1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K/A-2
AMENDMENT NO. 2 TO
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 2000
THE DIXIE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 0-2585 62-0183370
--------- ------ ----------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
345-B Nowlin Lane, Chattanooga, Tennessee 37421
- ----------------------------------------- -----
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (423) 510-7000
2
This Amendment No. 2 to the Company's Current Report on Form 8-K dated July 1,
2000 amends Item 7 thereof, Financial Statements and Exhibits, as follows: by
replacing the previously filed Financial Statements of the business acquired
(two fiscal years plus interim period) with historical financial statements for
the most recent fiscal year and the applicable interim period, as permitted by
Rule 3-05(b)(2)(ii) of Regulation S-X, and by adding the accountant's consent to
incorporation by reference in the Company's Securities Act registration
statements which was not available to the Company at the time of filing
Amendment No. 1 to the original Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Report of Independent Accountants
Balance Sheet as of December 31, 1999
Statement of Net Income for the year ended December 31, 1999
Statement of Stockholders' Equity for the year ended December
31, 1999
Statement of Cash Flows for the year ended December 31, 1999
Notes to Financial Statements
Condensed Balance Sheets as of June 30, 2000 and December 31,
1999 (unaudited)
Condensed Statements of Income for the six months ended June
30, 2000 and June 30, 1999 (unaudited)
Condensed Statements of Cash Flows for the six months ended
June 30, 2000 and June 30, 1999 (unaudited)
Notes to Condensed Financial Statements (unaudited)
(b) Pro Forma Consolidated Financial Information.
Pro Forma Consolidated Statement of Operations for the six
months ended July 1, 2000 (unaudited) Pro Forma Consolidated
Statement of Operations for the year ended December 25, 1999
(unaudited)
(c) Exhibits.
23 Consent of Independent Accountants
3
INDEPENDENT AUDITOR'S REPORT
The Stockholders
Fabrica International
We have audited the accompanying balance sheet of Fabrica International as of
December 31, 1999 and the related statements of income, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fabrica International as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Kushner, Smith, Joanou & Gregson, LLP
March 17, 2000
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FABRICA INTERNATIONAL
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets
Accounts receivable - trade $ 443,871
Accounts receivable - factored (Note 2) 4,135,322
Accounts receivable - other (Note 3) 256,105
Inventory (Note 4) 5,382,739
Income taxes receivable 135,000
Current portion of note receivable - stockholder 250,000
Prepaid expenses 50,608
Deferred income taxes (Note 8) 120,000
------------
Total current assets 10,773,645
------------
Property and equipment (Notes 5 and 15) 7,531,634
Less accumulated depreciation and amortization (3,593,058
------------
Net property and equipment 3,938,576
------------
Other assets
Investment (Note 6) 8,950
Note receivable - stockholder (Note 7) 500,000
Cash surrender value of life insurance 200,747
Deposits 32,000
Deferred income taxes (Note 8) 55,000
------------
Total other assets 796,697
------------
$ 15,508,918
============
(Balance sheet continued on the following page)
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FABRICA INTERNATIONAL
BALANCE SHEET
(CONTINUED)
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft (Note 9) $ 99,163
Accounts payable - trade 3,853,157
Accounts payable - related party (Note 10) 31,001
Accrued liabilities (Note 12) 2,712,516
Advance deposits 435,694
Current portion of long-term debt 125,892
------------
Total current liabilities 7,257,423
Long-term liabilities
Long-term debt (Notes 11 and 13) 744,570
------------
Total liabilities 8,001,993
------------
Commitments with related and unrelated parties and
subsequent events (Notes 14 and 15)
Stockholders' equity
Common stock, no par value, authorized; 540,000
shares, issued and outstanding 43,844 shares 1,036,075
Retained earnings 6,586,900
Accumulated other comprehensive income:
Unrealized (loss) on available-for-sale securities (Note 6) (116,050)
------------
Total stockholders' equity 7,506,925
------------
$ 15,508,918
============
See accompanying notes to financial statements
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FABRICA INTERNATIONAL
STATEMENT OF NET INCOME
YEAR ENDED DECEMBER 31, 1999
Gross sales $ 44,987,814
Less freight, discounts and allowances (2,003,091)
------------
Net sales 42,984,723
Cost of sales 24,773,175
------------
Gross profit 18,211,548
Operating expenses
Warehouse 1,103,711
Selling 8,480,162
General and administrative 3,761,705
------------
Total operating expenses 13,345,578
------------
Operating income 4,865,970
------------
Other income (expense)
Interest income 31,877
Interest (expense) (165,543
------------
Total other income (expense) (133,666)
------------
Income before income taxes 4,732,304
Provision for income taxes (Note 8) 1,926,513
------------
Net income $ 2,805,791
============
See accompanying notes to financial statements
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FABRICA INTERNATIONAL
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999
SHARES ACCUMULATED TOTAL
ISSUED AND COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING STOCK EARNINGS INCOME EQUITY
----------- ---------- ---------- ------------- -------------
Balance at December 31, 1998 39,460 $ 36,075 $3,781,109 $(116,050) $3,701,134
Issuance of common stock 4,384 1,000,000 -- -- 1,000,000
Net income for the year ended
December 31, 1999 -- -- 2,805,791 -- 2,805,791
------ ---------- ---------- --------- ----------
Balance at December 31, 1999 43,844 $1,036,075 $6,586,900 $(116,050) $7,506,925
====== ========== ========== ========= ==========
See accompanying notes to financial statements
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FABRICA INTERNATIONAL
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 40,682,932
Cash paid to suppliers and employees (38,200,066)
Interest received 31,877
Interest paid (165,543)
Income taxes paid (1,850,000)
------------
Net cash provided from operating activities 499,200
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (1,686,704)
------------
Net cash (applied) from investing activities (1,686,704)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital contribution 250,000
Repayments on amounts borrowed from stockholders (970,000)
Principal repayments on long-term debt (112,023)
------------
Net cash (applied) from financing activities (832,023)
------------
Net increase (decrease) in cash (2,019,527)
Cash at beginning of year 1,920,364
------------
Cash (overdraft) at end of year $ (99,163)
============
(Statement of cash flows continued on the following page)
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FABRICA INTERNATIONAL
STATEMENT OF CASH FLOWS
(CONTINUED)
YEAR ENDED DECEMBER 31, 1999
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED FROM OPERATING ACTIVITIES
Net income $ 2,805,791
Adjustments to reconcile net income to net cash provided from
operating activities
Depreciation and amortization 559,052
Provision for deferred income taxes 190,000
-----------
3,554,843
-----------
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable - trade (62,874)
Accounts receivable - factored (1,999,263)
Accounts receivable - other (239,654)
Inventory (1,866,598)
Income taxes receivable (135,000)
Prepaid expenses (35,470)
Cash surrender value of life insurance (25,883)
Deposits (32,000)
Increase (decrease) in:
Accounts payable - trade 1,540,493
Accrued liabilities 933,786
Advance deposits (83,180)
Income taxes payable (1,050,000)
-----------
(3,055,643)
-----------
Net cash provided from operating activities $ 499,200
===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
During the year ended December 31, 1999, 4,384 shares of the ownership in the
Company were purchased by an employee for $1,000,000. The employee paid $250,000
in cash, and the remaining $750,000 was set up as a note receivable due from
stockholder (Note 7).
See accompanying notes to financial statements
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company's principal activity is the manufacture of high
quality residential carpeting and custom hand-crafted rugs.
CONCENTRATIONS OF CREDIT RISKS - The Company provides its services to customers
throughout the United States and internationally. The Company's sales are not
materially dependent on a single customer or small group of customers. The
Company performs ongoing credit evaluations on its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
TRADE RECEIVABLES - Current earnings are charged with an allowance for doubtful
accounts based on experience and any unusual circumstances that may affect the
ability of customers to meet their obligations. Trade receivables are reflected
in the balance sheets net of such accumulated allowances. Because the Company
sells the majority of their outstanding trade receivables to its factor without
recourse, no allowance for doubtful accounts has been provided.
INVENTORY - Inventory is stated at the lower of cost (first-in, first-out) or
market value. Cost includes materials, direct labor and an allocable portion of
direct and indirect manufacturing overhead. Market is determined by comparison
with recent purchases or net realizable value.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
of property and equipment is provided on the straight-line and accelerated
methods over the following estimated useful lives, in years, of the respective
assets:
Building 39
Machinery and equipment 5 to 10
Furniture and fixtures 5 to 10
Computer equipment 5 to 10
Automobiles 3
Leasehold improvements are amortized over the life of the lease or the estimated
useful life of the improvements, whichever is shorter.
Maintenance and repairs are charged to expense as incurred. Renewals and
improvements of a major nature are capitalized. At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any gains or losses are reflected
in income.
(Note 1 continued on the following page)
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - The Company provides for income taxes based upon earnings
reported for financial statement purposes. Deferred income taxes are provided
for temporary differences between book and taxable income.
SAMPLE COSTS - Sample costs are charged to expense as incurred. Income from the
sale of sample books is recognized in the period in which the sale occurs.
VACATION EXPENSE - Hourly employees earn credits during the current year for
future vacation benefits. The expense and corresponding liability are accrued
when the vacations are earned rather than when the vacations are paid.
PROFIT SHARING PLAN - The Company has a "401(k)" Retirement Savings Plan that
covers substantially all employees. Employees may elect to contribute up to 20%
of compensation to the maximum deferred amount allowed by tax laws. The Company
will match 100% of the employee's contributions up to $100 and will match an
additional 25% of employee's contributions up to $400. The Company also has the
option to make discretionary profit sharing contributions. The Company
contributed $75,881 for the year ended December 31, 1999.
INVESTMENT - The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1997. Statement No. 115 requires
that management determine the appropriate classification of securities at the
date of adoption, as well as review securities on an individual basis when
acquired. The appropriateness of such classifications are reassessed at each
balance sheet date.
The investment securities have been classified into the following classification
which has the following accounting policy:
Available-for-sale securities: These securities consist of marketable
equity securities and are stated at fair value. Any unrealized holding
gains and losses are reported as a separate component of stockholder's
equity.
(Note 1 continued on the following page)
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT (CONTINUED) - Prior to the adoption of Statement No. 115, the Company
stated its equity securities at the lower of their aggregate cost or market,
with unrealized losses on current portfolio charged to income. Interest is
recognized in income as accrued, and dividends on marketable equity securities
is recognized in income when declared. Realized gains and losses, including
losses from declines in value of specific securities determined by management to
be other-than-temporary, are included in income. Realized gains and losses are
determined on the basis of the specific securities sold.
USE OF ESTIMATES - The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME - Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), requires that total comprehensive
income be reported in the financial statements. Total comprehensive income is
presented on the Statement of Income.
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 2 - ACCOUNTS RECEIVABLE - FACTORED
The Company has an agreement with a factor which provides for the sale of a
substantial portion of its trade account receivables. These receivables are sold
primarily without recourse, net of discount. The factor receives all cash
collections and is paid a fee for administrating the accounts sold. Under the
terms of the agreement, the Company pays a factoring commission and interest
charges on all unmatured funds advanced by the factor. At December 31, 1999
there were no receivables factored with recourse. The Company is obligated to
repurchase all or any of the recourse receivables whether matured or not at the
request of the factor. At December 31, 1999 accounts receivable - factored
consisted of the following:
Total factored receivables $4,316,569
Less receivables advanced (181,247)
----------
$4,135,322
==========
NOTE 3 - ACCOUNTS RECEIVABLE - OTHER
Accounts receivable - other at December 31, 1999 is comprised of the following:
Rebates-yarn support $ 236,982
Backcharges 18,353
Other 770
----------
$ 256,105
==========
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 4 - INVENTORY
Inventory at December 31, 1999 is comprised of the following:
Raw materials $2,136,202
Work-in-process 725,152
Finished goods 2,521,385
----------
$5,382,739
==========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 is comprised of the following:
Building $ 1,016,000
Machinery and equipment 4,221,641
Furniture and fixtures 313,121
Computer equipment 220,562
Automobiles 73,633
Leasehold improvements 1,218,011
Construction in progress 468,666
-----------
7,531,634
Less accumulated depreciation and amortization (3,593,058)
-----------
$ 3,938,576
===========
NOTE 6 - INVESTMENT
The following is a summary of the Company's investment in debt and marketable
securities as of December 31, 1999:
NET
UNREALIZED
COST LOSS FAIR VALUE
-------- ---------- ----------
Available for sale securities $125,000 $116,050 $8,950
======== ======== ======
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 7 - NOTE RECEIVABLE - STOCKHOLDER
Note receivable due from stockholder at December 31, 1999 consists of the
following:
6.0% note receivable from stockholder, unsecured, annual $ 750,000
payments of $250,000 plus interest, through maturity in
September 2002
Less: current portion (250,000)
---------
$ 500,000
=========
NOTE 8 - INCOME TAXES
Deferred income taxes result from temporary timing differences arising from the
capitalization of computer software costs for financial statement purposes while
a current deduction is taken for tax purposes, and the use of the accelerated
cost recovery system for tax purposes while estimated useful lives are used for
financial statement purposes, the use of the reserve method for uncollectible
receivables for financial statement purposes while the direct write-off method
is used for tax purposes, and the inventory adjustment for uniform
capitalization rules for Federal tax purposes with no corresponding adjustment
for financial statement purposes.
The tax provision for the year ended December 31, 1999 consists of the
following:
Current
Federal $1,486,513
State 250,000
----------
1,736,513
----------
Deferred
Federal 48,000
State 142,000
----------
190,000
----------
$1,926,513
==========
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 9 - BANK OVERDRAFT
Bank overdraft at December 31, 1999 represents a technical overdraft created by
the amount of checks issued exceeding the balance of cash on deposit recorded in
the records of the Company.
NOTE 10 - ACCOUNTS PAYABLE - RELATED PARTY
At December 31, 1999, $31,001 was due to a related company through common
ownership. These amounts are expected to be paid through the ordinary course of
business.
NOTE 11 - NOTE PAYABLE TO BANK
The Company maintains short-term unsecured revolving lines of credit with two
separate banks to assure credit availability.
The Company's first revolving line of credit is personally guaranteed by the
stockholders of the Company and permits indebtedness up to $1,000,000 of which
none was advanced at December 31, 1999. This revolving line of credit matures on
May 17, 2000. The outstanding principal balance bears interest at a rate per
annum of the bank's prime rate. The bank's prime rate at December 31, 1999 was
8.5%.
Along with this revolving line of credit, the Company entered into an equipment
line of credit on May 14, 1999 that permits indebtedness up to $2,500,000 of
which none was advanced at December 31, 1999. This equipment line of credit
matures on November 14, 2000 and at that time any indebtedness will be converted
into a term loan and the loan would be secured by the equipment financed. The
outstanding principal balance bears interest at a rate per annum of the bank's
prime rate.
The Company had an additional $1,000,000 equipment revolving line of credit
which is personally guaranteed by the stockholders. This line commenced December
1, 1997 and the outstanding amount at maturity on June 30, 1998 was converted to
a term loan. The balance outstanding on this equipment term loan at December 31,
1999 was $440,280 (Note 13).
(Note 11 continued on the following page)
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 11 - NOTE PAYABLE TO BANK (CONTINUED)
Under the terms of this note payable to the bank, the Company is required to
maintain minimum levels of annual profits, current and cash flow coverage
ratios, and a maximum level of debt to net worth. Expenditures exceeding certain
amounts for property and equipment acquisitions, additional lease obligations
and loans, advances or investments require prior consent of the bank. The
Company was in compliance with all of the aforementioned covenants at December
31, 1999.
The second revolving line of credit is personally guaranteed by the stockholders
of the Company and permits indebtedness up to $1,000,000 of which none was
advanced at December 31, 1999. This revolving line of credit matured on May 31,
1999 and was subsequently renewed through May 31, 2000. The outstanding
principal balance of this line of credit bears interest at a rate per annum of
the bank's prime rate minus 1.0%. The bank's prime rate at December 31, 1999 was
8.5%.
NOTE 12 - ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 are summarized as follows:
Insurance $ 44,912
Salaries, wages and commissions 1,991,940
Sales and excise tax payable 12,646
Vacation 103,426
Payroll taxes 85,665
Profit sharing 50,000
Other 423,927
----------
$2,712,516
==========
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 13 - LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
2.25% plus LIBOR equipment term loan payable to bank, payable in monthly
installments, including interest, through maturity in August 2003,
secured by equipment (Note 11) $ 440,280
7.25% mortgage loan payable to mortgage company, payable in monthly
installments of $3,070 including interest, through maturity in January
2026, secured by property 430,182
---------
870,462
Less current portion (125,892)
---------
$ 744,570
=========
The aggregate maturities of long-term debt for the remaining years are as
follows:
Years ending December 31:
2000 $ 125,892
2001 126,327
2002 126,796
2003 87,276
2004 7,765
Thereafter 396,406
---------
$ 870,462
=========
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 14 - COMMITMENTS WITH RELATED AND UNRELATED PARTIES
OPERATING LEASES AS LESSEE
The Company's operations are conducted in facilities leased under a
noncancelable lease agreement, classified as an operating lease from related
parties. The Company is required to pay property taxes and common area charges
(landscaping, maintenance and property insurance). The agreement expired in
October 1999. A new lease agreement was entered into with the same related
parties in October 1999. The new lease agreement expires on December 31, 2006
and provides for base monthly rents of $45,627. Rent expense paid to this
related party for year ended December 31, 1999 was $480,672.
The Company entered into a noncancelable operating lease agreement with an
unrelated party for additional facilities in December 1999. The lease agreement
expires in August 2004 and provides for base monthly rents of $31,770,
increasing to $34,047 in January 2002. The Company also rents showroom
facilities from unrelated parties on a month to month basis. Monthly rent
payments range from $697 to $824.
In addition, the Company leases automotive equipment under noncancelable lease
agreements. The lease agreements require monthly payments ranging from $1,460 to
$2,270 and expire by January 2002.
Total rent expense on the aforementioned operating leases for the year ended
December 31, 1999 was $546,615.
Future minimum rental commitments for all
noncancelable operating leases as of December 31, 1999 are as follows:
Years ending December 31:
2000 $ 962,174
2001 946,284
2002 957,548
2003 956,088
2004 785,853
Thereafter 1,095,048
--------------
$ 5,702,995
==============
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FABRICA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1999
NOTE 15 - SUBSEQUENT EVENTS
Effective March 15, 2000, the stockholders have entered into a letter of intent
to sell all of their outstanding and issued capital stock of Fabrica
International to the Dixie Group, Inc.
This sale will be subject to the satisfactory completion of buyer's and its
lender's due diligence investigation and the approval of the buyer's Board of
Directors. The proposed sale is expected to be completed by June 30, 2000.
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FABRICA INTERNATIONAL
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, December 31,
2000 1999
------------ ---------------
Current Assets
Cash $ -- $ --
Accounts receivable - trade 272,000 443,871
Accounts receivable - factored 4,747,000 4,135,322
Accounts receivable - other 462,000 256,105
Inventory 5,551,000 5,382,739
Income taxes receivable -- 135,000
Current portion of note receivable - stockholder 250,000 250,000
Prepaid expenses 1,311,000 50,608
Deferred income taxes 120,000 120,000
------------ ------------
Total current assets 12,713,000 10,773,645
------------ ------------
Property and equipment 8,770,000 7,531,634
Less accumulated depreciation and amortization (3,930,000) (3,593,058)
------------ ------------
Net property and equipment 4,840,000 3,938,576
------------ ------------
Other assets
Investment 9,000 8,950
Note receivable - stockholder 250,000 500,000
Cash surrender value of life insurance -- 200,747
Deposits 32,000 32,000
Deferred income taxes 55,000 55,000
------------ ------------
Total other assets 346,000 796,697
$ 17,899,000 $ 15,508,918
============ ============
(Balance sheets continued on the following page)
See accompanying notes to condensed financial statements.
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FABRICA INTERNATIONAL
CONDENSED BALANCE SHEETS
(CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
------------ -------------
Current liabilities
Bank overdraft $ 807,000 $ 99,163
Accounts payable - trade 3,374,000 3,853,157
Accounts payable - related party -- 31,001
Accrued liabilities 4,863,000 2,712,516
Advance deposits -- 435,694
Current portion of long-term debt 170,000 125,892
------------ ------------
Total current liabilities 9,214,000 7,257,423
Long-term liabilities
Long-term debt 773,000 744,570
------------ ------------
Total liabilities 9,987,000 8,001,993
------------ ------------
Stockholders' equity
Common stock, no par value, authorized; 540,000
shares, issued and outstanding 43,844 shares 1,036,000 1,036,075
Retained earnings 7,032,000 6,586,900
Accumulated other comprehensive income:
Unrealized (loss) on available-for-sale securities (116,000) (116,050)
------------ ------------
Total stockholders' equity 7,952,000 7,506,925
$ 17,939,000 $ 15,508,918
============ ============
See accompanying notes to condensed financial statements.
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FABRICA INTERNATIONAL
STATEMENTS OF NET INCOME
(UNAUDITED)
Six Months Ended
-----------------------------------------
June 30, June 30,
2000 1999
------------ ------------
Gross sales $ 26,065,000 $ 20,938,000
Less freight, discounts and allowances 900,000 1,099,000
------------ ------------
Net sales 25,165,000 19,839,000
Cost of sales 11,865,000 10,173,000
------------ ------------
Gross profit 13,300,000 9,666,000
Operating expenses
Selling 8,306,000 5,901,000
General and administrative 4,004,000 1,719,000
------------ ------------
Total operating expenses 12,310,000 7,620,000
------------ ------------
Operating income 990,000 2,046,000
------------ ------------
Other income (expense)
Interest (expense) (63,000) (80,000)
Other income (expense) (145,000) 14,000
------------ ------------
Total other income (expense) (208,000) (66,000)
------------ ------------
Income before income taxes 782,000 1,980,000
Provision for income taxes 337,000 22,000
------------ ------------
Net income $ 445,000 $ 1,958,000
============ ============
See accompanying notes to condensed financial statements.
24
22
FABRICA INTERNATIONAL
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
--------------------------------------
June 30, June 30,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided (applied) from operating activities $ 1,229,000 $(1,337,484)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash (applied) from investing activities (1,262,000) (518,395)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided (applied) from financing activities 33,000 (64,485)
----------- -----------
Net (decrease) in cash -- (1,920,364)
Cash (overdraft) at beginning of year -- 1,920,364
----------- -----------
Cash (overdraft) at end of year $ -- $ --
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (APPLIED) FROM OPERATING ACTIVITIES
June 30, June 30,
2000 1999
----------- -----------
Net income $ 445,000 $ 1,958,000
Adjustments to reconcile net income to net cash
Provided from operating activities
Depreciation and amortization 360,000 282,135
----------- -----------
Total 805,000 2,240,135
Changes in assets and liabilities
(Increase) decrease in assets (1,489,000) (3,606,350)
Increase (decrease) in liabilities 1,913,000 28,731
----------- -----------
Total 424,000 (3,577,619)
Net cash provided (applied) from operating activities $ 1,229,000 $(1,337,484)
=========== ===========
See accompanying notes to condensed financial statements.
25
FABRICA INTERNATIONAL
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and footnotes for the year ended
December 31, 1999.
Note 2 - Allowance for Doubtful Accounts
At June 30, 2000, accounts receivable have been reduced by $400,000 to reflect
an allowance for claims and returns.
Note 3 - Inventory
Inventory at June 30, 2000 is comprised of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Raw Materials $1,859,000 $2,136,202
Work in Process 942,000 725,152
Finished Goods 2,750,000 2,521,385
---------- ----------
$5,551,000 $5,382,739
Note 4 - Subsequent Event
On July 1, 2000, The Dixie Group, Inc. acquired 90% of the outstanding capital
stock of the Company.
26
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition of 90% of the outstanding stock of Fabrica by
The Dixie Group had occurred at the beginning of the periods presented after
giving effect to certain adjustments described hereinafter. The pro forma
results are presented for comparative purposes only and do not purport to be
indicative of future results or the results that would have occurred had the
acquisition taken place at the beginning of the periods presented. The pro forma
information should be read in conjunction with the consolidated financial
statements of The Dixie Group, Inc. included in The Dixie Group's 1999 annual
report (which is included in The Dixie Group's Form 10-K for the year ended
December 25, 1999), The Dixie Group's quarterly report on Form 10-Q for the
quarter ended July 1, 2000 and the financial statements of The Dixie Group, Inc.
and Fabrica included elsewhere herein.
27
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 1, 2000
(In thousands, except per share data)
(Unaudited)
Actual
-------------------------
Pro Forma Pro Forma
Dixie Group Fabrica Adjustments Combined
------------ -------- ----------- ----------
Net sales $ 272,232 $ 25,165 $ -- $ 297,397
Cost of sales 217,505 11,865 -- 229,370
---------- -------- -------- ----------
GROSS PROFIT 54,727 13,300 -- 68,027
Selling and administrative expenses 46,569 12,310 (2,450)(1) 56,429
Other (income) expense - net (138) 145 -- 7
---------- -------- -------- ----------
INCOME BEFORE INTEREST AND TAXES 8,296 845 2,450 12,221
Interest expense 8,115 63 245(2) 8,423
---------- -------- -------- ----------
INCOME BEFORE INCOME TAXES 181 782 2,205 3,168
Income tax provision 111 337 858(3) 1,306
---------- -------- -------- ----------
Income from Continuing Operations $ 70 $ 445 $ 1,347 $ 1,862
========== ======== ======== ==========
Income from continuing operations $ 0.01 $ 0.16
========== ==========
Shares outstanding 11,472 11,472
Diluted Earnings per share:
Income from continuing operations $ 0.01 $ 0.16
========== ==========
Shares outstanding 11,490 11,490
28
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 25, 1999
(In thousands, except per share data)
(Unaudited)
Actual
-----------------------------
Pro Forma Pro Forma
Dixie Group Fabrica Adjustments Combined
----------- ---------- ----------- ----------
NET SALES $ 579,466 $ 42,985 $ 78(4) $ 622,529
Cost of sales 456,360 24,773 (2,543)(4) 478,590
---------- ---------- -------- ----------
GROSS PROFIT 123,106 18,212 2,621 143,939
Selling and administrative expenses 87,604 13,346 1,171(1)(4) 102,121
Other (income) expense - net 2,081 (32) -- 2,049
---------- ---------- -------- ----------
INCOME BEFORE INTEREST AND TAXES 33,421 4,898 1,450 39,769
Interest expense 13,051 166 490(2) 13,707
---------- ---------- -------- ----------
INCOME BEFORE INCOME TAXES 20,370 4,732 960 26,062
Income tax provision 7,971 197 351(3) 10,249
---------- ---------- -------- ----------
INCOME FROM CONTINUING OPERATIONS 12,399 2,805 609 15,813
========== ========== ======== ==========
Basic earnings per share:
Income from continuing operations $ 1.09 $ 1.39
========== ==========
Shares Outstanding 11,355 11,355
Diluted earnings per share
Income from continuing operations $ 1.06 $ 1.35
========== ==========
Shares Outstanding 11,682 11,682
Notes to Pro Forma Consolidated Statement of Operations
(1) Adjustments for the difference in compensation plans for the owners of
Fabrica to reflect the Dixie Group's compensation plans.
(2) Reflects interest expense on the debt to finance the acquisition.
(3) Adjustments for the related income tax effects of the other proforma
adjustments.
(4) Reflects the reclassification of Fabrica freight and warehousing expenses to
conform to the Dixie Group's presentation.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 13, 2000 THE DIXIE GROUP, INC.
By: /s/ Gary A Harmon
-------------------------------
Gary A. Harmon
Chief Financial Officer