-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AonBXqQalFb/ergLklc+1jdqal6Ie4FBwQ2kiYBhN3aR7Wpb0XPX2q2dhEWIKdAa Js+mEmYVoomkYnRyiXRf7A== 0000029332-96-000002.txt : 19960401 0000029332-96-000002.hdr.sgml : 19960401 ACCESSION NUMBER: 0000029332-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXIE YARNS INC CENTRAL INDEX KEY: 0000029332 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 620183370 STATE OF INCORPORATION: TN FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-02585 FILM NUMBER: 96541571 BUSINESS ADDRESS: STREET 1: 1100 S WATKINS ST CITY: CHATTANOOGA STATE: TN ZIP: 37404 BUSINESS PHONE: 6156982501 MAIL ADDRESS: STREET 1: P O BOX 751 CITY: CHATTANOOGA STATE: TN ZIP: 37401 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE MERCERIZING CO DATE OF NAME CHANGE: 19670524 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 30, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______ to _______. Commission File Number: 0-2585 Dixie Yarns, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-0183370 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1100 South Watkins Street Chattanooga, Tennessee 37404 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (423) 698-2501 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $3.00 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] -Continued- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Continued) State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 8, 1996: Common Stock - $44,356,294; Class B Common Stock - No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to section 15(d) of the Act. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding as of March 8, 1996 Common Stock, $3.00 Par Value 10,465,299 shares Class B Common Stock, $3.00 Par Value 735,228 shares Class C Common Stock, $3.00 Par Value 0 shares Documents Incorporated By Reference Specified portions of the following document are incorporated by reference: Proxy Statement of the registrant for annual meeting of shareholders to be held May 2, 1996 (Part III). PART I ITEM 1. BUSINESS GENERAL The Company's strategic objective has been to grow in selected floorcovering markets and those textile markets where the Company's value- added products are expected to result in the greatest growth and improved long-term return on equity. An integral part of the Company's strategy has been to restructure its textile operations through facility consolidations or the disposal of assets that the Company does not expect will meet its long-term return requirements. In early 1996, the Company announced an agreement in principle to sell certain operating assets of its Threads USA division ("Threads") to American & Efird, Inc., a subsidiary of Ruddick Corporation. The transaction is subject to regulatory approval, the results of certain due diligence, and the execution of a definitive purchase agreement. The sale of Threads will allow the Company to concentrate its resources on accomplishing its strategic objectives. Other actions taken during 1995 in support of these objectives include the mid-year sale of the Company's Newton, North Carolina, cotton yarn spinning plant and synthetic yarn spinning plant consolidations in Ranlo, North Carolina. During 1995, the Company completed expansions at Carriage Industries in Calhoun, Georgia and Masland Carpets Atmore, Alabama tufting facility, and relocated the tufting operations of its Patrick division to Atmore. The expansions position the Company to take advantage of anticipated growth in the floorcovering segment. After the sale of Threads, the Company's business is expected to be approximately two-thirds floorcovering and one- third textile products. 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, trade legislation enacted under the North American Free Trade Agreement has increased demand for domestic textile products by non-domestic cut and sew operations. Additionally, management believes that consumer buying patterns will continue to be influenced by mass merchandisers and retailers emphasizing price competition. However, recent retail sales data reflect sales growth at department stores and specialty outlets where the Company's high-end, value-added products would be expected to benefit. 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 - As previously discussed, the Company entered into an agreement in principle to sell certain operating assets of Threads, its industrial sewing thread business. Threads manufactures a full line of products that includes cotton, spun polyester, corespun and filament threads, which are marketed through an extensive regional warehouse network as well as to independent wholesale jobbers. After completion of the anticipated sale, the Company's textile products business will consist of yarns and knit fabrics. The Company manufactures and markets yarns and knit fabrics from a variety of natural and man-made fibers which are 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. The textile products business is organized into two business groups, the Yarn Group and the Knit Group. Textile products are focused on narrow groups of products, related by manufacturing processes, performance characteristics and end uses. No group of products individually accounts for as much as 10% of the Company's consolidated revenues for 1995, 1994 or 1993 and no customer's volume exceeded 10% of the Company's total sales for 1995. The Company's Yarn Group manufactures natural and dyed yarn product lines. Products produced and marketed through this group 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 Knit Fabric Group knits, dyes and finishes 100 percent cotton circular knit fabrics for apparel and industrial markets. A portion of the yarn used for the production of the fabric is supplied by the Company's yarn facilities. These products are sold primarily by the group's salaried sales force. The Company's sales order backlog position in its textile products businesses, excluding order positions associated with the thread business, was approximately $44,000,000 on December 30, 1995 compared to approximately $80,000,000 on December 31, 1994. All of these orders can reasonably be expected to be filled within the 1996 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 over 100 manufacturers of which the top 5 account for over 65% 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"), Bretlin, a subsidiary of Carriage, Masland Carpets, Inc. ("Masland"), Patrick, and RHS Carpets ("RHS"). Candlewick is one of the world's largest independent carpet yarn manufacturers producing premier yarns for floorcovering applications. A significant portion of its production is utilized in the Company's carpet manufacturing operations. Candlewick's products sold to external customers include end-use product manufacturers in the bath rug, automotive and broadloom carpet markets and 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, through its Bretlin subsidiary, 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. During 1995, the production of commercial broadloom products, marketed as Patrick Carpets, was transferred to Masland's Atmore, Alabama facility. The residential broadloom products of Patrick Carpet Mills, Inc. continue to be manufactured and marketed on the West Coast under the tradestyle RHS. The Company's sales order backlog position in its floorcovering businesses, excluding Carriage, was approximately $28,000,000 on December 30, 1995 compared to approximately $31,000,000 on December 31, 1994. 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 1996 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 1995, 1994 or 1993 and no customer's volume exceeded 10 percent of the Company's total sales for 1995. 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 are no material impacts on working capital relating to seasonality. ENVIRONMENTAL While compliance with current federal, state and local provisions regulating the discharge of material into the environment may require additional expenditures by the Company, these expenditures are not expected to have a material effect on capital expenditures, earnings or the competitive position of the Company. RAW MATERIALS The Company obtains natural and synthetic raw materials from a number of domestic suppliers. 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. OTHER FACTORS Except for historical information contained herein, certain matters discussed in this Annual Report on Form 10-K are forward looking and involve certain risks and uncertainties that could cause actual results to differ materially from those forward looking statements, including such factors as consumer spending levels in those markets served by the Company's products and the level of textile imports. The Company had approximately 5,900 associates as of the end of fiscal 1995. 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 8, 1996. Approximate Location Type of Operation Square Feet CORPORATE Administrative: Chattanooga, TN Administrative 41,000 TEXTILE PRODUCTS Administrative: (1) Gastonia, NC Administrative 61,000 Warehousing: (1) Gastonia, NC (2 locations) Warehousing 88,000 (1) Sales Branch Warehouses (3 locations) Warehousing 47,000 Total Warehousing 135,000 Manufacturing: Chattanooga, TN Yarn Spinning 440,000 Mebane, NC Yarn Spinning 99,000 Ranlo, NC Yarn Spinning 319,000 Tarboro, NC Yarn Spinning 340,000 Chattanooga, TN Package Yarn Dyeing, Bleaching and Mercerizing 276,000 Tryon, NC Bleaching and Mercerizing 63,000 (1) Gastonia, NC Thread Yarn Dyeing and Finishing 530,000 (1) Arroyo, Puerto Rico Thread Yarn Dyeing and Finishing 22,000 (1) Gastonia, NC Thread Yarn Spinning 445,000 Jefferson, SC Knitting, and Fabric Dyeing and Finishing 274,000 Total Manufacturing 2,808,000 FLOORCOVERING Administrative: Dalton, GA Administrative 13,000 Calhoun, GA Administrative 60,000 (2) Mobile, AL 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 (3) Roanoke, AL Tufted Yarn Spinning 190,000 Calhoun, GA Carpet Manufacturing, Distribution 1,439,000 Atmore, AL Carpet Manufacturing, Distribution 342,000 (2) Mobile, AL Rug Manufacturing, Distribution 400,000 Total Manufacturing 2,983,000 Total 6,240,000 ITEM 2. PROPERTIES - CONTINUED (1) These properties are currently held for sale pending the completion of a definitive purchase agreement. See Note K to the consolidated financial statements. (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. (3) 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. 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. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company or its subsidiaries are a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the fourth quarter of 1995 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 8, 1996, 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, 54 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, 53 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. William N. Fry, IV, 37 Executive Vice President and Chief Executive Vice President and Chief Operating Officer, Candlewick, Operating Officer, Candlewick, Carriage and Bretlin since January, Carriage and Bretlin 1996. President, Bretlin from January, 1995 to January, 1996. Executive Vice President, Bretlin from November, 1993 to January, 1995. Business Analyst, Carriage from July, 1993 to November, 1993. General Manager, Dyed Yarns from May, 1992 to July, 1993. Assistant Plant Manager, Chattanooga Finishing from July, 1991 to May, 1992. Assistant to President, Yarn Group from September, 1990 to July, 1991. EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED Name, Age Business Experience During and Position Past Five Years John O. Sturdy, 66 Executive Vice President and Executive 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. Philip H. Barlow, 47 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, 38 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. Paul K. Frierson, 58 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. EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED Name, Age Business Experience During and Position Past Five Years George B. Smith, 55 Corporate Vice President and Corporate Vice President President, Natural/Dyed Yarns and President, Yarns and 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. W. Derek Davis, 45 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. Gary A. Harmon, 50 Treasurer since 1993. Treasurer Director of Tax and Financial Planning, 1985 - 1993. D. Eugene Lasater, 45 Controller since 1988. Controller Starr T. Klein, 53 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. 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 8, 1996, the total number of record holders of the Company's Common Stock was approximately 4,500 and the total number of holders of the Company's Class B Common Stock was 16. Management of the Company estimates that there are approximately 3,500 shareholders who hold the Company's Common Stock in nominee names. Dividends and Price Range of Common Stock for the four quarterly periods in the years ended December 30, 1995 and December 31, 1994 are as follows: DIXIE YARNS, INC. QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK (Unaudited) (dollars in thousands, except per share data)
1995 Quarter 1st 2nd 3rd 4th Net sales $181,646 $177,809 $161,289 $150,099 Gross profit 28,552 26,172 23,395 19,962 Net income (loss) 883 431 (6,030) (47,463) Earnings (loss) per common and common equivalent share .06 .03 (.53) (4.24) Dividends: Common Stock --- --- --- --- Class B Common Stock --- --- --- --- Common Stock prices: High $ 7.13 $ 7.19 $ 7.13 $ 6.00 Low 4.88 5.50 5.63 3.75 1994 Quarter 1st 2nd 3rd 4th Net sales $163,391 $176,843 $172,556 $170,070 Gross profit 18,163 26,084 25,540 17,342 Net income (loss) (4,342) 118 501 496 Earnings (loss) per common and common equivalent share (.33) .01 .04 .04 Dividends: Common Stock .05 .05 .05 .05 Class B Common Stock .05 .05 .05 .05 Common Stock prices: High $ 11.00 $ 10.25 $ 9.75 $ 9.00 Low 9.25 8.25 8.25 6.75 The total of quarterly earnings per share does not equal the annual earnings per share due primarily to Common Stock purchased and issued during the respective periods. During the fourth quarter of 1995, the Company recognized asset valuation losses of $53,751 ($44,674, or $3.99 per share after taxes). During the fourth quarter of 1994, the Company recognized asset valuation losses of $10,397 ($6,446, or $.47 per share after taxes) and a nontaxable life insurance gain of $12,835 ($.94 per share). The discussion of restrictions on payment of dividends is included in Note E to the Consolidated Financial Statements included herein. ITEM 6. SELECTED FINANCIAL DATA (dollars in thousands, except per share data) The following selected financial data should be read in conjunction with the related consolidated financial statements and notes thereto included under Items 8, 14(a) (1) and (2) and 14 (d) of the report on Form 10-K. Year Ended December 30, December 31, December 25, December 26, December 28, 1995 1994(1) 1993(2) 1992 1991 Net sales $670,842 $682,859 $591,408 $469,832 $491,952 Income (loss) from continuing operations(3,4) (52,179) (3,227) 4,684 5,467 (25,557) Total assets 396,997 488,320 496,579 397,080 372,807 Long-term debt: Senior indebtedness 97,383 87,025 87,650 70,023 59,324 Subordinated notes 50,000 50,000 50,000 50,000 50,000 Convertible subordinated debentures 44,782 44,782 44,782 44,782 44,782 Common Stock, subject to put option --- 18,178 18,178 --- --- Per Share: Income (loss) from continuing operations: (3,4) Primary (4.44) (.24) .41 .62 (2.90) Fully diluted (4.44) (.24) .40 .62 (2.90) Cash dividends declared: Common Stock --- .20 .20 .20 .42 Class B Common Stock --- .20 .20 .20 .42 (1) Includes the results of operations of Patrick Carpet Mills, Inc. subsequent to June 20, 1994. See Note B to the Consolidated Financial Statements. (2) Includes the results of operations of Carriage Industries, Inc. and Masland Carpets, Inc. subsequent to their acquisitions on March 12, 1993 and July 9, 1993, respectively. See Note B to the Consolidated Financial Statements. (3) Income (loss) from continuing operations includes asset valuation losses of $51,058, or $4.35 per share, and casualty insurance gains of $3,298, or $.28 per share, for the year ended December 30, 1995, asset valuation losses of $6,446, or $.49 per share, and a nontaxable life insurance gain of $12,835, or $.97 per share, for the year ended December 31, 1994, and a restructuring charge of $18,271, or $2.08 per share, for the year ended December 28, 1991. See Note K, Note L, and Note M to the Consolidated Financial Statements. (4) Income (loss) from continuing operations excludes a change for the cumulative effect of an accounting change of $1,497, or $.17 per share, and an extraordinary gain from the early retirement of debt of $452, or $.05 per share, for the year ended December 28, 1991.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth selected operating data (in millions of dollars) related to the two business segments of the Company: Textile Products and Floorcovering (see additional information in Note O to the consolidated financial statements). Results include $58.4 million of unusual charges which are discussed in the commentary that follows. 1995 1994 1993 Sales Textile products $313.7 $332.5 $332.1 Floorcovering 361.5 354.0 260.7 Intersegment elimination (4.4) (3.6) (1.4) Total sales $670.8 $682.9 $591.4 Operating profit (loss) Textile products Excluding unusual items $ (5.4) $(10.9) $ 0.3 Unusual items (58.5) (22.1) 1.3 Textile products operating profit (loss) $(63.9) $(33.0) $ 1.6 Floorcovering Excluding Unusual items $ 20.1 $ 25.4 $ 22.6 Unusual items 0.1 2.7 1.8 Floorcovering operating profit $ 20.2 $ 28.1 $ 24.4 Combined Excluding unusual items $ 14.7 $ 14.5 $ 22.9 Unusual items (58.4) (19.4) 3.1 Company operating profit (loss) $(43.7) $ (4.9) $ 26.0 In February, 1996 the Company reached an agreement in principle to sell the operating assets of its Threads USA division ("Threads") to American & Efird, Inc., a subsidiary of Ruddick Corporation. The transaction is subject to regulatory approval, the results of certain due diligence, and the execution of a definitive purchase agreement. Based on the proposed terms of the sale, the Company recorded a pre-tax charge in the fourth quarter of 1995 amounting to $41.5 million, (including $23.4 million related to intangibles) to adjust the carrying value of Threads' assets to their estimated fair market value. The Company also recorded pre-tax charges of $22.1 million in 1995 related to fixed and intangible asset write-downs pertaining to a plant sale, other textile group consolidations, facilities and equipment taken out of service and held for disposal, and a floorcovering product line to be discontinued. Additionally, the Company recognized casualty insurance gains of $5.2 million. 1995 Compared to 1994 - The Company reported a net loss in 1995 of $52.2 million, or $4.44 per share, on sales of $670.8 million compared with a net loss of $3.2 million, or $.24 per share, on sales of $682.9 million in 1994. The results for 1995 included the aforementioned special charges aggregating to $58.4 million ($47.9 million after-tax, or $4.07 per share). Results for 1994 included a nontaxable life insurance gain of $12.8 million and pre-tax charges of $19.6 million consisting primarily of write-downs for idle facilities and equipment, related supply parts, inventories of discontinued product lines, and other expenses partially offset by net casualty insurance gains. The aggregate effect in 1994 was a pre-tax charge of $6.8 million ($.6 million after-tax gain, or $.05 per share). The pre-tax effect of the charges, net of casualty insurance gains, described above attributable to the Company's textile business was $58.5 million in 1995 and $22.1 million in 1994. The results of the Company's floorcovering business included pre-tax gains of $.1 million in 1995 and $2.7 million in 1994. Sales in the Company's textile products business declined 6% in 1995 compared with 1994. The decline in sales occurred in the last half of 1995, particularly in the fourth quarter, as the Company's customers, primarily apparel and upholstery fabric manufacturers, were severely affected by a general slowdown in retail sales of their products. Additionally, sales volume was negatively impacted as a result of plant consolidations and a plant sale in the second and third quarters of 1995, respectively. Excluding the unusual items in 1995 and 1994, operating losses in the textile business were $5.4 million in 1995 compared with $10.9 million in 1994. The improvement in 1995 resulted from significant cost reductions due to manufacturing efficiencies and lower selling and administrative costs which more than offset higher cotton and other raw material costs. Although textile markets remain weak, the Company believes that operating results will continue to improve due to increased manufacturing efficiencies, the aforementioned facility consolidations and sales, and management's continued focus on value-added textile products in targeted markets. Although sales in the Company's floorcovering business increased 2% in 1995 compared with 1994, operating profits, excluding unusual items, declined to $20.1 million in 1995 compared with $25.4 million in 1994. Excess capacity and a slowdown in demand in the carpet industry resulted in pressure on selling prices during a period where material costs increased. During 1995, disruption costs were incurred in floorcovering operations as a result of capacity expansions at Carriage and Masland. These expansions position the floorcovering segment to take advantage of anticipated growth. Selling expense increased in 1995 compared with 1994 to accommodate new product introductions and to increase staff for anticipated sales growth. The increase in interest expense of $1.8 million in 1995 compared with 1994 is attributable to the general increase in interest rates. The Company's effective income tax rate differs from statutory income tax rates due primarily to nondeductible amortization and write-offs of intangible assets and the nontaxable life insurance gain in 1994. 1994 Compared with 1993 - Sales for the year ended December 31, 1994 increased 15.8%. The increase in sales was attributable to strong demand in the Company's floorcovering business 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. 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 life insurance gain of $12.8 million and unusual charges aggregating to $19.6 million ($12.2 million after-tax) were included in 1994 results. 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 1994 operating loss of the Company's textile business, excluding the effects of unusual charges of $22.1 million, 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 1994 as demand and manufacturing efficiencies improved and selling prices strengthened. 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 was due to strong demand and the acquisitions made in 1993 and 1994. 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 reflected 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 and a partial year in 1993. 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. 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. LIQUIDITY AND CAPITAL RESOURCES During the three-year period ended December 30, 1995, cash flow generated from operating activities totaled $109.1 million and was supplemented by a $28.4 million increase in long-term debt, $24.8 million of proceeds from asset sales and $16.8 million of life insurance proceeds. These funds financed the Company's operations, capital expenditures, and business acquisitions. Capital expenditures (excluding expenditures of $15.2 million related to casualty losses) were $101.7 million during the three-year period ended December 30, 1995 and were directed toward upgrading equipment to improve quality and manufacturing efficiency, as well as expanding manufacturing capacity and service capability in the Company's floorcovering business. During this period, charges for depreciation and amortization totaled $102.4 million. Capital expenditures for 1996 are expected to be approximately $10 million less than charges for depreciation and amortization. The Company's 1995 operating activities generated $30.5 million of cash flow, while funds generated from asset sales and borrowing under the Company's revolving credit and term-loan agreement amounted to $7.8 million and $12.5 million, respectively. These funds financed, among other things, capital expenditures of $30.3 million and $18.3 million to purchase 1.0 million shares of the Company's Common Stock issued in connection with the acquisition of the assets of Masland Carpets, Inc. in 1993. During 1995, insurance proceeds totaling $5.2 million were received from business interruption claims relating to manufacturing facilities that were damaged or destroyed by weather-related casualties and a fire in prior years. The costs and expenses to replace, repair or consolidate production capacities into other manufacturing facilities related to these events had been recorded by year end 1994. After acquiring 46% of the outstanding common stock of Carriage Industries, Inc. in 1992, the Company acquired the remaining publicly-held shares on March 12, 1993 in exchange for 2.5 million shares and options to purchase 83,044 shares of the Company's Common Stock and $661,000 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 $750,000 of debt. The holders of the shares issued in the Masland acquisition exercised their right on July 10, 1995 to put the shares to the Company at a price of approximately $18 per share. On June 20, 1994, the assets of Patrick of California, 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 30, 1995, the Company's debt structure consisted of $44.8 million of convertible subordinated debentures, $50.0 million of subordinated notes and $97.4 million of senior indebtedness, principally under the Company's revolving credit and term-loan agreement. The convertible subordinated debentures require annual mandatory sinking fund payments of $2.5 million, beginning in 1998. Principal payments are not required under the Company's subordinated notes until the year 2000. The revolving credit and term-loan agreement was renewed for five years in March, 1995. The amended agreement provided for revolving credit of up to $125.0 million through the five-year commitment period and a $10.0 million term-loan. Principal payments on the term-loan are due in quarterly installments of $625,000 beginning in 1996. Under the terms of the revolving credit agreement, borrowing capacity is permanently reduced by 50% of the net cash proceeds from certain significant asset sales. Accordingly, the borrowing line has been reduced by $2.8 million as a result of the sale of the Company's Newton plant in September, 1995. The Company anticipates that proceeds from the Threads sale will be used to reduce outstanding borrowings, thereby offsetting any reduction of the credit line. 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 revolving credit facilities was $38.8 million. Under restrictions set forth in the Company's subordinated note agreement, and absent a waiver from the lender or an amendment, future dividends may be paid only to the extent of 75% of the excess of cumulative income, excluding extraordinary items, for periods subsequent to December 30, 1995 above $57.4 million. Certain of the financial covenants of the Company's revolving credit and term-loan agreement were waived or amended effective December 30, 1995 to recognize the effects of the potential sale of Threads and the economic conditions affecting the Company's businesses. The Company's future liquidity requirements are expected to consist primarily of capital expenditures and seasonal working capital requirements. The Company's liquidity requirements are expected to be financed from operating cash flow and existing debt arrangements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The supplementary financial information as required by Item 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the remaining response is included in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section entitled "Information about Nominees for Directors" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 2, 1996 is incorporated herein by reference. Information regarding the executive officers of the registrant is presented in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation Information" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 2, 1996 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Principal Shareholders", as well as the beneficial ownership table (and accompanying notes) 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 2, 1996 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions Between the Company and Directors and Officers" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 2, 1996 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2)-- The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits: (i) Exhibits Incorporated by Reference: (3a) Restated Charter of 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. (4g) Third Amended and Restated Credit Agreement dated March 31, 1995. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (i) Exhibits Incorporated by Reference - Continued (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. (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. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (i) Exhibits Incorporated by Reference - Continued (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. (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. (10r) Form of Nonqualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. (10s) Form of Amendment to Nonqualified Stock Option Agreement Under the Dixie Yarns, Inc. Incentive Stock Plan. (21) Subsidiaries of the Registrant. (ii) Exhibits filed with this report: (4h) Waiver and First Amendment to Credit Agreement dated February 27, 1996. (11) Statement Re: Computation of Earnings Per Share. (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 28, 1996 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 28, 1996 Daniel K. Frierson Corporate Vice President, President of the Candlewick /s/PAUL K. FRIERSON Group and Director March 28, 1996 Paul K. Frierson Senior Vice President and /s/GLENN M. GRANDIN Chief Financial Officer March 28, 1996 Glenn M. Grandin /s/D. EUGENE LASATER Controller March 28, 1996 D. Eugene Lasater /s/PAUL K. BROCK Director March 28, 1996 Paul K. Brock SIGNATURES -- CONTINUED /s/LOVIC A. BROOKS, JR. Director March 28, 1996 Lovic A. Brooks, Jr. /s/J. FRANK HARRISON, JR. Director March 28, 1996 J. Frank Harrison, Jr. /s/JAMES H. MARTIN, JR. Director March 28, 1996 James H. Martin, Jr. /s/PETER L. SMITH Director March 28, 1996 Peter L. Smith /s/JOSEPH T. SPENCE, JR. Director March 28, 1996 Joseph T. Spence, Jr. /s/ROBERT J. SUDDERTH, JR. Director March 28, 1996 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 30, 1995 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 30, 1995 and December 31, 1994 Consolidated statements of income(loss)--Years ended December 30, 1995, December 31, 1994, and December 25, 1993 Consolidated statements of cash flows--Years ended December 30, 1995, December 31, 1994, and December 25, 1993. Consolidated statements of stockholders' equity--Years ended December 30, 1995, December 31, 1994, December 25, 1993 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 30, 1995 and December 31, 1994, and the related consolidated statements of income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 30, 1995. 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 30, 1995 and December 31, 1994, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 30, 1995, 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. As discussed in Note A to the consolidated financial statements, in 1995 the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." ERNST & YOUNG LLP Chattanooga, Tennessee February 22, 1996 DIXIE YARNS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
December 30, December 31, 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,413 $ 1,904 Accounts receivable (less allowance for doubtful accounts of $3,156 in 1995 and $3,617 in 1994) 17,369 28,918 Inventories 103,253 109,964 Assets held for sale 22,090 --- Other 10,518 11,939 TOTAL CURRENT ASSETS 156,643 152,725 PROPERTY, PLANT AND EQUIPMENT Land and improvements 9,128 13,362 Buildings and improvements 72,544 106,482 Machinery and equipment 302,069 361,076 383,741 480,920 Less accumulated amortization and depreciation 190,238 215,406 TOTAL PROPERTY, PLANT AND EQUIPMENT 193,503 265,514 INTANGIBLE ASSETS (less accumulated amortization of $5,973 in 1995 and $10,659 in 1994) 35,775 63,620 OTHER ASSETS 11,076 6,461 TOTAL ASSETS $396,997 $488,320 See notes to consolidated financial statements. December 30, December 31, 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 20,394 $ 33,055 Accrued expenses 23,294 30,148 Current portion of long-term debt 2,171 584 TOTAL CURRENT LIABILITIES 45,859 63,787 LONG-TERM DEBT Senior indebtedness 97,383 87,025 Subordinated notes 50,000 50,000 Convertible subordinated debentures 44,782 44,782 TOTAL LONG-TERM DEBT 192,165 181,807 OTHER LIABILITIES 11,486 11,676 DEFERRED INCOME TAXES 29,197 42,364 COMMON STOCK, SUBJECT TO PUT OPTION - 1,029,446 shares in 1994 --- 18,178 STOCKHOLDERS' EQUITY Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued - 13,862,799 shares in 1995 and 13,857,642 shares in 1994 41,588 41,573 Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued - 735,228 shares in 1995 and 1994 2,206 2,206 Additional paid-in capital 131,618 131,710 Retained earnings 2,447 54,626 Minimum pension liability adjustment (4,116) (4,330) 173,743 225,785 Less Common Stock in treasury at cost - 3,404,123 shares in 1995 and 3,375,990 shares in 1994 55,453 55,277 TOTAL STOCKHOLDERS' EQUITY 118,290 170,508 Commitments - Note N TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $396,997 $488,320 See notes to consolidated financial statements. DIXIE YARNS, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (dollars in thousands, except per share data) Year Ended December 30, December 31, December 25, 1995 1994 1993 Net sales $670,842 $682,859 $591,408 Cost of sales 572,762 595,732 510,379 GROSS PROFIT 98,080 87,127 81,029 Selling, general and administrative expenses 82,624 82,293 61,876 Asset valuation losses 63,425 10,397 --- Life insurance gain --- (12,835) --- Other (income) expense - net 1,112 5,469 (2,640) INCOME (LOSS) BEFORE INTEREST AND TAXES (49,081) 1,803 21,793 Interest expense 15,591 13,748 12,773 INCOME (LOSS) BEFORE INCOME TAXES (64,672) (11,945) 9,020 Income tax provision (benefit) (12,493) (8,718) 4,336 NET INCOME (LOSS) $(52,179) $ (3,227) $ 4,684 Net income (loss) per common and common equivalent share $ (4.44) $ (.24) $ .41 See notes to consolidated financial statements. DIXIE YARNS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Year Ended December 30, December 31, December 25, 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(52,179) $ (3,227) $ 4,684 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 35,980 35,199 31,222 Provision (benefit) for deferred income taxes (11,416) (7,410) 3,768 Equity in earnings of affiliate --- --- (353) (Gain) loss on property, plant and equipment disposals and asset valuation adjustments 65,037 10,936 (1,994) Life insurance gain --- (12,835) --- Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable (includes $45,000 sold in 1993) 11,549 (3,532) 43,839 Inventories 3,517 (2,788) 1,453 Other current assets (585) 1,170 (2,615) Other assets (552) (547) (1,887) Accounts payable and accrued expenses (21,143) 1,698 (18,860) Other liabilities 279 (278) 923 NET CASH PROVIDED BY OPERATING ACTIVITIES 30,487 18,386 60,180 CASH FLOWS FROM INVESTING ACTIVITIES Life insurance proceeds --- 16,761 --- Net proceeds from sales and insurance recovery of property, plant and equipment 7,773 2,445 14,582 Purchase of property, plant and equipment (includes $3,118 in 1994 and $12,061 in 1993 for casualty damages) (30,266) (35,792) (50,886) Cash payments in connection with business combinations, net of cash acquired --- (230) (3,999) NET CASH USED IN INVESTING ACTIVITIES (22,493) (16,816) (40,303) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in credit line borrowings 2,529 (635) 16,500 Borrowings under term-loan facility 10,000 --- --- Debt assumed in acquisitions and retired --- --- (32,327) Common stock acquired (18,457) (191) (339) Dividends paid --- (2,450) (2,223) Other (557) (437) 1,133 NET CASH USED IN FINANCING ACTIVITIES (6,485) (3,713) (17,256) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,509 (2,143) 2,621 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,904 4,047 1,426 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,413 $ 1,904 $ 4,047 See notes to consolidated financial statements. DIXIE YARNS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands, except per share data) Class B Additional Pension Common Common Common Paid-In Retained Liability Stock In Stock Stock Capital Earnings Adjustment Treasury BALANCE AT DECEMBER 26, 1992 $34,027 $2,206 $107,149 $57,842 $(54,865) Common Stock acquired and retired - 8,582 shares (26) (92) Common Stock acquired for treasury - 15,716 shares (221) Common Stock sold under stock option and Employees' Stock Purchase Plan - 45,499 shares 137 174 Common Stock issued in connection with Carriage Industries, Inc. acquisition - 2,472,894 shares 7,419 23,755 Options issued in connection with Carriage Industries, Inc. acquisition 698 Net income for the year 4,684 Minimum pension liability adjustment (4,982) Dividends declared-Common Stock and Class B Common Stock $.20 per share (2,223) BALANCE AT DECEMBER 25, 1993 41,557 2,206 131,684 60,303 (4,982) (55,086) Common Stock acquired for treasury- 19,344 shares (191) Common Stock sold under stock option and Employees' Stock Purchase Plan - 5,409 shares 16 26 Net (loss) for the year (3,227) Minimum pension liability adjustment 652 Dividends declared-Common Stock and Class B Common Stock $.20 per share (2,450) BALANCE AT DECEMBER 31, 1994 41,573 2,206 131,710 54,626 (4,330) (55,277) Common Stock acquired for treasury- 28,133 shares (176) Common Stock sold under stock option and Employees' Stock Purchase Plan - 5,157 shares 15 11 Net (loss) for the year (52,179) Minimum pension liability adjustment 214 Adjustment for purchase of shares subject to put option (103) BALANCE AT DECEMBER 30, 1995 $41,588 $2,206 $131,618 $2,447 $(4,116) $(55,453)
See notes to consolidated financial statements. DIXIE YARNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Dixie Yarns, Inc. and its wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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 textile and floorcovering products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses including potential losses on receivables sold (see Note 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: 1995 1994 At current cost: Raw materials $ 21,012 $ 28,458 Work-in-process 24,441 28,091 Finished goods 73,314 64,401 Supplies, repair parts and other 6,772 7,858 125,539 128,808 Excess of current cost over LIFO value (22,286) (18,844) Total inventories $103,253 $109,964 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 1995 and 1994 and increase net income for 1993 by approximately $750 ($.06 per share), $670 ($.05 per share) and $350 ($.03 per share), respectively. 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 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 $33,545 in 1995, $32,679 in 1994 and $29,245 in 1993. 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. Impairment of Assets: In 1995 the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets. There was no material effect on the financial statements from the adoption because the Company's prior impairment recognition practice was consistent with the major provisions of the Statement. Under provisions of the Statement, impairment losses are recognized when expected future cash flows are less than the assets' carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of property, plant and equipment and intangibles in relation to the operating performance and future undiscounted cash flows of the underlying business. The Company adjusts the net book value of the underlying assets if the sum of expected future cash flows is less than book value. Stock Based Compensation: The Company grants stock options for a fixed number of shares to employees with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly, recognizes no compensation expense for the stock option grants. 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 effects were anti-dilutive for 1995 and 1994, and the additional dilution was less than 3% for 1993. Revenue Recognition: The Company recognizes revenue for goods sold at the time title passes to the customer. Reclassifications: Certain amounts for 1994 and 1993 have been reclassified to conform with the 1995 presentation. 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 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 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 (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. 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 cash, and the assumption of $750 of debt. The Common Stock was issued subject to an agreement which provided 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 (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 July 10, 1995, the shares of Common Stock issued in connection with this acquisition were purchased by the Company for $18,281, pursuant to the exercise of the holders' put option. 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 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. A summary of net assets acquired is as follows: Carriage Masland Patrick Current assets $49,866 $16,317 $3,410 Property, plant and equipment 53,441 11,748 524 Other assets 4,619 76 446 Current liabilities (26,803) (7,073) (3,477) Long-term debt (27,223) (450) --- Other liabilities and deferred taxes (12,327) (1,553) (1,472) Intangible asset 21,699 --- 3,775 Net Assets Acquired Excluding Cash 63,272 19,065 3,206 Cash 413 557 --- Net Assets Acquired $63,685 $19,622 $3,206 The following unaudited pro forma summary presents the consolidated results of operations of the Company 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 $656,302 Income (loss) from continuing operations (3,252) 6,098 Net income (loss) (3,252) 6,098 Per common and common equivalent share: Income (loss) from continuing operations (.25) .48 Net income (loss) (.25) .48 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 30, 1995 and December 31, 1994, a $45,000 interest had been sold under this agreement and is reflected as a reduction of accounts receivable in the accompanying consolidated balance sheets. Costs of this program were fixed at 6.08% per annum on the amount of the interest sold plus administrative fees typical in such transactions. These costs, which were approximately $2,998 for 1995, $2,983 for 1994, and $574 for 1993, are included in other (income) expense - net. NOTE D--ACCRUED EXPENSES Accrued expenses include the following: 1995 1994 Compensation and benefits $ 10,148 $ 13,712 Interest expense 3,364 2,761 NOTE E--LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists of the following: 1995 1994 Senior indebtedness: Credit line borrowings $ 88,394 $ 85,865 Term-loan 10,000 --- Other 1,160 1,744 Total senior indebtedness 99,554 87,609 Less current portion (2,171) (584) Total long-term senior indebtedness 97,383 87,025 Subordinated notes 50,000 50,000 Convertible subordinated debentures 44,782 44,782 Total long-term debt $192,165 $181,807 The Company's unsecured revolving credit and term-loan agreement provides revolving credit of up to $125,000 (reduced for certain significant asset sales) through March of 2000 and a $10,000 term-loan payable in quarterly installments of $625 beginning in 1996. The terms of the agreement provide for reduction in the revolving credit availability by 50% of the net cash proceeds from certain significant asset sales, but the credit availability cannot be reduced below $90,000. The total reduction of the facility for asset sales through December 30, 1995 was $2,836. The Company anticipates that proceeds from the Threads sale will be used to reduce outstanding borrowings, thereby offsetting any reduction of the credit line. Interest rates available under the facility may be selected by the Company from a number of options which effectively allow for borrowing at rates equal to or lower than the greater of the lender's prime rate or the federal funds rate plus .50%. Commitment fees, ranging from .25% to .375% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. At December 30, 1995, unused borrowing capacity under the Company's credit agreements (including amounts available under a $5,000 short-term credit line) was approximately $38,770. The Company's subordinated notes are unsecured, bear interest at 9.96% payable semiannually, and are due in semiannual installments of $2,381 beginning February 1, 2000. The Company's convertible subordinated debentures bear interest at 7% payable semiannually, are due in 2012, and are convertible by the holder into shares of Common Stock of the Company at an effective conversion price of $32.20 per share, subject to adjustment under certain circumstances. 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. Mandatory sinking fund payments commencing May 15, 1998 will retire $2,500 principal amount of the debentures annually and approximately 70% of the debentures prior to maturity. The convertible debentures are subordinated in right of payment to all other indebtedness of the Company. The Company's long-term debt and credit arrangements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization, payment of dividends and certain other financial ratios. Under restrictions set forth in the Company's subordinated note agreement, and absent a waiver from the lender or an amendment, future dividends may be paid only to the extent of 75% of the excess of cumulative income, excluding extraordinary items, for periods subsequent to December 30, 1995 above $57,367. Certain of the financial covenants of the Company's revolving credit and term-loan agreement were waived or amended effective December 30, 1995 to recognize the effects of the potential sale of the Company's Thread business and the economic conditions affecting the Company's businesses. Approximate maturities of long-term debt for each of the five years succeeding December 30, 1995 are $2,171 in 1996, $2,642 in 1997, $5,143 in 1998, $5,113 in 1999, and $89,302 in 2000. Interest payments in 1995, 1994, and 1993 were approximately $14,852, $13,408, and $12,662, 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: 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets Cash and cash equivalents $ 3,413 $ 3,413 $ 1,904 $ 1,904 Financial liabilities Long-term debt (including current portion) 194,336 183,559 182,391 169,429 Common Stock, subject to put option --- --- 18,178 17,662 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, was 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 at December 24, 1993, and a portion of the liability has been settled through lump sum payments to electing associates. Losses from settlements and curtailments were $1,209, $1,575, and $769 during 1995, 1994, and 1993, 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 cost included the following components: 1995 1994 1993 Defined benefit plans: Service cost $ 30 $ 31 $ 1,316 Interest cost 1,434 1,694 1,625 Actual return on plan assets (3,305) 204 (1,327) Other components 3,382 116 154 1,541 2,045 1,768 Defined contribution plans 1,715 1,764 410 Net pension expense $ 3,256 $3,809 $ 2,178 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: 1995 1994 Actuarial present value of benefit obligations: Vested benefits $ 21,003 $ 20,907 Nonvested benefits 6 1 Accumulated benefit obligations $ 21,009 $ 20,908 Plan assets at fair value $ 14,932 $ 14,312 Projected benefit obligation (21,009) (20,908) Projected benefit obligation in excess of plan assets (6,077) (6,596) Unrecognized net loss 6,747 7,412 Remaining unrecognized net transition asset --- (196) Adjustment to recognize minimum liability (6,747) (7,216) Pension related liability included in the consolidated balance sheets $ (6,077) $ (6,596) 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 $4,116 at December 30, 1995 and $4,330 at December 31, 1994. The weighted average discount rate used in determining the projected benefit obligation was 7.0% for 1995, 8.0% for 1994, and 7.13% for 1993. There was no increase in future compensation levels assumed after 1993 due to the freezing of benefits. 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 provision (benefit) for income tax on income (loss) from continuing operations consists of the following: 1995 1994 1993 Current Deferred Current Deferred Current Deferred Federal $(1,825) $ (9,586) $(2,590) $(6,476) $ 21 $3,490 State 748 (1,830) 1,282 (934) 547 278 $(1,077) $(11,416) $(1,308) $(7,410) $568 $3,768 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of those assets and liabilities. Significant components of the Company's deferred tax liabilities and assets are as follows: Deferred tax liabilities: 1995 1994 Property, plant and equipment $37,300 $50,047 Inventories 4,107 5,690 Intangible assets 1,425 1,026 Other 3,718 1,474 Total deferred tax liabilities 46,550 58,237 Deferred tax assets: Post-retirement benefits 3,460 3,875 Other employee benefits 2,814 3,707 Alternative minimum tax 4,305 4,528 Allowances for bad debts, claims and discounts 2,472 2,699 Net operating loss carryforward 4,183 2,510 Other 2,179 2,620 Valuation reserve --- --- Total deferred tax assets 19,413 19,939 Net deferred tax liabilities $27,137 $38,298 The net operating loss carryforward of approximately $12,304 can be utilized to offset future Federal taxable income through the year 2010. 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: 1995 1994 1993 Statutory rate applied to income (loss) from continuing operations $(21,988) $(4,181) $3,157 Plus state income taxes net of Federal tax provision (benefit) (714) 226 536 Total statutory provision (benefit)(22,702) (3,955) 3,693 Increase(decrease) attributable to: Nondeductible amortization and impairment of intangible assets 9,816 634 559 Investment income accounted for on equity method --- --- (96) Nondeductible portion of travel and entertainment 267 268 97 Nontaxable life insurance gain --- (4,492) --- Capital loss carryback benefit --- (1,200) --- Effect of federal tax rate increase on deferred income taxes --- --- 500 Other items 126 27 (417) Total tax provision (benefit) $(12,493) $(8,718) $4,336 Income tax refunds received, net of income tax payments, were approximately $1,072 in 1995. Income tax payments, net of tax refunds received, were approximately $2,645 and $2,079 in 1994 and 1993, respectively. NOTE I--COMMON 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% 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 30, 1995, options to purchase 4,000 shares were exercisable under these plans. On May 4,1995, the Board of Directors acted, effective as of such date, to reprice outstanding options granted prior to 1995 under the Company's 1990 Incentive Stock Plan. Options to purchase 516,000 shares of the Company's Common Stock, originally granted at prices ranging from $10.25 to $15.25 per share, were amended to provide for a revised exercise price of $8.00 per share, which was above the market price of $6.25 per share on the effective date of the amendment. The expiration date of the repriced options was also amended to provide for a new ten-year term commencing on May 4, 1995, under which the options become exercisable at a cumulative rate of 25% per year beginning on May 4, 1997. 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 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 Granted 716,000 6.50 - 8.00 Cancelled (561,500) 8.00 - 17.00 Outstanding at December 30, 1995 702,000 $ 6.50 - $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 30, 1995, 63,340 shares remained available for issue. Shares sold under this plan are held in escrow until paid for and are subject to repurchase agreements which give the Company the right of first refusal at the prevailing market price. Numbers of shares sold under the plan were 2,100 in 1995, 3,880 in 1994, and 12,700 in 1993. 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. A summary of the option activity under this Plan is as follows: Number of Option Price Shares Per Share Outstanding at December 26, 1992 --- $ --- $ --- Granted 83,044 3.19 - 5.27 Exercised (10,699) 3.43 - 4.29 Outstanding at December 25, 1993 72,345 3.19 - 5.27 Exercised (1,529) 4.29 - 5.03 Outstanding at December 31, 1994 70,816 3.19 - 5.27 Exercised (3,057) 3.43 - 5.03 Outstanding at December 30, 1995 67,759 $3.19 - $5.27 NOTE K--ASSET VALUATION LOSSES Asset valuation losses of $63,425 ($51,058, after taxes) were recorded in 1995 and are described below. The losses relating to property, plant and equipment and related goodwill were $60,033, inventory losses on product lines to be discontinued were $2,500, and expenses associated with facility consolidations were $892. In February, 1996, the Company reached an agreement in principle to sell the operating assets of its Threads USA division to American & Efird, Inc., a subsidiary of Ruddick Corporation. The transaction is subject to regulatory approval, the results of certain due diligence, and the execution of a definitive purchase agreement. Based on the proposed terms of the sale, the Company recorded a pre-tax charge in the fourth quarter of 1995 amounting to $41,480 (including $23,421 related to intangibles) to adjust the carrying value of Threads' assets to their estimated fair market value. Additional 1995 asset valuation losses in the textile segment of $17,988 relate to a plant sale and equipment write-downs and expenses associated with the consolidation of facilities. During 1995, events and circumstances indicated that certain other assets of the Company's textile business might also be impaired. However, the Company's estimate of undiscounted cash flows indicated that such carrying amounts were expected to be recovered. Nonetheless, it is possible that the estimate of undiscounted cash flows may change in the future resulting in the need to adjust the carrying value of those assets. The 1995 floorcovering segment results included asset valuation losses of $3,957 primarily related to equipment and inventories of a product line to be discontinued. The carrying value of assets held for sale in the Company's Thread business is $22,090 and is classified as "Assets held for sale" in the current asset section of the balance sheet as of December 30, 1995. Other properties held for sale have a carrying value of $4,396 and are classified in "Other Assets". Operating losses for the Threads business of $957, excluding the adjustments described above, were included in the Company's textile segment results for 1995. The asset valuation losses in 1994 of $10,397 ($6,446, 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 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 1994 and 1993, certain 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. Substantially all of the casualty and business interruption insurance claims have been settled, and insurance proceeds received by the Company through December 30, 1995 amounted to $48,716. Insurance benefits recognized by the Company amounted to $5,148 in 1995, $10,068 in 1994, and $33,500 in 1993. Casualty insurance benefits exceeded the book values of the destroyed assets and the cost to repair damaged assets by $8,210 in 1994 and $13,400 in 1993, and are reflected in the financial statements as reductions to cost of sales of $7,941 and $11,600 in 1994 and 1993, respectively, to offset additional expenses incurred as a result of the casualties and as other income of $5,148 in 1995, $269 in 1994 and $1,800 in 1993. NOTE N--COMMITMENTS The Company had outstanding commitments for purchases of machinery and equipment and for construction of buildings of approximately $3,816 at December 30, 1995. 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. Net Sales Operating Profit(Loss)(1) 1995 1994 1993 1995 1994 1993 Business Segments Textile products $313,697 $332,482 $332,059 $(63,958) $(33,039) $ 1,629 Floorcovering 361,520 353,960 260,706 20,213 28,117 24,424 Intersegment elimination (4,375) (3,583) (1,357) (3) --- --- Total $670,842 $682,859 $591,408 (43,748) (4,922) 26,053 Interest expense 15,591 13,748 12,773 Corporate expenses 5,444 5,915 5,159 Life insurance gain --- (12,835) --- Other (income) expense - net (111) 195 (899) Income (loss) before income taxes $(64,672) $(11,945) $ 9,020 Identifiable Capital Assets at Year End Expenditures 1995 1994 1993 1995 1994 1993 Business Segments Textile products $192,134 $265,932 $306,076 $10,222 $ 9,673 $27,504 Floorcovering 189,208 205,444 181,663 19,591 21,912 10,316 Corporate 15,655 16,944 8,840 453 1,089 1,005 Total $396,997 $488,320 $496,579 $30,266 $32,674 $38,825 Depreciation and Amortization 1995 1994 1993 Business Segments Textile products $20,095 $22,188 $20,531 Floorcovering 12,590 11,624 8,051 Corporate 860 765 663 Total $33,545 $34,577 $29,245 (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: 1995 - $1,223; 1994 - $5,274; 1993 - ($1,741). Operating profit (loss) on a segment basis includes (income) expense related to casualty insurance (gains) losses and asset valuation losses which were recognized as follows: 1995 - Textile products - $58,468; Floorcovering - ($91); 1994 - Textile products - $14,143; Floorcovering - ($4,015).
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DIXIE YARNS, INC. AND SUBSIDIARIES COL. A COL. B COL. C COL. D COL. E ADDITIONS (1) (2) DESCRIPTION Balance at Charged to Charged to Deductions- Balance at Beginning of Costs and Other Accounts Describe End of Period Period Expenses -Describe Year ended December 31, 1994: Reserves deducted from asset accounts: Allowance for doubtful accounts $3,900,000 $ 829,049 $ 605,249 (1) $1,717,298 (2) $ 3,617,000 Provision to reduce inventories to net realizable value 7,336,929 1,801,971 (3) 913,025 (1) -0- 10,051,925 Year ended December 25, 1993: Reserves deducted from asset accounts: Allowance for doubtful accounts $4,200,000 $ -0- $1,494,483 (1) $1,794,483 (2) $3,900,000 Provision to reduce inventories to net realizable value 4,230,000 -0- 5,410,780 (1) 2,303,851 (3) 7,336,929 Year ended December 26, 1992: Reserves deducted from asset accounts: Allowance for doubtful accounts $4,086,000 $ 422,488 $ -0- $ 308,488 (2) $4,200,000 Provision to reduce inventories to net realizable value 5,976,000 -0- -0- 1,746,000 (3) 4,230,000 (1) Increase in reserves in connection with business combinations. See Note (B) to the Consolidated Financial Statements. (2) Uncollectible accounts written off, net of recoveries, and for 1993, reductions credited to costs and expenses. (3) Provision for current items net of reductions for previous items.
ANNUAL REPORT ON FORM 10-K ITEM 14 (c) EXHIBITS YEAR ENDED DECEMBER 30, 1995 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 Exhibit August 25, 1993 to Second (4f) to Dixie's Annual Report on form Amended and Restated 10-K for the year ended December 25, Revolving Credit and Term 1993.* Loan Agreement dated January 31, 1992, by and among Dixie Yarns, Inc. and Trust Company Bank, NationsBank of North Carolina, N.A. and Chemical Bank. (4g) Third Amended and Restated Incorporated by reference to Exhibit Credit Agreement dated (4) to Dixie's Quarterly Report on March 31, 1995. Form 10-Q for the quarter ended April 1, 1995.* (4h) Waiver and First Amendment Filed herewith. to Credit Agreement dated February 27, 1996. (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.* * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (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.* (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. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (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). (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. * Commission File No. 0-2585 Exhibit Index - Continued EXHIBIT NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE (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. (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.* (10r) Form of Nonqualified Stock Incorporated by reference to Exhibit Option Agreement Under the (10a) to Dixie's Quarterly Report on Dixie Yarns, Inc. Incentive Form 10-Q for the quarter ended Stock Plan. July 1, 1995.* (10s) Form of Amendment to Incorporated by reference to Exhibit Nonqualified Stock Option (10b) to Dixie's Quarterly Report on Agreement Under the Dixie Form 10-Q for the quarter ended Yarns, Inc. Incentive Stock July 1, 1995.* Plan. (11) Statement re: Computation Filed herewith. of Earnings Per Share. (21) Subsidiaries of the Incorporated by reference to Exhibit Registrant. (21) to Dixie's Annual Report on form 10-K for the year ended December 31, 1994.* (23) Consent of Ernst & Young LLP. Filed herewith. *Commission File No. 0-2585 EX-4 2 EXHIBIT (4h) WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT THIS WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of February 27, 1996 (this "Amendment"), and effective as of the Effective Date (as such term is defined below) is entered into by and among DIXIE YARNS, INC., a Tennessee corporation (referred to herein as the "Borrower"), SUNTRUST BANK, ATLANTA (formerly known as Trust Company Bank), a Georgia banking corporation, individually and as Agent (in such capacity, the "Agent"), NATIONSBANK, N.A. (formerly known as NationsBank, N.A. (Carolinas), a national banking association, individually and as Lead Manager and CHEMICAL BANK, a New York banking corporation (collectively, the "Lenders"). WITNESSETH: WHEREAS, the Borrower, the Agent and the Lenders are parties to a certain Third Amended and Restated Credit Agreement dated as of March 31, 995 (the "Credit Agreement;" all terms used herein without definition shall have the meanings set for in the Credit Agreement) wherein the Lenders extended to the Borrower certain loan facilities in an aggregate principal amount at any time outstanding not to exceed $135,000,000 (as subsequently reduced on September 18, 1995 by an amount equal to $2,835,936); WHEREAS, the Borrower has requested that the Lenders(i) waive compliance with a certain financial covenant set forth in the Credit Agreement for the last fiscal quarter of 1995, (ii) amend the Credit Agreement to modify certain financial covenants, and (iii) add a certain financial covenant; WHEREAS, Lenders have agreed to such waivers and amendments on the terms and conditions set forth herein; WHEREAS, the parties wish to amend the Credit Agreement to reflect these agreements, all upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, for and in consideration of the mutual premises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Section 1.01 of the Credit Agreement is hereby amended as follows: (a) by adding the following definition thereto in appropriate alphabetical order: "EBITDA" shall mean, for any period, EBIT for such period, plus, to the extent deducted in determining Net Income or such period, the depreciation and amortization expense of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles." (b) by deleting the definition of "Total Capitalization" in its entirety and substituting the following in lieu thereof: "Total Capitalization" shall mean the sum of (i) Total Debt, plus (ii) Net Worth, plus (iii) for any calculation of Total Capitalization on or after the last day of fiscal year 1995, an amount not to exceed $31,400,000 relating to the write-down of assets of T-C Threads, Inc. and its Subsidiaries." 2. Section 9.11 of the Credit Agreement is hereby amended by deleting subsections (a) and (c) thereof in its entirety and substituting the following subsections (a) and (c) in lieu thereof: "(a) Total Debt to Total Capitalization. Its ratio of Total Debt to Total Capitalization as of the last day of any fiscal quarter of the Borrower occurring during the periods set forth below to be greater than the ratio (expressed as a percentage) set forth opposite such period: Period Ratio Closing Date through the last day of fiscal year 1996 65% First day of fiscal year 1997 through the last day of fiscal year 1997 62.5% First day of fiscal year 1998 through the last day of fiscal year 1998 60% First day of fiscal year 1999 and thereafter 57.5% (c) Interest Coverage Ratio. Its Interest Coverage Ratio as of any of the dates set forth below to be less than the ratio set forth opposite such period below: Period Ratio Fiscal quarter ending on or about March 31, 1995 1.25:1.0 Two preceding fiscal quarters ending on or about June 30, 1995 1.25:1.0 Three preceding fiscal quarter ending on or about September 30, 1995 1.25:1.0 Four preceding fiscal quarters ending on or about December 31, 1995 1.25:1.0 Fiscal Quarter ending on or about March 31, 1996 Not Required Fiscal Quarter ending on or about June 30, 1996 .75:1.0 Fiscal Quarter ending on or about September 30, 1996 1.15:1.0 Fiscal Quarter ending on or about December 31, 1996 1.15:1.0 Two preceding fiscal quarters ending on or about December 31, 1996 1.15:1.0 Three preceding fiscal quarters ending on or about March 31, 1997 1.15:1.0 Four preceding fiscal quarters ending on or about each of June 30, 1997, September 30, 1997, and December 31, 1997 1.25:1.0 Four preceding fiscal quarters ending on the last day of each of the fiscal quarters in fiscal year 1998 1.5:1.0 Four preceding fiscal quarters ending on the last day of each of the fiscal quarters in fiscal year 1999 and thereafter 1.75:1.0. " 3. Section 9.11 of the Credit Agreement is hereby further amended by adding the following subsection (e) thereto: "(e) EBITDA to Interest Expense Ratio. Its ratio of EBITDA Interest Expense for the first fiscal quarter of 1996 ending on or about March 31, 1996 to be less than 2.0:1.0." 4. The Borrower has requested and the Lenders have agreed to waive, for the fiscal quarter of the Borrower ending on or about December 31, 995, compliance with the Interest Coverage Ratio set forth in Section 9.11(c) of the Credit Agreement. 5. The Borrower hereby agrees that nothing herein shall constitute a waiver by the Lenders of any Default or Event of Default, whether known or unknown, which may now exist or which may hereafter exist under the Credit Agreement except as specifically set forth in Section 4 hereof, including without limitation, any violation of Section 9.11(c) of the Credit Agreement arising or continuing after the fiscal quarter of the Borrower ending on or about March 31, 1996. The Borrower represents and warrants to the Agent and the lenders that as of the date hereof, no Default or Event of Default exists pursuant to the Credit Agreement which is not expressly waived herein. 6. Except as expressly amended and modified herein, all terms, covenants and provisions of the Credit Agreement shall remain unaltered and in full force and effect, and the parties hereto do expressly ratify and confirm the Credit Agreement as modified herein. As of the Effective Date, all future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. 7. Borrower agrees to pay on demand all reasonable costs and expenses of the Agent in connection with the preparation, execution and delivery of the Amendment, including, without limitation, the reasonable fees and out- of-pocket expenses of counsel for the Agent with respect hereto and with respect to advising the Agent as to its rights and responsibilities hereunder. 8. This Amendment shall become effective as of December 30, 1995 (the "Effective Date") on the first day when this Amendment shall have been executed by the Borrower and the Required Lenders and delivered to the Agent in its office in Atlanta, Georgia. 9. This Amendment shall be binding upon the inure to the benefit of the parties hereto, their respective heirs, successors, successors-in- title, and assigns. 10. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. 11. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 12. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. EXECUTED AND DELIVERED by the duly authorized officers of the parties hereto under seal as of the day and year first above written. DIXIE YARNS, INC. By: Gary A. Harmon Title: Treasurer Attest: Starr T. Klein Title: Secretary SUNTRUST BANK, ATLANTA (formerly known as Trust Company Bank), individually and as Agent By: Jarrette A. White, III Title: Vice President By: Ruth E. Whitner Title: Assistant Vice President EXECUTED AND DELIVERED by the duly authorized officers of the parties hereto under seal as of the day and year first above written. NATIONSBANK, N.A. (formerly known as NationsBank, N.A. (Carolinas)), individually and as Lead Manager By: Alison H. Mewborne Title: Senior Vice President CHEMICAL BANK By: Peter C. Eckstein Title: Vice President EX-11 3 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE DIXIE YARNS, INC. AND SUBSIDIARIES (amounts in thousands, except per share data)
Year End December 30, December 31, December 25, 1995 1994 1993 PRIMARY: Net income (loss) $(52,179) $(3,227) $ 4,684 SHARES: Weighted average number of common shares outstanding assuming conversion of Class B Common Stock 11,744 12,249 11,193 Net effect of dilutive stock options based on the treasury stock method using average market price --- 34 66 Net effect of put option based on the reverse treasury stock method using average market price --- 988 202 TOTAL SHARES 11,744 13,271 11,461 PER SHARE AMOUNT $ (4.44) $ (.24) $ .41 FULLY-DILUTED: Net income (loss) $(52,179) $(3,227) $ 4,684 After-tax interest requirement of convertible subordinated debentures (A) --- --- --- ADJUSTED NET INCOME(LOSS) $(52,179) $(3,227) $ 4,684 SHARES: Weighted average number of common shares outstanding assuming conversion of Class B Common Stock 11,744 12,249 11,193 Net effect of dilutive stock options based on the treasury stock method using year-end market price if higher than the average market price --- 34 66 Net effect of put option based on the reverse treasury stock method using year-end market price if lower than the average market price --- 1,568 401 Effect of assumed conversion of convertible subordinated debentures(A) --- --- --- TOTAL SHARES 11,744 13,851 11,660 PER SHARE AMOUNT (B) $ (4.44) $ (.23) $ .40 A) The assumed conversion of convertible subordinated debentures into 1,391 shares with an after-tax interest requirement of $1,895 for the years ended December 30, 1995, December 31, 1994 and December 25, 1993, has been excluded from the computation since the effect was anti-dilutive. B) Fully diluted earnings per share for 1994 reported as $(.24) due to calculated earnings per share reflecting anti-dilution.
EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-30473) pertaining to the Employee Stock Purchase Plan of Dixie Yarns, Inc., the Registration Statement (Form S-8 No. 33-59564) pertaining to options to acquire Common Stock of Dixie Yarns, Inc. issued in connection with the acquisition of Carriage Industries, Inc., the Registration Statement (Form S-8 No. 33-42615) pertaining to the Incentive Stock Option Plan of Dixie Yarns, Inc., and Post-Effective Amendment Number 2 to the Registration Statements (Form S-8 No. 2-20604 and No. 2-56744) pertaining to the Employee Stock Purchase Plan and Employee Stock Option Plan of Dixie Yarns, Inc. of our report dated February 22, 1996, with respect to the consolidated financial statements and schedule of Dixie Yarns, Inc. included in the Annual Report (Form 10-K) for the year ended December 30, 1995. ERNST & YOUNG LLP Chattanooga, Tennessee March 28, 1996 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF DIXIE YARNS, INC. AT AND FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-30-1995 DEC-30-1995 3,413 0 20,525 3,156 103,253 156,643 383,741 190,238 396,997 45,859 192,165 43,794 0 0 74,496 396,997 670,842 670,842 572,762 572,762 63,425 0 15,591 (64,672) (12,493) (52,179) 0 0 0 (52,179) (4.44) (4.44)
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