ITEM 1. BUSINESS
GENERAL
An integral part of the Company's strategy has been to restructure its textile products operations and expand its floorcovering businesses. A significant portion of the restructuring included consolidation of manufacturing into fewer facilities. The Company has pursued its strategy of expanding its floorcovering business with the acquisitions of Carriage Industries and Masland Carpets in 1993 and the acquisition of Patrick Carpet Mills in 1994. Each of the Company's segments, Textile products and Floorcoverings, represents approximately 50% of the Company's total sales.
TEXTILES
TEXTILE INDUSTRY - The domestic textile industry manufactures products for a variety of end uses, including home furnishings (domestics, drapery and upholstery), industrial products, transportation applications and apparel. The industry, which encompasses yarn preparation, fabric formation and product distribution, is structured with various degrees of vertical integration, depending upon the particular products involved. The textile industry is made up of a great number of companies, none of which is believed to have sales that comprise as much as 10% of the total market.
The domestic apparel market, which includes a substantial portion of the customers for the Company's products, is continually faced with competition from imports; however, management believes that implementation of the North American Free Trade Agreement may eventually increase demand for domestic textile products by encouraging utilization of domestic products by non- domestic cut and sew operations. Additionally, management believes consumer buying patterns will continue to be influenced by mass merchandisers and retailers emphasizing price competition. The domestic textile industry also services the home furnishing and other industries in a number of applications which are impacted by housing sales as well as by domestic automotive production levels.
THE COMPANY'S TEXTILE PRODUCTS - The Company manufactures and markets yarns, threads and knit fabrics from a variety of natural and man-made fibers. Textile products are primarily sold to manufacturers of apparel, domestics, drapery and upholstery, hosiery, industrial fabrics, transportation and other industries.
The Company produces a wide variety of products, with a significant focus on high-end value added products. Although the textile products business is organized into three business groups, substantial sales and customer overlap exists among the groups. Textile products are focused on narrow groups of products, related by manufacturing processes, performance qualities and end uses. No group of such products individually accounts for as much as 10% of Dixie's consolidated revenues for 1994, 1993 or 1992 and no customer's volume exceeded 10 percent of the Company's total sales for 1994.
The Company's Yarn Group ("Yarn Group") is comprised of the Natural and Dyed Yarn Group and the Synthetics Yarn Group. Products produced and marketed through these groups include ring spun, open end and air jet single and plied yarns which are sold to manufacturers of premium-price apparel, high-end home furnishings, and industrial products. A portion of the yarn produced by the Company's yarn spinning facilities is further processed by the Company's mercerizing and package dyeing facilities. Cotton is the primary fiber for both natural, and mercerized and package dyed markets served. Other markets served include products manufactured from man-made (synthetic) fibers, many of which are high technology fibers that impart strength, heat resistance, stretch and/or characteristics relating to comfort and insulation properties. Natural, dyed and synthetic yarns are marketed through a combination of salaried sales force and, to a lesser extent, commissioned sales agents.
The Company's Industrial Sewing Thread Group ("Threads USA") is one of three major domestic manufacturers and marketers of industrial sewing thread, with a full line of products that includes cotton, spun polyester, corespun and filament threads. Thread products are sold directly by the Company's sales personnel through an extensive regional warehouse network as well as to independent wholesale jobbers.
The Company's Knit Fabric Group ("Caro Knit") knits, dyes and finishes 100 percent cotton circular knit fabrics for apparel and industrial markets. A majority of the yarn used for the production of the knit fabric is supplied by the Company's yarn facilities. Knit products are sold primarily by its own salaried sales force.
The Company's sales order backlog position in its textile products businesses was approximately $83,000,000 on December 31, 1994 compared to approximately $79,000,000 on December 25, 1993. All of these orders can reasonably be expected to be filled within the 1995 fiscal year.
Although the competition in the Company's textile business varies depending on the markets involved, a substantial portion of the Company's domestic textile products business is faced with competition from imports.
The Company owns a number of patents used in its textile business, and patent protection is sought as a matter of course when machinery or process improvements are made that are considered patentable. However, in the opinion of the Company, its textile operations are not materially dependent upon patents and patent applications.
FLOORCOVERING
THE CARPET INDUSTRY - The domestic carpet industry is composed of approximately 100 manufacturers of which the top 5 account for over 60% of total sales in the industry. The 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. The residential market consists of broadloom carpets, rugs and bathmats in a broad range of styles, colors, textures and yarns. The carpet industry also manufactures carpet for the automotive, recreational vehicle and small boat industries.
There is a high degree of competition within the domestic carpet industry which also faces competition from the hard surface floorcovering industry. The principal methods of competition within the carpet industry are quality, style, price and service.
THE COMPANY'S FLOORCOVERING BUSINESS - The Company's floorcovering business manufactures and markets carpet yarns and floorcovering products for specialty markets through Candlewick Yarns ("Candlewick"), Carriage Industries, Inc. ("Carriage"), Masland Carpets, Inc. ("Masland"), and Patrick Carpet Mills, Inc. ("Patrick").
Candlewick is one of the world's largest independent carpet yarn manufacturers producing premier yarns for floorcovering applications. Its customers include end-use product manufacturers in the bath rug, automotive and broadloom carpet markets. Candlewick competes through product quality, innovation, and customer service. Its product development center and relationships with fiber suppliers have been developed to provide customers a means to evaluate yarn and fiber variations. Candlewick has a significant share of the bath rug yarn market due to the breadth of its product line, service capabilities, quality and history of innovation. Products of Candlewick are marketed through its own salaried sales force.
Carriage is a vertically integrated carpet manufacturer serving specialized markets. Its highly diversified markets include: original equipment manufacturers of manufactured housing, recreational vehicles, and small boats; the exposition/trade show market; contract/residential market; and the home center/needlebond market. Carriage's manufacturing operations include yarn extrusion, yarn processing, tufting, needlebonding, dyeing, finishing and finished product transportation through its own trucking fleet. Its product line is marketed by a staff of salaried sales personnel and to a lesser extent commission sales representatives.
Carriage competes only in selected portions of the floorcovering market. Competition is based not only on price, but also on quality of goods, customer service and reputation for reliability. The Company has developed a broad array of specialized products of varying styles, widths, colors and backing. Rapid, just-in-time delivery of customer orders is an important part of the Company's customer service program. The Company controls delivery of its products through its own trucking fleet and utilization of regional distribution centers for finished goods.
Masland markets broadloom products for specification by the architectural and design communities and residential carpet and designer rugs to a select group in interior design showrooms and high-end specialty retailers. Each of the markets served requires quality, service, and innovation in styling and product design. Additionally, price is becoming an increasingly important competitive factor, particularly in the Company's contract business.
Patrick is a West Coast manufacturer of both commercial and residential broadloom products with a broad geographic distribution. During 1995, Patrick's manufacturing operations will be consolidated into Masland's Atmore, Alabama facility.
The Company's sales order backlog position in its floorcovering businesses, excluding Carriage, was approximately $31,000,000 on December 31, 1994 compared to approximately $37,000,000 on December 25, 1993. Approximately 90% of orders received by Carriage are shipped within the same week. All of the order backlog can reasonably be expected to be filled within the 1995 fiscal year.
The Company's floorcovering businesses own a variety of trademarks under which their products, particularly those sold by Masland, are marketed. While such trademarks are important to Masland's business, there is no one trademark, other than the name Masland itself, which is of material importance to the segment.
There was no single class of products exceeding 10 percent of the Company's sales volume for 1994, 1993 or 1992 and no customer's volume exceeded 10 percent of the Company's total sales for 1994.
SEASONALITY
Within the varied markets serviced by the Company, there are a number of seasonal production cycles, but the Company's business as a whole is not considered to be significantly affected by seasonal factors. Correspondingly, there appear to be no material impacts on working capital relating to seasonality or other business dynamics.
ENVIRONMENTAL
While compliance with current federal, state and local provisions regulating the discharge of material into the environment may require additional expenditures by the Company, these expenditures are not expected to have a material effect on capital expenditures, earnings or the competitive position of the Company.
RAW MATERIALS
The Company obtains natural and synthetic raw materials from a number of domestic suppliers. Cotton fiber is purchased at market rates from numerous cotton merchants and directly from cotton growing cooperatives under short-term supply contracts at costs which are significant factors in the Company's pricing of its products. Man-made fibers are purchased from major chemical suppliers. Although the Company's procurement of raw materials is subject to variations in price and availability due to agricultural and other market conditions and in the price of petroleum used to produce man-made fibers, the Company believes that its sources of raw materials are adequate and that it is not materially dependent on any single supplier.
UTILITIES
The Company uses electricity as its principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. During the past five years the Company has not experienced any material problems in obtaining electricity, natural gas or oil at anticipated prices. Nevertheless, energy shortages of extended duration could have an adverse effect on the Company's operations.
The Company had approximately 6,900 associates as of the end of fiscal 1994.
ITEM 2.
ITEM 2. PROPERTIES
The following table lists the Company's facilities according to location, type of operation and approximate total floor space as of March 10, 1995.
Approximate Location Type of Operation Square Feet CORPORATE Administrative: Chattanooga, TN Administrative 41,000
TEXTILE PRODUCTS Administrative: Gastonia, NC Administrative 61,000
Warehousing: Gastonia, NC (2 locations) Warehousing 88,000 Sales Branch Warehouses (4 locations) Warehousing 54,000 Total Warehousing 142,000 Manufacturing: Chattanooga, TN Yarn Spinning 440,000 Mebane, NC Yarn Spinning 99,000 Newton, NC Yarn Spinning 252,000 Ranlo, NC Yarn Spinning 482,000 Tarboro, NC Yarn Spinning 340,000 Chattanooga, TN Package Yarn Dyeing, Bleaching and Mercerizing 276,000 Tryon, NC Bleaching and Mercerizing 63,000 Gastonia, NC Thread Yarn Dyeing and Finishing 530,000 Arroyo, Puerto Rico Thread Yarn Dyeing and Finishing 22,000 Gastonia, NC Thread Yarn Spinning 445,000 Jefferson, SC Knitting, and Fabric Dyeing and Finishing 274,000 Total Manufacturing 3,223,000
FLOORCOVERING Administrative: Dalton, GA Administrative 13,000 Calhoun, GA Administrative 60,000 Mobile, AL(2) Administrative 20,000 Total Administrative 93,000 Warehousing: Ringgold, GA Warehousing 119,000
Manufacturing: Lemoore, CA Tufted Yarn Spinning 322,000 Ringgold, GA Tufted Yarn Spinning 290,000 Roanoke, AL (1) Tufted Yarn Spinning 190,000 Calhoun, GA Carpet Manufacturing 1,016,000 Atmore, AL Carpet Manufacturing 262,000 Mobile, AL(2) Rug Manufacturing, Distribution 400,000 Total Manufacturing 2,480,000
Total 6,159,000
ITEM 2. PROPERTIES - CONTINUED
(1) This property is currently leased. Under the provisions of the Roanoke, AL lease, the Company is acquiring title to the property over the term of the lease, which is expected to terminate in 2004.
(2) This property is currently leased. Under the provision of the Mobile, AL lease, the Company will acquire the property at the end of the lease.
In addition to the facilities listed above, the Company owns or leases various administrative, storage, warehouse and office spaces.
In the opinion of the Company, its manufacturing facilities are well maintained and the machinery is efficient and competitive. Operations at each plant generally vary between 120 hours and 168 hours per week. There are no material encumbrances on any of the Company's operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its subsidiaries are a party or of which any of its property is the subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of 1994 to a vote of the shareholders.
Pursuant to instruction G of Form 10-K the following is included as an unnumbered item to Part I.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices held by the executive officers of the registrant as of March 10, 1995, are listed below along with their business experience during the past five years.
Name, Age Business Experience During and Position Past Five Years
Daniel K. Frierson, 53 Director since 1973, Chairman of Chairman of the Board, President the Board since 1987 and Chief and Chief Executive Officer, Executive Officer since 1980. Director, Member of Executive Director of the American National Committee Bank & Trust Company. Brother of Paul K. Frierson.
Glenn M. Grandin, 52 Senior Vice President and Chief Senior Vice President and Financial Officer since February, Chief Financial Officer 1995. Senior Vice President and Chief Financial Officer, Signal Apparel Company, from October, 1992 to February, 1995. Senior Vice President/Chief Financial Officer, Alma Industries, Inc., from April, 1992 to August, 1992. Consultant from January, 1991 to March, 1992. Vice President/Chief Financial Officer, Pannill Knitting Co., from October, 1988 to December, 1990.
Philip H. Barlow, 46 Corporate Vice President and Corporate Vice President and President of Carriage Industries, President, Carriage Industries, Inc. Inc. since 1993. Vice President of Sales and Marketing, Carriage, 1988 to 1993. Director of Sales and Marketing, Carriage, 1986 - 1988.
David C. Clarke, 37 Corporate Vice President and Corporate Vice President and President, Threads USA since President, Threads USA February, 1994. Executive Vice President of Sales, Threads USA, from September, 1992 to February, 1994. Vice President of Direct Sales, Threads USA, from November, 1991 to September, 1992. Director of Direct Sales, Threads USA, from February, 1991 to November, 1991. Director of Sales, American Thread Company, from 1989 - 1991.
EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
Name, Age Business Experience During and Position Past Five Years
C. Pat Driver, 54 Corporate Vice President and Corporate Vice President and President, Synthetic Yarn Group President, Synthetic Yarns since June, 1992. Corporate Vice President and President, Dixie Yarns Group, from 1989 to June, 1992. President, Carpet Yarns, Group (Candlewick), 1983 - 1989.
Paul K. Frierson, 57 Director since 1988. Corporate Corporate Vice President and Vice President and President, President, Candlewick Yarns, Carpet Yarns Group (Candlewick) Director since 1989. Executive Vice President of Candlewick from 1984 - 1989. Director of NationsBank/Chattanooga. Brother of Daniel K. Frierson.
George B. Smith, 54 Corporate Vice President and Corporate Vice President President, Natural/Dyed Yarns and President, Natural/Dyed Yarns and Knits since March, 1994. and Knits President, Natural and Dyed Yarn Group from August, 1993 to March, 1994. President Natural Yarn Group from October, 1992 to August, 1993. Self-employed (Consulting and Commission Sales) June, 1990 to November, 1992. Corporate Vice President, Avondale Mills, Inc., 1986 - 1990. President, Avondale Yarn Division, 1989 - 1990. President, Avondale Fabric Division, 1986-1989.
John O. Sturdy, 65 Corporate Vice President and Corporate Vice President President, Masland Carpets, Inc., and President, Masland Carpets, Inc. 1993. President & Chief Executive Officer, Masland Carpets, Inc., 1991 - 1993. President & Chief Operating Officer, The Harbinger Company, Inc., subsidiary of Horizon Industries, Inc. 1984 - 1991.
EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
Name, Age Business Experience During and Position Past Five Years
W. Derek Davis, 44 Corporate Vice President of Human Corporate Vice President - Resources since January, 1991. Human Resources Corporate Employee Relations Director, 1990 - 1991. Employee Relations Director, Dixie Yarns Group and Carpet Yarns Group (Candlewick), 1988 - 1990.
Jon A. Faulkner, 35 Corporate Vice President of Corporate Vice President - Administration since 1993. Director Administration of Management Information Systems, 1990 - 1993. Manager of Warehouses and Distribution, Threads USA, 1989 - 1990.
Gary A. Harmon, 49 Treasurer since 1993. Treasurer Director of Tax and Financial Planning, 1985 - 1993.
D. Eugene Lasater, 44 Controller since 1988. Controller
Starr T. Klein, 52 Secretary since November, 1992. Secretary Assistant Secretary, 1987 - 1992.
The executive officers of the registrant are elected annually by the Board of Directors at its first meeting held after each annual meeting of the Company's shareholders.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock trades on the over-the-counter National Market System with the NASDAQ symbol DXYN. No market exists for the Company's Class B Common Stock.
As of March 10, 1995, the total number of record holders of the Company's Common Stock was approximately 5,400 and the total number of holders of the Company's Class B Common Stock was 18. Management of the Company estimates that there are approximately 4,300 shareholders who hold the Company's Common Stock in nominee names. Dividends and Price Range of Common Stock for the four quarterly periods in the years ended December 31, 1994 and December 25, 1993 are as follows:
DIXIE YARNS, INC. QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK (Unaudited) (dollar amounts in thousands, except per share data)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
1994 Compared with 1993 - Sales for 1994 were $688.5 million compared with sales of $594.6 million in 1993, a 15.8% increase. The increase in sales is attributable to strong demand in the Company's floorcovering business and the acquisitions made in 1993 and 1994.
Although sales increased significantly, operations resulted in a net loss of $3.2 million, or $.24 per share, in 1994, compared with net income of $4.7 million, or $.41 per share, in 1993. Operating results for 1994 were negatively affected by weak market conditions and higher costs in the Company's textile business. A nontaxable gain of $12.8 million resulting from the receipt of insurance proceeds on the life of the former Chairman of Carriage Industries, Inc. was included in 1994. Results for 1994 also included charges aggregating to $19.6 million ($12.2 million after-tax) consisting of $10.4 million for write-downs of idle facilities and machinery and equipment permanently taken out of service during 1994, $2.0 million for supply parts for the idled equipment, $2.2 million for write- downs of inventories pertaining to discontinued product lines, and $1.7 million of other inventory related losses. The remainder of the charges relate primarily to expenses and losses associated with a union campaign at one of the Company's plants and certain other liabilities, partially offset by net casualty insurance gains.
The pretax effect of the charges plus casualty losses attributable to the Company's textile business was $22.1 million. Insurance settlements, which exceeded casualty losses and the portion of the charges attributable to the Company's floorcovering business, resulted in a $2.7 million net gain for this business segment. Results for 1993 were positively affected by a $1.3 million gain from the sale of assets in the Company's textile business and a $1.8 million gain from casualty insurance settlements attributable to the Company's floorcovering business.
The following table sets forth selected operating data (in millions of dollars) related to the two business segments of the Company (see additional information in Note O to the consolidated financial statements).
1994 1993 1992 Sales - Textile products $332.5 $332.1 $347.8 - Floorcovering 359.6 263.9 123.1 - Intersegment elimination (3.6) (1.4) (1.1) Total sales $688.5 $594.6 $469.8
Operating profit (loss) - Textile products $(33.0) $ 1.6 $ 15.4 - Floorcovering $ 28.1 $ 24.4 $ 7.9
The 1994 operating loss of the Company's textile business, excluding the effects of the charges of $22.1 million described above, was $10.9 million, compared with an operating profit of $.3 million in the prior year, excluding the 1993 gain from asset sales. Textile results for 1994 were negatively affected by weak demand and lower selling prices for cotton products in the first half of 1994 and higher cotton costs throughout the year. Operating losses were significantly reduced in the second half of the year as demand and manufacturing efficiencies improved and selling prices strengthened. Although cotton costs have continued to rise, both order backlogs and margins are stronger in the first quarter of 1995.
Operating profits of the floorcovering business, excluding the $2.7 million net gain in 1994 and the $1.8 million gain in 1993, increased to $25.4 million in 1994, compared with $22.6 million in 1993. The 36.3% increase in sales is due to strong demand and inclusion of the operations of Carriage Industries, Inc., Masland Carpets, Inc. and Patrick Carpet Mills, Inc. subsequent to their acquisitions on March 12, 1993, July 9, 1993 and June 20, 1994, respectively. Operating profits improved principally as a result of the additional sales volume.
The increase in consolidated selling, general and administrative expenses as a percentage of sales in 1994 reflects the higher selling and product distribution costs associated with the specialized floorcovering markets serviced by Carriage, Masland and Patrick and cost incurred to support sales growth in these businesses.
Other expense included the annual costs of $3.0 million associated with the sale of trade accounts receivable for a full year in 1994. Other income for 1993 was positively affected by $4.8 million of gains from asset sales, casualty insurance proceeds and the Company's portion of earnings of nonconsolidated entities.
Interest expense increased in 1994 as the result of higher interest rates. The Company's effective income tax rate differs from the statutory income tax rate due primarily to the nontaxable life insurance gain and nondeductible amortization of intangible assets.
The Company anticipates that demand for floorcovering products will remain strong during 1995. The Company's textile operations are expected to continue in a highly price competitive environment, but demand is anticipated to remain strong and recent cost cutting efforts should produce higher margins. Management expects higher sales as well as profitable operations in both of the Company's business segments in 1995.
1993 Compared with 1992 - Sales for the year ended December 25, 1993 increased 26.6%. The increase in 1993 sales is attributable to the Company's floorcovering business, which includes the Company's carpet yarn manufacturing operation and, subsequent to their 1993 acquisitions, the operations of Carriage Industries, Inc. and Masland Carpets, Inc. Dollar volume of sales of the Company's textile products declined 4.5% in 1993, although unit volume increased. The decline in sales of textile products is attributable to the effect of weak retail apparel markets and the sale of a dyed yarn facility in the first quarter of 1993.
Net income was $4.7 million, or $.41 per share, in 1993 compared with net income of $5.5 million, or $.62 per share, in 1992. Operating income for 1993 was 9.2% of sales in the Company's floorcovering business and .5% of sales for textile products, compared with 6.4% and 4.4%, respectively, in 1992. In addition to the 1993 acquisitions, floorcovering enjoyed strong growth and favorable conditions in the markets it serves throughout 1993. The decrease in operating profits for textile products in 1993 is principally due to weak demand for apparel products and raw material price increases that could not be passed along to customers, resulting in price and margin erosion, particularly in the third and fourth quarters of 1993. Disruptions associated with production and operating consolidations have had a negative impact on profits of the Company's textile business.
The increase in gross profit and selling, general and administrative expenses as a percent of sales in 1993 reflects the traditional higher margins and higher selling and product distribution costs associated with the specialized floorcovering markets serviced by Carriage and Masland.
The increase in other income in 1993 is principally the result of approximately $1.8 million of casualty insurance proceeds and gains from assets disposals. Interest expense increased in 1993 due to the higher levels of debt. The Company's effective income tax rate differs from the statutory income tax rates due primarily to nondeductible amortization of intangible assets. Also in 1993, a noncash income tax charge of approximately $.5 million, or $.04 per share, resulted from the effect of the increase in the statutory federal income tax rate on deferred income taxes established in prior years.
During the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" and changed its method of accounting for income taxes to the liability method. In connection with the change in method of accounting, financial statements for periods subsequent to 1986 were restated as if the new method had been in effect during those periods. The effect of the change was to decrease 1992 net income by approximately $.2 million, or $.03 per share.
LIQUIDITY AND CAPITAL RESOURCES
During the three-year period ended December 31, 1994, funds generated from operating activities (including $45.0 million from the sale of accounts receivable) totaled $120.7 million, funds raised through long-term debt amounted to $27.7 million and proceeds from asset sales generated an additional $18.8 million. These cash flows together with $16.8 million of life insurance proceeds funded the Company's operations, capital expenditures and business acquisitions during the three-year period.
Capital expenditures (excluding expenditures of approximately $15.2 million related to casualty losses) were approximately $97.8 million during the three-year period ended December 31, 1994 and were directed primarily toward upgrading equipment to improve quality and enhance manufacturing efficiency, as well as capacity expansions. During this period, charges for depreciation and amortization amounted to approximately $91.5 million. Capital expenditures for 1995 are budgeted to remain below anticipated charges for depreciation and amortization and will be concentrated on expanding the capacity of the Company's floorcovering business.
Funds generated from operating activities were $18.4 million in 1994 and were supplemented by $16.8 million of life insurance proceeds and $2.4 million of proceeds from the sale of assets. These funds financed, among other things, $32.7 million of normal capital expenditures, $3.1 million of storm and fire related capital expenditures, and dividend payments.
During 1993 and 1994, a number of the Company's manufacturing facilities were damaged or destroyed by weather-related casualties and a fire. By the end of 1994, the damaged facilities have either been replaced, repaired or their production capacity consolidated into other manufacturing facilities and all costs and expenses related to the casualties had been recorded. Costs and expenses associated with the damaged facilities amounted to $41.5 million. The casualty losses were covered by insurance. Through the end of 1994, settlements have been reached for the majority of the insurance claims and insurance reimbursements amounting to $43.6 million had been received. Unpaid insurance claims, primarily related to business interruptions, are expected to be settled in 1995.
The Company acquired approximately 46% of the outstanding common stock of Carriage Industries, Inc. in 1992 for $27.4 million cash and acquired Carriage's remaining, publicly-held shares on March 12, 1993 in exchange for approximately 2.5 million shares and options to purchase approximately .1 million shares of the Company's Common Stock and approximately $.7 million cash. On July 9, 1993, the assets of Masland Carpets, Inc. were acquired in exchange for approximately 1.0 million shares of the Company's Common Stock, $1.1 million of cash and the assumption of approximately $.8 million of debt. The holders of the shares issued in the Masland acquisition have the right, after two years, to put the shares to the Company at a price of approximately $18 per share. On June 20, 1994, the assets of Patrick Carpet Mills, Inc. were acquired for $3.2 million.
In October 1993, the Company entered into a seven-year agreement to sell an undivided interest in a revolving pool of its trade accounts receivable. A $45.0 million interest has been sold under this agreement and the sale is reflected as a reduction of accounts receivable in the Company's balance sheet. The cost of this program was fixed at 6.08% per annum of the undivided interest sold plus administrative fees typical in such transactions. In addition, the Company is generally responsible for credit losses associated with sold receivables.
At December 31, 1994, the Company's debt structure consisted of $44.8 million of convertible subordinated debentures, $50.0 million of subordinated notes and $87.0 million of senior indebtedness, principally under a revolving credit and term loan agreement. The convertible subordinated debentures require annual mandatory sinking fund payments of $2.5 million, beginning in 1998. Payments are not required under the Company's subordinated notes until the year 2000. The revolving credit and term-loan agreement was renewed for another five years in 1995. The amended agreement provides for revolving credit of up to $125.0 million through the five year commitment period and a $10.0 million term loan which may be utilized under certain circumstances. Interest rates available under the facility are selected by the Company from a number of options which effectively allow for borrowings at rates equal to or lower than the greater of the lender's prime rate or the federal funds rate plus .5%. At year end, the available unused borrowing capacity under the revolving credit facility was approximately $39.1 million.
Under restrictions set forth in one of the Company's loan agreements and as a result of the Company's 1994 loss, future dividends may be paid only to the extent that 75% of cumulative income before extraordinary items for periods subsequent to December 31, 1994 exceeds $3.9 million. Such restrictions may be waived at the discretion of the Company's lender. Although the dividend restriction was waived for the first quarter of 1995, the Board of Directors elected not to pay the first quarter dividend and has indicated an intention to suspend quarterly dividends until the Company's operating results return to appropriate levels. The Company's future liquidity requirements are expected to consist primarily of capital expenditures, seasonal working capital requirements, funds necessary to finance expansion and the possible repurchase of the Common Stock issued in connection with the acquisition of Masland Carpets, Inc. The Company's liquidity requirements for 1995 are expected to be financed from operating cash flow and existing credit arrangements. Funding of longer term liquidity may be supplemented by the issuance of capital stock and public or private debt.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The supplementary financial information as required by Item 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the remaining response is included in a separate section of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Information about Nominees for Directors" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 1995 is incorporated herein by reference. Information regarding the executive officers of the registrant is presented in Part I of this report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation Information" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 1995 is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Principal Shareholders", as well as the beneficial ownership table (and accompanying notes) from the section entitled "Information About Nominees for Directors" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 1995 is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions Between the Company and Directors and Officers" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 4, 1995 is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2)-- The response to this portion of Item 14 is submitted as a separate section of this report.
(3) Listing of Exhibits:
(i) Exhibits Incorporated by Reference:
(3a) Restated Charter of Dixie Yarns, Inc.
(3b) Amended and Restated By-Laws of Dixie Yarns, Inc.
(4a) Second Amended and Restated Revolving Credit and Term Loan Agreement dated January 31, 1992 by and among Dixie Yarns, Inc., and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank.
(4b) Loan Agreement dated February 6, 1990, between Dixie Yarn, Inc. and New York Life Insurance Company and New York Life Insurance and Annuity Corporation.
(4c) Form of Indenture, Dated May 15, 1987 between Dixie Yarns, Inc. and Morgan Guaranty Trust Company of New York as trustee.
(4d) Revolving Credit Loan Agreement dated as of September 16, 1991 by and among Ti-Caro, Inc. and Trust Company Bank, individually and as Agent, NCNB National Bank and Chemical Bank.
(4e) First Amendment to Revolving Credit Loan Agreement dated as of August 19, 1992 by and among Ti-Caro, Inc., T-C Threads, Inc. and Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank.
(4f) First Amendment, dated August 25, 1993 to Second Amended and Restated Revolving Credit and Term Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank.
(10a) Dixie Yarns, Inc. 1983 Incentive Stock Option Plan.
(10b) Dixie Yarns, Inc. Incentive Stock Plan.
(10c) Dixie Yarns, Inc. Nonqualified Defined Contribution Plan.
(10d) Dixie Yarns, Inc. Nonqualified Employee Savings Plan.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED
(i) Exhibits Incorporated by Reference - Continued
(10e) Dixie Yarns, Inc. Incentive Compensation Plan.
(10f) Asset Transfer and Restructuring Agreement dated July 19, 1993, by and among Dixie Yarns, Inc., Masland Carpets, Inc., individual management investors of Masland Carpets, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company.
(10g) Assignment and Bill of Sale dated July 9, 1993, by and between Dixie Yarns, Inc. and Masland Carpets, Inc.
(10h) Assignment and Assumption Agreement dated July 9, 1993, by and between Dixie Yarns, Inc. and Masland Carpets, Inc.
(10i) Stock Rights and Restrictions Agreement dated July 9, 1993, by and among Dixie Yarns, Inc., Masland Carpets, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company of America.
(10j) Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee).
(10k) Annex X - Definitions, to Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee).
(10l) Series 1993-1 Supplement, dated as of October 15, 1993, to Pooling and Servicing Agreement dated as of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding Inc. and NationsBank of Virginia, N.A. (as Trustee).
(10m) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and New York Life Insurance and Annuity Corporation.
(10n) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and John Alden Life Insurance Company.
(10o) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and John Alden Life Insurance Company of New York. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED
(i) Exhibits Incorporated by Reference - Continued
(10p) Certificate Purchase Agreement dated October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and Keyport Life Insurance Company.
(10q) Executive Severance Agreement dated as of September 8, 1988 as amended.
(ii) Exhibits filed with this report:
(11) Statement Re: Computation of Earnings Per Share.
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP.
(b) Reports on Form 8-K--No reports on Form 8-K have been filed by the registrant during the last quarter of the period covered by this report.
(c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report. See Item 14 (a) (3) (ii) above.
(d) Financial Statement Schedules--The response to this portion of Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIXIE YARNS, INC.
March 30, 1995 BY: /s/DANIEL K. FRIERSON Daniel K. Frierson, Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Chairman of the Board, President, Director and /s/DANIEL K. FRIERSON Chief Executive Officer March 30, 1995 Daniel K. Frierson
Corporate Vice President, President of the Candlewick /s/PAUL K. FRIERSON Group and Director March 30, 1995 Paul K. Frierson
Senior Vice President and /s/GLENN M. GRANDIN Chief Financial Officer March 30, 1995 Glenn M. Grandin
/s/D. EUGENE LASATER Controller March 30, 1995 D. Eugene Lasater
/s/PAUL K. BROCK Director March 30, 1995 Paul K. Brock
SIGNATURES -- CONTINUED
/s/LOVIC A. BROOKS, JR. Director March 30, 1995 Lovic A. Brooks, Jr.
/s/J. FRANK HARRISON, JR. Director March 30, 1995 J. Frank Harrison, Jr.
/s/JAMES H. MARTIN, JR. Director March 30, 1995 James H. Martin, Jr.
/s/PETER L. SMITH Director March 30, 1995 Peter L. Smith
/s/JOSEPH T. SPENCE, JR. Director March 30, 1995 Joseph T. Spence, Jr.
/s/ROBERT J. SUDDERTH, JR. Director March 30, 1995 Robert J. Sudderth, Jr.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a)(1) AND (2) AND ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
DIXIE YARNS, INC.
CHATTANOOGA, TENNESSEE
FORM 10-K--ITEM 14(a)(1) and (2)
DIXIE YARNS, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Dixie Yarns, Inc. and subsidiaries are included in Item 8:
Report of Independent Auditors
Consolidated balance sheets--December 31, 1994 and December 25, 1993
Consolidated statements of income(loss)--Years ended December 31, 1994, December 25, 1993, and December 26, 1992
Consolidated statements of cash flows--Years ended December 31, 1994, December 25, 1993, and December 26, 1992.
Consolidated statements of stockholders' equity--Years ended December 31, 1994, December 25, 1993, December 26, 1992
The following consolidated financial statement schedule of Dixie Yarns, Inc. and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the information is otherwise shown in the financial statements or notes thereto, and therefore have been omitted.
Report of Independent Auditors
Board of Directors Dixie Yarns, Inc.
We have audited the accompanying consolidated balance sheets of Dixie Yarns, Inc. and subsidiaries as of December 31, 1994 and December 25, 1993, and the related consolidated statements of income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dixie Yarns, Inc. and subsidiaries at December 31, 1994 and December 25, 1993, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Chattanooga, Tennessee February 23, 1995, except for Note E, as to which the date is March 24, 1995
DIXIE YARNS, INC. CONSOLIDATED BALANCE SHEETS
DIXIE YARNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of Dixie Yarns, Inc. and its wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents: 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 products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses including potential losses on receivables sold (see Note C). The Company invests its excess cash in short-term investments and has not experienced any losses on those investments.
Inventories: Substantially all inventories are stated at cost determined by the last-in, first-out (LIFO) method, which is less than market.
Inventories are summarized as follows:
1994 1993 At current cost: Raw materials $ 28,458,113 $ 25,274,771 Work-in-process 28,091,398 24,602,923 Finished goods 64,400,494 62,664,139 Supplies, repair parts and other 7,857,904 9,792,498 128,807,909 122,334,331 Excess of current cost over LIFO value (18,843,500) (16,524,443) $109,964,409 $105,809,888
The reduction of certain inventory quantities resulted in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years. The effect of these reductions was to decrease the net loss for 1994 and increase net income for 1993 and 1992 by approximately $670,000 ($.05 per share), $350,000 ($.03 per share) and $506,000 ($.06 per share), respectively.
Property, Plant and Equipment: Provision for depreciation and amortization of property, plant and equipment has been computed using the straight-line method for financial reporting purposes and in accordance with the applicable statutory recovery methods for tax purposes. Depreciation and amortization of property, plant and equipment for financial reporting purposes totaled $32,679,344 in 1994, $29,245,367 in 1993 and $23,712,953 in 1992. Property, plant and equipment is stated on the basis of cost. However, when events occur that change the extent or manner in which long- lived assets are used, such as a restructuring of the Company's operations, evidence of physical defects, or technological obsolescence, such impaired assets are written down to their estimated fair market value. If such assets are permanently taken out of service, they are no longer depreciated. Intangible Assets: The excess of the purchase price over the fair market value of identifiable net assets acquired in business combinations is recorded as goodwill and is amortized using the straight-line method over 40 years. The carrying value of goodwill will be reviewed if facts and circumstances suggest that it may be impaired. Impairment will be measured, and goodwill reduced, for any deficiency of estimated undiscounted cash flows during the amortization period related to the business acquired.
Earnings per Share: Primary earnings per common and common equivalent share is computed using the weighted average number of shares of Common Stock outstanding and includes the effects of the assumed conversion of Class B Common Stock and the potentially dilutive effects of the exercise of stock options and the put option. Fully-diluted earnings per share reflect the maximum potential dilution of per share earnings which would have occurred assuming, if dilutive, the exercise of stock options, the put option, and the conversion of the subordinated debentures. These computations were anti-dilutive for 1994 and the additional dilution was less than 3% for 1993 and 1992.
Revenue Recognition: The Company recognizes revenue at the time title to the goods passes to the customer.
NOTE B - BUSINESS COMBINATIONS
On September 4, 1992, the Company acquired approximately 46% of the outstanding shares of Carriage Industries, Inc. ("Carriage") for $27,400,446 cash ($13.25 per share plus expenses) and on March 12, 1993 acquired the remaining shares of Carriage. The Company issued 2,472,884 shares of its Common Stock, options to purchase 83,044 shares of its Common Stock, and approximately $661,000 cash in exchange for the remaining shares and options for shares of Carriage. The acquisition was accounted for as a purchase effective March 12, 1993, and accordingly, the results of operations and accounts of Carriage subsequent to March 12, 1993 are included in the Company's consolidated financial statements. The total purchase price of $63,685,083 (the Company's initial cash investment in Carriage, expenses of the acquisition, and the estimated fair value of the Company's Common Stock and options exchanged) was allocated to the net tangible assets of Carriage based on the estimated fair market values of the assets acquired. As required by the purchase method of accounting, the excess amount of the purchase price over the estimated fair market value of Carriage's net tangible assets was recorded as an intangible asset and is being amortized using the straight-line method over 40 years.
On July 9, 1993, the Company acquired the operating assets and liabilities of Masland Carpets, Inc. ("Masland") in exchange for 1,029,446 shares of the Company's Common Stock, approximately $1,100,000 cash, and the assumption of $750,000 of debt. The Common Stock was issued subject to an agreement which provides certain registration rights respecting the Common Stock, as well as the right, after two years, to put the shares to the Company at a price of $18.06 per share (reduced by dividends paid). The acquisition was accounted for as a purchase effective July 9, 1993, and accordingly, the results of operations and accounts of Masland subsequent to July 9, 1993 are included in the Company's consolidated financial statements. The total purchase price of $19,622,192 (cash paid, expenses of the acquisition, and estimated fair value of the Company's Common Stock subject to put option issued) was allocated to the net tangible assets of Masland based on the estimated fair market values of the assets acquired. On June 20, 1994, the Company acquired certain assets and assumed certain liabilities of Patrick of California, Inc. ("Patrick"). The purchase price of $3,206,444 was allocated to the net tangible assets of Patrick based on the estimated fair market values of the assets acquired. As required by the purchase method of accounting, the excess amount of the purchase price over the estimated fair market value of Patrick's net tangible assets was recorded as an intangible asset and is being amortized using the straight- line method over 40 years.
A summary of net assets acquired is as follows:
Carriage Masland Patrick
Current assets $49,865,747 $16,316,797 $3,352,752 Property, plant and equipment 53,440,710 11,748,152 524,088 Other assets 4,618,971 76,181 445,706 Current liabilities (26,802,995) (7,072,437) (2,741,417) Long-term debt (27,222,687) (450,000) --- Other liabilities and deferred taxes (12,326,472) (1,553,215) (1,039,134) Intangible asset 21,699,203 --- 2,664,449
Net Assets Acquired Excluding Cash 63,272,477 19,065,478 3,206,444 Cash 412,606 556,714 --- Net Assets Acquired $63,685,083 $19,622,192 $3,206,444
The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions of Carriage, Masland and Patrick had occurred at the beginning of each period presented after giving effect to certain adjustments, including amortization of cost in excess of net tangible assets acquired, interest expense on debt to finance the acquisitions, and related income taxes. The pro forma results are presented for comparative purposes only and do not purport to be indicative of the results that would have occurred had the acquisitions occurred at the beginning of the periods presented or of results which may occur in the future.
1994 1993
Net sales $695,369,000 $656,302,000
Income (loss) from continuing operations (3,252,000) 6,098,000 Net income (loss) (3,252,000) 6,098,000
Per common and common equivalent share: Income (loss) from continuing operations (.25) .48 Net income (loss) (.25) .48
Prior to March 12, 1993, the Company's investment in Carriage was accounted for using the equity method. Accordingly, net income for 1993 included the Company's proportionate share of Carriage's earnings of approximately $320,000 after taxes.
NOTE C - SALE OF ACCOUNTS RECEIVABLE
On October 15, 1993, the Company entered into a seven-year agreement to sell an undivided interest in a revolving pool of its trade accounts receivable. At December 31, 1994 and December 25, 1993, a $45,000,000 interest had been sold under this agreement and is reflected as a reduction of accounts receivable in the accompanying consolidated balance sheets. Fees of this program were fixed at 6.08% per annum on the amount of the interest sold plus administrative fees typical in such transactions. These costs, which were approximately $2,983,000 for 1994 and $574,000 for 1993, are included in other (income) expense - net.
NOTE D - ACCRUED EXPENSES
Accrued expenses include the following:
1994 1993 Compensation and benefits $ 13,712,006 $ 11,775,625 Interest expense 2,761,233 2,632,072
NOTE E - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following: 1994 1993 Senior debt: Credit line borrowings $ 85,864,611 $ 86,500,000 Other 1,743,621 1,596,700 87,608,232 88,096,700 Less current portion 583,599 446,829 87,024,633 87,649,871 Subordinated notes 50,000,000 50,000,000 Convertible subordinated debentures 44,782,000 44,782,000 $181,806,633 $182,431,871
The Company's unsecured revolving credit and term-loan agreement was renewed for five years in March of 1995. The amended agreement provides for a revolving credit facility of up to $125,000,000 through the five-year commitment period and a $10,000,000 term-loan facility that may be utilized under certain circumstances. The terms of the agreement provide for the potential reduction in revolving credit availability by 50% of the net cash proceeds from certain significant asset sales. However, the revolving credit availability may not be reduced below $90,000,000. Interest rates available under the facility may be selected by the Company from a number of options which effectively allow for borrowings at rates equal to or lower than the greater of the lender's prime rate or the federal funds rate plus .50%. Commitment fees, ranging from .25% to .375% per annum on the revolving credit line and .20% to .30% per annum on the term-loan facility, are payable on the average daily unused balance of the credit facilities. At December 31, 1994, unused borrowing capacity under the revolving credit facility was approximately $39,135,000.
The Company's subordinated notes are unsecured, bear interest of 9.96% payable semiannually, and are due in semiannual installments of $2,381,000 beginning February 1, 2000.
The Company's convertible subordinated debentures bear interest of 7% payable semiannually, are due 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. The debentures are redeemable at the Company's option through May 15, 1997, in whole or in part, at prices ranging from 102.8% to 100.7% of their principal amount. Subsequent to that date the debentures may be redeemed at 100% of their principal amount. Mandatory sinking fund payments commencing May 15, 1998 will retire $2,500,000 principal amount of the debentures annually and approximately 70% of the debentures prior to maturity. The convertible debentures are subordinated in right of payment to all other indebtedness of the Company.
The Company's long-term debt and credit arrangements contain financial covenants relating to minimum net worth, debt to capitalization, dividends and certain financial ratios. Under restrictions set forth in the Company's subordinated note agreement, future dividends may be paid only to the extent that 75% of cumulative income before extraordinary items for periods subsequent to December 31, 1994 exceeds $3,892,000.
Approximate maturities of long-term debt for each of the five years succeeding December 31, 1994 are $584,000 in 1995, $296,000 in 1996, $142,000 in 1997, $2,643,000 in 1998, and $2,613,000 in 1999.
Interest payments in 1994, 1993, and 1992 were approximately $13,408,000, $12,662,000, and $11,077,000, respectively.
NOTE F - 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:
1994 1993 Carrying Fair Carrying Fair Amount Value Amount Value
Financial assets Cash and cash equivalents $ 1,904,386 $ 1,904,386 $ 4,047,459 $4,047,459
Financial liabilities Long-term debt (including current portion) 182,390,232 169,429,000 182,878,700 178,974,000
Common Stock, subject to put option 18,177,958 17,662,000 18,177,958 18,177,958
The carrying amounts of cash and cash equivalents approximate fair values due to the short-term maturity of these instruments. The fair values of the Company's long-term debt were estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements and quoted market rates for the Company's convertible debentures. The fair value of the Company's Common Stock, subject to put option, is based on current interest rates and future cash flows.
NOTE G - PENSION PLANS
The Company has defined benefit and defined contribution pension plans which cover essentially all associates. Benefits for associates participating in the defined benefit plans are based on years of service and compensation during the period of participation. Plan assets consist primarily of cash equivalents and publicly traded stocks and bonds. Participants in the Company's largest defined benefit plan became eligible to participate in a 401(k) defined contribution plan effective in 1994. All accrued benefits under the defined benefit plan were fully vested and frozen as of December 24, 1993, and a portion of the liability of the defined benefit plan was settled through lump sum payments to electing associates. Losses from settlements and the curtailment were $1,574,833, $768,680 and $358,626 during 1994, 1993 and 1992, respectively.
The Company's practice is to fund its defined benefit plans in accordance with minimum contribution requirements of the Employee Retirement Income Security Act of 1974. Costs of the defined contribution plans are based on several factors including each participant's compensation, the operating performance of the Company and matching Company contributions.
The net periodic pension costs included the following components:
1994 1993 1992 Defined benefit plans: Service cost $ 30,385 $ 1,315,353 $ 1,446,829 Interest cost 1,694,169 1,625,217 1,841,940 Actual return on plan assets - (gain)/loss 204,189 (1,326,794) (1,227,989) Other components 116,232 153,850 (1,056,697) 2,044,975 1,767,626 1,004,083 Defined contribution plans 1,763,621 410,559 --- Net pension expense $ 3,808,596 $ 2,178,185 $ 1,004,083
The following table sets forth the funded status of the Company's defined benefit retirement plans and related amounts included in the Company's consolidated balance sheets:
1994 1993 Actuarial present value of benefit obligations: Vested benefits $20,907,205 $24,092,792 Nonvested benefits 498 1,336 Accumulated benefit obligations $20,907,703 $24,094,128
Plan assets at fair value $14,312,055 $16,138,289 Projected benefit obligation (20,907,703) (24,094,128) Projected benefit obligation in excess of plan assets (6,595,648) (7,955,839) Unrecognized net loss 7,412,057 8,764,390 Remaining unrecognized net transition asset (196,217) (462,761) Adjustment to recognize minimum liability (7,215,840) (8,301,629) Pension related liability included in the consolidated balance sheets $(6,595,648) $(7,955,839)
In accordance with the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional minimum liability representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability. This additional liability, net of the related income tax benefit, reduced stockholders' equity by $4,329,565 at December 31, 1994 and $4,981,943 at December 25, 1993.
The weighted average discount rate used in determining the projected benefit obligation was 8.0% for 1994, 7.13% for 1993 and 8.5% for 1992. There was no increase in future compensation levels assumed after 1993 (due to the freezing of benefits), and a 4% rate of increase was used for 1992. The assumed long-term rate of return on plan assets was 8.5% for each year presented.
NOTE H - INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes," which requires the liability method of accounting for income taxes. The Company restated financial statements for periods subsequent to December 26, 1986 to reflect application of the new method. The effect of the change was to decrease income from continuing operations and net income for 1992 by approximately $200,000 ($.03 per share).
The provision (benefit) for income tax on income (loss) from continuing operations consist of the following:
1994 1993 1992 Current Deferred Current Deferred Current Deferred Federal $(2,590,000) $(6,476,000) $ 21,000 $3,490,000 $1,209,000 $1,879,953 State 1,282,000 (934,000) 547,000 278,000 248,000 143,235 $(1,308,000) $(7,410,000) $568,000 $3,768,000 $1,457,000 $2,023,188
Deferred income taxes reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of those assets and liabilities. Significant components of the Company's deferred tax liabilities and assets are as follows:
Deferred Tax Liabilities 1994 1993 Property, plant and equipment $50,047,000 $52,792,000 Inventories 5,690,000 8,634,000 Intangible assets 1,026,000 --- Other 1,474,000 404,000 Total deferred tax liabilities 58,237,000 61,830,000
Deferred Tax Assets Post-retirement benefits $ 3,875,000 $ 4,073,000 Other employee benefits 3,707,000 3,925,000 Alternative minimum tax 4,528,000 3,361,000 Allowances for bad debts, claims and discounts 2,699,000 2,727,000 Restructuring --- 730,000 Net operating loss carryforward 2,510,000 --- Other 2,620,000 1,737,000 Valuation reserve --- --- Total deferred tax assets 19,939,000 16,553,000
Net deferred tax liabilities $38,298,000 $45,277,000
The net operating loss carryforward of approximately $7,383,000 can be utilized to offset future Federal taxable income through the year 2009. Differences between the provision (benefit) for income taxes and the amount computed by applying the statutory Federal income tax rate to income (loss) from continuing operations are reconciled as follows:
1994 1993 1992 Statutory rate applied to income (loss) from continuing operations $(4,181,000) $3,157,000 $ 3,042,000 Plus state income taxes net of Federal tax provision (benefit) 226,000 536,000 258,000 (3,955,000) 3,693,000 3,300,000
Increase(decrease) attributable to:
Nondeductible amortization of intangible assets 634,000 559,000 423,000 Investment income accounted for on equity method --- (96,000) (153,000) Nondeductible portion of travel and entertainment 268,000 97,000 63,000 Nontaxable life insurance gain (4,492,000) --- --- Capital loss carryback benefit (1,200,000) --- --- Effect of federal tax rate increase on deferred income taxes --- 500,000 --- Other items 27,000 (417,000) (152,812) (4,763,000) 643,000 180,188
Total tax provision (benefit) $(8,718,000) $4,336,000 $ 3,480,188
Income tax payments, net of tax refunds received, in 1994, 1993 and 1992 were approximately $2,645,000, $2,079,000, and $1,024,000, respectively.
NOTE I - CAPITAL STOCK
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 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.
NOTE J - STOCK PLANS
The Company's 1990 Incentive Stock Plan reserves 770,000 shares of Common Stock for sale or award to key associates under stock options, stock appreciation rights, restricted stock performance grants, or other awards. Outstanding options are exercisable at a cumulative rate of 25% to 33 1/3% per year after the second year from the date the options are granted. Options outstanding were granted at prices at or above market price on the date of grant and include grants under the 1983 Incentive Stock Plan, under which no further options may be granted. At December 31, 1994, options to purchase 182,000 shares were exercisable under these plans.
A summary of the option activity under the 1990 and 1983 Incentive Stock Plans is as follows:
Number of Option Price Shares Per Share Outstanding at December 28, 1991 382,624 $ 4.58 - $33.83 Granted 254,000 10.75 - 11.00 Exercised (27,800) 4.58 - 5.83 Cancelled (68,412) 10.75 - 33.83 Outstanding at December 26, 1992 540,412 5.83 - 30.75 Granted 197,000 12.50 - 15.25 Exercised (22,100) 5.83 Cancelled (87,400) 10.75 - 30.75 Outstanding at December 25, 1993 627,912 10.75 - 30.75 Granted 10,000 10.25 Cancelled (90,412) 10.75 - 30.75 Outstanding at December 31, 1994 547,500 $10.25 - $19.50
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 31, 1994, 64,740 shares remained available for issue. Shares sold under this plan are held in escrow until paid for and are subject to repurchase agreements which give the Company the right of first refusal at the prevailing market price. Numbers of shares sold under the plan were 3,880 in 1994, 12,700 in 1993 and 1,800 in 1992.
In 1993, the Company issued options for the purchase of 83,044 shares of Common Stock, which were immediately exercisable at prices ranging from $3.19 - $5.27 per share, in connection with the acquisition of Carriage. During 1993, options for 10,699 shares were exercised at prices ranging from $3.43 - $4.29 per share, and during 1994, options for 1,529 shares were exercised at prices ranging from $4.29 - $5.03 per share. At December 31, 1994, options for 70,816 shares at prices ranging from $3.19 - $5.27 per share remain exercisable.
NOTE K - ASSET VALUATION LOSSES
The asset valuation losses in 1994 of $10,397,136 ($6,446,136 after taxes) relate to idle facilities and machinery and equipment permanently taken out of service during the year.
NOTE L - LIFE INSURANCE GAIN
The Company recorded a nontaxable gain of $12,835,313 in the fourth quarter of 1994 from the receipt of insurance proceeds on the life of the former Chairman of Carriage Industries, Inc.
NOTE M - CASUALTY DAMAGE
During 1993 and 1994, a number of the Company's manufacturing facilities were damaged or destroyed by weather-related casualties and a fire. By the end of 1994, all of the damaged facilities were either replaced, repaired or their production capacities consolidated into other manufacturing facilities, and all costs associated with the casualties had been recorded. Each damaged facility was covered by insurance. The majority of the casualty insurance claims have been settled or partially settled, and insurance proceeds received by the Company through December 31, 1994 amounted to $43,568,487. Insurance benefits recognized by the Company amounted to $33,500,000 in 1993 and $10,068,487 in 1994. Casualty insurance benefits exceeded the book values of the destroyed assets and the cost to repair damaged assets by $13,400,000 in 1993 and $8,210,000 in 1994, and are reflected in the financial statements as reductions to cost of sales of $11,600,000 and $7,941,000 in 1993 and 1994, respectively, to offset additional expenses incurred as a result of the casualties and as other income of $1,800,000 in 1993 and $269,000 in 1994. Additional insurance claims, primarily related to business interruptions, are expected to be settled in 1995.
NOTE N - COMMITMENTS
The Company had outstanding commitments for purchases of machinery and equipment and expenditures for construction of buildings of approximately $17,159,000 at December 31, 1994.
NOTE O - INDUSTRY SEGMENT INFORMATION
The Company operates in two industry segments: textile products and floorcovering. Textile products include yarns, industrial sewing threads and knit fabrics. Floorcovering includes carpet for manufactured housing, recreational vehicles, high-end residential and commercial markets, rugs and yarns.
(dollar amounts in thousands) Net Sales Operating Profit(Loss)(1) 1994 1993 1992 1994 1993 1992 Business Segments Textile products $332,482 $332,059 $347,802 $(33,039) $ 1,629 $15,352 Floorcovering 359,635 263,899 123,107 28,117 24,424 7,913 Intersegment elimination (3,583) (1,357) (1,077) --- --- --- Total $688,534 $594,601 $469,832 (4,922) 26,053 23,265 Interest expense 13,748 12,773 10,824 Corporate expenses 5,915 5,159 5,600 Life insurance gain (12,835) --- --- Other (income) expense - net 195 (899) (2,107) Income (loss) before income taxes $(11,945) $ 9,020 $ 8,948
Identifiable Capital Assets at Year End Expenditures 1994 1993 1992 1994 1993 1992 Business Segments Textile products $265,932 $306,076 $310,594 $ 9,673 $27,504 $24,072 Floorcovering 205,444 181,663 73,973 21,912 10,316 1,854 Corporate 16,944 8,840 12,513 1,089 1,005 398 Total $488,320 $496,579 $397,080 $32,674 $38,825 $26,324
Depreciation and Amortization 1994 1993 1992 Business Segments Textile products $22,188 $20,531 $19,851 Floorcovering 11,624 8,051 3,189 Corporate 765 663 673 Total $34,577 $29,245 $23,713
(1) Net (gains) losses included in operating profit (loss) on a segment basis but classified in "other (income) expense - net" in the Company's Consolidated Statements of Income (Loss) are as follows: 1994 - $5,274; 1993 - ($1,741); 1992 - $1,851. Operating profit (loss) on a segment basis for 1994 includes (income) expense related to casualty insurance (gains) losses and asset valuation losses which were recognized as follows: Textile products - $14,143; Floorcovering - $(4,015).
ANNUAL REPORT ON FORM 10-K
ITEM 14 (c)
EXHIBITS
YEAR ENDED DECEMBER 31, 1994
DIXIE YARNS, INC.
CHATTANOOGA, TENNESSEE
Exhibit Index
EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(3a) Restated Charter of Dixie Incorporated by reference to Yarns, Inc. Exhibit (3a) to Dixie's Annual Report on Form 10-K for the year ended December 30, 1989.*
(3b) Amended and Restated By- Incorporated by reference to Laws of Dixie Yarns, Inc. Exhibits (3b) and (3c) to Dixie's Annual Report on Form 10-K for the year ended December 29, 1990.*
(4a) Second Amended and Restated Incorporated by reference to Revolving Credit and Term Exhibit (4a) to Dixie's Annual Loan Agreement, dated Report on Form 10-K for the January 31, 1992, by and year ended December 28, 1991.* among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank.
(4b) Loan Agreement, dated Incorporated by reference to February 6, 1990 between Exhibit (4d) to Dixie's Annual Dixie Yarns, Inc. and New Report on Form 10-K for the York Life Insurance Company year ended December 30, 1989.* and New York Life Annuity Corporation.
(4c) Form of Indenture, dated Incorporated by reference to May 15, 1987 between Dixie Exhibit 4.2 to Amendment No. 1 Yarns, Inc. and Morgan of Dixie's Registration Guaranty Trust Company of Statement No. 33-140 78 on Form New York as Trustee. S-3, dated May 19, 1987.
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(4d) Revolving Credit Loan Incorporated by reference to Agreement dated as of Exhibit (4d) to Dixie's Annual September 16, 1991 by Report on Form 10-K for the and among Ti-Caro, Inc. and year ended December 28, 1991.* Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank.
(4e) First Amendment to Revolving Incorporated by reference to Credit Loan Agreement dated Exhibit (4e) to Dixie's Annual as of August 19, 1992 by and Report on form 10-K for the among Ti-Caro, Inc., T-C year ended December 26, 1992.* Threads, Inc. and Trust Company Bank, individually and as agent, NCNB National Bank, and Chemical Bank.
(4f) First Amendment, dated Incorporated by reference to August 25, 1993 to Second Exhibit (4f) to Dixie's Annual Amended and Restated Report on form 10-K for the year Revolving Credit and Term ended December 25, 1993.* Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank.
(10a) Dixie Yarns, Inc. 1983 Incorporated by reference to Incentive Stock Option Exhibit (10c) to Dixie's Annual Plan. Report on Form 10-K for the year ended December 28, 1985.*
(10b) Dixie Yarns, Inc. Incentive Incorporated by reference to Stock Plan. Exhibit (10) to Dixie's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990.*
(10c) Dixie Yarns, Inc. Nonquali- Incorporated by reference to fied Defined Contribution Exhibit (10c) to Dixie's Annual Plan. Report on form 10-K for the year ended December 26, 1992.*
(10d) Dixie Yarns, Inc. Nonquali- Incorporated by reference to fied Employee Savings Plan. Exhibit (10d) to Dixie's Annual Report on form 10-K for the year ended December 26, 1992.*
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10e) Dixie Yarns, Inc. Incentive Incorporated by reference to Compensation Plan. Exhibit (10e) to Dixie's Annual Report on form 10-K for the year ended December 26, 1992.*
(10f) Asset Transfer and Restruc- Incorporated by reference to turing Agreement dated Exhibit (2a) to Dixie's Current July 9, 1993, by and among Report on Form 8-K dated Dixie Yarns, Inc., Masland July 9, 1993.* Carpets, Inc., individual management investors of Masland Carpets, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company.
(10g) Assignment and Bill of Sale Incorporated by reference to dated July 9, 1993, by and Exhibit (2b) to Dixie's Current between Dixie Yarns, Inc. Report on Form 8-K dated July 9, and Masland Carpets, Inc. 1993.*
(10h) Assignment and Assumption Incorporated by reference to Agreement dated July 9, 1993, Exhibit (2c) to Dixie's Current by and between Dixie Yarns, Report on Form 8-K dated July 9, Inc. and Masland Carpets, 1993.* Inc.
(10i) Stock Rights and Restrictions Incorporated by reference to Agreement dated July 9, 1993, Exhibit (2d) to Dixie's Current by and among Dixie Yarns, Report on Form 8-K dated July 9, Inc., Masland Carpets, Inc., 1993.* The Prudential Insurance Company of America and Pruco Life Insurance Company.
(10j) Pooling and Servicing Incorporated by reference to Agreement dated as of Exhibit (2a) to Dixie's October 15, 1993, among Current Report on Form 8-K Dixie Yarns, Inc., Dixie dated October 15, 1993.* Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee).
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10k) Annex X - Definitions, to Incorporated by reference to Pooling and Servicing Exhibit (2b) to Dixie's Agreement dated as of Current Report on Form 8-K October 15, 1993, among dated October 15, 1993.* Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee).
(10l) Series 1993-1 Supplement, Incorporated by reference to dated as of October 15, Exhibit (2c) to Dixie's 1993, to Pooling and Current Report on Form 8-K Servicing Agreement dated as dated October 15, 1993.* of October 15, 1993, among Dixie Yarns, Inc., Dixie Funding, Inc. and NationsBank of Virginia, N.A. (as Trustee).
(10m) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2d) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and New York Life Insurance and Annuity Corporation.
(10n) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2e) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and John Alden Life Insurance Company.
(10o) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2f) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and John Alden Life Insurance Company of New York.
(10p) Certificate Purchase Incorporated by reference to Agreement dated October 15, Exhibit (2g) to Dixie's 1993, among Dixie Yarns, Current Report on Form 8-K Inc., Dixie Funding, Inc. dated October 15, 1993.* and Keyport Life Insurance Company.
* Commission File No. 0-2585
Exhibit Index - Continued
EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(10q) Executive Severance Incorporated by reference to Agreement dated as of Exhibit (19) to Dixie's Quarterly September 8, 1988 as Report on Form 10-Q for the amended. quarter ended March 27,1993.*
(11) Statement re: Computation Filed herewith. of Earnings Per Share.
(21) Subsidiaries of the Filed herewith. Registrant.
(23) Consent of Ernst & Young LLP. Filed herewith.
*Commission File No. 0-2585