operations had operating income of $1,622 (net of tax) from the beginning of 1999 through the disposal date, versus a previously accrued estimated loss for such period of $1,586 (net of tax). The loss on disposal in 1998 includes the write-off of intangible assets of $8,877 and estimated operating losses subsequent to the decision to discontinue the textile products operations to the anticipated disposal date of $944 (net of tax). The effect of liquidating inventories carried at lower costs prevailing in prior years under the LIFO method was to reduce the loss on disposal by approximately $5,461 in 1998. Interest cost charged to discontinued operations was $3,325 for 1998 and $3,697 for 1997. Interest cost for periods subsequent to the decision to discontinue the textile product operations included in the loss on disposal was $1,996. At December 26, 1998 assets of the textile products operations to be sold consisted of accounts receivable, inventories, and property, plant and equipment amounting to approximately $77,212 after deducting an allowance for the estimated losses on disposal and liabilities were $22,354 including estimated operating losses to the anticipated disposal date. At December 25, 1999, the remaining liabilities of the textile products operations consisted of accrued exit costs of $3,461 and no significant assets were remaining. NOTE D--SALE OF ACCOUNTS RECEIVABLE 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. As part of the agreement, the Company's accounts receivable are transferred to a trust in which the Company retains an ownership interest generally equal to the value of the assets transferred to the trust in excess of the $45,000 interest sold. During the term of the agreement, the Company is to maintain a revolving pool of eligible accounts receivable and/or other assets (as defined in the agreement) in the trust at levels which vary daily based on ratios defined in the agreement. At December 25, 1999, the Company had $14,112 of liquid, highly rated securities classified as cash equivalents included in the pool. At December 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 sheets. Costs of this program were fixed at 6.08% per annum on the amount of the interest sold plus administrative fees typical in such transactions. These costs, which were approximately $2,900 for 1999, $2,935 for 1998, and $2,985 for 1997, are included in other expense - net. In addition, the Company is generally at risk for credit losses associated with sold receivables and provides for such losses in the Company's financial statements. NOTE E--ACCRUED EXPENSES Accrued expenses include the following: 1999 1998 Compensation and benefits $13,934 $ 8,910 NOTE F--LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists of the following: 1999 1998 Senior indebtedness: Credit line borrowings $ 30,073 $ 14,000 Term loan 36,346 57,000 Other 740 611 Total senior indebtedness 67,159 71,611 Subordinated notes 50,000 50,000 Convertible subordinated debentures 39,737 42,237 Total long-term debt 156,896 163,848 Less current portion (13,460) (9,645) Total long-term debt (less current portion) $143,436 $154,203 On March 31, 1998, the Company entered into an unsecured revolving credit and term-loan facility with its principal senior lenders. The credit facility provides for revolving credit of up to $100,000 through a five year commitment period and a $60,000, seven year term-loan. Interest rates available under the facility may be selected by the Company from a number of options which effectively allow for borrowing at rates not exceeding the greater of the lender's prime rate or the federal funds rate plus .5% per annum. The effective annual interest rate on borrowings under the revolving credit and term-loan agreement was 6.31% for 1999, 6.28% for 1998 and 6.79% for 1997. The average interest rate on debt outstanding under this agreement was 5.92% at December 25, 1999, and 5.97% at December 26, 1998. Commitment fees, ranging from .25% to .375% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. On April 2, 1998, the Company completed an agreement with the Development Authority of Lafayette, Georgia (the Authority) to borrow $7,000 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 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 and machinery and equipment needs of the Company's synthetic materials recycling center in Lafayette, Georgia. The Company's subordinated notes are unsecured, bear interest ranging from 9.96% to 10.61% payable semiannually, 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 arrangements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends and certain other financial ratios. The payment of future dividends is currently limited to 50% of aggregate consolidated net income subsequent to December 25, 1999. At December 25, 1999, unused borrowing capacity under the Company's revolving credit and term-loan agreement was approximately $74,801 (including amounts available under short-term credit lines). Approximate maturities of long-term debt for each of the five years succeeding December 25, 1999 are $13,625 in 2000, $13,834 in 2001, $13,836 in 2002, $36,910 in 2003, and $13,840 in 2004. Interest payments for continuing and discontinued operations were $14,095 in 1999, $12,918 in 1998, and $12,424 in 1997. NOTE G--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: 1999 1998 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets Cash and cash equivalents $ 12,541 $ 12,541 $ 2,815 $ 2,815 Notes receivable (including current portion) 6,865 6,865 1,151 1,151 Escrow funds 640 640 1,030 1,030 Financial liabilities Long-term debt (including current portion) $156,896 $145,324 $163,848 $155,616 The fair values of the Company's financial assets approximate their carrying amounts due to their short-term nature and for notes receivable, adjustable interest rate provisions. The fair values of the Company's long-term debt were estimated using discounted cash flow analyses based on incremental borrowing rates for similar types of borrowing arrangements and quoted market rates for the Company's convertible debentures. NOTE H--PENSION PLANS Information about the benefit obligation, assets and funded status of the Company's defined benefit pension plans is as follows: 1999 1998 Change in benefit obligation: Benefit obligation at beginning of year $ 18,225 $ 14,533 Service cost 100 51 Interest cost 945 941 Actuarial (gain) loss (1,804) 4,215 Benefits paid (10,588) (1,515) Change in plan provisions 121 --- Benefit obligation at end of year 6,999 18,225 Change in plan assets: Fair value of plan assets at beginning of year 12,550 12,966 Actual return on plan assets 11 964 Employer contribution 2,097 135 Benefits paid (10,588) (1,515) Fair value of plan assets at end of year 4,070 12,550 Funded status: (2,928) (5,675) Unrecognized actuarial loss 674 1,400 Net amount recognized $ (2,254) $ (4,275) Amounts recognized in the statement of financial position consist of: Accrued liability $ (2,928) $ (5,675) Accumulated other comprehensive income 674 1,400 Net amount recognized $ (2,254) $ (4,275) Weighted-average assumptions as of year-end: Discount rate 6.27% 5.11% Expected return on plan assets 8.50% 8.50% The actuarial loss increasing the benefit obligation in 1998 resulted primarily from reduction of the assumed discount rate to the estimated rate applicable to settlement of the benefit obligation relative to associates of discontinued operations. The amount of such benefit obligation subject to settlement approximated $14,377 and a loss resulting from the settlement of approximately $5,769 ($3,519 after income tax) is included in loss on disposal of discontinued operations in 1998. At December 25, 1999, there were no shares of the Company's Common Stock included in plan assets. At December 26, 1998, plan assets included 130,226 shares of the Company's Common Stock with a fair value of $1,058 ($8.12 per share). Dividends received on shares of the Company's Common Stock held during 1998 totaled $20. Costs charged to continuing operations for all pension plans are summarized as follows: 1999 1998 1997 Components of net periodic pension cost: Defined benefit plans Service cost $ 100 $ 51 $ 47 Interest cost 222 331 430 Expected return on plan assets (244) (375) (411) Recognized net actuarial loss 110 25 129 Settlement loss 64 59 108 252 91 303 Defined contribution plans 3,889 3,811 3,067 Net Pension Cost $4,141 $3,902 $3,370 Portions of the cost of the defined contribution plans are based on the Company's operating results and the level of associates' contributions to their accounts. NOTE I--INCOME TAXES The provision (benefit) for income taxes on income (loss) from continuing operations consists of the following: 1999 1998 1997 Current Deferred Current Deferred Current Deferred Federal $5,366 $1,940 $ 1,748 $3,525 $(1,188) $5,330 State 747 (82) 97 222 799 273 Total $6,113 $1,858 $ 1,845 $3,747 $ (389) $5,603 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. Significant components of the Company's deferred tax liabilities and assets are as follows: Deferred Tax Liabilities: 1999 1998 Property, plant and equipment $23,035 $24,035 Inventories 267 2,046 Intangible assets 2,176 1,682 Other 3,702 3,899 Total deferred tax liabilities 29,180 31,662 Deferred Tax Assets: Post-retirement benefits 4,350 5,014 Other employee benefits 2,695 3,481 Losses from discontinued operations 529 2,398 Alternative minimum tax --- 1,277 Allowances for bad debts, claims and discounts 2,332 2,414 Other 1,236 1,085 Total deferred tax assets 11,142 15,669 Net deferred tax liabilities $18,038 $15,993 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: 1999 1998 1997 Statutory rate applied to income from continuing operations $ 7,132 $ 4,998 $ 4,769 Plus state income taxes net of Federal tax effect 432 210 707 Total statutory provision 7,564 5,208 5,476 Increase(decrease) attributable to: Nondeductible amortization of and impairment adjustments to intangible assets 242 201 200 Nondeductible portion of travel and entertainment 246 251 228 Net operating loss carryback benefit --- --- (781) Other items (81) (68) 91 Total tax provision $ 7,971 $ 5,592 $ 5,214 Income tax payments, net of income tax refunds received, for continuing and discontinued operations were $10,545 in 1999, $2,156 in 1998 and $3,162 in 1997. NOTE J--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. In August 1996, the Company's Board of Directors adopted a stock ownership plan applicable to the senior 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 25, 1999, 620,516 shares were subscribed at a weighted average price of $8.79 per share, at December 26, 1998, 573,463 shares were subscribed at a weighted average price of $6.49 per share, and at December 27, 1997, 512,477 shares were subscribed at a weighted average price of $6.11 per share. The following table sets forth the computation of basic and diluted earnings per share from continuing operations: 1999 1998 1997 Income from continuing operations (1) $12,399 $ 9,108 $ 8,812 Denominator for calculation of basic earnings per share - weighted average shares (2) 11,355 11,267 11,229 Effect of dilutive securities: Stock options (2) 206 348 332 Stock subscriptions (2) 121 194 204 Denominator for calculation of diluted earnings per share - weighted average shares adjusted for potential dilution (2)(3) 11,682 11,809 11,765 Earnings per share: Basic $ 1.09 $ 0.81 $ 0.78 Diluted 1.06 0.77 0.75 (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 issuable under stock option, stock subscription, and restricted stock plans whose grant price was greater than the average market price of common shares outstanding and the assumed conversion of subordinated debentures into shares of Common Stock as follows: 2,835 shares in 1999, 2,065 shares in 1998, and 1,737 shares in 1997. NOTE K--STOCK PLANS The Company's 1990 Incentive Stock Plan reserves 2,270,000 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. In 1993, the Company issued options for the purchase of 83,044 shares of Common Stock, which were immediately exercisable at prices ranging from $3.19 - $5.27 per share, in connection with the acquisition of Carriage Industries, Inc. As of December 25, 1999, options for 18,851 of these shares remain outstanding. A summary of the option activity for the three years ended December 25, 1999 is as follows: Weighted- Weighted- Average Number Average Fair Value of of Exercise Options Granted Shares Price During the Year Outstanding at December 28, 1996 1,259,842 $ 6.71 Granted at market price 499,500 9.74 $4.45 Granted above market price 12,000 14.30 5.54 Exercised (22,825) 6.46 Forfeited (80,250) 7.28 Outstanding at December 27, 1997 1,668,267 7.65 Granted at market price 287,250 8.53 3.95 Granted above market price 20,000 9.35 3.69 Exercised (12,250) 5.73 Forfeited (35,750) 6.21 Expired (1,019) 3.43 Outstanding at December 26, 1998 1,926,498 7.84 Granted at market price 128,500 8.11 3.95 Exercised (103,147) 7.58 Forfeited (237,250) 6.93 Outstanding at December 25, 1999 1,714,601 7.92 Options exercisable at December 27, 1997 240,392 $ 6.85 December 26, 1998 497,561 6.90 December 25, 1999 603,914 7.76 The following table summarizes information about stock options at December 25, 1999: Options Outstanding Weighted-Average Range of Number of Remaining Weighted-Average Exercise Prices Shares Contractual Life Exercise Price $4.00 - $ 5.27 115,601 5.8 years $ 4.82 5.75 - 8.81 1,319,750 6.6 7.30 9.25 - 14.30 279,250 7.3 12.14 $4.00 - $14.30 1,714,601 6.7 $ 7.92 Options Exercisable Range of Number of Weighted-Average Exercise Prices Shares Exercise Price $4.00 - $ 5.27 45,601 $ 4.83 5.75 - 8.81 496,500 7.42 9.25 - 14.30 61,813 12.66 $4.00 - $14.30 603,914 $ 7.76 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: 1999 Grants 1998 Grants 1997 Grants Expected life 5 years 5 years 5 years Expected volatility 50.1% 44.2% 41.6% Risk-free interest rate 5.60% 5.56% 6.25% Dividend yield 0% 0% 0% 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 pro forma effects. 1999 1998 1997 Pro forma Net income (loss) $ 16,271 $(21,788) $ 11,073 Earnings (loss) per share: Basic 1.43 (1.93) 0.99 Diluted 1.39 (1.84) 0.94 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 25, 1999, 26,340 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 prevailing market price at the time of sale. Numbers of shares sold under the plan were 9,100 in 1999, 0 in 1998, and 38,500 in 1997. NOTE L--COMMITMENTS The Company had commitments for purchases of machinery and equipment, building construction, and information systems of approximately $18,173 at December 25, 1999. The Company leases buildings, machinery and equipment under operating leases. Commitments for minimum rentals under noncancellable leases at the end of 1999 for the next five years are as follows: 2000 $1,543 2001 1,511 2002 1,346 2003 1,026 2004 443 thereafter - Total $5,869 Subsequent to December 25, 1999, the Company entered into additional operating leases for certain transportation equipment. The Company's practice, prior to this leasing arrangement, was to purchase all transportation equipment. The total future commitments related to the transportation equipment leases are $7,649 over the next seven years. Rental expense in 1999 amounted to approximately $2,855 and for prior periods was not material. NOTE M--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 and taxes). The aggregate of Internal EBIT for the reportable segments differs from the Company's consolidated earnings before interest and taxes by costs associated with the sale of accounts receivable under the Company's accounts receivable sales agreement and sundry amounts that are deemed to be non-operating in nature. 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 sales agreement). Allocations of corporate general 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; however, only selected intangible assets are included in the asset performance measurement. Net Sales - External Customers Profit Performance 1999 1998 1997 1999 1998 1997 Reportable Segments: Carpet Manufacturing $456,835 $401,826 $340,271 $30,056 $24,454 $21,337 Floorcovering Base Materials 122,631 94,586 91,815 3,466 3,108 3,349 Intersegment eliminations - 7 - Segment total $579,466 $496,412 $432,086 33,522 27,569 24,686 Interest expense 13,051 10,263 8,886 Cost of A/R sales program 2,900 2,900 2,898 Other non-segment (income) (2,799) (294) (1,124) Consolidated income before income taxes from continuing operations $20,370 $14,700 $14,026 Capital Depreciation Expenditures and Amortization 1999 1998 1997 1999 1998 1997 Reportable Segments: Carpet Manufacturing $21,161 $23,099 $15,803 $15,398 $14,542 $12,883 Floorcovering Base Materials 13,671 10,219 3,158 6,328 3,359 2,298 Corporate and Shared Services 495 45 222 604 800 628 Total Continuing Operations $35,327 $33,363 $19,183 $22,330 $18,701 $15,809 Assets Used in Performance Measurement 1999 1998 1997 Reportable Segments: Carpet Manufacturing $292,889 $229,937 $222,056 Floorcovering Base Materials 76,051 54,463 51,680 Assets in Performance Measurement 368,940 284,400 273,736 Assets Not in Segment Measurements: Other operating assets 22,504 22,738 112,878 Assets of discontinued operations 457 67,508 --- Total Consolidated Assets $391,901 $374,646 $386,614 During 1999, sales to The Home Depot amounted to approximately $61.0 million or 10.5% of consolidated net sales. No single customer's net sales exceeded 10% of the Company's consolidated net sales in 1998 or 1997. 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 assets were domestically based for the periods presented. A substantial majority of the unit production volume of the Company's Floorcovering Base Materials segment is directed into the Carpet Manufacturing segment. A significant portion of the units are processed by the Base Materials group on a conversion basis only (costs to manufacture) and are recorded in intersegment sales at the conversion value. The remaining transfers are recorded on a full-package basis (raw materials plus conversion costs) with either cost or an arms length price as the transfer value, depending on the product. Intersegment sales from the Company's Floorcovering Base Materials group to the Company's Carpet Manufacturing group were $103,669 in 1999, $62,545 in 1998, and $49,798 in 1997.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS THE DIXIE GROUP, INC. AND SUBSIDIARIES (dollars in thousands) COL. A COL. B COL. C COL. D COL. E ADDITIONS (1) (2) DESCRIPTION Balance at Charged to Charged to Deductions- Balance at Beginning of Costs and Other Accounts Describe End of Period Period Expenses -Describe Year ended December 25, 1999: Reserves deducted from asset accounts: Allowance for doubtful accounts $ 3,772 $ 832 $ 262 (1) $ 3,035 (2) $ 1,831 Provision to reduce inventories to net realizable value 4,972 (531) -0- -0- (3) 4,441 Provision to reduce assets held for sale to estimated fair market value 14,484 -0- -0- 13,297 (4) 1,187 Year ended December 26, 1998: Reserves deducted from asset accounts: Allowance for doubtful accounts $ 3,207 $ 888 $ -0- $ 323 (2) $ 3,772 (5) Provision to reduce inventories to net realizable value 7,664 -0- -0- 2,692 (3) 4,972 (5) Provision to reduce assets held for sale to estimated fair market value 16,200 11,635 -0- 13,351 (4) 14,484
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (continued) THE DIXIE GROUP, INC. AND SUBSIDIARIES (dollars in thousands) COL. A COL. B COL. C COL. D COL. E ADDITIONS (1) (2) DESCRIPTION Balance at Charged to Charged to Deductions- Balance at Beginning of Costs and Other Accounts Describe End of Period Period Expenses -Describe Year ended December 27, 1997: Reserves deducted from asset accounts: Allowance for doubtful accounts $ 3,614 $ 386 $ -0- $ 793 (2) $ 3,207 Provision to reduce inventories to net realizable value 7,346 -0- 2,447 (1) 2,129 (3) 7,664 Provision to reduce assets held for sale to estimated fair market value 18,564 -0- -0- 2,364 (4) 16,200
(1) Increase in reserves in connection with business combinations. (2) Uncollectible accounts written off, net of recoveries. (3) Provision for current items net of reductions for previous items. (4) Reserve reductions for assets sold. (5) Includes amounts related to discontinued businesses. ANNUAL REPORT ON FORM 10-K ITEM 14 (c) EXHIBITS YEAR ENDED DECEMBER 26, 1998 THE DIXIE GROUP, INC. CHATTANOOGA, TENNESSEE Exhibit Index EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (3a) Restated Charter of The Incorporated by reference to Dixie Group, Inc. Exhibit (3) to Dixie's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997.* (3b) Amended and Restated By- Incorporated by reference to Laws of Dixie Yarns, Inc. Exhibits (3b) and (3c) to Dixie's Annual Report on Form 10-K for the year ended December 29, 1990.* (4a) Second Amended and Restated Incorporated by reference to Revolving Credit and Term Exhibit (4a) to Dixie's Annual Loan Agreement, dated Report on Form 10-K for the January 31, 1992, by and year ended December 28, 1991.* among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4b) Loan Agreement, dated Incorporated by reference to February 6, 1990 between Exhibit (4d) to Dixie's Annual Dixie Yarns, Inc. and New Report on Form 10-K for the York Life Insurance Company year ended December 30, 1989.* and New York Life Annuity Corporation. (4c) Form of Indenture, dated Incorporated by reference to May 15, 1987 between Dixie Exhibit 4.2 to Amendment No. 1 Yarns, Inc. and Morgan of Dixie's Registration Guaranty Trust Company of Statement No. 33-140 78 on Form New York as Trustee. S-3, dated May 19, 1987. (4d) Revolving Credit Loan Incorporated by reference to Agreement dated as of Exhibit (4d) to Dixie's Annual September 16, 1991 by Report on Form 10-K for the and among Ti-Caro, Inc. and year ended December 28, 1991.* Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (4e) First Amendment to Revolving Incorporated by reference to Credit Loan Agreement dated Exhibit (4e) to Dixie's Annual as of August 19, 1992 by and Report on Form 10-K for the among Ti-Caro, Inc., T-C year ended December 26, 1992.* Threads, Inc. and Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank. (4f) First Amendment, dated Incorporated by reference to August 25, 1993 to Second Exhibit (4f) to Dixie's Annual Amended and Restated Report on Form 10-K for the year Revolving Credit and Term ended December 25, 1993.* Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4g) Third Amended and Restated Incorporated by reference to Credit Agreement dated Exhibit (4) to Dixie's Quarterly March 31, 1995. Report on Form 10-Q for the quarter ended April 1, 1995.* (4h) Waiver and First Amendment Incorporated by reference to to Credit Agreement dated Exhibit (4h) to Dixie's Annual February 27, 1996. Report on Form 10-K for the year ended December 30, 1995.* (4i) Waiver and Modification Incorporated by reference to Agreement dated Exhibit (4i) to Dixie's Annual November 1, 1996. Report on Form 10-K for the year ended December 28, 1996.* (4j) Waiver Letter dated Incorporated by reference to December 13, 1996. Exhibit (4j) to Dixie's Annual Report on Form 10-K for the year ended December 28, 1996.* (4k) Second Amendment dated Incorporated by reference to September 7, 1997 to the Exhibit (4) to Dixie's Quarterly Third Amended and Restated Report on Form 10-Q for the Credit Agreement dated quarter ended September 27, 1997.* March 31, 1995. (4l) Amendment to 9.96% Senior Incorporated by reference to Subordinated Notes due Exhibit (4l) to Dixie's Annual February 1, 2010. Report on Form 10-K for the year ended December 27, 1997.* * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (4m) Letter agreement dated Incorporated by reference to February 17, 1998 re: Exhibit (4m) to Dixie's Annual Amendment to 9.96% Senior Report on Form 10-K for the Subordinated Notes due year ended December 27, 1997.* February 1, 2010. (4n) Credit agreement dated Incorporated by reference to as of March 31, 1998 by Exhibit (4n) to Dixie's Annual and among The Dixie Report on Form 10-K for the Group, Inc., SunTrust year ended December 27, 1997.* Bank, Atlanta, and NationsBank, N.A. and Form of Revolving Credit Note, Form of Term Note And Form of Swing Line Note. (4o) Waiver letter dated Incorporated by reference to August 17, 1998 from Exhibit (4o) to Dixie's Annual New York Life Insurance Report on Form 10-K for the And Annuity Corporation. year ended December 27, 1997.* (4p) Waiver letter dated Incorporated by reference to August 17, 1998 from Exhibit (4p) to Dixie's Annual New York Life Insurance Report on Form 10-K for the Company. year ended December 27, 1997.* (10a) Dixie Yarns, Inc. Nonquali- Incorporated by reference to fied Defined Contribution Exhibit (10c) to Dixie's Annual Plan. Report on Form 10-K for the year ended December 26, 1992.* (10b) Dixie Yarns, Inc. Nonquali- Incorporated by reference to fied Employee Savings Plan. Exhibit (10d) to Dixie's Annual Report on Form 10-K for the year ended December 26, 1992.* (10c) Dixie Yarns, Inc. Incentive Incorporated by reference to Compensation Plan. Exhibit (10e) to Dixie's Annual Report on Form 10-K for the year ended December 26, 1992.* (10d) Pooling and Servicing Incorporated by reference to Agreement dated as of Exhibit (2a) to Dixie's October 15, 1993, among Current Report on Form 8-K Dixie Yarns, Inc., Dixie dated October 15, 1993.* Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10e) Annex X - Definitions, to Incorporated by reference to Pooling and Servicing Exhibit (2b) to Dixie's Agreement dated as of Current Report on Form 8-K October 15, 1993, among dated October 15, 1993.* Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10f) Series 1993-1 Supplement, Incorporated by reference to dated as of October 15, Exhibit (2c) to Dixie's 1993, to Pooling and Current Report on Form 8-K Servicing Agreement dated as dated October 15, 1993.* of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee). (10g) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2d) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and New York Life Insurance and Annuity Corporation. (10h) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2e) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and John Alden Life Insurance Company. (10i) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2f) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and John Alden Life Insurance Company of New York. (10j) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2g) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and Keyport Life Insurance Company. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10k) Asset Purchase Agreement Incorporated by reference to dated May 23, 1996, by and Exhibit (2a) to Dixie's Current among T-C Threads, Inc. Report on Form 8-K dated d/b/a Threads USA, Threads June 3, 1996.* of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10l) Amendment, dated May 31, Incorporated by reference to 1996, to Asset Purchase Exhibit (2b) to Dixie's Current Agreement dated May 23, Report on Form 8-K dated 1996, by and among T-C June 3, 1996.* Threads, Inc. d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10m) Second Amendment, dated Incorporated by reference to June 3, 1996, to Asset Exhibit (2c) to Dixie's Current Purchase Agreement dated Report on Form 8-K dated May 23, 1996, by and among June 3, 1996.* T-C Threads, Inc., d/b/a Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10n) Yarn and Finished Goods Incorporated by reference to Agreement dated as of Exhibit (2d) to Dixie's Current June 3, 1996, by and among Report on Form 8-K dated T-C Threads, Inc. d/b/a June 3, 1996.* Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10o) Accounts Receivable Incorporated by reference to Agreement dated as of Exhibit (2e) to Dixie's Current June 3, 1996, by and among Report on Form 8-K dated T-C Threads, Inc. d/b/a June 3, 1996.* Threads USA, Threads of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10p) Noncompetition Agreement Incorporated by reference to dated as of June 3, 1996, by Exhibit (2f) to Dixie's Current and among T-C Threads, Inc. Report on Form 8-K dated d/b/a Threads USA, Threads June 3, 1996.* of Puerto Rico, Inc., Productos para la Industria de la Maquila, S. A., PRIMA, Hilos y Accessorios, S. A. de C. V., and Dixie Yarns, Inc. and American & Efird, Inc. (10q) Asset Purchase Agreement Incorporated by reference to dated as of August 29, 1997 Exhibit (2) to Dixie's Current among The Dixie Group, Inc., Report on Form 8-K dated Bretlin, Inc., Foamex L.P. August 29, 1997. and General Felt Industries, Inc. (10r) Dixie Yarns, Inc. Incentive Incorporated by reference to Stock Plan as amended. ANNEX A to Dixie's Proxy Statement dated March 27, 1998 for its 1998 Annual Meeting of Shareholders. (10s) Form of Nonqualified Stock Incorporated by reference to Option Agreement Under the Exhibit (10a) to Dixie's Quarterly Dixie Yarns, Inc. Incentive Report on Form 10-Q for the Stock Plan. quarter ended July 1, 1995.* (10t) Form of Amendment to Incorporated by reference to Nonqualified Stock Option Exhibit (10b) to Dixie's Quarterly Agreement Under the Dixie Report on Form 10-Q for the Yarns, Inc. Incentive Stock quarter ended July 1, 1995.* Plan. *Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10u) Form of Stock Option Incorporated by reference to Agreement Under the Dixie Exhibit (10b) to Dixie's Annual Yarns, Inc. Incentive Report on Form 10-K for the Stock Plan as amended. year ended December 28, 1996.* (10v) Form of Stock Rights and Incorporated by reference to Restrictions Agreement Exhibit (10v) to Dixie's Annual for Restricted Stock Award Report on Form 10-K for the Under Incentive Stock Plan year ended December 27, 1997.* as Amended. (10w) The Dixie Group, Inc. Stock Incorporated by reference to Ownership Plan as Exhibit (10w) to Dixie's Annual amended. Report on Form 10-K for the year ended December 27, 1997.* (10x) Form of Stock Subscription Incorporated by reference to Agreement Under Stock Exhibit (10x) to Dixie's Annual Ownership Plan of The Report on Form 10-K for the Dixie Group, Inc. year ended December 27, 1997.* (10y) The Dixie Group, Inc. Incorporated by reference to Directors Stock Plan Exhibit (10y) to Dixie's Annual Report on Form 10-K for the year ended December 27, 1997.* (10z) Asset Purchase Agreement Incorporated by reference to dated January 8, 1999, by Exhibit (10) to Dixie's Quarterly and between Multitex Report on Form 10-Q for the Corporation of America quarter ended March 27, 1999.* and The Dixie Group, Inc. (10A) The Dixie Group, Inc. New Incorporated by reference to Nonqualified Retirement Exhibit (10.1) to Dixie's Savings Plan effective Quarterly Report on Form 10-Q August 1, 1999 for the quarter ended June 26, 1999.* (10B) The Dixie Group, Inc. Incorporated by reference to Deferred Compensation Plan Exhibit (10.2) to Dixie's Amended and Restated Quarterly Report on Form 10-Q Master Trust Agreement for the quarter ended June 26, Effective as of August 1999.* 1, 1999. *Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (10C) Asset Purchase Agreement Incorporated by reference to dated as of May 7, 1999, Exhibit (10.3) to Dixie's between R.L. Stowe Mills, Quarterly Report on Form 10-Q Inc. and The Dixie Group, for the quarter ended June 26, Inc. 1999.* (21) Subsidiaries of the Filed herewith Registrant. (23) Consent of Ernst & Young LLP. Filed herewith. *Commission File No. 0-2585 EX-21 2 EXHIBIT 21 - SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE DIXIE GROUP, INC. STATE/COUNTRY OF SUBSIDIARY INCORPORATION Amtex, Inc. TN C-Knit Apparel, Inc. TN Candlewick Holdings, Inc.* GA Candlewick Lemoore, Inc.** TN Candlewick Ringgold, Inc.** TN Candlewick Roanoke/Tennessee, Inc.** TN Caro-Knit, Inc.* SC Carriage Industries, Inc. GA Del, Inc.* TN Dixie Export, Inc. USVI Dixie Funding, Inc. TN Dixie Mercerizing Co.* TN Dy, Inc.* TN JXM, Inc.* NC Masland Carpets, Inc.** AL Myers Community Utility Services, Inc.* NC North State Knitting Company* NC Patrick Carpet Mills, Inc.* CA SUBSIDIARIES OF CARRIAGE INDUSTRIES, INC. STATE/COUNTRY OF SUBSIDIARY INCORPORATION Bretlin, Inc. GA Candlewick Yarns, Inc. TN Carriage Investments, Inc. GA Dixie Logistics, Inc. GA * merged into The Dixie Group, Inc. in December 1999 ** merged into Candlewick Yarns, Inc. in January 1999 EX-23 3 EXHIBIT 23 - AUDITORS CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-30473) pertaining to the Employee Stock Purchase Plan of The Dixie Group, Inc., the Registration Statement (Form S-8 No. 33-59564) pertaining to options to acquire Common Stock of The Dixie Group, Inc. issued in connection with the acquisition of Carriage Industries, Inc., the Registration Statement (Form S-8 No. 33-42615 and No. 333-81163) pertaining to the Incentive Stock Option Plan of The Dixie Group, Inc., Post-Effective Amendment Number 2 to the Registration Statements (Form S-8 No. 2-20604 and No. 2-56744) pertaining to the Employee Stock Purchase Plan and Employee Stock Option Plan of The Dixie Group, Inc., and the Registration Statement (Form S-8 No. 333-80971) pertaining to the Core Leadership Team Stock Ownership Plan of The Dixie Group, Inc. of our report dated February 15, 2000, with respect to the consolidated financial statements and schedule of The Dixie Group, Inc. included in the Annual Report (Form 10-K) for the year ended December 25, 1999. ERNST & YOUNG LLP Chattanooga, Tennessee March 24, 2000 EX-27 4 EXHIBIT 27 - FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT AND FOR THE TWELVE MONTHS ENDED DECEMBER 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-25-1999 DEC-25-1999 12,541 0 21,285 1,831 104,042 150,965 307,766 134,180 391,901 96,752 143,436 42,793 0 0 75,117 391,901 579,466 579,466 456,360 456,360 0 0 13,051 20,370 7,971 12,399 4,792 0 0 17,191 1.51 1.47
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