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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                    

FORM 10-K
                    

OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ________.

The Dixie Group, Inc.
(Exact name of registrant as specified in its charter)
                                                                        

UNITED STATES
SECURITIES AND EXCHANGE COMMSSION
Washington, D. C. 20549

                                              

FORM 10-K (Continued)
                                              

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K   [     ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 26, 2004 (the last business day of the registrant's most recently completed fiscal second quarter) was approximately $125,250,000. The aggregate market value was computed by reference to the closing price of the Common Stock on such date. In making this calculation, the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 10% of a class of outstanding Common Stock, and no other persons, are affiliates. No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act.

Indicate the number of shares outstanding of each of the registrant's classes of Common Stock as of the latest practicable date.

ITEM 1.     BUSINESS

General

Our business consists principally of marketing, manufacturing and selling carpet and rugs to high-end residential and commercial customers through the Fabrica International, Masland Carpets and the Dixie Home brands. Our Candlewick carpet yarn business primarily processes yarn for our carpet businesses and also processes yarns for independent carpet manufacturers.

Our Recent History

Beginning in 1993, we entered the soft floorcovering business, using our carpet yarn business as a base, with the acquisition of Carriage Industries and Masland Carpets. Over the next seven years we made six additional floorcovering acquisitions concluding with our acquisition of Fabrica International and an interest in the dyeing and finishing operations of Chroma Systems Partners ("Chroma") on July 1, 2000. Our floorcovering acquisitions were partially financed by selling assets of our textile products businesses. In 1999, we sold the last of our textile products' assets to complete our transformation from the textile products business to a marketer and manufacturer of soft floorcovering products.

During the years 2000 through 2003, our profitability was adversely affected by operational inefficiencies associated with assimilating acquisitions into our North Georgia carpet operations and a significant decline in the factory-built housing industry. Our commitment to our brands, the upper-end of the floorcovering market and our desire to reduce our outstanding debt, led to the sale, in November 2003, of our North Georgia factory-built housing carpet, needlebond and carpet recycling businesses and related assets. In early 2004, we sold a carpet yarn facility located in Ringgold, Georgia that was a significant supplier of spun yarns to our North Georgia carpet operations.

The sale of these businesses and assets allowed us to substantially reduce our debt, diversify our customer base and focus on our core competencies in the upper-end of the soft floorcovering market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer relationships.

Although smaller, our business is growing, is more profitable and has greater growth potential. It is concentrated in areas of the soft floorcovering markets where innovative styling, design, color, quality and service, as well as limited distribution, are welcomed and rewarded. Through Masland, Fabrica, and Dixie Home, we have a significant presence in the high-end of the soft floorcovering market. Our brands are well known, highly regarded and complementary; by being differentiated, we offer meaningful alternatives to the discriminating customer.

Our Business Units

The Company is now in one line of business, Carpet Manufacturing. In fiscal 2003, the Company reported its operations as two segments: Carpet Manufacturing and Floorcovering Base Materials (Carpet Yarns). In the calendar year 2003, the Company sold a substantial portion of its carpet yarn manufacturing facilities and subsequently integrated the operations of its remaining carpet yarn facility into its carpet manufacturing business. The Company measures the operations of its carpet yarn manufacturing facility as a cost center and considers it principally as a raw material source for its carpet businesses.

Seasonality

Our sales volumes have normally reached their highest levels in the fourth quarter (approximately 28% of our annual sales) and their lowest levels in the first quarter (approximately 22% of our annual sales), with the remaining sales being distributed relatively equally between the second and third quarters. Working capital requirements have normally reached their highest levels in the second and third quarters of the year.

Environmental

Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report.

Raw Materials

We obtain our raw materials from a number of domestic suppliers. Man-made yarns are purchased from major chemical companies. Where possible, we pass raw material price increases through to our customers; however, there can be no assurance that price increases can be passed through to customers and that increases in raw material prices will not have an adverse effect on our profitability. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report. Although our procurement of raw materials is subject to variations in price and availability and we purchase the majority of our raw materials from one supplier, we believe there are other adequate sources of raw materials. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report.

Utilities

We use electricity as our principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. We have not experienced any material problem in obtaining adequate supplies of electricity, natural gas or oil. Energy shortages of extended duration could have an adverse effect on our operations, and price volatility could negatively impact future earnings. See "Certain Factors Affecting the Company's Performance" in Item 7 of this report.

Employment Level

We employ approximately 1,400 associates in our continuing operations.

Available Information

Our internet address is www.thedixiegroup.com. We make the following reports filed by us with the Securities and Exchange Commission available, free of charge, on our website under the heading "Investor Relations":

THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
(unaudited)
(dollars in thousands, except per share data)

ITEM 6.   SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the related consolidated financial statements and notes thereto included under Items 8, 15(a) (1) and (2) and 15(c) of this report on Form 10-K.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report.

OVERVIEW
We began 2004 as a company focused on our core competencies, committed to our brands and the upper-end of the soft floorcovering market, with a strong balance sheet, and well positioned to take advantage of an improving economy. Our business is concentrated in areas of the soft floorcovering market where innovative styling, design, color, quality and service as well as limited distribution are welcomed and rewarded. Through our Fabrica, Masland, and Dixie Home brands, we have a significant presence in the high-end of the soft floorcovering market. Our Candlewick carpet yarn operations supply plied and heat-set filament yarns primarily to our carpet manufacturing businesses and processes yarn for independent carpet manufacturers.

During 2002, we sold our carpet yarn extrusion operation. In November 2003 and early fiscal 2004, we sold substantially all of our assets located in North Georgia, including our factory-built housing carpet, needlebond, carpet recycling businesses and a carpet spun yarn manufacturing facility to Shaw Industries Group, Inc. Financial results for the operations sold have been classified as discontinued operations for all periods presented. These sales significantly reduced our debt, diversified our customer base, and improved our strategic position.

CRITICAL ACCOUNTING POLICIES

Certain estimates and assumptions are made when preparing financial statements. These estimates and assumptions affect various matters, including:

Other Operating Expense. Other operating expense increased in 2004 as a result of costs recognized related to a contract dispute.

Operating Income. Operating income was $25.6 million, or 8.8% of sales in 2004, compared with operating income of $2.8 million, or 1.2% of sales in 2003.

Interest Expense. The $2.9 million decrease in interest expense in 2004 was primarily a result of lower levels of debt.

Other Income. Other income improved $636 thousand in 2004 principally as a result of the favorable settlement of a vendor dispute and higher interest income.

Debt Extinguishment Costs. We did not incur debt extinguishment costs in 2004. Costs to extinguish debt retired prior to its scheduled maturity from the proceeds of the sale of our North Georgia operations were $9.7 million in 2003. Such costs included $4.2 million of charges for cash prepayment penalties and fees and $5.5 million of non-cash charges to write-off deferred financing costs associated with the debt retired.

Income Tax Provision (Benefit). Our effective income tax rate was 35.9% for 2004 compared with 36.3% (benefit) for 2003. The change in the effective tax rates is principally due to the relationship of expenses that are non-deductible for tax purposes to pre-tax earnings in each of these reporting periods and a $415 thousand reduction in our tax contingency reserve in 2004.

Net Income (Loss). Income from continuing operations was $14.0 million, or $1.12 per diluted share in 2004, compared with a loss from continuing operations of $9.0 million, or $0.77 per diluted share in 2003. Income from continuing operations was reduced by $13.4 million, or $1.14 per diluted share in 2003, due to impairments and other charges and debt extinguishment cost related to the sale of our North Georgia operations. Results related to discontinued operations reflected a loss of $1.7 million, or $0.14 per diluted share in 2004, compared to a loss of $7.9 million, or $0.67 per diluted share in 2003. Including discontinued operations, net income was $12.3 million, or $0.98 per diluted share in 2004, compared with a net loss of $17.0 million, or $1.44 per diluted share in 2003.

Fiscal Year Ended December 27, 2003, Compared with Fiscal Year Ended December 28, 2002

Net Sales. Net sales for the year 2003 increased to $234.1 million, an increase of 4.9% compared with net sales in the prior year. The revenue growth reflected a $20.8 million, or 10.6% increase in net sales of residential and commercial carpet products and a $10.0 million, or 37.6% decline in net sales of carpet yarn. The improvement in carpet sales was attributable to new product introductions and the overall strength of higher-end carpet markets. Almost half of the increased carpet revenue was due to the Dixie Home collection of products which were introduced in the marketplace in early 2003. Over half of the carpet revenue increase in 2003 was attributable to year over year growth in the higher-end residential and commercial markets served by our Masland and Fabrica business units. The decline in carpet yarn sales resulted primarily from management's decision to de-emphasize its carpet yarn sales business and utilize a greater portion of our carpet yarn capacity to supply our carpet businesses. In addition, consolidation within the carpet industry by vertically integrated manufacturers has reduced the demand for carpet yarn produced by independent suppliers.

Cost of Sales. Cost of sales, as a percentage of net sales, increased by 0.5 percentage points in 2003 principally due to a greater portion of our sales coming from lower margin products.

Gross Profit. The $2.7 million improvement in gross profit is principally attributable to higher sales volume.

Selling and Administrative Expenses. Selling and administrative expenses were 28.1% of net sales in 2003 compared with 25.3% of net sales in 2002. The increase is principally due to cost associated with the new Dixie Home collection of products and related higher than normal sample costs associated with this new product line. We anticipate that these expenses will decrease, as a percentage of net sales, as the volume of net sales of Dixie Home products increases. Additionally, we expect sample cost per dollar of net sales to decrease as Dixie Home's business matures.

Impairments and Other Charges. Our operating income was negatively impacted by $11.4 million of impairments and other charges recorded in the fourth quarter of the year ended December 27, 2003. The charges included $10.6 million of non-cash charges related to the write-down of assets impaired as a result of the sale of our North Georgia operations and $0.8 million related to success fees paid to management in connection with the North Georgia sale transaction. Impairment and other charges were $3.6 million in 2002 for the right-off of certain computer software.

Other Operating Income. Other operating income decreased by $7.1 million in 2003 principally as the result of a $6.9 million gain from the sale of a yarn extrusion facility in 2002. The gain was included in operating income due to our continuing involvement in the assets of this facility.

Other Operating Expense. Other operating expense consists primarily of certain expenses of our retirement plans and were relatively unchanged in 2003 compared with 2002.

Operating Income. Operating income was $2.8 million, or 1.2% of sales in 2003, compared with $24.1 million, or 10.8% of sales in 2002. Our 2003 operating income was negatively impacted by $11.4 million of impairment and other charges. Our 2002 operating income was reduced by $3.6 million of impairments and other charges and improved by a $6.9 million gain from the sale of an extrusion facility

Interest Expense. Interest expense increased $3.0 million in 2003. Interest expense was allocated to continuing operations in 2003 and prior periods presented based on the ratio of the net asset value of the assets in our continuing operations to the net asset value of our total assets. The increase in interest expense in 2003 was primarily a result of higher levels of debt due to the payment of a $50.0 million contingent purchase obligation to the previous owners of Fabrica in March of 2003.

Other Income. Other income decreased $468 thousand in 2003 principally due to lower earnings of an unconsolidated subsidiary.

Other Expense. Other expense decreased $723 thousand in 2003 due to certain supplier and contract cancellation costs incurred and the termination of our accounts receivable securitization program in 2002.

Debt Extinguishment Costs. Costs to extinguish debt was $9.7 million in 2003, which included $4.2 million of charges for cash pre-payment penalties and fees and $5.5 million of non-cash charges to write-off deferred financing cost associated with the debt retired, prior to its scheduled maturity, from the proceeds of the sale of our North Georgia operations. In 2002, we recorded a $2.8 million charge to write-off deferred financing cost relating to refinancing our senior credit facility prior to its scheduled maturity.

Income Tax Provision (Benefit). Our effective income tax rate was 36.3% (benefit) for 2003 compared with 31.8% for 2002. The change in the effective tax rates is principally due to a $1.1 million contribution deduction in 2002 and the relationship of expenses that are non-deductible for income tax purposes to pre-tax earnings in each of these reporting periods.

Net Income (Loss). Results from our continuing operations reflected a loss of $9.0 million, or $0.77 per diluted share in 2003, compared with income from continuing operations of $11.4 million, or $0.97 per diluted share in 2002. Income from continuing operations was reduced by $13.4 million, or $1.14 per diluted share in 2003, due to impairment and other charges and debt extinguishment cost, related to the sale of our North Georgia operations. Results related to discontinued operations reflected a loss of $7.9 million, or $0.67 per diluted share in 2003, compared with a loss of $6.9 million, or $0.58 per diluted share in 2002. Including discontinued operations, the net loss was $17.0 million, or $1.44 per diluted share in 2003, compared with net income of $4.6 million, or $0.39 per diluted share in 2002.

LIQUIDITY AND CAPITAL RESOURCES

During the three-year period ended December 25, 2004, cash generated from asset sales was $244.3 million. These funds were our primary source of liquidity and were used to finance $50.5 million used in our operating activities (including $40.4 million utilized to terminate our accounts receivable securitization arrangement), invest $34.8 million in capital assets, invest $51.0 million in business acquisitions, and retire $108.2 million of debt.

Net proceeds from the sale of assets were $3.1 million in 2004, $207.7 million in 2003 and $33.5 million in 2002. The assets sold consisted primarily of a spun yarn manufacturing facility in 2004, our North Georgia operations in 2003, and a yarn extrusion and a carpet yarn facility in 2002.

Capital expenditures were $13.6 million in 2004 and depreciation and amortization was $8.6 million. We expect capital expenditures to be approximately $20.0 million for the year 2005, and depreciation and amortization is expected to be approximately $10.0 million. The 2005 capital expenditures will be primarily for newer manufacturing technology, carpet tile manufacturing equipment to expand our commercial product line, and additional building space to accommodate this equipment and expand our distribution capabilities.

We amended our senior loan and security agreement in April and November 2004. As amended, the agreement reduced interest rates and certain fees applicable to the credit facility, modified financial covenants and provides the Company with $75.0 million of credit, consisting of $45.0 million of revolving credit through May 11, 2007, a $20.0 million term loan and a $10.0 million capital expenditure line. The term loan is payable in quarterly installments of $715 thousand that began June 1, 2004 and is due in May 2007. The capital expenditure line can be utilized through May 10, 2007 to finance the purchase of up to 80% of the cost of eligible equipment and real estate improvements.

Interest rates available under the senior loan and security agreement may be selected from a number of options that effectively allow us to borrow at rates ranging from the lender's prime rate to the lender's prime rate plus 1.00% for base rate loans, or at rates ranging from LIBOR plus 2.00% to LIBOR plus 3.50% for LIBOR loans. The weighted-average interest rate on borrowings outstanding under this agreement was 4.62% at December 25, 2004. Commitment fees of 0.375% per annum are payable on the average daily unused balance of the revolving credit facility. The levels of our accounts receivable and inventory may limit borrowing availability under the revolving credit line. The facility is secured by a first priority lien on substantially all of our assets.

Our $7.2 million mortgage note payable is secured by real property, is payable in monthly installments ranging from $15 thousand to $28 thousand during its term and matures in March 2013. The mortgage note bears interest based on LIBOR plus 2.0% and is fixed at 6.54% through March 13, 2013 by an interest rate swap.

Our $1.3 million note payable bears interest at 6.09%, is due in October 2005, and is secured by a one-third interest in Chroma.

Our senior loan and security agreement contains financial covenants relating to fixed charges and total debt that apply if availability under the facility's revolving credit line falls below $10.0 million, as well as covenants that limit future acquisitions, capital expenditures, and the payment of dividends. The unused borrowing capacity under the facility's revolving credit and capital expenditure lines on December 25, 2004 was approximately $41.0 million. Our mortgage note payable contains financial covenants related to certain fixed charges of Chroma.

The Fabrica asset purchase agreement provides for a $2.0 million contingent payment to be made in April 2005. The liability for the additional contingent consideration was recorded in 2004 and was treated as additional cost of the acquisition.

We believe our operating cash flows and credit availability under our senior loan and credit agreements are adequate to finance our normal liquidity requirements.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued SFAS No. 132 - Revised 2003 (SFAS No. 132R), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132R increased the existing disclosure requirements about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies are required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. SFAS No. 132R did not have a material impact on our financial statements.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4." SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires these costs to be treated as current period charges. In addition, SFAS No. 151 requires that fixed production overhead cost be allocated to units of production based on the normal capacity of each production facility. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently in the process of evaluating the impact of SFAS No. 151 on our financial statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29." SFAS No. 153 amends the guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions", which is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged, with certain exceptions. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We are currently in the process of evaluating the impact of SFAS No. 153 on our financial statements.

In December 2004, the FASB issued SFAS No. 123 - Revised (SFAS No. 123R), "Share-Based Payment", which revises SFAS No. 123, "Accounting for Stock-Based Compensation", and supercedes APB No. 25, "Accounting for Stock Issued to Employees." Currently, we do not record compensation expense for certain stock-based compensation. Under SFAS No. 123R, we will measure the cost of employee services received in exchange for stock, based on the grant-date fair value (with limited exceptions) of the stock award. Such cost will be recognized over the period during which the employee is required to provide service in exchange for the stock award (usually the vesting period). The fair value of the stock award will be estimated using an option-pricing model, with excess tax benefits, as defined in SFAS No. 123R, being recognized as an addition to paid in capital. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 200 5. We are currently in the process of evaluating the impact of SFAS No. 123R on our financial statements.

As of December 25, 2004, the Company had an interest rate swap agreement with a notional amount of $70,000 which expires on March 11, 2005. Under the interest rate swap agreement, the Company pays a fixed rate of 3.24% of interest times the notional amount, and receives in return an amount equal to a specified variable rate of interest times the same notional amount. Any interest rate differential realized is recognized as an adjustment to interest expense over the life of the swap agreement. The Company also has an interest rate swap agreement on its mortgage note payable with a notional amount equal to the outstanding balance of the mortgage note ($7,190 at December 25, 2004) which expires in March of 2013. Under the interest rate swap agreement, the Company pays a fixed rate of 4.5% of interest times the notional amount and receives in return an amount equal to a specified variable rate of interest times the same notional amount. The swap agreement effectively fixes the interest rate on the mo rtgage note payable at 6.54%. Based upon the Company's interest rate swap agreements in effect during 2004, a 10% fluctuation in the variable interest rate would result in an annual after-tax economic impact of approximately $119.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The supplementary financial information required by ITEM 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the Financial Statements are included in a separate section of this report.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.   CONTROLS AND PROCEDURES

     (a)  Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such terms are defined in Rules 13(a)-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of December 25, 2004, the date of the financial statements included in this Form 10-K (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company that is required to be included in our periodic filings under the Exchange Act.

     (b)  Changes in Internal Control over Financial Reporting. During the last fiscal quarter there have not been any changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).

We conducted, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under such framework, our management concluded that our internal control over financial reporting was effective as of December 25, 2004.

Our management's assessment of the effectiveness of our internal control over financial reporting as of December 25, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

ERNST & YOUNG LLP

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The sections entitled "Information about Nominees for Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 3, 2005 are incorporated herein by reference. Information regarding the executive officers of the registrant is presented in PART I of this report.

The Company has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") which applies to its principal executive officer, principal financial officer and principal accounting officer or controller, and any persons performing similar functions. A copy of the Code of Ethics is incorporated by reference as Exhibit 14 to this Report.

Audit Committee Financial Expert

The Board has determined that John W. Murrey, III is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended, and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act of 1934. For a brief listing of Mr. Murrey's relevant experience, please refer to the "Election of Directors" section of the Company's Proxy Statement.

Audit Committee

The Company has a standing audit committee. Members of the Company's audit committee during 2004 were John W. Murrey, III, Chairman, J. Don Brock, Joseph L. Jennings, Jr., and Lowry F. Kline.

ITEM 11.    EXECUTIVE COMPENSATION

The sections entitled "Executive Compensation Information" and the directors' fee information in the last paragraph of the section entitled "Committees, Attendance and Directors' Fees" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 3, 2005 are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section entitled "Principal Shareholders", as well as the beneficial ownership table (and accompanying notes) in the Proxy Statement of the registrant for the annual meeting of shareholders to be May 3, 2005 is incorporated herein by reference.