UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(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 27, 2003
OR
Commission File Number 0-2585
The Dixie Group, Inc.
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345-B Nowlin Lane, Chattanooga, TN
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37421
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(423) 510-7000 Registrant's telephone number, including area code |
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Title of Each Class
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Name of Each Exchange on Which Registered
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Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $3.00 Par Value
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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. |
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Yes [x] |
No [ ] |
UNITED STATES
SECURITIES AND EXCHANGE COMMSSION
Washington, D. C. 20549
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes [ ] |
No [ X ] |
The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 27, 2003 (the last business day of the registrant's most recently completed fiscal second quarter) was approximately $33,900,000. The aggregate market value was computed by reference to the closing price of the Common Stock on such date. In making this calculation, the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 10% of a class of outstanding Common Stock, and no other persons, are affiliates. No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act.
Class |
Outstanding as of March 12, 2004 |
Common Stock, $3.00 Par Value |
11,416,214 shares |
Class B Common Stock, $3.00 Par Value |
636,230 shares |
Class C Common Stock, $3.00 Par Value |
0 shares |
Documents Incorporated By Reference.
Specified portions of the following documents are incorporated by reference:
Proxy Statement of the registrant for annual meeting of shareholders to be held May 6, 2004 (PART III).
PART I
ITEM 1. BUSINESS
Fabrica
Fabrica
, founded in 1977, markets and manufactures luxurious residential carpet and custom rugs, at selling prices that we believe are approximately five times the average for the soft floorcovering industry, to interior decorators and designers, selected retailers and furniture stores, luxury home builders and manufacturers of luxury motor coaches and yachts. Fabrica is among the leading premium brands in the domestic marketplace, known for styling innovation and unique colors and patterns. Fabrica is viewed by the trade as a premier brand and resource for very high-end carpet. Fabrica also is known as a styling trendsetter and a market leader in the very high-end residential sector. Since its acquisition in July 2000, sales have continued to grow and in 2003 accounted for approximately 25% of our sales.
Masland
Masland Carpets
, founded in 1866, markets and manufactures design-driven specialty carpets and rugs for the high-end residential and commercial marketplaces. Its residential broadloom carpet products are marketed at selling prices that we believe are approximately four times the average for the soft floorcovering industry. Its products are marketed through the architectural, specifier and interior design communities, as well as to consumers through specialty floorcovering retailers and directly to corporate end-users. Masland accounted for approximately 62% of our sales in 2003, divided equally between products for high-end residential and high-end commercial markets. Masland
has strong brand recognition within the upper-end residential and commercial markets. Masland competes in each of these markets through innovative styling, color, product design, quality and service.
Since we acquired Masland in July 1993, its sales have grown from $48 million to approximately $146 million in 2003. This growth has been driven in part by Masland's successful entrance into the high-end commercial carpet business, which reported approximately $72 million of sales in 2003.
Dixie Home
Dixie Home
was introduced in 2003 as a brand to provide stylishly designed, differentiated products that offer affordable fashion. Dixie Home
markets an array of tufted broadloom residential carpet to selected retailers, home centers and distributors under the Dixie Home and private label brands. Our objective is to make this brand the line of choice for styling, service and quality in the more moderately priced sector of the high-end broadloom residential carpet market. Its products are marketed at selling prices, which we believe range from two to three times the average for the soft floorcovering industry. The product collection has been well received in the market place and is expected to have significant growth potential and to significantly increase our sales and presence with retailers. Dixie Home accounted for approximately 6% of our sales in 2003.
Candlewick
Candlewick
, purchased in 1952, develops and produces a complex variety of innovative filament yarns for our internal needs and external customers. Our carpet manufacturing operations utilize approximately 80% of Candlewick's unit production volume. Candlewick's external specialty yarn sales accounted for approximately 7% of our sales in 2003, and the portion of Candlewick's capacity currently devoted to external sales could be converted for use by our other businesses without requiring further significant capital investment. Our expertise and experience in developing new, uniquely-styled proprietary yarns are key factors in the ability of our carpet businesses to consistently develop specialized, unique and innovative products that we believe are difficult for our competitors to readily duplicate.
Industry
The carpet and rug industry has two primary markets, residential and commercial, with the residential market making up the largest portion of the industry's sales. A substantial portion of industry shipments is made in response to replacement demand. Residential products consist of broadloom carpets, rugs and bathmats in a broad range of styles, colors and textures. Commercial products consist primarily of broadloom carpets for a variety of institutional applications such as office buildings, restaurant chains, schools and other commercial establishments. The carpet industry also manufactures carpet for the automotive, recreational vehicle and small boat and other industries.
The Carpet and Rug Institute (the "CRI") is the national trade association representing carpet and rug manufacturers. Information compiled by the CRI, suggest that the domestic carpet and rug industry is composed of fewer than 100 manufacturers, with a significant majority of the industry's production concentrated in a limited number of manufacturers. The carpet industry has continued to consolidate in recent years. We believe that these consolidations provide us with opportunities to capitalize on our competitive strengths in selected markets where innovative styling, design, product differentiation, focused service can add value.
Competition
The floorcovering industry is highly competitive. We compete with other carpet manufacturers and manufacturers of other types of floorcoverings. Despite the industry consolidation, a large number of manufacturers remain. We believe our products are among the leaders in styling and design in the high-end residential and high-end commercial markets. However, a number of competitors manufacture similar products and some of these competitors have greater financial resources than we do.
We believe the principal competitive factors in our primary floorcovering markets are innovative styling, color, product design, quality and service. In the high-end residential and high-end commercial markets, carpet competes with various other types of floorcoverings.
We believe we have competitive advantages in several areas. We have an attractive portfolio of brands that we believe are well known, highly regarded by customers and complementary; by being differentiated, we offer meaningful alternatives to the discriminating customer. In addition, we have established longstanding relationships with key suppliers in our industry and customers in most of our markets. Finally, our reputation for innovative design excellence and our experienced management team also enhances our competitive position.
Backlog
Sales order backlog is not material to an understanding of our business, due to relatively short lead times for order fulfillment for the markets served by the vast majority of our production.
Trademarks
Our floorcovering businesses own a variety of trademarks under which our products are marketed. Among such trademarks, the names "Masland" and "Fabrica" are of greatest importance to our business. We believe that we have taken adequate steps to protect our interest in all such trademarks.
We do not believe that we have any single class of products that accounts for more than 10 percent of our sales. However, our sales may be classified by significant markets, and such information for the past three years is summarized as follows:
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2003 |
2002 |
2001 |
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Residential Floorcovering Markets |
62% |
58% |
54% |
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Commercial Floorcovering Markets |
31% |
30% |
30% |
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Carpet Yarn |
7% |
12% |
16% |
Seasonality
Within the varied markets which we serve there are a number of seasonal production cycles, but our business, as a whole, is not considered to be significantly affected by seasonal factors. Our sales volume and working capital requirements have normally reached their highest levels in the second and third quarters of the year.
Environmental
Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report.
Raw Materials
We obtain our raw materials from a number of domestic suppliers. Man-made yarns are purchased from major chemical companies. Where possible, we pass raw material price increases through to our customers; however, there can be no assurance that price increases can be passed through to customers and that increases in raw material prices will not have an adverse effect on our profitability. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report. Although our procurement of raw materials is subject to variations in price and availability and we purchase the majority of our raw materials from one supplier, we believe there are other adequate sources of raw materials. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report.
Utilities
We use electricity as our principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. We have not experienced any material problem in obtaining adequate supplies of electricity, natural gas or oil. Energy shortages of extended duration could have an adverse effect on our operations, and price volatility could negatively impact future earnings. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report.
Employment Level
We employ approximately 1,300 associates in our continuing operations.
Available Information
Our internet address is www.thedixiegroup.com. We make the following reports filed by us with the Securities and Exchange Commission available, free of charge, on our website under the heading "Investor Relations":
The contents of our website are not a part of this report.
ITEM 2. PROPERTIES
The following table lists the Company's facilities according to location, type of operation and approximate total floor space as of March 12, 2004:
Location |
Type of Operation |
Approximate Square Feet |
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Administrative: |
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Administrative |
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Mobile, AL |
Administrative |
29,000 |
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Santa Ana, CA* |
Administrative |
8,000 |
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Chattanooga, TN* |
Administrative |
3,500 |
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Total Administrative |
56,500 |
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Atmore, AL |
Carpet Manufacturing, Distribution |
609,000 |
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Mobile, AL |
Distribution |
384,000 |
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Mobile, AL* |
Samples/Rug Manufacturing |
132,000 |
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Roanoke, AL |
Carpet Yarn Processing |
201,000 |
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Santa Ana, CA* |
Carpet/Rug Manufacturing, Distribution |
165,000 |
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Santa Fe Springs, CA* |
Distribution |
60,000 |
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Chatsworth, GA * |
Samples / R & D |
71,000 |
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1,622,000 |
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TOTAL |
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1,678,500 |
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* Leased properties
In addition to the facilities listed above, the Company leases various warehousing and office spaces.
In our opinion, our manufacturing facilities are well maintained and our machinery is efficient and competitive. Operations of our facilities generally vary between 120 and 168 hours per week. Substantially all of our owned properties are subject to mortgages, which secure the outstanding borrowings under our senior credit facility.
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.
There were no matters submitted during the fourth quarter of 2003 to a vote of the shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the National Market System with the NASDAQ symbol DXYN. No market exists for the Company's Class B Common Stock.
As of March 12, 2004, the total number of holders of the Company's Common Stock was approximately 2,800, including an estimated 2,100 shareholders who hold the Company's Common Stock in nominee names, but excluding 1,660 participants in the Company's 401(k) plan who may direct the voting of the shares allocated to their accounts. The total number of holders of the Company's Class B Common Stock was 15.
Recent Sales of Unregistered Securities
On November 14, 2003, Gary A. Harmon settled outstanding subscriptions under the Stock Ownership Plan covering a total of 45,714 shares, with an aggregate subscription price of $339,997.88, through the surrender to the Company of 37,988 shares of Common Stock, valued at the market price of $8.95 per share, and payment of $5.28 cash (resulting in the net delivery of 7,726 new shares of Common Stock). We believe that the issuance of these securities was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof because this issuance did not involve a public offering or sale. No underwriters, brokers or finders were involved in this transaction.
Quarterly Financial Data, Dividends and Price Range of Common Stock
Following are quarterly financial data, dividends and price range of Common Stock for the four quarterly periods in the years ended December 27, 2003 and December 28, 2002. Totals of the quarterly information for each of the years reflected below may not necessarily equal the annual totals. Results for the periods presented have been restated to classify the results of our North Georgia operations sold in November 2003 and in early fiscal 2004 as discontinued operations. The discussion of restrictions on payment of dividends is included in Note H to the Consolidated Financial Statements included herein.
THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report.
OVERVIEW
During 2001 and 2002, we sold our carpet yarn extrusion operation, two dyeing facilities, a carpet yarn plant and a number of non-operating assets. In November 2003 and early fiscal 2004, we sold substantially all of our remaining assets located in North Georgia, including our factory-built housing, needlebond, carpet recycling businesses and a carpet spun yarn manufacturing facility to Shaw Industries Group, Inc. ("Shaw"). Financial results for the operations sold to Shaw have been classified as discontinued operations for all periods presented.
The sale transactions significantly reduced our debt, diversified our customer concentration and significantly improved our strategic position. In essence, we begin 2004 as a new company - one now focused on its core competencies, committed to its brands and the upper-end of the market, with a strong balance sheet, and well positioned to take advantage of an improving economy.
Our business is now smaller, but more profitable with greater growth potential. It is concentrated in segments of the soft floorcovering market, where innovative styling, design, color, quality and service as well as limited distribution are welcomed and rewarded. Through our Fabrica, Masland, and Dixie Home brands, we have a significant presence in the high-end of the soft floorcovering market. Our Candlewick carpet yarn operations supply plied and heat-set filament yarns primarily to our carpet manufacturing businesses and sells yarn to independent carpet manufacturers.
CRITICAL ACCOUNTING POLICIES
Certain estimates and assumptions are made when preparing financial statements. These estimates and assumptions affect various matters, including:
Estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict. As a result, actual amounts could differ from estimates made in preparing the financial statements.
The SEC has issued disclosure guidance requiring management to identify its most critical accounting policies. Such critical accounting policies are those that are both most important to the portrayal of our financial condition and results and requires our most difficult, subjective, and complex judgments, as a result of the need to make estimates about inherently uncertain matters that may change in subsequent periods.
We believe the following accounting policies require significant judgments and estimates in preparing our consolidated financial statements and represent our critical accounting policies. Other significant accounting policies are discussed in Note A to our Consolidated Financial Statements.
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America. The following table sets forth certain elements of results for our continuing operations as a percentage of net sales for the periods indicated:
Fiscal Year Ended |
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December 27, 2003 |
December 28, 2002 |
December 29, 2001 |
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Net sales |
100.0 % |
100.0 % |
100.0 % |
Cost of sales |
65.9 % |
65.4 % |
68.1 % |
Gross profit |
34.1 % |
34.6 % |
31.9 % |
Selling and administrative expenses |
28.1 % |
25.3 % |
25.9 % |
Impairments and other charges |
9.0 % |
--- % |
--- % |
Other (income) expense - net |
(0.4)% |
(0.5)% |
(1.7)% |
Operating income (loss) |
(2.6)% |
9.8 % |
7.7 % |
Fiscal Year Ended December 27, 2003, Compared with Fiscal Year Ended December 28, 2002
Net Sales.
Net sales for the year ended December 27, 2003 were $234.1 million, an increase of 4.9% over net sales of $223.3 million for the year ended December 28, 2002. Carpet sales in 2003 increased $20.8 million, or 10.6%, compared with 2002 carpet sales. Over half of the increase in 2003 was attributable to year over year growth in both the higher end residential and contract markets served by Masland and Fabrica, with the remainder due to the Dixie Home collection of products introduced in early 2003. Carpet yarn sales declined $10.0 million, or 37.6%, in 2003 as we continue to focus our yarn production capacity to support our internal floorcovering businesses.
Cost of Sales.
Cost of sales in 2003 increased by 0.5% of sales as compared with 2002 principally due to a greater portion of our sales increase coming from Masland and Dixie Home products, that have lower gross margins than those of Fabrica.
Selling and Administrative Expenses.
Selling and administrative expenses were 28.1% of sales in 2003 compared with 25.3% of sales in 2002. The increase is due to the costs of the sales and marketing infrastructure associated with the introduction of the Dixie Home collection of products and higher than normal sample costs necessary to introduce a new product line. We anticipate that these expenses as a percentage of sales will decrease as the volume of sales of Dixie Home products increase. Additionally, we expect sample cost per dollar of sales to decrease as Dixie Home's business matures.
Impairments and Other Charges
. Our results were negatively impacted by $21.1 million ($13.4 million after-tax, or $1.14 per diluted share) of "Impairments and other charges" recorded in the fourth quarter of the year ended December 27, 2003. These charges were principally related to early extinguishments of debt and the write-down of assets impaired as a result of the sale of our North Georgia operations. $4.2 million of the charges were cash prepayment penalties and fees related to debt retired with the sale proceeds and $0.8 million related to success fees paid to management in connection with the sale transaction. $16.1 million of the charges were non-cash, including $10.6 million for impairments of long-lived assets and $5.5 million to write-off deferred financing cost.
Other (Income) Expense - Net.
Other (income) expense - net reflects a decrease of $0.3 million in 2003 compared with 2002 as a result of a lower level of gains on asset sales in 2003.
Interest Expense.
Interest expense was $8.0 million in 2003 compared with $5.0 million in 2002. Interest expense is allocated to continuing operations for all periods presented based on the relationship of the net asset value of the assets in our continuing operations to the net asset value of our total assets. The increase in interest expense in 2003 was primarily a result of the payment of a $50.0 million contingent purchase obligation to the previous owners of Fabrica in March of 2003. Based on the expected debt levels and current interest rates, we expect interest expense to be in the $5.0 million to $5.5 million range in 2004.
Income Tax Provision (Benefit).
Our effective income tax rate was 36.3% for 2003 compared with 31.8% for 2002. The change in the effective tax rates is principally due to the relationship of items of cost that are non-deductible for tax purposes to pre-tax earnings in each of these reporting periods.
Net Income (Loss).
Results from continuing operations reflected a loss of $9.0 million, or $0.77 per diluted share, in 2003, compared with income from continuing operations of $11.4 million, or $0.97 per diluted share, in 2002. The after-tax effect of impairment and other charges included in results from continuing operations in 2003 was a loss of $13.4 million, or $1.14 per diluted share. The net loss for 2003 was $17.0 million, or $1.44 per diluted share, compared with net income of $4.6 million, or $0.39 per diluted share, for 2002. The net loss in 2003 included a loss of $5.1 million, or $0.44 per diluted share, from discontinued operations and a loss of $2.8 million, or $0.23 per diluted share, on the disposal of discontinued operations. Results for 2002 included a loss of $3.2 million, or $0.27 per diluted share, from discontinued operations and a loss of $3.7 million, or $0.31 per diluted share, on disposal of discontinued operations, when we wrote-off a note received in 1999 in connection with the sale of our cotton yarn and dyeing textile operations.
Fiscal Year Ended December 28, 2002, Compared with Fiscal Year Ended December 29, 2001
Net Sales.
Net sales for the year ended December 28, 2002 were $223.3 million, a decline of 3.3% from $230.9 million for the year ended December 29, 2001. Sales in our carpet business increased 1.3%. Although commercial markets were soft in 2002, sales improved due to growth in our high-end residential markets. Sales in our carpet yarn business declined 27.7%. The lower carpet yarn sales reflect our strategy to de-emphasize our external carpet yarn sales to supply raw materials to support our carpet operations.
Cost of Sales.
Cost of sales decreased significantly in 2002 compared with 2001. As a result, gross margin increased to 34.6% for the year ended December 28, 2002, compared to 31.9% for the year ended December 29, 2001. This improvement is principally attributable to product mix as we grew our higher margin carpet business and decreased our lower margin carpet yarn business. In addition, cost reduction programs were implemented during the year ending December 28, 2002, that reduced cost by improving efficiencies and asset utilization.
Selling and Administrative Expenses.
Selling and administrative expenses decreased $3.3 million in the twelve-month period ended December 28, 2002, compared with the same period in 2001 due to our efforts to control costs in all areas.
Other (Income) Expense - Net.
Other (income) expense - net reflected $2.7 million reduction in other income due to a lower level of net gains from asset sales in the year ended December 28, 2002 compared with the year ended December 29, 2001.
Interest Expense
. Interest expense decreased for the year ended December 28, 2002, compared with the same period in 2001 principally due to lower levels of debt and a lower portion of total interest expense being allocated to continuing operations in fiscal 2002.
Income Tax Provision (Benefit).
Our effective income tax rate was 31.8% for the year ended December 28, 2002 and 38.0% for the year ended December 29, 2001. The change in the effective tax rates is principally due to the relationship of non-deductible goodwill amortization and other items of cost that are non-deductible for tax purposes to pre-tax earnings in each of these reporting periods. Additionally, the year 2002 included an income tax benefit of $0.4 million due to a contribution deduction, for income tax purposes, related to the sale of a carpet yarn facility.
Net Income (Loss)
. Income from continuing operations for fiscal 2002 was $11.4 million, or $0.97 per diluted share, compared with income from continuing operations of $7.0 million, or $0.59 per diluted share, in 2001. Net income for 2002 was $4.6 million, or $0.39 per diluted share, and included a loss from discontinued operations of $3.2 million, or $0.27 per diluted share, and a loss on disposal of discontinued operations of $3.7 million, or $0.31 per diluted share. This compared with net income of $0.5 million, or $0.04 per diluted share, in 2001, and included a loss from discontinued operations of $6.5 million, or $0.55 per diluted share.
On March 14, 2003, we issued $37.0 million of senior secured notes, amended our senior credit facility to reduce the revolving credit loan commitments to $90.0 million, but increased the effective borrowing availability under the agreement by $10.0 million, reissued our existing term loan at its outstanding balance, and added an additional $4.5 million term loan, bringing the aggregate balance of the term loan portion of the facility to $38.3 million. The term loans were reduced to $25.0 million on November 12, 2003 when we sold our North Georgia operations. The term loans are payable in quarterly installments of $1.2 million beginning February 1, 2004 and are due in May 2007. Interest rates available under the amended senior facility may be selected from a number of options that effectively allow for borrowing at rates ranging from the lender's prime rate plus 0.25% to the lender's prime rate plus 1.25% for base rate loans, or at rates ranging from LIBOR plus 2.50% to LIBOR plus 3.75% for LIBOR loans. Commitment fees, ranging from 0.375% to 0.50% per annum, are payable on the average daily unused balance of the revolving credit facility. The level of our accounts receivable and inventories limits borrowing availability under the revolving credit facility. The senior credit facility is secured by a first priority lien in substantially all of our assets.
Proceeds from the financings were used to settle a $50.0 million contingent obligation to the former shareholders of Fabrica International through a cash payment of $49.8 million, reflecting an early payment discount.
On November 12, 2003, we sold our factory-built housing, needlebond and carpet recycling businesses and related assets to Shaw Industries Group, Inc. pursuant to an asset purchase agreement that provided for a cash purchase price of $205.0 million, which, net of liabilities retained by us, resulted in a net value for the transaction of approximately $180.0 million. Proceeds received at closing, which are subject to certain adjustments, were used to retire approximately $143.3 million of the Company's debt, to fund an $8.0 million escrow reserve, and to pay certain debt pre-payment premiums and transaction-related expenses. Approximately $47.6 million of the proceeds were invested in short-term securities were used to pay the retained liabilities and income taxes related to the transaction. At December 27, 2003, amounts invested in short-term securities were $11.1 million and adequate to pay income taxes relating to the sale.
Debt repaid with proceeds from the sale consisted of amounts then outstanding under our senior secured notes of $37.5 million and our subordinated notes of $31.0 million. Additionally, we paid $74.8 million of debt outstanding under our senior credit facility and, in December 2003, reduced the revolving credit commitment to $40.0 million.
Our senior credit agreement contains financial covenants relating to fixed charges, debt coverage and net worth and among other things, limit future acquisitions, capital expenditures, and the payment of dividends. The Company's revolving credit facility provides that the occurrence of any event or condition that has a Material Adverse Effect (as defined in the Agreement) shall constitute an Event of Default. The portion of our revolving credit debt that is classified as long-term in our balance sheet at December 27, 2003 and December 28, 2002 represents amounts that are not repaid through lockbox remittances. Because the assets sold in November 2003 and in early 2004 were classified as assets held for sale in the current asset section of our balance sheet, debt retired with the proceeds from the sales was classified in the current liability section of our balance sheet for the applicable periods. The unused borrowing capacity under our credit facilities on December 27, 2003 was approximately $30,432.
During the three-year period ended December 27, 2003, cash flows generated from operating activities (excluding $40.4 million advanced under our prior accounts receivable securitization) were $22.5 million. These funds were supplemented by $247.8 million from asset sales and were used to finance our operations, invest $25.9 million in capital assets, $55.1 million in business acquisitions (including $52.7 of contingent payments related to previous acquisitions), retire (including $40.4 million advanced under our prior accounts receivable securitization) $180.8 million of debt, and invest $8.5 million in short-term securities.
Proceeds from the sale of assets were $207.8 million in 2003, $33.5 million in 2002 and $6.5 million in 2001. The assets sold consisted primarily of the sale of our North Georgia operations in 2003, a yarn extrusion facility and a carpet yarn facility in 2002, and machinery, dyeing facilities and real estate in 2001.
Capital expenditures for the year 2003 were $14.0 million ($12.5 in continuing operations, including $7.3 of assets under operating leases that were converted to a capital lease). During 2003, depreciation and amortization was $18.3 million ($9.3 million in continuing operations). We expect capital expenditures to be approximately $12.0 million for the year 2004, while depreciation and amortization is expected to be approximately $8.0 million.
The Fabrica asset purchase agreement provides for a contingent amount of up to $2.5 million to be paid in April 2005 if Fabrica's cumulative earnings before interest and taxes for the five-year period beginning January 2000 exceed certain levels. We expect that any contingent payments that may become due under the cumulative earnings test would be treated as additional costs of the acquisition.
The 1999 acquisition of Multitex Corporation of America, Inc. ("Globaltex") provides for certain contingent obligations related to revenue growth of a specific customer through 2003. The final payment for the obligation under the Multitex agreement is expected to be approximately $0.6 million and will be paid in March 2004.
We believe our operating cash flows and credit availability under our senior credit facilities are adequate to finance our normal liquidity requirements.
The following table contains a summary of the Company's future minimum payments under contractual obligations as of December 27, 2003.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company has adopted SFAS No. 149 and it did not have a material impact on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has adopted SFAS No. 150 and it did not have a material impact on its financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. In December 2003, the FASB issued modifications to FIN 46 ("Revised Interpretations") resulting in multiple effective dates based on the nature as well as the creation date of the variable interest entities (VIE's). VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations must be applied by the first quarter of 2004. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. Non-Special Purpose Entities created prior to February 1, 2003 should be accounted for under the Revised Interpretation's provisions by the first quarter of fiscal 2004. The provisions of FIN 46 will be effective for the Company in first quarter 2004 and is not expected to have a material impact on its financial statements.
·
consumer confidence;
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housing demand;
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financing availability;
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national and local economic conditions;
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interest rates;
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employment levels;
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changes in disposable income;
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commercial rental vacancy rates; and
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federal and state income tax policies.
We face intense competition in our industry, which could decrease demand for our products and could have a material adverse effect on our profitability.
The floorcovering industry is highly competitive. We face competition from a number of domestic manufacturers and independent distributors of floorcovering products and, in certain product areas, foreign manufacturers. There has been a significant consolidation within the floorcovering industry during recent years which has caused a number of our existing and potential competitors to be larger and have greater resources and access to capital than we do. Maintaining our competitive position may require us to make substantial investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities, which may be limited by restrictions set forth in our credit facilities. Competitive pressures may also result in decreased demand for our products and in the loss of market share. In addition, we face, and will continue to face, pressure on sales prices of our products from competitors. As a result of any of these factors, there could be a material adverse effect on our sales and profitability.
Raw material prices may increase.
The cost of raw materials has a significant impact on our profitability. In particular our business requires the purchase of large volumes of nylon yarn, synthetic backing, wool fibers, latex and dyes. Increases in the cost of these raw materials could materially adversely affect our business, results of operations and financial condition if we are unable to pass these increases through to our customers. Prices of raw materials increased in early 2004 and additional increases have been announced for many raw materials we use. We believe we will be successful in increasing prices to pass along raw material and other costs; however, there can be no assurance that we will successfully recover such increases in cost.
Unanticipated termination or interruption of our arrangements with third-party suppliers of nylon yarn could have a material adverse effect on us.
Nylon yarn is the principal raw material used in our floorcovering products. A significant portion of our nylon yarn purchases is from one supplier. We believe there are other adequate sources of nylon yarns, however, an unanticipated termination or interruption of our supply arrangements could adversely effect our supply arrangements and could be material.
We may be responsible for environmental cleanup costs.
Various federal, state and local environmental laws govern the use of our facilities. These laws govern such matters as:
Our operations also are governed by laws relating to workplace safety and worker health, which, among other things, establish noise standards and regulate the use of hazardous materials and chemicals in the workplace. We have taken, and will continue to take, steps to comply with these laws. If we fail to comply with present or future environmental or safety regulations, we could be subject to future liabilities. However, we cannot insure that complying with these environmental or health and safety laws and requirements will not adversely affect our business, results of operations and financial condition. Future laws, ordinances or regulations could give rise to additional compliance or remediation costs which could have a material adverse affect on our business, results of operations and financial condition.
Acts of Terrorism.
Our business could be materially adversely affected as a result of international conflicts or acts of terrorism. Terrorist acts or acts of war may cause damage or disruption to our facilities, employees, customers, suppliers, and distributors, which could have a material adverse affect on our business, results of operations or financial condition. Such conflicts also may cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of supplies and distribution of products.
FORWARD-LOOKING INFORMATION
This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include the use of terms or phrases that include such terms as "expects," "estimated," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such terms or phrases relate to, among other matters, our future financial performance, business prospects, growth, strategies or liquidity. The following important factors may affect our future results and could cause those results to differ materially from our historical results. These risks include, in addition to those detailed above under the heading "Certain Factors Affecting the Company's Performance", the cost and availability of capital, raw material and transportation costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant customer or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and other risks detailed from time to time in our filings with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
As of our fiscal year end, our management, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management concluded that disclosure controls and procedures were effective. Further, no change in our internal control over financial reporting occurred during the fourth quarter of our fiscal year that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
The sections entitled "Information about Nominees for Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 6, 2004 are incorporated herein by reference. Information regarding the executive officers of the registrant is presented in PART I of this report.
The Company has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") which applies to its principal executive officer, principal financial officer and principal accounting officer or controller, and any persons performing similar functions. A copy of the Code of Ethics is filed as Exhibit 14 to this Report.
Audit Committee Financial Expert
The Board has determined that John W. Murrey, III is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended, and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act of 1934. For a brief listing of Mr. Murrey's relevant experience, please refer to the "Election of Directors" section of the Company's Proxy Statement.
Audit Committee
The Company has a standing audit committee. Members of the Company's audit committee during 2003 were J. Don Brock, Chairman; Lovic A. Brooks, Jr.; Peter L. Smith and John W. Murrey, III.
The sections entitled "Executive Compensation Information" and the directors' fee information in the last paragraph of the section entitled "Committees, Attendance and Directors' Fees" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 6, 2004 are incorporated herein by reference.
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 May 6, 2004 is incorporated herein by reference.
Equity Compensation Plan Information as of December 27, 2003
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(c)
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Equity Compensation Plans approved by security holders |
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Equity Compensation Plans not approved by security holders |
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(1) |
Does not include shares subject to outstanding subscriptions to purchase 124,653 shares of Common Stock under the Company's Stock Ownership Plan for senior executives at a weighted-average subscription price of $8.88 per share. Also, does not include 20,000 shares of Common Stock issued pursuant to restricted stock grants under the Company's 2000 Stock Incentive Plan, with a weighted-average grant date value of $4.20 per share. |
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(2) |
Includes the aggregate weighted-average of (i) the exercise price per share for outstanding options to purchase 1,136,157 shares of Common Stock under the Company's 1990 Incentive Stock Plan and 2000 Stock Incentive Plan and (ii) the price per share of the Common Stock on the grant date for each of 52,040 Performance Units issued under the Directors' Stock Plan (each unit equivalent to one share of Common Stock). |
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(3) |
Excludes outstanding subscriptions to purchase 3,041 shares of Common Stock under the Company's Core Leadership Team Stock Subscription Plan issued at a weighted-average subscription price of $8.22 per share. There are no outstanding options, warrants or rights to purchase securities under such plan. |
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(4) |
There was no fixed limit on the number of shares authorized for issuance, however; the Company has no plans to issue any additional subscriptions under either the Core Leadership Team Stock Subscription Plan or the Stock Ownership Plan. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - The response to this portion of Item 15 is submitted as a separate section of this report.
(3) Listing of Exhibits:
(i) Exhibits Incorporated by Reference:
EXHIBIT NO. |
EXHIBIT DESCRIPTION
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(2.1) |
Asset Purchase Agreement between The Dixie Group and certain of its subsidiaries, and Shaw Industries Group, Inc., dated September 4, 2003.
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(2.2) |
First Amendment dated November 12, 2003, to Asset Purchase Agreement dated September 4, 2003.
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(3.1) |
Restated Charter of The Dixie Group, Inc.
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(3.2) |
Amended and Restated By-Laws of The Dixie Group, Inc.
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(4.1) |
Form of Indenture, dated May 15, 1987 between Dixie Yarns, Inc. and Morgan Guaranty Trust Company of New York as Trustee.
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(4.2) |
Loan and Security Agreement and Forms of Notes dated May 14, 2002 by and among The Dixie Group, Inc., Fleet Capital Corporation, as "Agent", General Electric Capital Corporation, as "Documentation Agent", and Congress Financial Corporation (Southern), as "Co-Agent".
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(4.3) |
Letter Agreement, dated September 17, 2002, amending Loan and Security Agreement dated May 14, 2002.
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(4.4) |
Letter Agreement, dated January 21, 2003, amending Loan and Security Agreement dated May 14, 2002.
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(4.5) |
Letter Agreement, dated March 7, 2003, amending Loan and Security Agreement dated May 14, 2002.
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(4.6) |
Note Purchase Agreement and Form of Senior Secured Notes due 2007, dated March 14, 2003 by and among The Dixie Group, Inc., the Purchasers of the Notes and Tennenbaum Capital Partners, LLC (as Collateral Agent for such Purchasers).
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(4.7) |
Security Agreement, dated March 14, 2003 by and among The Dixie Group, Inc., Fabrica International, Bretlin, Inc., Candlewick Yarns, Inc., Chroma Technologies, Inc., Dixie Group Logistics, Inc., and Tennenbaum Capital Partners, LLC (as Collateral Agent).
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(4.8) |
Intercreditor Agreement, dated as of March 14, 2003, by and between Fleet Capital Corporation, in its capacity as administrative and Collateral Agent, and Tennenbaum Capital Partners, LLC, as Collateral Agent.
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(4.9) |
Fourth Amendment, dated as of March 14, 2003, to Loan and Security Agreement dated May 14, 2002.
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(4.10) |
Fifth Amendment, dated as of June 30, 2003, to Loan and Security Agreement dated May 14, 2002.
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(10.1) |
Asset Purchase Agreement dated as of August 29, 1997 among The Dixie Group, Inc., Bretlin, Inc., Foamex L.P. and General Felt Industries, Inc.
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(10.2) |
Dixie Yarns, Inc. Incentive Stock Plan as amended. *
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(10.3) |
Form of Non-qualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. *
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(10.4) |
Form of Amendment to Non-qualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. *
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(10.5) |
Form of Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan as amended. *
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(10.6) |
Form of Stock Rights and Restrictions Agreement for Restricted Stock Award Under Incentive Stock Plan as amended. *
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(10.7) |
The Dixie Group, Inc. Stock Ownership Plan as amended. *
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(10.8) |
Form of Stock Subscription Agreement Under Stock Ownership Plan of The Dixie Group, Inc. *
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(10.9) |
The Dixie Group, Inc. Director's Stock Plan. *
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(10.10) |
Asset Purchase Agreement dated January 8, 1999, by and between Multitex Corporation of America and The Dixie Group, Inc.
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(10.11) |
The Dixie Group, Inc. New Non-qualified Retirement Savings Plan effective August 1, 1999. *
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(10.12) |
The Dixie Group, Inc. Deferred Compensation Plan Amended and Restated Master Trust Agreement effective as of August 1, 1999. *
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(10.13) |
Asset Purchase Agreement dated as of May 7, 1999, between R. L. Stowe Mills, Inc., and The Dixie Group, Inc.
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(10.14) |
Stock Purchase Agreement dated as of July 1, 2000, by and among the Company and the stockholders of Fabrica International, Inc. named therein.
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(10.15) |
Stock Purchase Agreement dated as of July 1, 2000, by and among the Company and all of the stockholders of Chroma Technologies, Inc.
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(10.16) |
Pledge and Security Agreement, dated July 1, 2000, by and among the Company and Scott D. Guenther.
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(10.17) |
Pledge and Security Agreement, dated July 1, 2000, by and among the Company, Albert A. Frink, the Albert A. Frink and Denise Frink Charitable Remainder Unitrust and the Albert A. Frink Loving Trust.
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(10.18) |
The Dixie Group, Inc. Stock Incentive Plan. *
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(10.19) |
Amended and restated stock purchase agreement by and among The Dixie Group, Inc., and Scott D. Guenther, Royce R. Renfroe, and the Albert A. Frink and Denise Frink Charitable Remainder Unitrust and the Albert A. Frink Loving Trust dated September 8, 2000.
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(10.20) |
Pledge and security agreement dated September 8, 2000.
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(10.21) |
Form of Stock Option Agreement under The Dixie Group, Inc. Stock Incentive Plan. *
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(10.22) |
The Dixie Group, Inc. 2001 Leadership & Performance Incentive Award Plan and Form of Individual Award thereunder. *
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(10.23) |
Asset Purchase Agreement dated May 1, 2002, by and among Candlewick Yarns, Inc., Bretlin, Inc., The Dixie Group, Inc., CAF Extrusion, Inc. and Collins and Aikman Floorcovering, Inc.
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(10.24) |
The Dixie Group, Inc. Core Leadership Team Stock Subscription Plan. *
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(10.25) |
Form of Stock Subscription Agreement under The Dixie Group, Inc. Core Leadership Team Stock Subscription Plan. *
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(10.26) |
The Dixie Group, Inc. 2002 Leadership and Performance Incentive Award Plan. *
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(10.27) |
Employment Agreement between The Dixie Group, Inc. and David E. Polley, dated November 20, 2002*
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(ii) |
Exhibits Filed with this Report: |
(3.3) |
Amendment to the Restated Charter of The Dixie Group, Inc.
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(3.4) |
Text of the Restated Charter of The Dixie Group, Inc. as Amended - Blacklined Version.
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(4.11) |
Sixth Amendment, dated as of November 12, 2003, to Loan and Security Agreement dated May 14, 2002.
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(10.28) |
General Electric Capital Corporation "Master Lease Agreement for Synthetic Lease, dated October 14, 2003, between the Company and General Electric Capital Corporation.
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(10.29) |
First Amendment dated January 26, 2004 to Employment Agreement between The Dixie Group, Inc. and David E. Polley, dated November 20, 2002.* |
(10.30) |
Severance Agreement and Release between The Dixie Group, Inc. and Paul K. Frierson, dated July 31, 2003. *
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(14) |
Code of Ethics
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(21) |
Subsidiaries of the Registrant.
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(23) |
Consent of Ernst & Young LLP.
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(31.1) |
CEO Certification pursuant to Securities Exchange Act Rule 13a-14(a).
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(31.2) |
CFO Certification pursuant to Securities Exchange Act Rule 13a-14(a).
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(32.1) |
CEO Certification pursuant to Securities Exchange Act Rule 13a-14(b).
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(32.2) |
CFO Certification pursuant to Securities Exchange Act Rule 13a-14(b).
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* Indicates a management contract or compensatory plan or arrangement. |
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(b) |
Reports on Form 8-K
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(i) |
A Current Report on Form 8-K dated October 10, 2003 was filed to report the issuance of a press release, dated October 10, 2003, announcing that the Company and Shaw Industries Group, Inc. had agreed to voluntarily provide the FTC with additional time in which to review the proposed sale of certain assets of the Company.
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A Current Report on Form 8-K dated November 12, 2003 was filed to report the issuance of a press release, dated November 12, 2003, announcing the quarterly earnings and the completion of the sale of assets to Shaw Industries Group, Inc.
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A Current Report on Form 8-K dated November 12, 2003 was filed to include the Pro Forma financial information as a result of the sale of assets to Shaw Industries Group, Inc.
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A Current Report on Form 8-K dated December 5, 2003 was filed to report the issuance of a press release, dated December 5, 2003, announcing the execution of a definitive agreement to sell its Ringgold, Georgia spun carpet yarn production facility to Shaw Industries Group, Inc.. |
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(c) |
Exhibits - The response to this portion of Item 15 is submitted as a separate section of this report. See Item 15 (a) (3) (ii) above.
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(d) |
Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report.
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SIGNATURES
March 26, 2004 |
The Dixie Group, Inc.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ DANIEL K. FRIERSON Daniel K. Frierson |
Chairman of the Board,
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ANNUAL REPORT ON FORM 10-K |
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ITEM 8, ITEM 15(a)(1) AND ITEM 15(d) |
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LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES |
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FINANCIAL STATEMENTS |
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FINANCIAL STATEMENT SCHEDULES |
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YEAR ENDED DECEMBER 27, 2003 |
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THE DIXIE GROUP, INC. |
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CHATTANOOGA, TENNESSEE |
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Report of Independent Auditors
ERNST & YOUNG LLP |
Chattanooga, Tennessee
February 19, 2004
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
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December 27, 2003 |
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December 28, 2002 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
$ |
11,058 |
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$ |
2,440 |
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Accounts receivable (less allowance for doubtful |
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accounts of $1,309 for 2003 and $1,344 for 2002) |
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26,197 |
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18,770 |
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Inventories |
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50,772 |
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41,683 |
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Assets held for sale |
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5,593 |
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207,540 |
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Other |
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17,146 |
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8,592 |
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TOTAL CURRENT ASSETS |
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110,766 |
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279,025 |
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PROPERTY, PLANT AND EQUIPMENT |
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Land and improvements |
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1,047 |
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1,056 |
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Buildings and improvements |
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23,750 |
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23,299 |
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Machinery and equipment |
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79,688 |
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79,843 |
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104,485 |
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104,198 |
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Less accumulated amortization and depreciation |
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(51,858) |
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(44,856) |
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NET PROPERTY, PLANT AND EQUIPMENT |
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52,627 |
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59,342 |
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GOODWILL |
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52,598 |
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52,316 |
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INVESTMENT IN AFFILIATE |
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11,949 |
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13,458 |
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OTHER ASSETS |
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11,014 |
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12,505 |
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TOTAL ASSETS |
$ |
238,954 |
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$ |
416,646 |
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See accompanying notes to the consolidated financial statements. |
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THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
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December 27, 2003 |
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December 28, 2002 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
$ |
11,368 |
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$ |
37,458 |
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Accrued expenses |
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36,010 |
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27,993 |
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Accrued purchase consideration |
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--- |
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50,000 |
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Current portion of long-term debt |
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13,670 |
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98,312 |
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TOTAL CURRENT LIABILITIES |
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61,048 |
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213,763 |
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LONG-TERM DEBT |
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Senior indebtedness |
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22,174 |
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21,286 |
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Capital lease obligations |
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5,837 |
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56 |
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Convertible subordinated debentures |
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27,237 |
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29,737 |
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TOTAL LONG-TERM DEBT |
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55,248 |
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|
51,079 |
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OTHER LIABILITIES |
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15,056 |
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16,529 |
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DEFERRED INCOME TAXES |
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11,521 |
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23,923 |
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|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
||
|
Common Stock ($3 par value per share): Authorized |
|
|
|
|
|
|
|
|
80,000,000 shares, issued - 14,509,617 shares |
|
|
|
|
|
|
|
for 2003 and 14,292,234 shares for 2002 |
|
43,529 |
|
|
42,877 |
|
Class B Common Stock ($3 par value per share): |
|
|
|
|
|
|
|
|
Authorized 16,000,000 shares, issued - 795,970 |
|
|
|
|
|
|
|
shares for 2003 and 2002 |
|
2,388 |
|
|
2,388 |
|
Common Stock subscribed - 127,694 shares for |
|
|
|
|
|
|
|
|
2003 and 699,332 shares for 2002 |
|
383 |
|
|
2,098 |
|
Additional paid-in capital |
|
130,862 |
|
|
132,724 |
|
|
Stock subscriptions receivable |
|
(1,131) |
|
|
(5,029) |
|
|
Unearned stock compensation |
|
(54) |
|
|
(82) |
|
|
Accumulated deficit |
|
(23,857) |
|
|
(6,903) |
|
|
Accumulated other comprehensive loss |
|
(1,995) |
|
|
(3,036) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,125 |
|
|
165,037 |
|
Less Common Stock in treasury at cost - 3,395,390 |
|
|
|
|
|
|
|
|
shares for 2003 and 3,319,252 shares for 2002 |
|
(54,044) |
|
|
(53,685) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS' EQUITY |
|
96,081 |
|
|
111,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
238,954 |
|
$ |
416,646 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements. |
|
|
|
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
|
Year Ended |
|||||||||
|
|
|
|
|
|
|
|
|
||
|
|
December 27, 2003 |
|
|
December 28, 2002 |
|
|
December 29, 2001 |
||
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
NET SALES |
$ |
234,149 |
|
$ |
223,283 |
|
$ |
230,869 |
||
|
Cost of sales |
|
154,226 |
|
|
146,100 |
|
|
157,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
79,923 |
|
|
77,183 |
|
|
73,733 |
||
|
Selling and administrative expenses |
|
65,800 |
|
|
56,497 |
|
|
59,747 |
|
|
Impairments and other charges |
|
21,073 |
|
|
--- |
|
|
--- |
|
|
Other (income) expenses - net |
|
(760) |
|
|
(1,102) |
|
|
(3,779) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
|
|
|
|
|
|
|
||
|
Interest expense |
|
7,975 |
|
|
4,998 |
|
|
6,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
|
|
|
|
|
|
|
||
|
Income tax provision (benefit) |
|
(5,138) |
|
|
5,342 |
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS |
|
(9,027) |
|
|
11,448 |
|
|
6,994 |
||
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX |
|
(5,149) |
|
|
(3,178) |
|
|
(6,477) |
||
|
|
|
|
|
|
|
|
|
|
|
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
|
|
(2,778) |
|
|
(3,705) |
|
|
--- |
||
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
$ |
(16,954) |
|
$ |
4,565 |
|
$ |
517 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
||
|
Continuing operations |
$ |
(0.77) |
|
$ |
0.98 |
|
$ |
0.60 |
|
|
Discontinued operations |
|
(0.44) |
|
|
(0.27) |
|
|
(0.56) |
|
|
Disposal of discontinued operations |
|
(0.23) |
|
|
(0.32) |
|
|
--- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
(1.44) |
|
$ |
0.39 |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC |
|
11,773 |
|
|
11,723 |
|
|
11,669 |
||
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
||
|
Continuing operations |
$ |
(0.77) |
|
$ |
0.97 |
|
$ |
0.59 |
|
|
Discontinued operations |
|
(0.44) |
|
|
(0.27) |
|
|
(0.55) |
|
|
Disposal of discontinued operations |
|
(0.23) |
|
|
(0.31) |
|
|
--- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
(1.44) |
|
$ |
0.39 |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED |
|
11,773 |
|
|
11,821 |
|
|
11,748 |
||
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE: |
|
|
|
|
|
|
|
|
||
|
Common Stock |
|
--- |
|
|
--- |
|
|
--- |
|
|
Class B Common Stock |
|
--- |
|
|
--- |
|
|
--- |
|
|
||||||||||
|
||||||||||
See accompanying notes to the consolidated financial statements. |
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
|
Common Stock and Class B
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss |
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2000 |
$ |
45,067 |
|
$ |
2,375 |
|
$ |
135,116 |
|
$ |
(5,434) |
|
$ |
(11,985) |
|
$ |
(545) |
|
$ |
(56,303) |
|
$ |
108,291 |
Common Stock acquired for treasury - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
191,668 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(784) |
|
|
(784) |
Treasury shares issued - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,337 shares |
|
|
|
|
|
|
|
(2,250) |
|
|
|
|
|
|
|
|
|
|
|
3,618 |
|
|
1,368 |
Stock subscriptions subscribed - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,015 shares |
|
|
|
|
43 |
|
|
73 |
|
|
(116) |
|
|
|
|
|
|
|
|
|
|
|
--- |
Stock subscriptions cancelled - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,244 shares |
|
|
|
|
(10) |
|
|
(17) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
--- |
Amortization of restricted stock grants |
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
50 |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,217) |
|
|
|
|
|
(3,217) |
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
517 |
|
|
|
|
|
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2001 |
|
45,067 |
|
|
2,408 |
|
|
132,922 |
|
|
(5,473) |
|
|
(11,468) |
|
|
(3,762) |
|
|
(53,469) |
|
|
106,225 |
Common Stock acquired for treasury - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
113,858 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(558) |
|
|
(558) |
Treasury shares issued - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,715 shares |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
342 |
|
|
348 |
Stock subscriptions settled - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,919 shares |
|
138 |
|
|
(310) |
|
|
(228) |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
--- |
Restricted stock grant issued - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 shares |
|
60 |
|
|
|
|
|
24 |
|
|
(84) |
|
|
|
|
|
|
|
|
|
|
|
--- |
Amortization of restricted stock grants |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
46 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
726 |
|
|
|
|
|
726 |
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,565 |
|
|
|
|
|
|
|
|
4,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2002 |
|
45,265 |
|
|
2,098 |
|
|
132,724 |
|
|
(5,111) |
|
|
(6,903) |
|
|
(3,036) |
|
|
(53,685) |
|
|
111,352 |
Common Stock acquired for treasury - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
76,138 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359) |
|
|
(359) |
Stock subscriptions cancelled - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,288 shares |
|
|
|
|
(1,039) |
|
|
(1,446) |
|
|
2,530 |
|
|
|
|
|
|
|
|
|
|
|
45 |
Stock subscriptions settled - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342,103 shares |
|
350 |
|
|
(676) |
|
|
(642) |
|
|
1,368 |
|
|
|
|
|
|
|
|
|
|
|
400 |
Common Stock issued under Directors' Stock Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
9,666 shares |
|
29 |
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
Common Stock sold under stock option plan - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
90,964 shares |
|
273 |
|
|
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468 |
Amortization of restricted stock grants |
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
28 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,041 |
|
|
|
|
|
1,041 |
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,954) |
|
|
|
|
|
|
|
|
(16,954) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2003 |
$ |
45,917 |
|
$ |
383 |
|
$ |
130,862 |
|
$ |
(1,185) |
|
$ |
(23,857) |
|
$ |
(1,995) |
|
$ |
(54,044) |
|
$ |
96,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.
(dollars in thousands, except per share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
The Company's business consists of marketing, manufacturing and selling finished carpet, rugs and carpet yarns.
Principles of Consolidation:
The consolidated financial statements include the accounts of The Dixie Group, Inc. and its wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. The Company's 50% interest in Chroma Systems Partners is accounted for on the equity method. The Company utilizes the equity method of accounting for 50% or less investments when the Company exercises significant influence but does not control the investee.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications:
Certain amounts for 2002 and 2001 have been reclassified to conform to the 2003 presentation.
Discontinued Operations:
The financial statements separately report discontinued operations and the results of continuing operations (See Note D). Disclosures included herein pertain to the Company's continuing operations unless noted otherwise.
Cash and Cash Equivalents:
Cash and highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents.
Credit and Market Risk:
The Company sells primarily floorcovering products to a wide variety of retailers and certain manufacturers located throughout the United States. No customers account for more than 10% of net sales in 2003, 2002 or 2001. The Company grants credit to customers based on defined payment terms, performs ongoing credit evaluations of its customers and generally does not require collateral. Accounts receivable are carried at their outstanding principal amounts, less an allowance for doubtful accounts, which management believes is sufficient to cover potential credit losses based on their knowledge of the customers, existing economic conditions and historical losses. Notes receivable are carried at their outstanding principals amounts. The Company assesses whether an allowance for uncollectible amounts is necessary based on their knowledge of the circumstances, existing economic conditions and historical losses. Interest income on notes receivable is recognized upon receipt of payment. 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 27, 2003 and December 28, 2002.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Property, Plant and Equipment:
Property, plant and equipment is stated at the lower of cost or impaired value. Provision for depreciation and amortization of property, plant and equipment has been computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets, ranging from 10 to 40 years for buildings and improvements, and 3 to 10 years for machinery and equipment. Applicable statutory recovery methods are used for income tax purposes. Depreciation and amortization of property, plant and equipment for financial reporting purposes totaled $8,762 in 2003, $9,206 in 2002 and $10,370 in 2001.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as reported |
$ |
(16,954) |
|
$ |
4,565 |
|
$ |
517 |
||
Add goodwill amortization, net of taxes |
|
--- |
|
|
--- |
|
|
996 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss) |
$ |
(16,954) |
|
$ |
4,565 |
|
$ |
1,513 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share, as reported |
$ |
(1.44) |
|
$ |
0.39 |
|
$ |
0.04 |
||
Add goodwill amortization, net of taxes |
|
--- |
|
|
--- |
|
|
0.09 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted basic earnings (loss) per share |
$ |
(1.44) |
|
$ |
0.39 |
|
$ |
0.13 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share, as reported |
$ |
(1.44) |
|
$ |
0.39 |
|
$ |
0.04 |
||
Add goodwill amortization, net of taxes |
|
--- |
|
|
--- |
|
|
0.09 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted earnings (loss) per share |
$ |
(1.44) |
|
$ |
0.39 |
|
$ |
0.13 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of Assets:
The Company reviews assets for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. The Company evaluates recoverability of its long-lived assets by comparing estimated future undiscounted cash flows with the carrying value of the related assets to determine if an impairment exists. Impairment, if any, is then measured by comparing carrying value to market value or estimated future discounted cash flows of the underlying assets.
Compensation Cost for Restricted Stock (Fixed Awards):
The Company recognizes compensation cost for restricted stock grants with pro-rata vesting under the straight-line method.
Derivatives and Hedging Activities:
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which was amended by Statement of Financial Accounting Standards Nos. 137 and 138. In January 2001, the Company adopted the provisions of SFAS 133.
The Company uses derivative instruments, currently interest rate swaps, to minimize interest rate volatility. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.
All derivatives that are designated as cash flow hedges are linked to specific liabilities on the balance sheet. The Company assesses, both at inception and on an ongoing basis, whether the derivatives that are used in the hedging transaction are highly effective in offsetting changes in cash flows of the hedged items. When it is determined that a derivative is not highly effective, the derivative expires, or is sold, terminated, or exercised, the Company discontinues hedge accounting for that specific hedge instrument. The fair value of cash flow hedges are reflected on the balance sheet and related gains and losses are deferred in other comprehensive income.
The Company is party to an interest rate swap agreement which expires March 11, 2005. Under the interest rate swap agreement, the Company pays a fixed rate of 3.24% interest times a notional amount of $70,000, and receives in return an amount equal to a specified variable rate of interest times the same notional amount.
The swap agreement was deemed highly effective as a cash flow hedge by the Company until a significant portion of the related debt was retired in 2003. At such time the Company de-designated the swap and wrote off to interest expense the portion of Accumulated Other Comprehensive Income ("AOCI") in proportion to the debt retired. Future changes in the fair value of the current swap will be marked to market through interest expense. Amounts that remained in AOCI at the time of the de-designation and debt retirement will be amortized into earnings through interest expense over the remaining life of the swap.
Recent Accounting Pronouncements:
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company has adopted SFAS No. 149 and it did not have a material impact on its financial statements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has adopted SFAS No. 150 and it did not have a material impact on its financial statements.
Receivables are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Customers, trade |
|
|
|
$ |
26,361 |
|
$ |
19,143 |
||
Other |
|
|
|
|
|
1,145 |
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross receivables |
|
|
|
|
27,506 |
|
|
20,114 |
||
Less allowance for doubtful accounts |
|
|
|
|
1,309 |
|
|
1,344 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables |
|
|
|
$ |
26,197 |
|
$ |
18,770 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also had notes receivables in the amount of $3,381 and $3,455 as of December 27, 2003 and December 28, 2002, respectively. These amounts are included in other current and other long-term assets in the Company's financial statements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE D - DISCONTINUED OPERATIONS
On November 12, 2003, the Company sold the businesses and assets of its factory-built housing, needlebond and carpet recycling to Shaw Industries Group, Inc. pursuant to an asset purchase agreement that provided for a cash purchase price of $205,000, which, net of liabilities retained by the Company, resulted in a net value for the transaction of approximately $180,000. As part of the transaction, $8,000 of the proceeds were placed in an escrow fund for one year from the date of sale and can be used for certain contingencies that may arise during that period. The escrow is included in "Other current assets". In early fiscal 2004, the Company sold a spun yarn production facility whose production was substantially directed toward the carpet related assets sold on November 12, 2003. Proceeds from the sale were $7,128. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets", operating results associated with the businesses sold have been classified as discontinued operations and the associated applicable assets are classified as assets held for sale for all periods presented. The loss on the disposal of discontinued operations of $2,778 in 2003 was substantially associated with the Company's carpet manufacturing segment.
Additionally, during July 2003, the Company announced the reduction of salaried workforce in its North Georgia operations by approximately 16%. The severance and other costs associated with the workforce reduction was $1,344 and was substantially included in the loss from discontinued operations in our financial statements.
Interest expense was allocated to discontinued operations based on the relationship of net assets in discontinued operations to the total net assets of the Company. Interest expense allocated to the discontinued operations was $9,366, $11,028 and $11,049 for fiscal years ended 2003, 2002 and 2001, respectively.
Following is summary financial information for the Company's discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
233,025 |
|
$ |
284,234 |
|
$ |
303,729 |
||
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations: |
|
|
|
|
|
|
|
|
||
|
Before income taxes |
|
(8,435) |
|
|
(4,329) |
|
|
(10,207) |
|
|
Income tax benefit |
|
(3,286) |
|
|
(1,151) |
|
|
(3,730) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
$ |
(5,149) |
|
$ |
(3,178) |
|
$ |
(6,477) |
||
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on disposal of discontinued operations: |
|
|
|
|
|
|
||||
|
Before income taxes |
|
4,493 |
|
|
(6,133) |
|
|
--- |
|
|
Income tax provision (benefit) |
|
7,271 |
|
|
(2,428) |
|
|
--- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued operations, net of tax |
$ |
(2,778) |
|
$ |
(3,705) |
|
$ |
--- |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $3,705 loss from disposal of discontinued operations in 2002 was to write off a note received in 1999 when the Company sold its cotton yarn and dyeing textile operations.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The book value of assets sold to Shaw Industries Group, Inc. on November 12, 2003 are summarized as follows: |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - net |
|
|
|
$ |
24,460 |
|
||
Inventories |
|
|
|
|
50,891 |
|
||
Property, plant & equipment - net |
|
|
|
|
73,899 |
|
||
Goodwill |
|
|
|
|
48,176 |
|
||
Other assets |
|
|
|
|
300 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
197,726 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale are as follows: |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - net |
|
|
|
$ |
--- |
|
$ |
21,388 |
||
Inventories |
|
|
|
|
999 |
|
|
53,430 |
||
Property, plant & equipment - net |
|
|
|
|
4,594 |
|
|
84,232 |
||
Goodwill |
|
|
|
|
--- |
|
|
48,176 |
||
Other assets |
|
|
|
|
--- |
|
|
300 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
|
|
|
$ |
5,593 |
|
$ |
207,526 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E - SALE OF ACCOUNTS RECEIVABLE
The Company's accounts receivable securitization program provided up to $60,000 of funding prior to May 14, 2002 when the program was terminated and all amounts borrowed under the arrangement were re-paid. Under the agreement, a significant portion of the Company's accounts receivable were sold, on a revolving basis, to a special purpose wholly-owned subsidiary, which assigned such receivables to an independent issuer of receivables-backed commercial paper as security for amounts borrowed by the special purpose subsidiary.
The transaction was accounted for as a sale of accounts receivable. Accordingly, the undivided interest in receivables sold under the agreement was excluded from the Company's balance sheet. The Company's retained interest in the accounts receivable was stated at the estimated amount to be received upon the collection of the receivables and was included in the balance sheet as accounts receivable.
Proceeds from the sale of accounts receivable were less than the face amount of the accounts receivable sold by an amount that approximates the variable financing cost of receivables-backed commercial paper plus administrative fees typical in such transactions. These costs, which were approximately $334 for 2002 and $2,310 for 2001, are included in "Other (income) expense - net".
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE F - ACCRUED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses exceeding 5% of current liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
|
$ |
12,511 |
|
$ |
11,645 |
||
Accrued income taxes |
|
|
|
|
10,695 |
|
|
906 |
||
Provision for customer rebates, claims and allowances |
|
|
3,881 |
|
|
6,322 |
||||
Accrued purchase price consideration |
|
|
|
|
3,791 |
|
|
1,189 |
The Company's self-insured Workers' Compensation program is collateralized by a $2,568 letter of credit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
||
Reserve balance at beginning of period |
|
|
|
$ |
806 |
|
$ |
502 |
||
Warranty liabilities accrued |
|
|
|
|
2,164 |
|
|
2,123 |
||
Warranty liabilities settled |
|
|
|
|
(2,460) |
|
|
(2,067) |
||
Changes for pre-existing warranty liabilities |
|
|
|
|
98 |
|
|
248 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve balance at end of period |
|
|
|
$ |
608 |
|
$ |
806 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE H - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Senior indebtedness |
|
|
|
|
|
|
|
|
||
|
Credit line borrowings |
|
|
|
$ |
7,000 |
|
$ |
45,823 |
|
|
Term loans |
|
|
|
|
25,000 |
|
|
35,243 |
|
|
Capital lease obligations |
|
|
|
|
7,181 |
|
|
82 |
|
|
Other |
|
|
|
|
--- |
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior indebtedness |
|
|
|
|
39,181 |
|
|
81,440 |
||
Subordinated notes |
|
|
|
|
--- |
|
|
35,714 |
||
Convertible subordinated debentures |
|
|
|
|
29,737 |
|
|
32,237 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
68,918 |
|
|
149,391 |
||
Less current portion of long-term debt |
|
|
|
|
(12,326) |
|
|
(98,287) |
||
Less current portion of capital lease obligations |
|
|
|
|
(1,344) |
|
|
(25) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, less current portion |
|
|
|
$ |
55,248 |
|
$ |
51,079 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is party to a senior revolving credit and term loan facility dated May 14, 2002 that matures on May 14, 2007. On March 14, 2003, the Company issued $37,000 of senior secured notes, amended its senior credit facility to reduce the revolving credit loan commitments to $90,000 and increased borrowing availability under the agreement's borrowing base formula by approximately $10,000, reissued the existing term loan at its outstanding balance, and added an additional $4,551 term loan, bringing the aggregate balance of the term loan portion of the facility to $38,333.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
On November 12, 2003, proceeds from the sale of assets to Shaw Industries Group, Inc. were used to pay amounts then outstanding under the Company's senior secured notes and subordinated notes of $37,529 and $30,952, respectively. Additionally, the Company paid $66,096 of revolving credit and $8,679 of term loans under the Company's senior credit facility. The senior credit facility's revolving credit commitment was reduced to $40,000 in December 2003. The term loan is due in quarterly installments of $1,207 on February 1, 2004 and each quarter thereafter with the balance due in May 2007.
Interest rates available under the facility may be selected from a number of options that effectively allow for borrowing at rates ranging from the lender's prime rate plus 0.25% to the lender's prime rate plus 1.25% for base rate loans, or at rates ranging from LIBOR plus 2.5% to LIBOR plus 3.75% for LIBOR loans. The effective annual interest rate on borrowings under the revolving credit and term loan agreements was 6.73% for 2003 and 9.17% for 2002. The average interest rate on debt outstanding under these agreements was 9.36% at December 27, 2003 and 9.03% at December 28, 2002. Commitment fees, ranging from 0.375% to 0.50% per annum, are payable on the average daily unused balance of the revolving credit facility. The level of our accounts receivable and inventories limits borrowing availability under the revolving credit facility. The senior credit facility is secured by a first priority lien in substantially all of the Company's assets.
The Company's convertible subordinated debentures bear interest at 7% payable semi-annually, are due in 2012, and are convertible by the holder into shares of Common Stock of the Company at an effective conversion price of $32.20 per share, subject to adjustment under certain circumstances. Mandatory sinking fund payments, which commenced May 15, 1998, will retire $2,500 principal amount of the debentures annually. The convertible debentures are subordinated in right of payment to all other indebtedness of the Company.
The Company's senior credit agreement contains financial covenants relating to fixed charges, debt coverage and net worth and among other things, limit future acquisitions, capital expenditures, and the payment of dividends. The Company's revolving credit facility provides that the occurrence of any event or condition that has a Material Adverse Effect (as defined in the Agreement) shall constitute an Event of Default. The portion of the Company's revolving credit debt that is classified as long-term in the Company's balance sheet at December 27, 2003 and December 28, 2002 represents amounts that are not repaid through lockbox remittances. Because the assets sold in November 2003 and in early 2004 were classified as assets held for sale in the current asset section of our balance sheet, debt retired with the proceeds from the sales was classified in the current liability section of our balance sheet for the applicable periods. The unused borrowing capacity under the Company's credit facilities on December 27, 2003 was approximately $30,432.
Interest payments for continuing operations were $7,570 in 2003, $5,261 in 2002 and $9,792 in 2001.
Approximate maturities of long-term debt (excluding capital leases - See Note O) for each of the five years succeeding December 27, 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
$ |
12,326 |
|
|
|
2005 |
|
|
|
|
7,326 |
|
|
|
2006 |
|
|
|
|
7,326 |
|
|
|
2007 |
|
|
|
|
15,022 |
|
|
|
2008 |
|
|
|
|
2,500 |
|
|
|
Thereafter |
|
|
|
|
17,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, excluding capital leases |
|
|
61,737 |
|
|||
|
Capital lease obligations (See Note O) |
|
|
|
|
7,181 |
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
$ |
68,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE I - 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
2002 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
||
|
Cash and cash equivalents |
$ |
11,058 |
|
$ |
11,058 |
|
$ |
2,440 |
|
$ |
2,440 |
|
|
Notes receivable, including current portion |
3,381 |
|
|
3,381 |
|
|
3,455 |
|
|
3,455 |
||
|
Escrow funds |
|
8,250 |
|
|
8,250 |
|
|
250 |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
||
|
Long-term debt, including current portion |
68,918 |
|
|
68,313 |
|
|
149,391 |
|
|
142,551 |
||
|
Interest rate swap |
|
(1,455) |
|
|
(1,455) |
|
|
(2,441) |
|
|
(2,441) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Company's long-term debt were estimated using current market value rates for similar types of borrowing arrangements.
NOTE J - PENSION AND POSTRETIREMENT BENEFIT PLANS
The Company sponsors a 401(k) defined contribution plan covering substantially all associates. The Company sponsors two defined benefit retirement plans, one that covers a limited number of the Company's active associates and another that has been frozen since 1993 as to new benefits earned under the plan. The Company intends to terminate the frozen defined benefit plan.
The Company sponsors a postretirement benefit plan that provides life insurance to a limited number of associates as a result of a prior acquisition. The Company also sponsors a postretirement benefit plan that provides medical and life insurance for a limited number of associates. Effective January 1, 2003, benefits were no longer provided for associates under this plan that retired subsequent to that date.
The measurement date used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans is December 30 for each period presented.
Information about the benefit obligation, assets and funded status of the Company's defined benefit pension plans and postretirement benefit plans are as follows:
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Postretirement Benefits |
||||||||
|
|
|
|
2003 |
|
|
2002 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
||
|
Benefit obligation at beginning of year |
$ |
6,240 |
|
$ |
6,806 |
|
$ |
1,333 |
|
$ |
3,059 |
|
|
Service cost |
|
135 |
|
|
116 |
|
|
5 |
|
|
60 |
|
|
Interest cost |
|
371 |
|
|
405 |
|
|
100 |
|
|
173 |
|
|
Participant contributions |
|
--- |
|
|
--- |
|
|
88 |
|
|
57 |
|
|
Actuarial (gain) loss |
|
220 |
|
|
55 |
|
|
91 |
|
|
(626) |
|
|
Benefits paid |
|
(368) |
|
|
(1,142) |
|
|
(269) |
|
|
(234) |
|
|
Change in plan provisions |
|
--- |
|
|
--- |
|
|
--- |
|
|
(1,156) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
6,598 |
|
|
6,240 |
|
|
1,348 |
|
|
1,333 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
||
|
Fair value of plan assets at beginning of year |
2,028 |
|
|
2,364 |
|
|
--- |
|
|
--- |
||
|
Actual return on plan assets |
|
128 |
|
|
(434) |
|
|
--- |
|
|
--- |
|
|
Employer contributions |
|
2,030 |
|
|
1,240 |
|
|
181 |
|
|
177 |
|
|
Participant contributions |
|
--- |
|
|
--- |
|
|
88 |
|
|
57 |
|
|
Benefits paid |
|
(368) |
|
|
(1,142) |
|
|
(269) |
|
|
(234) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
3,818 |
|
|
2,028 |
|
|
--- |
|
|
--- |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status: |
|
(2,780) |
|
|
(4,212) |
|
|
(1,348) |
|
|
(1,333) |
||
|
Unrecognized prior service cost |
|
91 |
|
|
97 |
|
|
(1,068) |
|
|
(1,156) |
|
|
Unrecognized actuarial (gain) loss |
2,578 |
|
|
2,417 |
|
|
(397) |
|
|
(623) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
$ |
(111) |
|
$ |
(1,698) |
|
$ |
(2,813) |
|
$ |
(3,112) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the financial statements consist of: |
|
|
|
|
|
|
|||||||
|
Accrued benefit liability |
$ |
(2,744) |
|
$ |
(4,212) |
|
$ |
(2,813) |
|
$ |
(3,112) |
|
|
Accumulated other comprehensive income |
2,633 |
|
|
2,514 |
|
|
--- |
|
|
--- |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
$ |
(111) |
|
$ |
(1,698) |
|
$ |
(2,813) |
|
$ |
(3,112) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
$ |
6,598 |
|
$ |
6,240 |
|
|
|
|
|
|
||
Accumulated benefit obligation |
|
6,562 |
|
|
6,240 |
|
|
|
|
|
|
||
Fair value of plan assets |
|
3,818 |
|
|
2,028 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit allocation of plan assets: |
|
|
|
|
|
|
|
|
|
||||
|
Equity securities |
|
61.73% |
|
|
62.00% |
|
|
|
|
|
|
|
|
Debt securities |
|
36.93% |
|
|
36.69% |
|
|
|
|
|
|
|
|
Other |
|
1.34% |
|
|
1.31% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.00% |
|
|
100.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
There were no shares of the Company's Common Stock included in plan assets at December 27, 2003 or December 28, 2002. Retirement plan assets are invested in moderate risk investments with a strategy of maintaining a balanced investment portfolio of 60% equity instruments and 40% debt instruments. The investment strategy is geared toward a balance of capital growth and income. The Company expects to contribute $1,805 to its pension plan and $190 to its postretirement plan in 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Pension Benefits |
|
Postretirement Benefits |
||||||||
|
|
|
|
2003 |
|
|
2002 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average assumptions as of year-end: |
|
|
|
|
|
|
|
|
|
||||
|
Discount rate |
|
5.90% |
|
|
6.03% |
|
|
6.73% |
|
|
6.99% |
|
|
Expected return on plan assets |
|
7.50% |
|
|
7.50% |
|
|
0.00% |
|
|
0.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is currently using a 7.5% expected long-term rate of return on assets in the determination of pension cost. The rate of return considers the asset allocation strategy, historical returns, and expected future returns based on current and expected future market conditions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Postretirement Benefits |
||||||||||
|
|
|
2003 |
|
|
2002 |
|||||||
|
|
|
|
|
|
|
|||||||
Assumptions used and related effects of health care: |
|
|
|
|
|
|
|||||||
|
Health care cost trend assumed for next year |
|
|
|
|
9.00% |
|
|
8.00% |
||||
|
Rate to which the cost trend is assumed to decline |
|
|
5.50% |
|
|
5.50% |
||||||
|
Year that the rate reaches the ultimate trend rate |
|
|
|
2009 |
|
|
2007 |
|||||
|
Effect of 1% increase on postretirement benefit obligation |
|
$ |
25 |
|
$ |
13 |
||||||
|
Effect of 1% decrease on postretirement benefit obligation |
|
|
(9) |
|
|
(13) |
Costs charged to continuing operations for all pension plans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
||||||
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
||||
|
Defined benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
|
|
$ |
135 |
|
$ |
117 |
|
$ |
103 |
|
|
Interest cost |
|
|
|
|
154 |
|
|
192 |
|
|
157 |
|
|
Expected return on plan assets |
|
|
|
(80) |
|
|
(84) |
|
|
(79) |
|
|
|
Recognized net actuarial loss |
|
|
|
|
79 |
|
|
45 |
|
|
32 |
|
|
Settlement loss |
|
|
|
|
--- |
|
|
78 |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288 |
|
|
348 |
|
|
231 |
|
Defined contribution pension plan |
|
|
|
|
725 |
|
|
524 |
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
|
$ |
1,013 |
|
$ |
872 |
|
$ |
1,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Costs charged to continuing operations for all postretirement plans are summarized as follows: |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits |
||||||
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
||||
|
Defined benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
|
|
$ |
5 |
|
$ |
60 |
|
$ |
55 |
|
|
Interest cost |
|
|
|
|
100 |
|
|
173 |
|
|
221 |
|
|
Amortization of prior service costs |
|
|
(88) |
|
|
--- |
|
|
--- |
||
|
|
Recognized net actuarial loss |
|
|
|
|
(51) |
|
|
(52) |
|
|
(34) |
|
|
Settlement gains |
|
|
|
|
(83) |
|
|
(60) |
|
|
(59) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
|
$ |
(117) |
|
$ |
121 |
|
$ |
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE K - INCOME TAXES
The provision (benefit) for income taxes on income (loss) from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
7,114 |
|
$ |
2,672 |
|
$ |
1,945 |
|
|
State |
|
(138) |
|
|
177 |
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
$ |
6,976 |
|
$ |
2,849 |
|
$ |
2,180 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
(11,906) |
|
$ |
2,355 |
|
$ |
2,330 |
|
|
State |
|
(208) |
|
|
138 |
|
|
(223) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
$ |
(12,114) |
|
$ |
2,493 |
|
$ |
2,107 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current and deferred |
$ |
(5,138) |
|
$ |
5,342 |
|
$ |
4,287 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 basis of those assets and liabilities.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Significant components of the Company's deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
||
|
Property, plant and equipment |
|
|
|
$ |
10,102 |
|
$ |
28,853 |
|
|
Inventories |
|
|
|
|
49 |
|
|
1,823 |
|
|
Intangible assets |
|
|
|
|
843 |
|
|
1,889 |
|
|
Other |
|
|
|
|
6,051 |
|
|
3,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
|
|
17,045 |
|
|
35,711 |
||
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
||
|
Postretirement benefits |
|
|
|
|
4,799 |
|
|
5,443 |
|
|
Other employee benefits |
|
|
|
|
2,026 |
|
|
1,108 |
|
|
Losses from discontinued operations |
|
|
|
|
--- |
|
|
5 |
|
|
Alternative minimum tax |
|
|
|
|
--- |
|
|
2,204 |
|
|
Allowances for bad debts, claims and discounts |
|
|
1,716 |
|
|
3,621 |
|||
|
Other |
|
|
|
|
966 |
|
|
2,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
|
|
9,507 |
|
|
15,010 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
|
|
$ |
7,538 |
|
$ |
20,701 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax payments, net of income tax refunds (received), for continuing and discontinued operations were $2,869 in 2003, $(439) in 2002 and $(6,447) in 2001.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE L - COMMON STOCK AND EARNINGS PER SHARE
Holders of Class B Common Stock have the right to twenty votes per share on matters that are submitted to Shareholders for approval and to dividends in an amount not greater than dividends declared and paid on Common Stock. Class B Common Stock is restricted as to transferability and may be converted into Common Stock on a one share for one share basis. The Company's Charter also authorizes 200,000,000 shares of Class C Common Stock, $3 par value per share, and 16,000,000 shares of Preferred Stock. No shares of Class C Common Stock or Preferred Stock have been issued.
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations (1) |
$ |
(9,027) |
|
$ |
11,448 |
|
$ |
6,994 |
||
|
|
|
|
|
|
|
|
|
|
|
Denominator for calculation of basic earnings (loss) per share - weighted-average shares (2) |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
||
|
Stock options (3) |
|
--- |
|
|
44 |
|
|
25 |
|
|
Stock subscriptions (3) |
|
--- |
|
|
42 |
|
|
33 |
|
|
Restricted stock grants (3) |
|
--- |
|
|
12 |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for calculation of diluted earnings (loss) per share - weighted-average shares adjusted for potential dilution (2)(3) |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
||
|
Basic |
$ |
(0.77) |
|
$ |
0.98 |
|
$ |
0.60 |
|
|
Diluted |
$ |
(0.77) |
|
$ |
0.97 |
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
No adjustments needed in the numerator for diluted calculations. |
|
|
|
|
|||||
|
|
|
|
|
|
|||||
(2) |
Includes Common and Class B Common shares in thousands. |
|
|
|
|
|||||
|
|
|||||||||
(3) |
Because their effects are anti-dilutive, excludes shares under restricted stock plans and shares issuable under stock option, and stock subscription plans, whose grant price is greater than the average market price of Common Shares outstanding at the end of the relevant period, and excludes shares issuable on conversion of subordinated debentures into shares of Common Stock. Aggregate shares excluded were 1,059 in 2003, 3,089 shares in 2002 and 1,927 shares in 2001. |
NOTE M - STOCK PLANS
The Company's 2000 Incentive Stock Plan reserved 1,936,500 shares of Common Stock for sale or award to key associates or 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. In 2002, 620,973 options were granted that were exercisable within six to eight months from the date the options were granted. Options outstanding were granted at prices at or above market price on the date of grant.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
A summary of the option activity for the three years ended December 27, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Exercise
|
Weighted-Average
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2000 |
|
1,704,006 |
|
$ |
7.38 |
|
|
|
||
|
Cancelled |
|
(1,059,750) |
|
|
8.79 |
|
|
|
|
|
Forfeited |
|
(72,500) |
|
|
6.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2001 |
|
571,756 |
|
|
4.85 |
|
|
|
||
|
Granted at market price |
|
721,369 |
|
|
6.50 |
|
$ |
3.31 |
|
|
Granted above market price |
|
123,704 |
|
|
7.66 |
|
|
3.38 |
|
|
Forfeited |
|
(97,131) |
|
|
5.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 28, 2002 |
|
1,319,698 |
|
|
5.98 |
|
|
|
||
|
Exercised |
|
(122,933) |
|
|
5.70 |
|
|
|
|
|
Granted at market price |
|
32,500 |
|
|
3.88 |
|
|
1.91 |
|
|
Forfeited |
|
(93,108) |
|
|
5.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2003 |
|
1,136,157 |
|
$ |
5.96 |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at: |
|
|
|
|
|
|
|
|
||
|
December 29, 2001 |
|
294,006 |
|
$ |
5.56 |
|
|
|
|
|
December 28, 2002 |
|
804,197 |
|
|
6.32 |
|
|
|
|
|
December 27, 2003 |
|
790,674 |
|
|
6.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options at December 27, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.875 - $4.875 |
|
380,850 |
|
6.9 years |
|
$ |
4.26 |
|
|
|
5.750 - 7.660 |
|
755,307 |
|
7.2 years |
|
|
6.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.875 - $7.660 |
|
1,136,157 |
|
7.1 years |
|
$ |
5.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.875 - $4.875 |
|
138,875 |
|
|
|
|
$ |
4.29 |
|
|
5.750 - 7.660 |
|
651,799 |
|
|
|
|
|
6.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.875 - $7.660 |
|
790,674 |
|
|
|
|
$ |
6.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
In August 1996, the Company's Board of Directors adopted a stock ownership plan applicable to selected management of the Company for the purpose of encouraging each participant to make a significant investment in the Company's Common Stock. Pursuant to the plan, at December 27, 2003, 127,694 shares were subscribed at a weighted-average price of $8.86 per share, at December 28, 2002, 699,332 shares were subscribed at a weighted-average price of $7.19 per share, at December 29, 2001, 802,557 shares were subscribed at a weighted-average price of $6.76 per share. All shares were subscribed at prevailing market prices on the subscription date.
The Company also has a stock purchase plan which authorizes 108,000 shares of Common Stock for purchase by supervisory associates at the market price prevailing at the time of purchase. At December 27, 2003, 27,480 shares remained available for issue under the plan. Shares sold under this plan are held in escrow until paid for and are subject to repurchase agreements which gives the Company the right of first refusal at the time of a subsequent sale.
Comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
(16,954) |
|
$ |
4,565 |
|
$ |
517 |
||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
||
|
Unrealized gain (loss) on interest rate swap agreements, net
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of SFAS 133, net of tax of $579 |
--- |
|
|
--- |
|
|
(906) |
||
|
|
|
|
|
|
|
|
|
|
|
|
Change in additional minimum pension liability, net of tax of
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
$ |
(15,913) |
|
$ |
5,291 |
|
$ |
(2,700) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Components of accumulated other comprehensive loss, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Pension Liability |
Interest Rate Swaps |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2000 |
$ |
(545) |
$ |
--- |
$ |
(545) |
||||
|
|
|
|
|
|
|
|
|
|
|
Change in additional minimum pension liability,
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of SFAS 133, net of tax of
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swap
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2001 |
(1,305) |
(2,457) |
(3,762) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
Change in additional minimum pension liability,
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swap
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2002 |
(1,547) |
(1,489) |
(3,036) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
Change in additional minimum pension liability,
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swap
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Ineffective portion of interest rate swap
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2003 |
$ |
(1,632) |
$ |
(363) |
$ |
(1,995) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the next 12 months, the Company expects to reduce earnings by approximately $304, net of taxes to amortize the unrealized loss in "Accumulated other comprehensive loss" related to the interest rate swap agreement.
NOTE O - COMMITMENTS
The Company had commitments for purchase of machinery and equipment and information systems of approximately $4,408 at December 27, 2003.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The Company leases certain equipment under capital leases and certain buildings, machinery and equipment under operating leases. Commitments for minimum rentals under non-cancelable leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Operating |
|
|
|
|
|
|
|
Leases |
|
|
Leases |
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
$ |
1,859 |
|
$ |
1,857 |
|
|
2005 |
|
|
|
|
1,859 |
|
|
1,342 |
|
|
2006 |
|
|
|
|
1,833 |
|
|
1,140 |
|
|
2007 |
|
|
|
|
3,001 |
|
|
575 |
|
|
2008 |
|
|
|
|
--- |
|
|
463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments |
|
|
|
|
8,552 |
|
|
5,377 |
|
|
Less amounts representing interest |
|
|
|
|
(1,371) |
|
|
--- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments, excluding amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at December 27, 2003 includes machinery and equipment under capital leases which have cost and accumulated depreciation of $7,393 and $540, respectively.
The Company was a party to two operating leases with related parties that were assumed by the Company as part of acquisitions made in 1999 and 2000. Rent paid to related parties during 2002 and 2001 was approximately $1,029, and $997, respectively. There was no rent paid to related parties during 2003.
Rental expense in 2003, 2002 and 2001 was approximately $3,847, $5,395 and $5,463, respectively.
NOTE P - 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 market and manufacture carpet and rugs. The floorcovering base materials segment manufactures and sells yarn to external customers and transfers a significant portion of its unit volumes to the Company's carpet manufacturing segment.
The profit performance measure for the Company's segments is defined as internal EBIT (earnings before interest, taxes, and other non-segment items). Income from equity investees of $1,099 in 2003, $1,460 in 2002 and $1,096 in 2001 are reflected in the profit performance of the carpet manufacturing segment. Assets measured in each reportable segment include long-lived assets and goodwill, inventories at current cost, and accounts receivable (without reductions for receivables sold under the Company's former accounts receivable securitization program). The carrying amount of goodwill included in the carpet manufacturing segment was $52,598, $52,316 and $2,163 for years ended 2003, 2002 and 2001, respectively. The $282 increase in goodwill in 2003 was a result of net contingent payments associated with prior business combinations. The carrying amount of goodwill included in the floorcovering base materials segment was $1,047 for the year ended 2001.
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. Goodwill amortization expense in 2001 was $1,605 in the carpet manufacturing segment and $28 in the floorcovering base materials segment. Goodwill was not subject to amortization in 2003 and 2002.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Substantially all of the Company's sales were to domestic customers and substantially all assets were domestically based for the periods presented. Approximately 80% of the unit production volume of the Company's floorcovering base materials segment is sold to the Company's carpet manufacturing segment at cost. Intersegment sales from the Company's floorcovering base materials group to the Company's carpet manufacturing group were $57,249 in 2003, $58,602 in 2002 and $50,290 in 2001.
NOTE Q - IMPAIRMENTS AND OTHER CHARGES
Impairments and other charges were $21,073 for the year ended December 27, 2003. These charges were principally related to early extinguishments of debt and the write-down of assets impaired as a result of the sale of our North Georgia operations. $4,219 of the charges were cash prepayment penalties and fees related to debt retired with the sale proceeds and $800 related to success fees paid to management in connection with the sale transaction. $16,054 of the charges were non-cash, including $10,566 for impairments of long-lived assets and $5,488 to write-off deferred financing cost.
$9,427 of the $10,566 relates to computer systems to be replaced and $1,139 relates to certain machinery that no longer is utilized in the Company's business. The computer system was written down to its current economical value.
|
|
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|
|
|
|
|
|
|
|
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE DIXIE GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
|
|
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|
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||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additions Charged to Other Accounts-Described |
|
|
|
|
|
|
|
||||||||||||||||
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|
|
|
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|
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|
|
|
||||||||||||||||
Year ended December 27, 2003: |
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|
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|
|
|
|
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|
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|
|
|
|
||||||||||||||||||
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|
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|
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|
||||||||||||||||
Reserves deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Allowance for doubtful accounts |
$ |
3,290 |
|
$ |
444 |
|
$ |
--- |
|
$ |
2,425 |
(1) |
$ |
1,309 |
||||||||||||||||||
|
Provision to reduce inventories to net realizable value |
6,180 |
|
|
--- |
|
|
--- |
|
|
2,411 |
(2) |
|
3,769 |
|||||||||||||||||||
|
Provision to reduce assets held for sale to estimated fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Reserve for note receivable associated with discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
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|
|||||||||||||||||
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|
|
|
|
|
|
|
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|
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|
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|
|
|
||||||||||||||||
Year ended December 28, 2002: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Reserves deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Allowance for doubtful accounts |
$ |
2,524 |
|
$ |
1,257 |
|
$ |
--- |
|
$ |
491 |
(1) |
$ |
3,290 |
||||||||||||||||||
|
Provision to reduce inventories to net realizable value |
6,281 |
|
|
--- |
|
|
--- |
|
|
101 |
(2) |
|
6,180 |
|||||||||||||||||||
|
Provision to reduce assets held for sale to estimated fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Reserve for note receivable associated with discontinued
|
|
|
|
6,133 |
|
|
|
|
|
|
|
|
|
8,000 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Year ended December 29, 2001: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Reserves deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Allowance for doubtful accounts |
$ |
2,164 |
|
$ |
1,048 |
|
$ |
--- |
|
$ |
688 |
(1) |
$ |
2,524 |
||||||||||||||||||
|
Provision to reduce inventories to net realizable value |
6,894 |
|
|
--- |
|
|
--- |
|
|
613 |
(2) |
|
6,281 |
|||||||||||||||||||
|
Provision to reduce assets held for sale to estimated fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Reserve for note receivable associated with discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||
(1) |
Uncollectible accounts written off, net of recoveries |
|
|||||||||||||||||||||||||||||||
(2) |
Current year provision or reserve reductions for inventories sold. |
|
|
|
|||||||||||||||||||||||||||||
(3) |
Reserve reductions for assets sold. |
|
|
|
ANNUAL REPORT ON FORM 10-K
ITEM 15 (c)
EXHIBITS
* Commission File No. 0-2585.
** Indicates a management contract or compensatory plan or arrangement.
EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO THE CHARTER OF
THE DIXIE GROUP, INC.
Pursuant to Section 48-20-106 of the Tennessee Business Corporation Act, the undersigned corporation hereby submits the following Articles of Amendment stating as follows:
1. The name of the corporation is The Dixie Group, Inc.
2. The text of Part I, Section 3 of the Charter is amended to read as follows:
"3. The purpose of the Corporation is to engage in any lawful business for which Corporations may be organized under the Tennessee General Corporation Act."
3. The amendment was duly adopted by the Board of Directors of the corporation on May 1, 2003.
4. The amendment was duly adopted by the Shareholders of the corporation on May 1, 2003.
Dated this 27th day of May, 2003.
THE DIXIE GROUP, INC.
By:
/s/ Gary A. Hamon
Gary A. Harmon, Vice President and CFO
EXHIBIT 3.4
RESTATED CHARTER
OF
THE
DIXIE
YARNS,
GROUP,
INC.
UNDER SECTION 48-20-107 OF THE TENNESSEE BUSINESS CORPORATION ACT
Pursuant to the provisions of Section 48-20-107 of the Tennessee Business Corporation Act, the undersigned corporation, by its board of directors, adopts the following restated charter:
Part I:
1. The name of the Corporation is
THE
DIXIE
YARNS,
GROUP,
INC.
2. The address of the principal office of the Corporation in Tennessee is 1100 South Watkins Street, Chattanooga, Hamilton County, Tennessee 37404.
3. The
general nature of the business to be transacted by the corporation is manufacturing, mercerizing and processing yarns, and doing all things necessary or incidental thereto.
purpose of the Corporation is to engage in any lawful business for which Corporations may be organized under the Tennessee General Corporation Act.
4. The total amount of the capital stock of this corporation is 296,000,000 shares of common stock and 16,000,000 shares of Preferred Stock.
(a)(i) The common stock which the corporation shall have authority to issue shall consist of:
(1) 80,000,000 shares of Common Stock having $3 par value per share;
(2) 16,000,000 shares of Class B Common Stock having $3 par value per share; and
(3) 200,000,000 shares of Class C Common Stock having $3 par value per share.
(a)(ii) The preferred stock which the Corporation shall have authority to issue shall consist of 16,000,000 shares of Preferred Stock, issuable in series, the rights, preferences and powers of which shall be determined by the Board of Directors in the resolution or resolutions authorizing the issuance of such shares.
(b) The holders of Common Stock and Class B Common Stock shall have the same rights and privileges, except that:
(1) The holders of Common Stock and Class B Common Stock shall have the right to vote, but not as separate classes except to the extent required by law, upon all matters submitted to the stockholders of the corporation for consideration at any meeting of stockholders; provided, however, that (i) the holders of Common Stock shall be entitled to one vote per share and the holders of Class B Common Stock shall be entitled to twenty votes per share with respect to each matter to be voted upon, and (ii) in addition to any other vote required by law, the corporation may not alter or change, either by increase, diminution or otherwise, the relative rights, preferences, privileges, restrictions, dividend rights, voting power or other powers given to the holders of Common Stock and Class B Common Stock pursuant to this Article Fourth of this Charger other than by the affirmative vote of not less than two-thirds of all the votes entitled to be voted by the holders of each class of stock voting as a separate class, except that the corporation may increase the total number of shares of Common Stock or Class B Common Stock that may be issued by the corporation and may approve a merger, acquisition, sale or transfer of all or substantially all of the assets of the corporation, or any other such transaction by the affirmative vote of a majority of all the votes entitled to be voted by the holders of Common Stock and Class B Common Stock voting together without regard to class, as provided in subsection (i) above.
(2)(i) For the four year period immediately following the completion of the Corporation's Exchange Offer dated March 22, 1985, if a quarterly dividend is declared on the Class B Common Stock, a $.20 per share greater quarterly dividend shall be paid on the Common Stock; provided that should shares of Common Stock or Class B Common Stock be distributed to shareholders of the Corporation in the form of a dividend or split, then the amount per share of greater quarterly dividend required to be paid on the Common Stock by this Section shall be adjusted proportionately so that the effect thereof is to provide a $.20 per share greater quarterly dividend on the Common Stock outstanding prior to all of such stock dividends and stock splits.
(ii) No cash dividend or dividend of property or stock, other than stock of the corporation as provided for in subsection 2(iv) below, may be declared and paid, per share, on the Class B Common Stock unless a dividend of an equal or greater amount of cash or value of property or stock has been declared and paid, per share, on the Common Stock.
(iii) A dividend of cash, property or stock may be paid on the Common Stock without an equal or any dividend being paid on the Class B Common Stock.
(iv) A dividend of shares of Common Stock may be paid to holders of Common Stock only or to the holders of both Common Stock and Class B Common Stock if the number of shares paid per share to holders of Common Stock and Class B Common Stock shall be the same; a dividend of shares of Class B Common Stock may be paid to holders of Common Stock only or to holders of both Common Stock and Class B Common Stock if the number of shares paid per share to holders of Common Stock and Class B Common Stock shall be the same; and a dividend of shares may be declared and paid in Common Stock to holders of Common Stock and in Class B Common Stock to holders of Class B Common Stock, if the number of shares paid per share to holders of Common Stock and Class B Common Stock shall be the same.
(3) Shares of Class B Common Stock shall not be registered in "street" or "nominee" name, nor shall such shares be sold, assigned, transferred, pledged or otherwise disposed of except as provided in subparagraphs (i) and (ii) of this paragraph 3.
(i) A holder of shares of Class B Common Stock may sell, assign, give, bequeath or otherwise transfer all or part of said shares (a) to a co-owner; (b) to a trust for the benefit of the owner or owners; (c) to the owner's spouse or a trust for the benefit of the owner's spouse; (d) to the owner's brothers or sisters; (e) to the parents and issue, including adopted children, of the owner, or a trust or custodianship for the benefit of any such person; (f) if the owner is an estate or the personal representative thereof, a trust or trustee, guardian, custodian or similar entity, then to the beneficiary or beneficiaries thereof; and (g) to the corporation; and
(ii) Shares of Class B Common Stock may be pledged by the owner thereof, provided such shares shall not be transferred to or registered in the name of the pledgee and shall remain subject to the restrictions of this paragraph 3. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock may, at the option of the pledgee, be sold, transferred or otherwise disposed of only on behalf of the owner to those persons specified in subparagraph (i) of this paragraph 3 or after May 1, 1989 be converted into shares of Common Stock in accordance with the provisions of paragraph (4) of this Section (b).
For purposes of this paragraph 3, any sale, assignment, transfer or pledge incident to a merger, acquisition or other such transaction approved by the Board of Directors of the Corporation shall not be subject to the restrictions of this paragraph 3; provided, however, that any other sale, assignment, transfer or pledge occurring by operation of law, and any sale, assignment, transfer or pledge of the stock or any interest in a corporation, partnership or other entity which owns or holds shares of Class B Common Stock, whether or not such sale, assignment, transfer or pledge constitutes a transfer of control of such entity, shall be subject to the restrictions of this paragraph 3.
Any transfer or attempted transfer in contravention of the restrictions set forth in this paragraph 3 shall be void.
(4) From and after May 1, 1989, the outstanding shares of Class B Common Stock shall be convertible into fully paid and nonassessable shares of Common Stock at the option of the holders thereof on a one share for one share basis. In order for a stockholder to effect any such conversion, such stockholder must furnish the corporation with a written notice of the request for conversion, which notice shall be addressed to the principal office of the corporation or to the corporation's designated transfer agent, shall state the number of shares of Class B Common Stock to be converted into shares of Common Stock and shall be accompanied by a certificate or certificates, properly endorsed and ready for transfer. A conversion shall be deemed to be made on the close of business of the date when the corporation or transfer agent has received the prescribed written notice and required certificate or certificates, properly endorsed and ready for transfer.
(5) Except as provided in subsection (2)(iv) above, shares of Class B Common Stock outstanding at any time shall not be split or subdivided, whether by stock distribution, reclassification, recapitalization, or otherwise, so as to increase the number of shares thereof issued and outstanding unless at the same time the shares of Common Stock are split up or subdivided whether by stock distribution, reclassification, recapitalization, or otherwise, so that the number of shares thereof outstanding shall be proportionately increased in order to maintain the same proportionate equity ownership (i.e., the same proportion of shares held by each class) between the holders of Common Stock and Class B Common Stock as existed on the date following the date of issuance of the Class B Common Stock in exchange for shares of Common Stock as proposed in connection with this amendment of the Charter.
(6) Shares of Common Stock outstanding at any time shall not be reverse split or combined, whether by reclassification, recapitalization or otherwise, so as to decrease the number of shares thereof issued and outstanding unless at the same time the shares of Class B Common Stock are reverse split or combined so that the number of shares thereof outstanding shall be proportionately decreased in order to maintain the same proportionate ownership (i.e., the same proportion of shares held by each class) between the holders of Common Stock and Class B Common Stock as existed on the date following the date of issuance of the Class B Common Stock in exchange for shares of Common Stock as proposed in connection with this amendment of the Charter.
(7) In the event of a liquidation or dissolution of the corporation, or a winding up of its affairs, whether voluntary or involuntary, or a merger or consolidation of the corporation, after payment or provision for payment of the debts or liabilities of the corporation, holders of Common Stock and Class B Common Stock shall be entitled to share pro rata(i.e., an equal amount of assets distributed for each share of either Common Stock or Class B Common Stock) in the remaining assets of the corporation.
(c) Neither the Common Stock nor the Class B Common Stock shall be subject to redemption or call by the corporation nor shall the holders of such shares be entitled to preemptive rights with respect to the issuance of additional shares of Common Stock or Class B Common Stock.
(d) The holders of Class C Common Stock shall have the same rights and privileges as holders of Common Stock, and Class B Common Stock except that:
(i) The holders of Class C Common Stock shall have the right to vote, but not as a separate class except to the extent required by law, upon all matters submitted to the stockholders of the corporation for consideration at any meeting of stockholders; provided, however, that the holders of Class C Common Stock shall be entitled to 1/20th vote per share with respect to each matter to be voted upon;
(ii) If any cash dividend or dividend of property or stock, other than stock of the corporation as provided for in subsection (d)(iii) below, shall be declared and paid, per share, on the Common Stock, then a dividend of an equal amount of cash or value of property or stock shall be declared and paid, per share, on the Class C Common Stock; and no cash dividend or dividend of property or stock, other than as provided for in subsection (d)(iii) below, may be declared and paid, per share, on the Class C Common Stock, unless a dividend of an equal amount of cash or value of property or stock has been declared and paid, per share, on the Common Stock; and provided that if any cash dividend or dividend of property or stock, other than as provided for in subsection (d)(iii) below, shall be declared and paid, per share, on the Class B Common Stock, then a dividend of an equal or greater amount of cash or value of property or stock shall be declared and paid, per share, on the Class C Common Stock;
(iii) If any dividend of shares of any class of common stock is paid to holders of Common Stock, or to holders of Class B Common Stock in the event that there is no Common Stock outstanding, then an equal dividend of shares of such common stock shall be paid to holders of Class C Common Stock; provided, however, that if any dividend of shares of Common Stock is declared and paid to holders of Common Stock and in Class B Common Stock to holders of Class B Common Stock, then an equal dividend of shares of Class C Common Stock shall be paid to holders of Class C Common Stock and if any dividend of shares of Class C Common Stock is declared and paid to holders of Class B Common Stock then an equal dividend of shares of Class C Common Stock shall be declared and paid to holders of Common Stock and Class C Common Stock; and provided further that if only shares of Class B Common Stock and Class C Common Stock are outstanding and a dividend of shares of Class B Common Stock is paid to holders of Class B Common Stock, then an equal dividend of shares of Class C Common Stock or Common Stock may be paid to holders of Class C Common Stock;
(iv) Except as provided in subsection (d)(iii) above, if shares of Common Stock and Class B Common Stock outstanding at any time are split or subdivided, whether by stock distribution, reclassification, recapitalization, or otherwise, so as to increase the number of shares thereof issued and outstanding, then the shares of Class C Common Stock shall be split or subdivided, whether by stock distribution, reclassification, recapitalization, or otherwise, so that the number of shares thereof outstanding shall be proportionately increased in order to maintain the same proportionate equity ownership (i.e., the same proportion of shares held by each class) among the holders of Common Stock, Class B Common Stock and Class C Common Stock as existed on the date hereof; similarly, if shares of Class C Common Stock shall be split or subdivided in any manner, then all other outstanding classes of common stock shall be proportionately split or subdivided;
(v) If shares of Common Stock and Class B Common Stock outstanding at any time are reverse split or combined, whether by reclassification, recapitalization or otherwise, so as to decrease the number of shares thereof issued and outstanding, then the shares of all other classes of common stock shall be reverse split or combined so that the number of shares thereof outstanding shall be proportionately decreased in order to maintain the same proportionate ownership (i.e., the same proportion of shares held by each class) between the holders of Common Stock, Class B Common Stock and Class C Common Stock as existed on the date hereof; similarly, if shares of Class C Common Stock are reverse split or combined in any manner, all other outstanding classes of common stock shall be proportionately reverse split or combined;
(vi) In the event of a liquidation or dissolution of the corporation, or a winding up of its affairs, whether voluntary of involuntary, or a merger or consolidation of the corporation, after payment or provision for payment of the debts or liabilities of the corporation, holders of Class C Common Stock shall be entitled to share pro rata in the remaining assets of the corporation with the holders of all other outstanding classes of common stock.
(e) The Class C Common Stock shall not be subject to redemption or call by the corporation nor shall the holders of such shares be entitled to preemptive rights with respect to the issuance of additional shares of Common Stock, Class B Common Stock, or Class C Common Stock.
5. The amount of capital stock with which this corporation will continue business shall be its present capital and surplus, the capital stock of which has been unimpaired.
6. The time of existence of this Corporation shall be perpetual.
7. Holders of Common Stock shall not have the right to subscribe pro rata according to their holdings for any unissued Common Stock which the corporation proposes to issue.
8. To the fullest extent now or hereafter provided by Tennessee law, no director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, provided that unless and to the extent so provided by Tennessee law, such provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the Corporation or its shareholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (c) under Section 48-18-304 of the Tennessee Code. This provision shall not eliminate or limit the liability of a director for any act of omission occurring prior to the date that it becomes effective.
9. The Corporation's registered agent for service of process is Thomas C. Robinson, Jr., 1100 South Watkins Street, Chattanooga, Hamilton County, Tennessee 37404.
10. The Corporation is a for-profit corporation.
Part II:
1. The date the original charter was filed by the Secretary of State was July 25, 1932.
2. The restated charter restates the text of the charter as amended theretofore, without making any further amendment or change except as provided below, and was duly authorized at a meeting of the directors on August 10, 1989.
a. Article 9 of the Charter was added to identify the Corporation's registered agent.
b. Article 10 of the Charter was added to state that the Corporation is for profit.
EXHIBIT 4.11
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement") is made and entered into as of November 12, 2003, by and among THE DIXIE GROUP, INC. , a Tennessee corporation ("Borrower"), each of the subsidiaries of Borrower as guarantors ("Guarantors"), FLEET CAPITAL CORPORATION , a Rhode Island corporation ("Agent"), in its capacity as collateral and administrative agent for the Lenders (as defined in the Loan Agreement referenced below); CONGRESS FINANCIAL CORPORATION (SOUTHWEST) , as successor to Congress Financial Corporation (Southern), as Co-Agent ("Co-Agent"); and Lenders.
Recitals :
Lenders, Agent, Co-Agent, Guarantors and Borrowers are parties to a certain Loan and Security Agreement dated May 14, 2002, as amended (as at any time amended, the "Loan Agreement"), pursuant to which Lenders agreed to make certain loans and other extensions of credit to Borrower from time to time, subject to the terms and conditions contained therein.
Borrower has entered into a certain Asset Purchase Agreement, dated as of September 4, 2003 (the "Purchase Agreement"), among Borrower, Candlewick Yarns, Inc., Bretlin, Inc. and Dixie Group Logistics, Inc. (collectively, "Sellers") and Shaw Industries Group, Inc. ("Purchaser"), pursuant to which Sellers have agreed to sell, transfer, assign and deliver certain assets and liabilities of Sellers with respect to their North Georgia operations (the "Asset Sale"), and Purchaser has agreed to purchase such assets and assume such liabilities, all subject to certain conditions as contained in the Purchase Agreement, including the consent of Agent and Lenders.
In connection with the transactions contemplated by the Purchase Agreement, the parties desire to amend the Loan Agreement as hereinafter set forth, subject to the conditions contained herein.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions . All capitalized terms used in this Agreement, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Loan Agreement.
2. Amendments to Loan Agreement . The Loan Agreement is hereby amended as follows:
(a) By deleting Section 9.1.12 of the Loan Agreement in its entirety and by substituting the following in lieu thereof:
" Reserved ."
(b) By deleting Section 9.2.7 of the Loan Agreement in its entirety and by substituting the following new Section 9.2.7 in lieu thereof:
9.2.7 Distributions . Declare or make any Distributions, except for (i) Upstream Payments, and (ii) so long as each of the Distribution Conditions are satisfied, (x) repurchases of Equity Interests in Borrower (other than the Specified Equity Interests) not in excess of $500,000 per Fiscal Year, and (y) repurchases consummated on or before November 11, 2004 of the Specified Equity Interests, provided that in no event shall any Distributions permitted under this clause (y) exceed $10,000,000.
(c) By adding the following proviso to the end of Section 9.2.9 of the Loan Agreement:
provided , that , the GE Lease and the conversion of the GE Lease into a capital lease shall not be deemed Capital Expenditures for purposes of this covenant nor subject to the limitation contained herein.
(d) By amending the Fixed Charge Coverage Ratio that is set forth in Section 9.3.1 of the Loan Agreement to provide that the required ratio for the twelve months ended as of the last day of the Fiscal Quarter ending December 31, 2003 shall not be less than 0.85 to 1.0, not 1.1 to 1.0.
(e) By deleting the Interest Coverage Ratio financial covenant that is contained in Section 9.3.5 of the Loan Agreement in its entirety and by substituting the following in lieu thereof:
" Reserved "
(f) By deleting the definition of "Fixed Charge Coverage Ratio" from Appendix A to the Loan Agreement and by substituting the following new definition in lieu thereof:
Fixed Charge Coverage Ratio - for any period, the ratio of (i) Borrower's EBITDA for such period minus Borrower's Capital Expenditures for such period, minus Borrower's cash income taxes for such period (but excluding the effect of income tax refunds with respect to prior fiscal periods), minus Distributions made during such period other than Distributions to purchase or redeem the Specified Equity Interests, minus the effect of income taxes relating to any one-time gain from any sale of assets, to (ii) regularly scheduled payments of principal and interest on Borrower's Funded Debt due during such period; provided that expenditures for fixed assets recorded as a result of the GE Lease shall not be included in the definition of Capital Expenditures for purposes of this covenant.
(g) By adding the following new definitions to Appendix A to the Loan Agreement, in proper alphabetical sequence:
Distribution Conditions - the following conditions, the satisfaction of each of which shall be a condition to any Distribution under Section 9.2.7(ii) hereof:
(i) No Default or Event of Default exists at the time of such payment or would result therefrom;
(ii) Borrower is Solvent at the time of and after giving effect to such payment; and
(iii) At the time of and after giving effect to any such Distribution, Availability is not less than $10,000,000.
GE Lease - that certain Master Lease Agreement (Off Balance Sheet - Synthetic) dated October 14, 2003, between Borrower and General Electric Capital Corporation in the original principal amount of $9,482,424.98.
Specified Equity Interests - Equity Interests of Borrower, including the approximately 900,000 shares of common stock of Borrower maintained in Borrower's Plan, that may be liquidated by the Plan trustee to facilitate payment of benefits under the Plan to employees terminated in connection with the Asset Sale.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal, and delivered by their respective duly authorized officers on the date first written above.
FLEET CAPITAL CORPORATION ,
as Agent and a Lender
By:
/s/ Elizabeth L. Waller
Title: Senior Vice President
CONGRESS FINANCIAL
CORPORATION (SOUTHWEST) ,
as Co-Agent and a Lender
By:
/s/ Mark Glovic Jr.
Title: Vice President
LASALLE BUSINESS CREDIT, LLC ,
successor by merger to LaSalle Business Credit,
Inc., as a Lender
By:
/s/ Joseph Fudacz
Title: Senior Vice President
WELLS FARGO FOOTHILL, INC.
(formerly known as Foothill Capital Corporation),
as a Lender
By:
/s/ Claudia Hughes
Title: Assistant Vice President
ACCEPTED AND AGREED TO :
THE DIXIE GROUP, INC.
("Borrower")
By:
/s/ Gary A. Harmon
Title: Vice President and Chief Financial Officer
FABRICA INTERNATIONAL, INC. ,
formerly known as Fabrica International
("Guarantor")
By:
/s/ Gary A. Harmon
Title: Vice President
BRETLIN, INC.
("Guarantor")
By:
/s/ Gary A. Harmon
Title: Vice President
CANDLEWICK YARNS, INC.
("Guarantor")
By:
/s/ Gary A. Harmon
Title: Vice President
CHROMA TECHNOLOGIES, INC.
("Guarantor")
By:
/s/ Gary A. Harmon
Title: President
DIXIE GROUP LOGISTICS, INC.
("Guarantor")
By:
/s/ Gary A. Harmon
Title: Vice President
MASLAND CARPETS, LLC
("Guarantor")
By:
/s/ Gary A. Harmon
Title: Vice President
MASTER LEASE AGREEMENT
(OFF BALANCE SHEET - SYNTHETIC)
THIS MASTER LEASE AGREEMENT, dated as of October 14, 2003 ("Agreement"), between General Electric Capital Corporation, with an office at 1000 Windward Concourse, Suite 403, Alpharetta, Georgia 30005 (hereinafter called, together with its successors and assigns, if any, "Lessor"), and THE DIXIE GROUP, INC., a Corporation organized and existing under the laws of the State of Tennessee (the "State") with its mailing address and chief place of business at 185 S. Industrial Blvd.; Calhoun, Georgia 30701 (hereinafter called "Lessee").
WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment and the property ("Equipment") described in Annex A to any schedule hereto ("Schedule"). Terms defined in a Schedule and not otherwise defined herein shall have the meanings ascribed to them in such Schedule.
(b) The obligation of Lessor to lease the Equipment to Lessee under any Schedule shall be subject to receipt by Lessor, prior to the Lease Commencement Date (with respect to such Equipment), of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a evidence satisfactory to Lessor of ownership of the Equipment, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. As a further condition to such obligations of Lessor, Lessee shall execute and deliver to Lessor a Certificate of Acceptance (in the form of Annex C to the applicable Schedule) covering such Equipment Upon execution by Lessee of any Certificate of Acceptance, the Equipment described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder and Lessee's right to use the Equipment shall commence on the date of execution by Lessee of the Certificate of Acceptance for such Equipment ("Lease Commencement Date"). The term of this Agreement shall be the period specified in the applicable Schedule. If any term is extended, the word "term" shall be deemed to refer to all extended terms, and all provisions of this Agreement shall apply during any extended terms, except as may be otherwise specifically provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except as otherwise directed by Lessor. Payments of rent shall be in the amount set forth in, and due in accordance with, the provisions of the applicable Schedule. If one or more Advance Rentals are payable, such Advance Rental shall be (i) set forth on the applicable Schedule, (ii) due upon acceptance by Lessor of such Schedule, and (iii) when received by Lessor, applied to the first rent payment and the balance, if any, to the final rental payment(s) under such Schedule. In no event shall any Advance Rental or any other rent payments be refunded to Lessee. If rent is not paid within ten days of its due date, Lessee agrees to pay a late charge of five cents ($0.05) per dollar on, and in addition to, the amount of such delinquent rent but not exceeding the lawful maximum, if any.
III. Intentionally Deleted.
IV. TAXES: Lessee shall have no liability for taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall report (to the extent that it is legally permissible) and pay promptly all other taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or the purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rentals or receipts hereunder), any Schedule, Lessor or Lessee by any foreign, federal, state or local government or taxing authority during or related to the term of this Agreement, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (all hereinafter called "Taxes"). Lessee shall (i) reimburse Lessor upon receipt of written request for reimbursement for any Taxes charged to or assessed against Lessor, (ii) on request of Lessor, submit to Lessor written evidence of Lessee's payment of Taxes, (iii) on all reports or returns show the ownership of the Equipment by Lessor, and (iv) send a copy thereof to Lessor.
V. REPORTS:
(a) Lessee will notify Lessor in writing, within ten days after any tax or other lien shall attach to any Equipment, of the full particulars thereof and of the location of such Equipment on the date of such notification.
(b) Lessee will within 95 days of the close of each fiscal year of Lessee, deliver to Lessor, Lessee's balance sheet and profit and loss statement, certified by a recognized firm of certified public accountants. Upon request Lessee will deliver to Lessor quarterly, within 95 days of the close of each fiscal quarter of Lessee, in reasonable detail, copies of Lessee's quarterly financial report certified by the chief financial officer of Lessee. Lessee may satisfy the foregoing obligations by providing copies of its filed Form 10-K and Form 10-Q.
(c) Lessee will permit Lessor to inspect any Equipment during normal business hours.
(d) Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will promptly notify Lessor of any relocation of Equipment. The foregoing notwithstanding, Lessee may relocate the Equipment to other facilities operated by it or by its wholly-owned subsidiaries within the continental United States; provided, Lessee (i) promptly notifies Lessor in writing of the new location, (ii) delivers to Lessor prior to relocation any instruments or documents reasonably required to protect the interest of Lessor in the Equipment, including without limitation, UCC filings, and landlord or mortgagee waivers with respect to the new location, and (iii) indemnifies and holds harmless Lessor from any additional tax, fees or other charges resulting from the relocation of the Equipment. Upon the written request of Lessor, Lessee will notify Lessor forthwith in writing of the location of any Equipment as of the date of such notification.
(e) Lessee will promptly and fully report to Lessor in writing if any Equipment is lost or damaged (where the estimated repair costs would exceed 10% of its then fair market value), or is otherwise involved in an accident causing personal injury or property damage.
(f) Within 60 days after any request by Lessor, Lessee will furnish a certificate of an authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default (as described in Section XIV) or event which with notice or lapse of time (or both) would become such a default.
(g) Lessee will promptly notify Lessor of any change in Lessee's state of incorporation or organization.
VI. CONTROL AND OPERATION:
(a) Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable federal, state, and local laws and regulations.
(b) EXCEPT AS PROVIDED IN SUBPARAGRAPH (1) BELOW, LESSEE SHALL NOT ASSIGN, ENCUMBER OR TRANSFER, OR IN ANY WAY DISPOSE, THE EQUIPMENT OR OF ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER THIS LEASE OR ANY SCHEDULE OR ENTER INTO ANY SUBLEASE OF ALL OR ANY PORTION OF ANY EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.
(1) Sublease . So long as (i) no Default or Event of Default shall have occurred and be continuing, and (ii) Lessee complies with the provisions of this Section VI (b), Lessee may sublease the Equipment to a wholly-owned subsidiary of Lessee (a "Permitted Sublessee"), provided that each of the following conditions is satisfied prior to any subleasing pursuant to this Section VI(b):
(i) a sublease to a Permitted Sublessee ("Permitted Sublease") shall (A) not contain terms inconsistent with the terms of this Lease except that it may impose additional or more stringent obligations on any Permitted Sublessee than are imposed on Lessee under this Lease; (B) provide that no further subleases of the Equipment by such Permitted Sublessee shall be permitted; (C) provide that in no event shall the term of the Permitted Sublease extend beyond the Expiration Date;
(ii) the Permitted Sublease shall provide that, (A) the Permitted Sublease is subject and subordinate to this Agreement in all respects, and the rights of the Permitted Sublessee under the Permitted Sublease are subject and subordinate in all respects to the rights of Lessor under this Lease; (B) prior to delivery of the Equipment to the Permitted Sublessee the Permitted Sublessee shall provide an acknowledgement to Lessor in form and substance satisfactory to Lessor, confirming its agreement to this Section VI(c) and confirming that its rights to possession of the Equipment under the Permitted Sublease will terminate immediately, and that it will redeliver the Equipment immediately to Lessor upon notification from Lessor, that an Event of Default has occurred and is continuing and that Lessor has, as a result thereof, terminated Lessee's right to possession of the Equipment under this Lease (the "Subordination Acknowledgement"); (C) Lessee may terminate such Permitted Sublease following the occurrence of an Event of Default under this Lease where Lessor has terminated the leasing of the Equipment under this Lease as a result thereof; (D) upon notice by Lessor or Lessee to the Permitted Sublessee of an Event of Default by Lessee under the Lease, all payments under the Permitted Sublease shall be made to the Lessor;
(iii) Lessee shall grant to Lessor an assignment by way of security interest in favor of Lessor in Lessee's right, title and interest under the Permitted Sublease (and any security interest in the subleased Equipment granted to the Lessee thereunder), in form and substance satisfactory to Lessor. Lessee shall cause the Permitted Sublessee to deliver to Lessor an acknowledgment of such security interest. Such acknowledgment shall be in form and substance acceptable to Lessor;
(iv) Lessee shall remain primarily liable for the performance of its obligations under this Lease to the same extent as if no Permitted Sublease had been entered into; to the extent that the Permitted Sublessee properly (in the sole judgment of the Lessor) performs a non-monetary obligation under the Permitted Sublease, Lessor agrees that such performance shall discharge Lessee's corresponding obligation under this Lease;
(v) Lessee and each Permitted Sublessee shall cooperate with Lessor in connection with the execution and filing of any documents (including Uniform Commercial Code financing statements naming permitted Sublessee, as debtor, Lessee, as secured party, and Lessor, as assignee) required by Lessor to be executed and filed from time to time with any governmental agency, registry or authority in order to protect the interests of Lessor in the Equipment, this Lease, any Permitted Sublease and/or to ensure the validity, enforceability or priority thereof; Lessee shall be responsible for the costs of any such filings;
(vi) Lessee will pay to Lessor on demand all reasonable out of pocket expenses payable or incurred by Lessor in connection with the review and approval of any documentation required in connection with the subleasing of the Equipment; and
(vii) promptly after its execution, Lessee shall provide Lessor with the executed original of the Permitted Sublease with constitutes the chattel paper copy so that possession thereof perfects a security interest in such chattel paper under the Uniform Commercial Code.
(c) Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor.
VII. SERVICE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment in good operating order, repair, condition and appearance in accordance with manufacturer's recommendations, normal wear and tear excepted. Lessee shall, if at any time requested by Lessor, affix in a prominent position on each unit of Equipment plates, tags or other identifying labels showing ownership thereof by Lessor.
(b) Lessee will not, without the prior consent of Lessor, affix or install any accessory, equipment or device on any Equipment if such addition will impair the originally intended function or use of such Equipment. All additions, repairs, parts, supplies, accessories, equipment, and devices furnished, attached or affixed to any Equipment which are not readily removable shall be made only in compliance with applicable law, including Internal Revenue Service guidelines, and shall become the property of Lessor. Lessee will not, without the prior written consent of Lessor and subject to such conditions as Lessor may impose for its protection, affix or install any Equipment to or in any other personal or real property.
(c) Any alterations or modifications to the Equipment that may, at any time during the term of this Agreement, be required to comply with any applicable law, rule or regulation shall be made at the expense of Lessee.
VIII. STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in writing if any unit of Equipment shall be or become worn out, lost, stolen, destroyed, irreparably damaged in the reasonable determination of Lessee, or permanently rendered unfit for use from any cause whatsoever (such occurrences being hereinafter called "Casualty Occurrences"). On the rental payment date next succeeding a Casualty Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (x) the Stipulated Loss Value of such unit calculated as of the rental next preceding such Casualty Occurrence ("Calculation Date"); and (y) all rental and other amounts which are due hereunder as of the Payment Date. Upon payment of all sums due hereunder, the term of this lease as to such unit shall terminate and , any right, title or interest of Lessor in and to such unit shall be transferred to Lessee on an AS-IS WHERE IS basis without warranty, and Lessee shall be entitled to all applicable insurance proceeds.
IX. LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever.
X. INSURANCE: Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may require, including, but not limited to, insurance for damage to or loss of such Equipment and liability coverage for personal injuries, death or property damage, with Lessor named as additional insured and with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee. All such policies shall be with companies, and on terms, satisfactory to Lessor. Lessee agrees to deliver to Lessor evidence of insurance satisfactory to Lessor. No insurance shall be subject to any co-insurance clause. Physical damage insurance will have a $250,000.00 deductible, and Lessee will consult with Lessor before any increase in such deductible amount. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with payments made as a result of such insurance policies. Any expense of Lessor in adjusting or collecting insurance shall be borne by Lessee. Lessee will not make adjustments with insurers except (i) with respect to claims for damage to any unit of Equipment where the repair costs do not exceed 10% of such unit's fair market value, or (ii) with Lessor's written consent. Said policies shall provide that the insurance may not be altered or cancelled by the insurer until after thirty (30) days written notice to Lessor. Provided no default has occurred and is continuing, Lessee shall have the right to adjust all claims and to deal with all carriers with respect to claims; Lessor may , at its option, apply proceeds of insurance, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) to satisfy any obligation of Lessee to Lessor hereunder.
XI. EARLY TERMINATION OPTION
So long as no default has occurred and is continuing hereunder, Lessee shall have the right to terminate any Schedule to the Lease with respect to all but not less than all of the Equipment on or after the First Termination Date (specified in the applicable Schedule), as of a rent payment date ("Early Termination Date") upon at least 90 days prior written notice to Lessor.. On the Early Termination Date, Lessee shall pay to Lessor (a) the Prepayment Penalty stipulated on the applicable Schedule, plus (b) the "Early Purchase Option Price" which shall be equal to the Stipulated Loss Value corresponding to the Early Termination Date times the Lessor's Capitalized Cost, plus (c) all Rent for such Equipment due and unpaid as of, together with Rent accrued through, the Early Termination Date, plus (d) all taxes, including, but not limited to, sales and transfer taxes due in connection with such sale, plus (e) all other sums then due and payable under the Lease by Lessee. (the total amounts in each event shall be referred to as the "Early Termination Price"). Upon Lessor's receipt of the Early Termination Price, the lease of such Equipment shall terminate and Lessor, via a bill of sale and/or other reasonably necessary documentation, shall transfer to Lessee all of Lessor's right, title and interest in and to such Equipment. The transfer of Lessor's right, title and interest in and to such Equipment to Lessee shall be on an "AS-IS, WHERE-IS" basis, and as except as expressly provided herein, with no representations or warranties (express or implied) as to any matter whatsoever. Anything in this Section XI notwithstanding, if the Lessor does not receive the Early Termination Price on the Early Termination Date according to the terms of this Section XI then this Lease shall continue in effect according to its terms.
XII. END OF LEASE TERM OPTIONS .
Unless Lessee has exercised its Early Termination Option pursuant to Section XI hereof, upon the expiration of the term of this Agreement with respect to any Schedule, Lessee must elect to do one of the following:
(a) Extension . Upon the expiration of the Basic Term of any Schedule, to renew the Agreement with respect to all, but not less than all, of the Equipment leased thereunder for an addition term of twelve (12) months (the "Renewal Term") at a lease rate factor based on an interest rate per annum equal to 550 basis points over the then current yield to maturity of U.S. Treasury Notes having a one year maturity. The equal monthly payment shall be sufficient to fully repay any unpaid portion of the Capitalized Lessor's Cost in twelve installments. At the end of the Renewal Term, provided that Lessee is not then in default under this Agreement or any other agreement between Lessor and Lessee, Lessee shall purchase all, and not less than all, of such Equipment for $1.00 cash, together with all rent and other sums then due on such date, plus all taxes and charges upon transfer and all other reasonable and documented expenses incurred by Lessor in connection with such transfer. Upon satisfaction of the conditions specified in this Paragraph (a), Lessor will transfer, on an AS IS BASIS, without recourse or warranty, express or implied, of any kind whatsoever, all of Lessor's interest in and to the Equipment. Lessor shall not be required to make and may specifically disclaim any representation or warranty as to the condition of the Equipment and any other matters.
(b) Return . Return all (but not less than all) of the Equipment, which has not otherwise been terminated in accordance with the terms hereof, to Lessor upon the following terms and conditions: (i) pay to Lessor on the last day of the initial term of this Agreement with respect to an individual Schedule (in addition to the scheduled rent due on such date and all other sums due hereunder) a return fee equal to the Return Percentage as shown on the applicable Schedule times Capitalized Lessor's Cost (as stated in such Schedule) of such Equipment and (ii) return the Equipment to Lessor in accordance with the terms of Section XIII hereof. Thereafter, Lessor and Lessee will arrange for the commercially reasonable sale, scrap or other disposition of such Equipment. The proceeds of any such sale or other disposition, if any, shall be paid directly to the Lessor and applied as follows: (1) firstly, to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (2) secondly, to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee under (i) above; then (3) thirdly, to pay to Lessee the Guaranteed Residual Amount of such Equipment, which shall be equal to the Guaranteed Residual Percentage as shown in the applicable Schedule times the Capitalized Lessor's Cost, then (4) any surplus remaining after deduction of (1), (2) and (3) shall be paid to Lessee. Lessor shall promptly pay any deficiency resulting from the difference between the remaining amount of the proceeds (after deduction of (1) and (2)) and the Guaranteed Residual Amount . All calculations under this Section XII hereof shall be made on an aggregate basis with respect of all of the Equipment described on the applicable Schedule.
(c) Purchase . Purchase on an AS IS BASIS all (but not less than all) of the Equipment, which has not otherwise been terminated in accordance with the terms hereof, from Lessor for an amount equal to the Fixed Purchase Price determined as hereinafter provided. The Fixed Purchase Price of the Equipment shall be an amount equal to the Return Percentage as shown on the applicable Schedule times the Capitalized Lessor's Cost of such Equipment (as specified on the applicable Schedule); together with all rent and other sums due on such date, plus all taxes and charges upon sale and all other reasonable expenses incurred by Lessor in connection with such sale.
XIII. RETURN OF EQUIPMENT
(a) Should Lessee elect to return the Equipment to Lessor upon any expiration or termination of this Agreement or any Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any testing and repairs required to place the affected units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for their originally intended purpose; (ii) if deinstallation, disassembly or crating is required, cause such units to be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is satisfactory to Lessor; and (iii) return such units to a location within the continental United States as Lessor shall direct.
(b) Until Lessee has fully complied with the requirements of Section XIII (a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term. Lessor may terminate such continued leasehold interest upon ten (10) days notice to Lessee.
XIV. DEFAULT:
(a) Lessor may in writing declare this Agreement in default if: (i) Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within ten (10) days; (ii) Lessee breaches any of its insurance obligations under Section X; (iii) Lessee breaches any of its other obligations and fails to cure that breach within thirty (30) days after written notice from Lessor; (iv) any representation or warranty made by Lessee in connection with this Agreement shall be false or misleading in any material respect; (v) Lessee or any guarantor or other obligor for the Lessee's obligations hereunder ("Guarantor") becomes insolvent or ceases to do business as a going concern; (vi) any Equipment is illegally used; (vii) if Lessee or any Guarantor is a natural person, any death or incompetency of Lessee or such Guarantor; (viii) a petition is filed by or against Lessee or any Guarantor under any bankruptcy or insolvency laws and in the event of an involuntary petition, the petition is not dismissed within forty-five (45) days of the filing date; (ix) Lessee defaults under any other material obligation for (A) borrowed money, (B) the deferred purchase price of property, or (C) payments due under lease agreements; or (x) there is any dissolution, termination of existence, merger, consolidation or change in controlling ownership of Lessee or any Guarantor . The default declaration shall apply to all Schedules unless specifically excepted by Lessor.
(b) After default, Lessee shall, within ten (10) days of written demand, forthwith pay to Lessor (A) as liquidated damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the rental next preceding the declaration of default), plus (B) all rentals and other sums then due hereunder; and (C) the Prepayment Premium; and upon timely payment in full of the foregoing sums, any right, title or interest of Lessor in and to such unit shall be transferred to Lessee on an AS-IS WHERE IS basis without warranty. If Lessee fails to pay the foregoing sums in full within the time required above, (i) at the request of Lessor, Lessee shall comply with the provisions of Section XIII (ii) Lessee hereby authorizes Lessor to enter, with or without legal process, any premises where any Equipment is believed to be and take possession thereof; and (iii) Lessor may, but shall not be required to, sell Equipment at private or public sale, in bulk or in parcels, with or without notice, and without having the Equipment present at the place of sale; or Lessor may, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Equipment; and Lessor may use Lessee's premises for any or all of the foregoing without liability for rent, costs, damages or otherwise. The proceeds of sale, lease or other disposition, if any, shall be applied in the following order of priorities: (1) to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (2) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee hereunder; then (3) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (4) any surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and (2) forthwith.
(c) The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising. Lessee shall pay reasonable attorney's fees incurred by Lessor. Waiver of any default shall not be a waiver of any other or subsequent default.
(d) Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement.
XV. ASSIGNMENT: Lessor may assign this Agreement or any Schedule. Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever; however, no assignment shall waive, release or terminate any then existing rights Lessee may have against Lessor.
XVI. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's obligation to pay rent and other amounts due hereunder shall be absolute and unconditional. Lessee shall not be entitled to any abatement or reductions of, or set-offs against, said rent or other amounts, including, without limitation, those arising or allegedly arising out of claims (present or future, alleged or actual, and including claims arising out of strict tort or negligence of Lessor) of Lessee against Lessor under this Agreement or otherwise. Nor shall this Agreement terminate or the obligations of Lessee be affected by reason of any defect in or damage to, or loss of possession, use or destruction of, any Equipment from whatsoever cause. It is the intention of the parties that rents and other amounts due hereunder shall continue to be payable in all events in the manner and at the times set forth herein unless the obligation to do so shall have been terminated pursuant to the express terms hereof.
XVII. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature, in contract or tort, whether caused by the active or passive negligence of Lessor or otherwise, and including, but not limited to, Lessor's strict liability in tort, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any Sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing.
(b) All of Lessor's rights, privileges and indemnities contained in this Section XVII shall survive the expiration or other termination of this Agreement and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns.
XVIII. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following, regardless of any negligence of Lessor (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or any other circumstance in connection therewith; (ii) the use, operation or performance of any Equipment or any risks relating thereto; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment. If, and so long as, no default exists under this Lease, Lessee shall be, and hereby is, authorized during the term of this Lease to assert and enforce, at Lessee's sole cost and expense, from time to time, in the name of and for the account of Lessor and/or Lessee, as their interests may appear, whatever claims and rights Lessor may have against any Supplier of the Equipment.
XIX. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and warrants to Lessor that on the date hereof and on the date of execution of each Schedule:
(a) Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "Documents") and is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to be located.
(b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies therein provided may be limited under applicable bankruptcy and insolvency laws.
(c) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained.
(d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party.
(e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement.
(f) The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property.
(g) Each Balance Sheet and Statement of Income delivered to Lessor has been prepared in accordance with generally accepted accounting principles, and since the date of the most recent such Balance Sheet and Statement of Income, there has been no material adverse change.
(h) Lessee's exact legal name is as set forth in the first sentence of this Agreement and Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement).
(i) The Equipment will at all times be used for commercial or business purposes within the Continental United States.
(j) Lessee is and will remain in full compliance with all laws and regulations applicable to it including, without limitation, (i) ensuring that no person who owns a controlling interest in or otherwise controls Lessee is or shall be (Y) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control ("OFAC"), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (Z) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and (ii) compliance with all applicable Bank Secrecy Act ("BSA") laws, regulations and government guidance on BSA compliance and on the prevention and detection of money laundering violations.
XX. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST:
(a) For income tax purposes, the parties hereto agree that it is their mutual intention that Lessee shall be considered the owner of the Equipment. Accordingly, Lessor agrees (i) to treat Lessee as the owner of the Equipment on its federal income tax return, (ii) not to take actions or positions inconsistent with such treatment on or with respect to its federal income tax return, and (iii) not to claim any tax benefits available to an owner of the Equipment on or with respect to its federal income tax return. The foregoing undertakings by Lessor shall not be violated by Lessor's taking a tax position inconsistent with the foregoing sentence to the extent such position is required by law or is taken through inadvertence so long as such inadvertent tax position is reversed by Lessor promptly upon its discovery. Lessor shall in no event be liable to Lessee if Lessee fails to secure any of the tax benefits available to the owner of the Equipment.
(b) Lessor and Lessee hereby agree that the transaction contemplated herein is intended as a lease; PROVIDED HOWEVER that, if it is determined for other reasons that the lease so intended creates a security interest, Lessee shall have been deemed to grant, effective as of each Lease Commencement Date, and hereby grants, to Lessor the following security interests to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of Lessee to Lessor, now existing or arising in the future under this Agreement or any Schedules attached hereto, and any renewals, extensions and modifications of such debts, obligations and liabilities:
(i) Lessee hereby grants to Lessor a first priority security interest in the Equipment and all accessions, substitutions and replacements thereto and therefore, and proceeds (cash and non-cash, including without limitation insurance proceeds) thereof. In furtherance of the foregoing, Lessee shall (A) execute and deliver to Lessor, to be recorded at Lessee's expense, Uniform Commercial Code financing statements, statements of amendment and statements of continuation as reasonably may be required by Lessor to perfect and maintain perfected the first priority security interest granted by Lessee herein and (B) execute and deliver, to be recorded at Lessee's expense, any such forms and documents as reasonably may be required by Lessor to evidence Lessor's title to and security interest in any item of Equipment which is covered by a certificate of title issued under a statute of any applicable jurisdiction.
(ii) To the extent the Equipment may constitute or be deemed to be included as a part of Lessee's inventory, as such term is defined in the Uniform Commercial Code of any applicable jurisdiction (the "Inventory"), Lessee hereby grants to Lessor a security interest in such Inventory, which shall mean all Equipment, offered or furnished under any contract of service or intended for sale or lease, any and all additions, attachments, accessories and accessions thereto, any and all substitutions, replacements or exchanges therefore, any and all leases, subleases, rentals, accounts and contracts with respect to the Equipment which may now exist or hereafter arise, together with all rights thereunder and all rental and other payments and purchase options due and to become due thereunder, any and all sales proceeds payable for such property, all insurance, bonds and/or other proceeds of the property and all returned or repossessed Equipment now or at any time or times hereafter in the possession of under the control of Lessee or Lessor; PROVIDED, HOWEVER, THAT LESSEE IS NOT AUTHORIZED TO SELL THE EQUIPMENT OR THE INVENTORY.
(iii) Lessee also grants to Lessor a security interest in all accounts, as such term is defined in the Uniform Commercial Code of any applicable jurisdiction, now owned by Lessee or hereafter acquired or owned by Lessee that might arise or result from any lease or other disposition of any of the Equipment or the Inventory, including, but not limited to, any right of Lessee to payment for Equipment sold or leased or for services rendered whether or not evidenced by an instrument of chattel paper, and whether or not such right has been earned by performance.
XXI. MISCELLANEOUS:
(a) Any cancellation or termination by Lessor, pursuant to the provision of this Agreement, any Schedule, supplement or amendment hereto, or the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. Except as provided in Section XX, all Equipment shall at all times remain personal property of Lessor regardless of the degree of its annexation to any real property and shall not by reason of any installation in, or affixation to, real or personal property become a part thereof.
(b) Time is of the essence of this Agreement. Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right at any other time to demand strict compliance with this Agreement. Lessee agrees, upon Lessor's request, to execute, or otherwise authenticate, any document, record or instrument necessary or expedient for filing, recording or perfecting the interest of Lessor or to carry out the intent of this Agreement. In addition, Lessee hereby authorizes Lessor to file a financing statement and amendments thereto describing the Equipment described in any and all Schedules now and hereafter executed pursuant hereto and adding any other collateral described therein and containing any other information required by the applicable Uniform Commercial Code. Further, Lessee irrevocably grants to Lessor the power to sign Lessee's name and generally to act on behalf of Lessee to execute and file financing statements and other documents pertaining to any or all of the Equipment. Lessee hereby ratifies its prior authorization for Lessor to file financing statements and amendments thereto describing the Equipment and containing any other information required by any applicable law (including without limitation the Uniform Commercial Code) if filed prior to the date hereof. All notices required to be given hereunder shall be deemed adequately given if sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have specified in writing. This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
(c) In case of a failure of Lessee to comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated to, effect such compliance, in whole or in part; and all moneys spent and expenses and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor within five days after the date Lessor sends notice to Lessee requesting payment. Lessor's effecting such compliance shall not be a waiver of Lessee's default.
(d) Any rent or other amount not paid to Lessor when due hereunder shall bear interest, both before and after any judgment or termination hereof, at the lesser of twelve percent per annum or the maximum rate allowed by law. Any provisions in this Agreement and any Schedule, which are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.
(e) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
(g) To the extent that any Schedule would constitute chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest therein may be created through the transfer or possession of this Agreement in and of itself without the transfer or possession of the original of a Schedule executed pursuant to this Agreement and incorporating this Agreement by reference; and no security interest in this Agreement and a Schedule may be created by the transfer or possession of any counterpart of the Schedule other than the original thereof, which shall be identified as the document marked "Original" and all other counterparts shall be marked "Duplicate".
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.
LESSOR: |
LESSEE: |
GENERAL ELECTRIC CAPITAL CORPORATION |
THE DIXIE GROUP, INC. |
By:
/s/ Allen Brown
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By:
/s/ Gary A. Harmon
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EXHIBIT 10.29
AMENDMENT TO EMPLOYMENT AGREEMENT
This is an Amendment to the Employment Agreement (the "Agreement"), made and entered into the 20 th day of November, 2002, by and between THE DIXIE GROUP, INC., a Corporation having its principal place of business at 185 South Industrial Boulevard, S.W., Calhoun, Georgia 30703-7010 (hereinafter referred to as the "Employer") and DAVID POLLEY, an individual residing at West Brow Road, Lookout Mountain, Tennessee (hereinafter referred to as the "Employee").
The Employer and Employee, pursuant to paragraph 14 of the Agreement, amend the Agreement in writing as follows:
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed by its duly constituted officers and the Employer has hereunto set his hand and affixed his seal the day and year first above written.
ACCEPTED AND AGREED:
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THE DIXIE GROUP, INC.
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EXHIBIT 10.30
SEVERANCE AGREEMENT AND RELEASE
BETWEEN
THE DIXIE GROUP, INC.
and
PAUL K. FRIERSON
A. INTRODUCTION
Paul K. Frierson is a salaried employee working in The Dixie Group, Inc.'s North Georgia Business Unit. Because of business conditions, The Dixie Group, Inc. is conducting a reduction in force among salaried employees in its North Georgia and Shared Services Business Units. As part of this reduction in force, your employment will end on July 31, 2003, which is the employee's "release date." In this Agreement "Employee" means Paul K. Frierson, and "Dixie" means The Dixie Group, Inc. The purpose of this Severance Agreement and Release (the "Agreement") is to state the conditions of Employee's termination and to resolve any dispute that might exist between Employee and Dixie.
B. SEVERANCE PAY FOR THE 2003 SALARIED REDUCTION IN FORCE
Dixie will offer severance pay to Employee as part of the 2003 Salaried Reduction in Force. As a result of the 2003 Salaried Reduction in Force, Employee will receive certain benefits in return for agreeing to work to the assigned release date, for agreeing to provide certain consulting services as directed by the Chairman and CEO of Dixie and for the employee signing a release of all claims in favor of Dixie and others. The severance payment is calculated based upon employee's base salary at the time of termination. This Severance Agreement and Release is the release Employee must sign to receive this severance benefit.
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Initials of the Parties
Employee
/s/ pkf
Dixie
/s/ wdd
C. DIXIE'S PROMISES TO EMPLOYEE
In return for the promises of Employee contained in this Agreement, Dixie promises to do the following:
D. EMPLOYEE'S PROMISES TO DIXIE
In exchange for the promises of Dixie contained in this Agreement, Employee promises to do the following:
(1) Employee agrees to work until Employee's assigned release date. Employee understands that if Employee resigns employment voluntarily prior to that date or is discharged, Employee will receive no severance benefits under this Agreement.
(2) Employee releases and discharges Dixie, any parent corporations, any subsidiaries, any related corporations, entities or persons, and all their employees, directors, and agents from all legal, equitable, and administrative claims that Employee may have against any of them. Employee agrees that this includes the waiver of any claims arising from Employee's
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Initials of the Parties
Employee
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Dixie
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employment with, or termination from, Dixie. This release specifically includes, but is not limited to, claims based upon or related to:
(a) The Age Discrimination in Employment Act;
(b) The Employee Retirement Income Security Act;
(c) The Workers Adjustment Retraining Notification Act;
(d) All other claims, including but not limited to, claims for attorneys' fees, arising under any federal, state, or local statutes, common law, ordinances, or equity.
(3) Employee waives any right Employee may have to recover in any proceeding that is based in whole or in part on claims released by Employee in this Agreement. For example, Employee waives any right to monetary recovery or reinstatement if such a charge or action is successfully brought against Dixie or is settled, whether by Employee, the EEOC, or by any other person or entity, including any state or federal agency.
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Initials of the Parties
Employee
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Dixie
/s/wdd
E. MISCELLANEOUS TERMS AGREED TO BY THE PARTIES
In exchange for the promises made by and to Employee and Dixie, they mutually agree to the
following terms:
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Initials of the Parties
Employee
/s/ pkf
Dixie
/s/ wdd
F. EMPLOYEE'S ASSURANCES TO DIXIE
This Agreement is a legal document with legal consequences. Dixie wants to be certain Employee fully understands the legal effect of signing this Agreement. Employee, therefore, makes the following assurances:
(1) I have carefully read the complete Agreement.
(2) The Agreement is written in language that I understand.
(3) I understand all of the provisions of this Agreement.
(4) I understand that this Agreement is a waiver of any and all claims I may have against Dixie and all the other parties listed in Paragraph D.(2).
(5) I also understand that this Agreement is a waiver of any and all claims of age discrimination I have under the Age Discrimination in Employment Act.
(6) I willingly waive any and all claims, known or unknown, in exchange for the promises of Dixie in this Agreement. I understand, however, that I am not releasing any claims that arise after I sign this Agreement.
(7) I want to enter this Agreement. I recognize that the Agreement is financially beneficial to me. I further acknowledge that the benefits I receive under this Agreement are benefits to which I am not already entitled.
(8) I enter this Agreement freely and voluntarily. I am under no coercion or duress whatsoever in considering or agreeing to the provisions of this Agreement.
(9) I have not relied on any representations, promises, or statements that are not contained in this Agreement.
(10) I understand that this Agreement is a contract. As such, I understand that either party may enforce it.
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Initials of the Parties
Employee
/s/ pkf
Dixie
/s/ wdd
(11) I have read and understand Attachment A to this agreement. Attachment A is information to me from Dixie regarding how various employee benefits are handled as a result of my termination.
(12) I have read Attachment B to this Agreement. Attachment B has information regarding the 2003 Salaried Reduction in Force in Dixie's North Georgia and Shared Services Business Units. It describes the group of individuals from which employees were selected for the reduction in force and the offer of the severance package. It also describes the eligibility factors for the offer of severance package. Attachment B also includes information regarding the job titles and ages of all individuals who were in the group from which employees were selected or not selected for the reduction in force and the offer of the severance package.
(13) I have been given a period of forty-five (45) days to decide whether to enter into this Agreement. This forty-five (45) day period has provided me with sufficient time to consider my options and to seek the advice of legal counsel, tax or financial advisors, family members, and anyone else whose advice I value.
(14) After signing this Agreement, I have a period of seven (7) days to revoke it. I can revoke this Agreement by notifying W. Derek Davis, Dixie's Vice President of Human Resources, in writing of my decision to revoke the Agreement within the seven (7) day period. In fact, this Agreement is not effective until the eighth (8th) day after it is signed.
(15) Dixie has urged me, in writing, to review this document with an attorney prior to signing.
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Initials of the Parties
Employee
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Dixie
/s/ wdd
IN WITNESS THEREOF, we have hereunto set our hand and seal:
EMPLOYEE |
THE DIXIE GROUP, INC.
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Return the original signed Severance Agreement and Release to:
W. Derek Davis
Vice President of Human Resources
The Dixie Group, Inc.
P.O. Box 12542
Calhoun, GA 30703-7010
(706) 625-7958
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Employee
/s/ pdf
Dixie
/s/ wdd
ATTACHMENT A
THE DIXIE GROUP, INC.
2003 SALARIED REDUCTION IN FORCE
1. There will be no contributions or match under The Dixie Group, Inc. qualified and/or non-qualified retirement savings plans for 2003.
2. Any accrued vacation pay is included as part of the severance benefit listed in paragraph C.(1) of the Agreement.
3. Coverage under The Dixie Group, Inc. long-term disability and group life insurance ends on Employee's last active day of employment.
4. Employee is eligible to continue medical and/or dental insurance under the Consolidated Omnibus Budget Reconciliation Act (COBRA) after the last day of active employment if desired by Employee. Premiums for this coverage will be at the same rate as required for active associates until Employee's COBRA eligibility ends.
The health benefits continuation plan letter (to be forwarded to Employee's home) explains Employee's rights under COBRA the amounts of Employee's premiums, and when/how Employee must pay that premium. For Employee's information, all COBRA premiums must be paid by Employee by separate check and will not be deducted from Employee's severance payments.
Employee's spouse will be entitled to continue COBRA for medical and dental insurance, single contract only, at the full COBRA rate from February 1, 2005 through July 31, 2006.
From August 1, 2006 until the end of the month following your spouse's 65
th
birthday, she may continue medical and dental coverage through The Dixie Group early retiree insurance program at the published rates for those early retiree plans.
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/s/ pkf
/s/ wdd
Dated: 8/15/03
ATTACHMENT B
The Company has omitted Attachment B to this exhibit, and agrees to furnish supplementally a copy of the omitted attachment to the Commission upon request.
EXHIBIT 14
The Dixie Group, Inc.
Code of Business Conduct and Ethics
This Code of Business Conduct and Ethics applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller, and any persons performing similar functions. It is intended to promote the highest standards of honesty and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full and understandable disclosure in reports and documents filed with the Securities and Exchange Commission; compliance with applicable governmental rules and regulations; the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and accountability for adherence to the Code.
The Dixie Group and each of its associates must conduct their affairs in accordance with the highest standards of honesty and integrity. The "tone at the top" is of utmost importance. Accordingly, the Company's principal executive officer, principal financial officer, principal accounting officer or controller, and all persons performing similar functions will be held to the highest ethical standards and will be expected to conduct themselves in a manner that will serve as a model for all the Company's associates.
Any personal business activity, investment or association which would place an associate's personal interests in conflict with those of the Company must be strictly avoided. [Recognizing that some conflicts of interest may be matters of degree, or may be unintended or unavoidable, the audit committee of the Board is authorized upon full disclosure of all relevant facts and circumstances, to approve or waive this absolute prohibition in unusual or exceptional circumstances]. All conflicts of interest, or potential conflicts of interest, for appropriate review and resolution must be disclosed to the Audit Committee.
The Company is subject to numerous governmental rules and regulations. All associates are directed to inform themselves of such rules and regulations insofar as they apply to the Company in general and to such associate's area of responsibility in particular. Additionally, each such associate must conduct him or herself and the company activities he or she is responsible for supervising in a manner that complies with applicable law and results in the Company's compliance with such law. Material noncompliance with applicable law, and related governmental rules and regulations, should be reported to the Audit Committee.
Among its responsibilities for compliance with law, the Company's management is responsible for full, fair accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company. Recognizing that such compliance is matter of informed judgment, the Company's principal executive officer, the principal accounting officer, and others involved in the process of preparing and filing our public communications are directed to implement and follow procedures designed to fully develop and disclose relevant factual information, and present such material information in compliance with published rules and regulations in a timely and understandable manner.
If you have knowledge of a violation of this Code of Business Conduct and Ethics, you have an obligation to report it to the Chairman of the Audit Committee in the event that you do not believe that prompt, appropriate, and corrective action will otherwise be taken. You may report violations knowing that the Company will not allow retaliation for reporting your concerns in good faith.
Retaliation for good faith reporting is itself a violation of this Code.
Failure to abide by this Code of Conduct and Ethics will result in appropriate discipline, up to and including dismissal form the Company. Any variations from or exceptions to this Code, or amendment of its terms, will require the review and approval of the Audit Committee and will be granted only as permitted by law and in extraordinary circumstances.
EXHIBIT 21. SUBSIDIARIES OF THE DIXIE GROUP, INC.
SUBSIDIARIES OF THE DIXIE GROUP, INC.
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STATE/COUNTRY OF
INCORPORATION
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BRETLIN, INC.
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GA
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SUBSIDIARIES OF BRETLIN, INC. |
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EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on Form S-8, (File No. 333-89994, File No. 333-87534, File No. 33-30473, File No. 33-42615, File No. 333-81163, File No. 2-20604, File No. 2-56744, and File No. 333-80971) of The Dixie Group, Inc. of our report dated February 19, 2004, with respect to the consolidated financial statements and schedule of The Dixie Group, Inc. included in this Annual Report (Form 10-K) for the year ended December 27, 2003.
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 26, 2004
EXHIBIT 31.1 - Sarbanes-Oxley Section 302(a) Certification
I, Daniel K. Frierson, Chief Executive Officer of The Dixie Group, Inc. certify that:
1. I have reviewed this annual report on Form 10-K of The Dixie Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
c. disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 26, 2004 |
/s/ Daniel K. Frierson
Chief Executive Officer The Dixie Group, Inc. |
Exhibit 31.2 - Sarbanes-Oxley Section 302(a) Certification
1. I have reviewed this annual report on Form 10-K of The Dixie Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
c. disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 26, 2004 |
/s/ Gary A. Harmon
Chief Financial Officer The Dixie Group, Inc. |
EXHIBIT 32.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION
In connection with the Annual Report of The Dixie Group, Inc. (the "Company") on Form 10-K for the period ending December 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) that he is the Chief Executive Officer of the Company and that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/
DANIEL K. FRIERSON
Daniel K. Frierson, Chief Executive Officer
Date: March 26, 2004
A signed original of this written statement required by Section 906 has been provided to The Dixie Group, Inc. and will be retained by The Dixie Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2 - CHIEF FINANCIAL OFFICER CERTIFICATION
In connection with the Annual Report of The Dixie Group, Inc. (the "Company") on Form 10-K for the period ending December 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) that he is the Chief Financial Officer of the Company and that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/
GARY A. HARMON
Gary A. Harmon, Chief Financial Officer
Date: March 26, 2004
A signed original of this written statement required by Section 906 has been provided to The Dixie Group, Inc. and will be retained by The Dixie Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.