2013 ANNUAL REPORT
A name synonymous with impeccable
styling, exceptional performance and
“Quality without Compromise” for 40 years.
Fabrica – with a reputation for exquisite
style, exceptional performance, and
“Quality Without Compromise.”
An innovative leader in unsurpassed color,
design and craftsmanship since 1866.
An impressive selection of fashionable
and affordable carpets for the home.
ThR ee RemARkAbL e bRAnds,
One Rich Legacy
Our residential products exemplify
originality, innovative construction,
and color leadership, backed by our
industry leading customer service
teams, upholding the celebrated
dixie Group legacy.
MCR029 annual report ad_final.indd 1
3/5/14 3:13 PM
e x T r a o rD i n a r y f l o o r s T h e f o u nD a T i o n o f
exT ra orD ina ry inT eriors
masland contract believes that truly exclusive
design begins with products that accommodate
the structural and performance needs of the end
user but is also visually and texturally intriguing.
With more than a century of experience,
masland contract remains on the cutting edge
and continues to break new ground in the way
of design and manufacturing methods.
Transform your spa ce
avant contract, the newest addition to The Dixie
Group’s family of brands, enters the commercial arena
as a predominately modular offering targeted at the high
end corporate market. a forward thinking brand, avant
utilizes a trending mix of new media and traditional
communications to engage the specifying community.
MAS565 Annual Report ad_final.indd 1
3/5/14 2:41 PM
letter to shareholders
Dixie’s performance since the historic downturn of
2008 - 2009 has been exceptional. Looking back at
the period since 2009, our carpet sales have grown
68%, while we estimate that the industry grew only
around 12%. During this period, our residential
sales have grown 88%, while the industry is up less
than 10%. Our commercial sales grew 28%, while
we estimate that the industry was only up slightly
greater than 15%. The growth we have seen has
been driven by extensive investment in product,
processes and people.
The investments we have made have included both
capital and operating expenditures, which have
impacted our operating earnings during this time
period. Our sample expenses, as a percent of carpet
sales for the period of 2009-2013, were 32% higher
than those for the period from 2006 through 2008.
This emphasis on new products, we believe, has
been worth the expense, as it has allowed us to gain
market share in a difficult time period. In addition,
we have invested in yarn processing, new tufting
and rug technology, and new dyeing technology as
we have grown out of this unprecedented period
in our industry. Specifically, we increased our yarn
capacity by over 40%. We purchased and started up
our new space-dye line, providing us with additional
yarn capabilities. We have purchased and upgraded
our tufting capabilities for added functionality and
lower cost. We purchased, upgraded, and increased
the capacity of our Colormaster dyeing facility over
the last 15 months. We acquired the top selling
product lines from a competitor. We expanded our
residential and commercial sales forces. We invested
in the Crown rug operation, moving it into our
California facility and expanding its production
capacity. We bought and are currently integrating
the Robertex wool business into our Fabrica and
Masland product lines.
We brought in new management for our Masland
Contract business, initiating a stream of new
products to enhance our position within the
specified commercial market. We upgraded our
modular carpet tile processing equipment to lower
cost and improve margins. Further, we launched
the Avant product line in 2013 and recently
announced both a joint venture and distribution
agreement with Desso to expand our penetration
in the high-end hospitality market and bring a new
set of innovative cradle-to-cradle modular carpet
tile products to the North American marketplace.
Streamlining our warehouse and distribution
network is the remaining major investment needed
The Dixie Group | 2013 Annual Report
expanding our workforce. Profitably managing this
growth is our primary objective as we progress in
2014. As a result of these investments in the future,
we have significant headroom for sales growth and
the talented people in place to make it happen.
We would like to express our appreciation to our
customers, our shareholders, and to our Board of
Directors, all of whom have given us continued
support, and to our associates for their ongoing
dedication and hard work.
Sincerely,
Daniel K. Frierson
Chairman and Chief Executive Officer
March 12, 2014
to sustain this increase in sales growth. The
consolidation of these functions into one facility
will be implemented over a 15-month time period.
The result from our investments has been a sales
increase of nearly 30% in 2013 as compared with
that of 2012. Our residential product sales were up
over 28% for the year compared to those of 2012;
while the industry, we estimate, was up in the
mid-single digit range. In the residential market
in 2013, we successfully introduced new products,
utilizing the Stainmaster® TruSoft™ and PetProtect™
line of fibers: products that we took a lead position
in introducing to the marketplace. Additionally,
we continued our double-digit growth in wool,
continuing our new product success in serving the
high-end marketplace.
Last year our sales increase in commercial products
was 30% as compared with an estimated market
growth in the low single digits. Our commercial
success over the last year was led by the successful
launch of our Speak modular carpet tile and our
FIT office remodel collections.
All of these changes have come at a significant cost
to the company, both financially and in terms of
The Dixie Group | 2013 Annual Report
at a glance
T H E D I X I E G R O U P
Fulfilling the promise of our corporate mission of “Quality without
Compromise” Fabrica manufactures carpets and rugs for the most demanding
segments of the high-end style residential market. Our distinctive broadloom
carpet, custom area rugs and hand-tufted rugs have earned Fabrica an
international reputation for exquisite style and exceptional performance.
At Fabrica, our passion is to be “Best in Class” – blending exquisite style and
uncompromising performance in every carpet and rug we produce.
Masland Carpets and Rugs was founded in Pennsylvania in 1866 by Charles
Henry Masland when he and his brother James opened a dye house in
Germantown, Pennsylvania. Today, Masland continues to boast of its heritage
as the leading carpet manufacturer in the United States. Since 1866, Masland
has insisted that its carpets and rugs maintain the highest quality. The tradition
of manufacturing quality products has been practiced for over 145 years and
continues to be practiced today.
Dixie Home was founded in early 2003 on the premise that fashion and design
do not have to be limited to the high end of the market. Since that time, Dixie
Home has experienced rapid growth and enthusiastic market acceptance for
their stylish designed tufted broadloom carpets that fall within more moderately
priced segments of the high-style residential market.
The Dixie Group entered the specified contract market in 1993 with the
establishment of Masland Contract. A recognized leader in color and design
from the start, Masland Contract has become a preferred supplier for the
architectural and design communities.
Masland Contract offers high style broadloom, modular and area rug
products for corporate, hospitality, retail, education, government, and
various other segments.
Avant Contract—The new Dixie Group brand is focused on becoming an
industry trend leader in the commercial soft surface market, both domestically
and internationally. The Avant concept allows The Dixie Group to expand
its presence in the contract arena and gain additional market share for
the commercial division through innovative product introductions and
progressive marketing.
The Avant Contract brand is predominantly a modular offering designed for
the corporate office segment, along with government, higher education and
store planning.
ENVIRONMENTAL STATEMENT
For The Dixie Group’s Environmental Statement, please refer to the back of this
2013 Annual Report.
directors, officers, corporate information
directors
Daniel K. Frierson(1)(3)
Chairman of the Board
Charles E. Brock(2)(4)
President and Chief
Executive Officer,
Four Bridges Capital
J. Don Brock, Ph.D.(1)(4)
Chairman of the Board,
Astec Industries, Inc.
D. Kennedy Frierson, Jr.(3)
Chief Operating Officer,
The Dixie Group, Inc.
Walter W. Hubbard(2)(4)
Retired President and
Chief Executive Officer,
Honeywell Nylon, Inc.
Lowry F. Kline(1)(2)(4)
Retired Chairman,
Coca-Cola Enterprises, Inc.
Hilda S. Murray (3)(4)
Corporate Secretary and
Executive Vice President of
TPC Printing & Packaging
John W. Murrey, III(2)(4)
Retired
Michael L. Owens(4)
Assistant Dean of Graduate
Programs and Lecturer,
College of Business,
University of Tennessee at
Chattanooga
(1) Member of Executive Committee
(2) Member of
Compensation Committee
(3) Member of Retirement
Plans Committee
(4) Member of Audit Committee
officers
Daniel K. Frierson
Chairman of the Board
and Chief Executive Officer
Jon A. Faulkner
Vice President and
Chief Financial Officer
D. Kennedy Frierson, Jr.
Vice President and
Chief Operating Officer
W. Derek Davis
Vice President,
Human Resources
Paul B. Comiskey
Vice President and President,
Dixie Residential
D. Eugene Lasater
Controller
V. Lee Martin
Vice President and President,
Masland Contract
Starr T. Klein
Secretary
corporate information
CORPORATE ADMINISTRATIVE OFFICE
The Dixie Group, Inc.
2208 South Hamilton Street | Dalton, Georgia 30721-4974
706.876.5800
INVESTOR CONTACT
Jon A. Faulkner,
Vice President and Chief Financial Officer
The Dixie Group, Inc.
2208 South Hamilton Street | Dalton, Georgia 30721
706.876.5814
CORPORATE HEADQUARTERS
104 Nowlin Lane, Suite 101 | Chattanooga, Tennessee 37421
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Ernst & Young LLP
55 Ivan Allen Jr. Blvd. | Suite 1000
Atlanta, Georgia 30308
ANNUAL MEETING
The Annual Meeting of Shareholders of The Dixie Group,
Inc. will be held at 8:00 A.M. EDT on April 29, 2014, at The
Chattanoogan Hotel, Chattanooga, Tennessee
STOCK TRANSFER AGENT
Computershare Investor Services, LLC
PO Box 30170 | College Station, Texas | 77843-3170
STOCK LISTING
The Dixie Group’s Common Stock is listed on the NASDAQ
Global Market under the symbol DXYN
LEGAL COUNSEL
Miller & Martin PLLC
1000 Volunteer Building
832 Georgia Avenue | Chattanooga, Tennessee 37402
FORM 10-K AND OTHER INFORMATION
A copy of the Company’s Annual Report on Form 10-K
for the fiscal year ended December 28, 2013, is included
with this report. The Dixie Group maintains a website,
www.thedixiegroup.com, where additional information,
including our investor presentation, may be obtained.
The Dixie Group | 2013 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2013
OR
For the transition period from _________ to ________.
Commission File Number 0-2585
The Dixie Group, Inc.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of incorporation of organization)
62-0183370
(I.R.S. Employer Identification No.)
104 Nowlin Lane, Suite 101, Chattanooga, TN 37421
(Address of principal executive offices and zip code)
(423) 510-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock, $3.00 par value
Name of each exchange on which registered
NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
Title of class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes
No
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
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 information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition
of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 28, 2013 (the last business day of the registrant's most recently
completed fiscal second quarter) was $88,645,594. 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.
Class
Common Stock, $3.00 Par Value
Class B Common Stock, $3.00 Par Value
Class C Common Stock, $3.00 Par Value
Outstanding as of February 28, 2014
12,453,166 shares
866,875 shares
0 shares
Specified portions of the following document are incorporated by reference:
Proxy Statement of the registrant for annual meeting of shareholders to be held April 29, 2014 (Part III).
DOCUMENTS INCORPORATED BY REFERENCE
1
THE DIXIE GROUP, INC.
Index to Annual Report
on Form 10-K for
Year Ended December 28, 2013
PART I
Page
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
PART II
Item 5.
Item 6.
Item 7.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART IV
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 28, 2013 and December 29, 2012
Consolidated Statements of Operations - Years ended December 28, 2013, December 29, 2012, and
December 31, 2011
Consolidated Statements of Comprehensive Income (Loss) - Years ended December 28, 2013,
December 29, 2012, and December 31, 2011
Consolidated Statements of Cash Flows - Years ended December 28, 2013, December 29, 2012,
and December 31, 2011
Consolidated Statements of Stockholders' Equity - Years ended December 28, 2013, December 29,
2012, and December 31, 2011
Notes to Consolidated Financial Statements
Exhibit Index
2
4
6
9
9
10
10
11
12
15
16
25
25
25
25
26
27
27
27
27
27
28
29
33
35
36
37
38
40
41
71
FORWARD-LOOKING INFORMATION
This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include the use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar
terms and phrases. Such forward-looking statements relate to, among other matters, our future financial performance, business
prospects, growth strategies or liquidity. The following important factors may affect our future results and could cause those
results to differ materially from our historical results; these factors include, in addition to those "Risk Factors" detailed in Item 1A
of this report, and described elsewhere in this document, the cost and availability of capital, raw material and transportation
costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant customer or group of
customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and
other risks detailed from time to time in our filings with the Securities and Exchange Commission.
3
Item 1.
BUSINESS
General
Part I.
Our business consists principally of marketing, manufacturing and selling carpet and rugs to high-end residential and
commercial customers through our various sales forces and brands. A small portion of our manufacturing capacity is used to
provide carpet and yarn related services to other manufacturers.
From 1920 until 1993 we were exclusively in the textile business. We sold our textile assets and began acquiring floorcovering
businesses in 1993. We focus exclusively on 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.
Our business 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. Our Fabrica, Masland, and Dixie Home brands have a
significant presence in the high-end residential soft floorcovering markets. Our Masland Contract brand and Avant, a brand
launched in 2013, participate in the upper end specified commercial marketplace. Dixie International sells all of our brands
outside of the North American market. Our brands are well known, highly regarded and complementary; by being differentiated,
we offer meaningful alternatives to the discriminating customer.
We have one line of business, carpet and rug manufacturing.
Our Brands
Fabrica, markets and manufactures luxurious residential carpet and custom rugs, at selling prices that we believe are
approximately five times the average for the residential soft floorcovering industry. Its primary customers are interior
decorators and designers, selected retailers and furniture stores, luxury home builders and manufacturers of luxury motor
coaches and yachts. Fabrica is among the leading premium brands in the domestic marketplace and is known for styling
innovation and unique colors and patterns. The Carousel line of products was acquired in 2013 and added to our Fabrica
line of products. The Carousel line of products consists of made-to-order, hand-crafted, extremely high quality carpets and
area rugs in natural fibers, primarily wool, with a wide variety of patterns and textures manufactured by machine, hand
weaving and hand-hooked techniques. Fabrica is viewed by the trade as the premier quality brand for very high-end
carpet and enjoys an established reputation as a styling trendsetter and a market leader in providing both custom and
designer products to the very high-end residential sector.
Masland Residential, founded in 1866, markets and manufactures design-driven specialty carpets and rugs for the high-
end residential marketplace. Its residential and commercial broadloom carpet products are marketed at selling prices that
we believe are over three times the average for the residential soft floorcovering industry. Its products are marketed
through the interior design community, as well as to consumers through specialty floorcovering retailers. Masland
Residential has strong brand recognition within the upper-end residential market. Masland Residential competes through
innovative styling, color, product design, quality and service.
Dixie Home provides stylishly designed, differentiated products that offer affordable fashion to residential consumers. Dixie
Home markets an array of tufted broadloom residential and commercial carpet to selected retailers and home centers
under the Dixie Home and private label brands. Its objective is to make the Dixie Home brand the choice for styling,
service and quality in the more moderately priced sector of the high-end broadloom residential carpet market. Its products
are marketed at selling prices which we believe average two times the soft floorcovering industry's average selling price.
Masland Contract markets and manufactures broadloom and modular carpet tile for the specified commercial
marketplace. Its commercial products are marketed to the architectural and specified design community and directly to
commercial end users, as well as to consumers through specialty floorcovering retailers. Masland Contract has strong
brand recognition within the upper-end contract market, and competes through innovative styling, color, patterns, quality
and service.
Avant Contract, a new commercial business launched in 2013, is designed to focus on the corporate office market
through multi-line sales agents. These agents carry a broad array of products for the corporate interiors market and will
exclusively offer Avant as their soft floorcovering offering. Its modular carpet tile and broadloom product offerings are
designed for the interior designer in the upper-end of the contract market who appreciates sophisticated texture, color and
patterns with excellent service.
4
Industry
The carpet and rug industry has two primary markets, residential and commercial, with the residential market making up the
largest portion of the industry's sales. A substantial portion of industry shipments is made in response to replacement demand.
Residential products consist of broadloom carpets and rugs in a broad range of styles, colors and textures. Commercial
products consist primarily of broadloom carpet and modular carpet tile for a variety of institutional applications such as office
buildings, restaurant chains, schools and other commercial establishments. The carpet industry also manufactures carpet for
the automotive, recreational vehicle, small boat and other industries.
The Carpet and Rug Institute (the "CRI") is the national trade association representing carpet and rug manufacturers.
Information compiled by the CRI suggests that the domestic carpet and rug industry is comprised of fewer than 100
manufacturers, with a significant majority of the industry's production concentrated in a limited number of manufacturers focused
on the lower end of the price curve. We believe that this industry focus provides us with opportunities to capitalize on our
competitive strengths in selected markets where innovative styling, design, product differentiation, focused service and limited
distribution add value.
Competition
The floorcovering industry is highly competitive. We compete with other carpet and rug manufacturers and other types of
floorcoverings. We believe our products are among the leaders in styling and design in the high-end residential and high-end
commercial carpet markets. However, a number of manufacturers produce competitive products and some of these
manufacturers have greater financial resources than we do.
We believe the principal competitive factors in our primary soft floorcovering markets are styling, color, product design, quality
and service. In the high-end residential and high-end commercial markets, carpet competes with various other types of
floorcoverings. Nevertheless, we believe we have competitive advantages in several areas. We have an attractive portfolio of
brands that we believe are well known, highly regarded by customers and complementary; by being differentiated, we offer
meaningful alternatives to the discriminating customer. We believe our investment in new yarns , such as Stainmaster's®
TruSoft™ and PetProtect™, and innovative tufting and dyeing technologies, strengthens our ability to offer product differentiation
to our customers. In addition, we have established longstanding relationships with key suppliers in our industry and customers
in most of our markets. Finally, our reputation for innovative design excellence and our experienced management team enhance
our competitive position. See "Risk Factors" in Item 1A of this report.
Backlog
Sales order backlog is not material to understanding our business, due to relatively short lead times for order fulfillment in the
markets for the vast majority of our products.
Trademarks
Our floorcovering businesses own a variety of trademarks under which our products are marketed. Among such trademarks, the
names "Fabrica", "Masland", "Dixie Home", “Masland Contract” and "Avant" are of greatest importance to our business. We
believe that we have taken adequate steps to protect our interest in all significant trademarks.
Customer and Product Concentration
As a percentage of our net sales, one customer, Lowe's, a mass merchant, accounted for approximately 13% in 2013, 9% in
2012 and 12% in 2011. No other customer was more than 10 percent of our sales during the periods presented. During 2013,
sales to our top ten customers accounted for 20% percent of our sales and our top 20 customers accounted for 23% percent of
our sales. We do not make a material amount of sales in foreign countries.
We do not have any single class of products that accounts for more than 10 percent of our sales. However, sales of our
floorcovering products may be classified by significant end-user markets into which we sell, and such information for the past
three years is summarized as follows:
Residential floorcovering products
Commercial floorcovering products
Seasonality
2013
74%
26%
2012
75%
25%
2011
71%
29%
Our sales historically have normally reached their lowest level in the first quarter (approximately 23% of our annual sales), with
the remaining sales being distributed relatively equally between the second, third and fourth quarters. Working capital
requirements have normally reached their highest levels in the second and third quarters of the year.
5
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 "Risk Factors” in Item 1A of this report.
Raw Materials
Our primary raw material is yarn. Nylon is the primary yarn we utilize and, to a lesser extent, polyester and wool yarn is used.
Additionally, we utilize polypropylene carpet backing, latex, dyes and chemicals, and man-made topical applications in the
construction of our products. Our synthetic yarns are purchased primarily from domestic fiber suppliers and wool is purchased
from a number of domestic and international sources. Our other raw materials are purchased primarily from domestic suppliers.
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 "Risk Factors” in Item 1A of this report. We purchase a significant portion of our primary raw material (nylon
yarn) from one supplier. We believe there are other sources of nylon yarn; however, an unanticipated termination or interruption
of our supply arrangements could adversely affect our supplies of raw materials and could have a material effect on our
operations. See "Risk Factors” in Item 1A 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 "Risk Factors” in Item 1A of this report.
Working Capital
We are required to maintain significant levels of inventory in order to provide the enhanced service levels demanded by the
nature of our business and our customers, and to ensure timely delivery of our products. Consistent and dependable sources of
liquidity are required to maintain such inventory levels. Failure to maintain appropriate levels of inventory could materially
adversely affect our relationships with our customers and adversely affect our business. See "Risk Factors” in Item 1A of this
report.
Employment Level
At December 28, 2013, we employed 1,423 associates in our 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":
1. annual reports on Form 10-K;
2. quarterly reports on Form 10-Q;
3. current reports on Form 8-K; and
4. amendments to the foregoing reports.
The contents of our website are not a part of this report.
Item 1A.
RISK FACTORS
In addition to the other information provided in this Report, the following risk factors should be considered when
evaluating the results of our operations, future prospects and an investment in shares of our Common Stock. Any of
these factors could cause our actual financial results to differ materially from our historical results, and could give rise
to events that might have a material adverse effect on our business, financial condition and results of operations.
The floor covering industry is sensitive to changes in general economic conditions and a decline in residential or
commercial construction activity or corporate remodeling and refurbishment could have a material adverse effect on
our business.
The floor covering industry, in which the Company participates, is highly dependent on general economic conditions, such as
consumer confidence and income, corporate and government spending, interest rate levels, availability of credit and demand for
housing. The Company derives a majority of its sales from the replacement segment of the market. Therefore, economic
6
changes that result in a significant or prolonged decline in spending for remodeling and replacement activities could have a
material adverse effect on the Company’s business and results of operations.
The floor covering industry is highly dependent on construction activity, including new construction, which is cyclical in nature
and recently experienced a downturn. The downturn in the U.S. and global economies, along with the residential and
commercial markets in such economies, negatively impacted the floor covering industry and the Company’s business. Although
the impact of a decline in new construction activity is typically accompanied by an increase in remodeling and replacement
activity, these activities lagged during the downturn. Although the difficult economic conditions have improved, there may be
additional downturns that could cause the industry to deteriorate in the foreseeable future. A significant or prolonged decline in
residential or commercial construction activity could have a material adverse effect on the Company’s business and results of
operations.
We have significant levels of sales in certain channels of distribution and reduction in sales through these channels
could adversely affect our business.
A significant amount of our sales are generated through certain retail and mass merchant channels of distribution. Because we
depend on such certain channels of distribution, a significant reduction of sales through these channels could adversely affect
our business.
We have significant levels of indebtedness that could result in negative consequences to us.
We have a significant amount of indebtedness relative to our equity. Insufficient cash flow, profitability or the value of our assets
securing our loans could materially adversely affect our ability to generate sufficient funds to satisfy the terms of our senior loan
agreements and other debt obligations. Additionally, the inability to access debt or equity markets at competitive rates in
sufficient amounts to satisfy our obligations could adversely impact our business.
Uncertainty in the credit market or downturns in the economy and our business could affect our overall availability and
cost of credit.
Uncertainty in the credit markets could affect the overall availability and cost of credit. Despite recent improvement in overall
economic conditions, market conditions could impact our ability to obtain financing in the future, including any financing
necessary to refinance existing indebtedness, and the cost and terms of it, remains uncertain. These and other economic factors
could have a material adverse effect on demand for our products and on its financial condition and operating results.
We face intense competition in our industry, which could decrease demand for our products and could have a material
adverse effect on our profitability.
The floor covering industry is highly competitive. We face competition from a number of domestic manufacturers and
independent distributors of floor covering products and, in certain product areas, foreign manufacturers. Significant consolidation
within the floor covering industry has caused a number of our existing and potential competitors to grow significantly larger and
have greater access to resources and capital than we do. Maintaining our competitive position may require us to make
substantial additional investments in our product development efforts, manufacturing facilities, distribution network and sales and
marketing activities. These additional investments may be limited by our access to capital, as well as restrictions set forth in our
credit facilities. Competitive pressures may also result in decreased demand for our products and in the loss of market share. In
addition, we face, and will continue to face, pressure on sales prices of our products from competitors. As a result of any of these
factors, there could be a material adverse effect on our sales and profitability.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and
updated products, we may not be able to maintain or increase our net revenues and profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing
consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be
predicted with certainty. In addition, long lead times for certain of our products may make it hard for us to quickly respond to
changes in consumer demands. Our new products may not receive consumer acceptance as consumer preferences could shift
rapidly to different types of flooring products or away from these types of products altogether, and our future success depends in
part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing
consumer preferences could lead to, among other things, lower sales and excess inventory levels, which could have a material
adverse effect on our financial condition.
Raw material prices may increase and the inability to pass any such increases to our customers could materially
adversely affect our business, results of operations and financial condition.
The prices of raw materials and fuel-related costs vary significantly with market conditions. In particular, our business requires
the purchase of large volumes of nylon and polyester yarn, as well as wool yarns, synthetic backing, latex, and dyes. Increases
in the cost of these raw materials could materially adversely affect our business, results of operations and financial condition if
7
we are unable to pass these increases through to our customers. Although we generally attempt to pass on increases in raw
material, energy and fuel-related costs to our customers, our ability to do so is dependent upon the rate and magnitude of any
increase, competitive pressures and market conditions for our products. There have been in the past, and may be in the future,
periods of time during which increases in these costs cannot be recovered. During such periods of time, our business may be
materially adversely affected.
Unanticipated termination or interruption of our arrangements with third-party suppliers of nylon yarn could have a
material adverse effect on us.
Nylon yarn is the principal raw material used in our floor covering products. A significant portion of such yarn is purchased from
one supplier. Our yarn supplier is on the of the leading fiber suppliers within the industry and is the exclusive supplier of certain
innovative branded fiber technology upon which we rely. We believe our offerings of this innovative fiber technology contribute
materially to the competiveness of our products. While we believe there are other sources of nylon yarns, an unanticipated
termination or interruption of our current supply of nylon yarn could have a material adverse effect on our ability to supply our
product to our customers and have a material adverse impact on our competitiveness if we are unable to replace our nylon
supplier with another supplier that can offer similar innovative fiber products. An extended interruption in the supply of these or
other raw materials or sourced products used in the Company’s business or in the supply of suitable substitute materials or
products would disrupt the Company’s operations, which could have a material adverse effect on the Company’s business.
We may experience certain risks associated with acquisitions, joint ventures and strategic investments.
We have recently embarked on several strategic and tactical initiatives, including acquisitions and investment in new products, to
strengthen our future and to enable us to return to sustained growth and profitability. Growth through acquisitions involves risks,
many of which may continue to affect us after the acquisition. An acquired company may not achieve the levels of revenue,
profitability and production that we expect. The combination of an acquired company’s business with ours involves risks.
Reported earnings may not meet expectations because of goodwill and intangible asset impairment, other asset impairments,
increased interest costs and issuance of additional securities or debt as a result of these acquisitions. We may also face
challenges in consolidating functions and integrating our organizations, procedures, operations and product lines in a timely and
efficient manner.
The diversion of management attention and any difficulties encountered in the transition and integration process could have a
material adverse effect on our revenues, level of expenses and operating results. Failure to successfully manage and integrate
an acquisition with our existing operations could lead to the potential loss of customers of the acquired business, the potential
loss of employees who may be vital to the new operations, the potential loss of business opportunities or other adverse
consequences that could have a material adverse effect on our business, financial condition and results of operations. Even if
integration occurs successfully, failure of the acquisition to achieve levels of anticipated sales growth, profitability or productivity,
or otherwise perform as expected, may have a material adverse effect on our business, financial condition and results of
operations.
We are subject to various environmental, safety and health regulatory governance that may subject us to costs,
liabilities and other obligations, which could have a material adverse effect on our business, results of operations and
financial condition.
We are subject to various environmental, safety and health and other regulations that may subject us to costs, liabilities and
other obligations which could have a material adverse effect on our business. The applicable requirements under these laws are
subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts.
We could incur material expenditures to comply with new or existing regulations, including fines and penalties and increased
costs of its operations. Additionally, future laws, ordinances or regulations could give rise to additional compliance or remediation
costs that could have a material adverse effect on our business, results of operations and financial condition.
Various federal, state and local environmental laws govern the use of our current and former facilities. These laws govern such
matters as:
• Discharge to air and water;
• Handling and disposal of solid and hazardous substances and waste, and
• Remediation of contamination from releases of hazardous substances in our facilities and off-site disposal locations.
Our operations also are governed by laws relating to workplace safety and worker health, which, among other things, establish
noise standards and regulate the use of hazardous materials and chemicals in the workplace. We have taken, and will continue
to take, steps to comply with these laws. If we fail to comply with present or future environmental or safety regulations, we could
be subject to future liabilities. However, we cannot ensure that complying with these environmental or health and safety laws and
requirements will not adversely affect our business, results of operations and financial condition.
8
We may be exposed to litigation, claims and other legal proceedings in the ordinary course of business relating to our
products or business, which could have a material adverse effect on our business, results of operations and financial
condition.
In the ordinary course of business, we are subject to a variety of work-related and product-related claims, lawsuits and legal
proceedings, including those relating to product liability, product warranty, product recall, personal injury, and other matters that
are inherently subject to many uncertainties regarding the possibility of a loss our business. Such matters could have a material
adverse effect on our business, results of operations and financial condition if we are unable to successfully defend against or
resolve these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlements relating to
these matters. Although we have product liability insurance, the policies may not provide coverage for certain claims against us
or may not be sufficient to cover all possible liabilities. Further, we may not be able to maintain insurance at commercially
acceptable premium levels. Additionally, adverse publicity arising from claims made against us, even if the claims are not
successful, could adversely affect our reputation or the reputation and sales of our products.
Our business operations could suffer significant losses from natural disasters, catastrophes, fire or other unexpected
events.
Many of our business activities involve substantial investments in manufacturing facilities and many products are produced at a
limited number of locations. These facilities could be materially damaged by natural disasters, such as floods, tornadoes,
hurricanes and earthquakes, or by fire or other unexpected events. We could incur uninsured losses and liabilities arising from
such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a
material adverse impact on our business, financial condition and results of operations.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
The following table lists our facilities according to location, type of operation and approximate total floor space as of February 28,
2014:
Location
Administrative:
Dalton, GA*
Saraland, AL
Santa Ana, CA
Chattanooga, TN*
Calhoun, GA
Type of Operation
Administrative
Administrative
Administrative
Administrative
Administrative
Total Administrative
Manufacturing and Distribution:
Atmore, AL
Saraland, AL
Saraland, AL*
Roanoke, AL
Santa Ana, CA
Calhoun, GA *
Calhoun, GA
Chatsworth, GA *
Eton, GA
Carpet Manufacturing, Distribution
Carpet Tile Manufacturing, Distribution
Samples and Rug Manufacturing, Distribution
Carpet Yarn Processing
Carpet and Rug Manufacturing, Distribution
Carpet Wool Manufacturing
Carpet Dyeing & Processing
Samples and Distribution
Carpet Manufacturing, Distribution
Total Manufacturing and Distribution
* Leased properties
TOTAL
Approximate Square
Feet
16,000
29,000
4,000
3,500
10,600
63,100
610,000
384,000
132,000
204,000
200,000
99,000
193,300
79,600
408,000
2,309,900
2,373,000
In addition to the facilities listed above, we lease a small amount of office space in various locations. In addition, during 2013,
we entered into a lease for a 292,000 square feet distribution facility which will commence on May 1, 2014.
9
In our opinion, our manufacturing facilities are well maintained and our machinery is efficient and competitive. Operations of our
facilities generally vary between 120 and 168 hours per week. Substantially all of our owned properties are subject to
mortgages, which secure the outstanding borrowings under our senior credit facilities.
Item 3.
LEGAL PROCEEDINGS
At December 28, 2013, the Company was a plaintiff in a lawsuit against a former raw material supplier. In its lawsuit, the Company
alleges that the former supplier sold defective materials to the Company over a period of time, which, when applied to certain of
the Company’s products, caused those products to become defective and unmerchantable in the ordinary course of the Company’s
business. On January 31, 2014, the Company and the supplier settled the Company's claim for $400 thousand.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
10
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 February 28, 2014, are listed below
along with their business experience during the past five years.
Name, Age and Position
Business Experience During Past Five Years
Daniel K. Frierson, 72
Chairman of the Board, and
Chief Executive Officer, Director
Director since 1973, Chairman of the Board since 1987 and Chief Executive Officer since
1980. He is the Chairman of the Company's Executive Committee and Retirement Plans
Committee. He serves as Director of Astec Industries, Inc. headquartered in Chattanooga,
Tennessee; and Louisiana-Pacific Corporation headquartered in Nashville, Tennessee.
D. Kennedy Frierson, Jr., 47
Vice President and Chief
Operating Officer
Director since 2012 and Vice President and Chief Operating Officer since August 2009.
Vice President and President Masland Residential from February 2006 to July 2009.
President Masland Residential from December 2005 to January 2006. Executive Vice
President and General Manager, Dixie Home, 2003 to 2005. Business Unit Manager,
Bretlin, 2002 to 2003.
Jon A. Faulkner, 53
Vice President and Chief
Financial Officer
Vice President and Chief Financial Officer since October 2009. Vice President of Planning
and Development from February 2002 to September 2009. Executive Vice President of
Sales and Marketing for Steward, Inc. from 1997 to 2002.
Paul B. Comiskey, 62
Vice President and President,
Dixie Residential
Vice President and President of Dixie Residential since August 2009. Vice President and
President, Dixie Home from February 2007 to July 2009. President, Dixie Home from
December 2006 to January 2007. Senior Vice President of Residential Sales, Mohawk
Industries, Inc. from 1998 to 2006. Executive Vice President of Sales and Marketing for
World Carpets from 1996 to 1998.
V. Lee Martin, 62
Vice President and President,
Masland Contract
President, Masland Contract since August 2012 and Vice President since February 2013.
President, Step 2 Surfaces, LLC from 2011 to August 2012. Corporate Vice President,
Sales and Marketing, for J & J Industries from 1994 to 2011.
W. Derek Davis, 63
Vice President, Human
Resources
Vice President of Human Resources since January 1991. Corporate Employee Relations
Director, 1988 to 1991.
D. Eugene Lasater, 63
Controller
Controller since 1988.
Starr T. Klein, 71
Secretary
Secretary since November 1992. Assistant Secretary, 1987 to 1992.
The executive officers of the registrant are generally elected annually by the Board of Directors at its first meeting held after each
annual meeting of our shareholders.
11
Part II.
Item 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our Common Stock trades on the NASDAQ Global Market under the symbol DXYN. No market exists for our Class B Common
Stock.
As of February 28, 2014, the total number of holders of our Common Stock was approximately 2,350 including an estimated
1,900 shareholders who hold our Common Stock in nominee names, but excluding approximately 580 participants in our 401(k)
plan who may direct the voting of the shares allocated to their accounts. The total number of holders of our Class B Common
Stock was 12.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of shares of our Common Stock during the three months
ended December 28, 2013:
Fiscal Month Ending
November 2, 2013
November 30, 2013
December 28, 2013
Three Fiscal Months Ended December 28, 2013
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
— $
—
—
— $
—
—
—
—
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)
Maximum
Number (or
approximate
dollar value) of
Shares That May
Yet Be
Purchased
Under Plans or
Programs
—
—
—
— $
4,268,461
(1) On August 8, 2007, we announced a program to repurchase up to $10 million of our Common Stock.
12
Quarterly Financial Data, Dividends and Price Range of Common Stock
Following are quarterly financial data, dividends and price range of Common Stock for the four quarterly periods in the years
ended December 28, 2013 and December 29, 2012. Due to rounding, the totals of the quarterly information for each of the
years reflected below may not necessarily equal the annual totals. The discussion of restrictions on payment of dividends is
included in Note 9 to the Consolidated Financial Statements included herein.
THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
(unaudited) (dollars in thousands, except per share data)
2013
Net sales
Gross profit
Operating income
Income from continuing operations
Loss from discontinued operations
Net income
Basic earnings per share:
Continuing operations
Discontinued operations
Net income
Diluted earnings per share:
Continuing operations
Discontinued operations
Net income
Common Stock Prices:
High
Low
2012
Net sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Net income (loss)
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Net income (loss)
Common Stock Prices:
High
Low
1ST
2ND
3RD
4TH
$
$
$
$
$
$
$
75,440
18,412
1,677
651
(15)
636
0.05
—
0.05
0.05
—
0.05
5.93
3.24
$
$
$
$
$
$
$
83,617
22,302
3,271
1,677
(32)
1,645
0.13
—
0.13
0.13
—
0.13
9.38
5.30
90,210
22,100
1,830
1,432
(20)
1,412
0.11
—
0.11
0.11
—
0.11
12.05
7.43
1ST
2ND
3RD
$
62,851
15,703
620
(104)
(77)
(181) $
(0.01) $
—
(0.01) $
(0.01) $
—
(0.01) $
$
66,566
15,719
(40)
(404)
(29)
(433) $
(0.03) $
—
(0.03) $
(0.03) $
—
(0.03) $
65,822
16,557
820
269
(167)
102
0.02
(0.01)
0.01
0.02
(0.01)
0.01
$
4.79
2.83
$
4.25
3.20
3.90
3.02
$
$
$
$
$
$
$
$
$
$
$
$
$
$
95,799
22,825
1,813
1,598
(1)
1,597
0.12
—
0.12
0.12
—
0.12
13.85
9.15
4TH
71,134
17,395
415
(413)
(2)
(415)
(0.03)
—
(0.03)
(0.03)
—
(0.03)
4.38
2.95
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13
Shareholder Return Performance Presentation
We compare our performance to two different industry indexes published by Dow Jones, Inc. The first of these is the Dow Jones
Furnishings Index, which is composed of publicly traded companies classified by Dow Jones in the furnishings industry. The
second is the Dow Jones Building Materials & Fixtures Index, which is composed of publicly traded companies classified by Dow
Jones in the building materials and fixtures industry.
In accordance with SEC rules, set forth below is a line graph comparing the yearly change in the cumulative total shareholder
return on our Common Stock against the total return of the Standard & Poor's 600 Stock Index, plus both the Dow Jones
Furnishings Index and the Dow Jones Building Materials & Fixtures Index, in each case for the five year period ended December
28, 2013. The comparison assumes that $100.00 was invested on December 27, 2008, in our Common Stock, the S&P 600
Index, and each of the two Peer Groups, and assumes the reinvestment of dividends.
The foregoing shareholder performance presentation shall not be deemed "soliciting material" or to be "filed" with the
Commission subject to Regulation 14A, or subject to the liabilities of Section 18 of the Exchange Act.
14
Item 6.
SELECTED FINANCIAL DATA
The Dixie Group, Inc.
Historical Summary
(dollars in thousands, except share and per share data)
FISCAL YEARS
OPERATIONS
Net sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations before taxes
Income tax provision (benefit)
Income (loss) from continuing operations
Depreciation and amortization
Dividends
Capital expenditures
Assets purchased under capital leases
FINANCIAL POSITION
Total assets
Working capital
Long-term debt
Stockholders' equity
PER SHARE
Income (loss) from continuing operations:
Basic
Diluted
Dividends:
Common Stock
Class B Common Stock
Book value
GENERAL
Weighted-average common shares outstanding:
Basic
Diluted
Number of shareholders (4)
Number of associates
2013
2012
2011 (1)
2010 (2)
2009 (3)
$
345,066
$
266,372
$
270,110
$
231,322
$
203,480
85,639
8,591
4,715
(643)
5,358
10,262
—
11,438
1,865
65,372
1,815
(1,054)
(401)
(653)
9,396
—
3,386
666
65,506
56,651
5,668
1,956
684
1,272
9,649
—
6,740
14
(2,570)
(6,977)
(2,604)
(4,373)
11,575
—
1,771
127
52,106
(45,389)
(50,729)
(8,870)
(41,859)
13,504
—
2,436
—
$
248,866
$
201,770
$
182,943
$
180,929
$
181,944
95,679
101,759
70,771
76,958
80,166
64,046
66,417
65,357
64,385
56,496
58,070
62,430
52,616
59,349
66,349
$
0.40
0.40
—
—
5.32
$
(0.05) $
(0.05)
—
—
4.88
0.10
0.10
—
—
4.99
$
(0.35) $
(0.35)
—
—
4.86
(3.39)
(3.39)
—
—
5.20
12,736,835
12,637,657
12,585,396
12,524,358
12,330,648
12,851,917
12,637,657
12,623,054
12,524,358
12,330,648
2,350
1,423
1,800
1,200
1,750
1,171
1,750
1,150
1,860
1,050
(1) Includes income of $563, or $356 net of tax, for facility consolidation and severance in 2011.
(2) Includes expenses of $1,556, or $1,008 net of tax, for facility consolidation and severance costs in 2010.
(3) Includes expenses of $36,956, or $32,055 net of tax, for the impairment of goodwill and long-lived assets and facility consolidation and
severance costs in 2009.
(4) The approximate number of record holders of our Common Stock for 2009 through 2013 includes Management's estimate of shareholders
who held our Common Stock in nominee names as follows: 2009 - 1,300 shareholders; 2010 - 1,250 shareholders; 2011 - 1,250
shareholders; 2012 - 1,255 shareholders; 2013 - 1,900 shareholders.
15
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes
appearing elsewhere in this report.
OVERVIEW
Publicly reported information has reflected improved factors in the economy in the United States that have positively affected the
carpet industry beginning in the latter half of 2012 throughout 2013 with continuing improvement anticipated in 2014. These
factors include an increase in new and existing home sales, residential remodeling and an increase in residential and
commercial investment as a percentage of the United States Gross Domestic Product. We believe our business, driven more by
resale and remodeling of existing homes and commercial facilities, has been positively affected by this overall market
improvement during these periods. While our business was more deeply affected by the economic crisis as it reached the
higher end markets where our business is concentrated, we believe our position in the upper end of the markets has permitted
us to benefit from improved conditions and will allow us to take advantage of further anticipated growth in the upper end
markets. Our residential and commercial sales growth rate for 2013 compared with 2012 was significantly above that of the
industry.
During 2013 and 2012, we embarked upon several strategic and tactical initiatives that we believe will permit us to strengthen
our future and allow us to return to sustained growth and profitability, although certain of these actions negatively impacted our
results in 2013 and 2012. These items, further discussed below, include the investment in the development of certain new
products, the acquisition of a continuous dyeing facility in North Georgia, the acquisition of certain rug manufacturing equipment
and related business, realignment of certain of our broadloom tufting technologies from Atmore, Alabama into our North Georgia
Eton facility, an opportunistic purchase of certain products from an industry competitor to incorporate into our product line and
changes in both manufacturing and commercial business management during 2012. During 2013, we expanded our yarn
processing capabilities at our Roanoke, Alabama yarn processing facility to support our growth with internal supply and lessen
our dependence on externally supplied yarn requirements and acquired a wool manufacturing facility in Calhoun, Georgia that
will permit us to enhance our wool processing capabilities and related product offerings. In addition, during 2013 we acquired
certain dyeing technology we did not previously have that will further enhance our ability to provide a broader array of
differentiated products.
We have taken advantage of several opportunities to invest in products we believe will further differentiate us from the
competition. We have access to two new yarn systems that have been limited in distribution and, we believe, will provide
exceptional softness and colorfastness qualities. In addition, we have developed a new “permaset process” for wool which we
believe will allow our designer customers the broadest possible choice of colorations. As a result, during 2012 we invested at an
increased rate in sampling initiatives related to these product offerings as compared to the same periods in the prior year.
During 2013, we have seen positive market acceptance for the products associated with these investments.
During 2012, we relocated certain of our tufting technologies from our manufacturing facility in Atmore, Alabama to our facility in
Eton, Georgia to achieve a more favorable cost structure for the products and markets served from those technologies. The
tufting realignment was completed during 2012. This realignment resulted in incremental operating costs of approximately $926
thousand during 2012. This realignment positively affected our costs, manufacturing capabilities and costs structure during
2013.
On November 2, 2012, we acquired a continuous carpet dyeing facility in Calhoun, Georgia. The acquisition of this dyeing
operation has allowed us to transition certain of our products from our beck dyeing operation in Atmore, Alabama and from other
third party commission continuous dyeing operations located in North Georgia. This has allowed us to achieve significant cost
reductions in the dyeing process and and the capacity to support future growth. The purchase price of this acquisition consisted
of a $5.5 million, seller financed note, a cash payment of $239 thousand and $823 thousand representing the fair value of a five
year, below market agreement to process certain of the seller's products on a commission basis during this period as we ramp
up the dyeing of our products. In conjunction with the acquisition of these assets, we are in the process of assessing all of our
dyeing and ancillary assets to determine whether and to what extent further rationalization of assets would be advisable.
On November 28, 2012, we acquired certain specialized wool rug tufting equipment and the associated business for total
consideration valued at $2.6 million, consisting of $958 thousand of cash paid, $471 thousand representing the fair value of cash
to be paid in equal installments over a three-year period and $1.1 million representing the fair value of contingent consideration
over a three-year period. We were the major consumer of products produced by the seller on the equipment. The acquisition
has allowed us to reduce our cost by permitting us to produce the goods in-house. Additionally, this has allowed us to support
what we believe to be good growth potential in markets we currently serve and provide access to other markets.
Additionally, during 2012, we made a change in our manufacturing management in connection with the realignment and
relocation of our tufting equipment. We also brought in new leadership for our commercial business in an effort to strengthen our
performance in our commercial sector. These actions resulted in incremental costs of approximately $600 thousand in 2012.
16
We believe the management changes have positively affected our commercial business in terms of sales growth, manufacturing
cost improvements and return on investment.
On June 30, 2013, we completed the acquisition of Robertex Associates, Inc., a high-end manufacturer of specialty wool
floorcovering products marketed under the names of “Robertex” and “Carousel”. This acquisition will allow us to strengthen our
position in our wool product line where we have seen strong growth, although these products appeal to a more select and
discriminating customer base. The purchase price of the acquisition was approximately $6.0 million, plus additional
consideration contingent upon growth in gross margins of selected products for five years subsequent to the acquisition. In
order to appropriately support the increased wool business, we are realigning certain manufacturing equipment in this facility and
infrastructure across our Company related to wool products. As our wool production capabilities are being expanded and
enhanced, we are developing new products and investing in increased product sampling for these products. Until such time that
all of these actions have been completed and products are in the field, there will be a negative effect on our results.
Subsequent to our 2013 year end, on January 20, 2014, our Board of Directors approved a 2014 Warehousing/Distribution/
Manufacturing Restructuring Plan intended to align our warehousing, distribution and manufacturing to support our growth and
manufacturing strategy. The plan is intended to create a better cost structure and improve distribution capabilities and customer
service. The key element and first major step of this plan is the leasing and occupancy of a 292,000 square foot finished goods
warehouse, cut-order and distribution facility in Adairsville, Georgia; such lease and occupancy to commence as of May 1, 2014.
We expect the plan to be substantially completed in the second quarter of the fiscal year ending December 26, 2015. We
currently expect the implementation of this plan will result in total restructuring expenses of approximately $2.4 million, with
approximately $1.3 million of such expenses during the fiscal year ending December 27, 2014 and approximately $1.1 million of
such expenses during the fiscal year ending December 26, 2015, primarily consisting of moving and relocation expenses,
information technology expenses and expenses relating to conversion and realignment of equipment.
We remain optimistic about conditions that affect the higher-end residential markets we serve and continue to address initiatives
in our commercial offerings related to our products, manufacturing processes and distribution alternatives.
RESULTS OF OPERATIONS
Our discussion and analysis of financial condition and results of operations is based on our Consolidated Financial Statements
that were prepared in accordance with U. S. generally accepted accounting principles.
Each of our 2013 and 2012 quarterly fiscal periods contained 13 operating weeks. Our first quarter of 2011 contained 14
operating weeks while our second through fourth quarters of 2011 contained 13 operating weeks; therefore, 2013 and 2012
contained 52 operating weeks compared with 53 operating weeks in 2011. Discussions below related to percentage changes in
net sales in 2012 compared with 2011 have been adjusted to reflect the comparable number of weeks and are qualified with the
term “net sales as adjusted”. We believe "net sales as adjusted" will assist our financial statement users in understanding the
rate of growth in our business in the comparative periods. (See reconciliation of net sales to net sales as adjusted in the table
below.)
Reconciliation of Net Sales to Net Sales as Adjusted
Fiscal Year Ended
Percent Increase (Decrease)
December 28,
2013
December 29,
2012
December 31,
2011
2013 vs. 2012
2012 vs. 2011
Net sales as reported
Adjustment to net sales:
Impact of shipping weeks
Net sales as adjusted
$
$
345,066
$
266,372
$
270,110
29.5%
(1.4)%
—
—
(4,711)
345,066
$
266,372
$
265,399
29.5%
0.4 %
17
The following table sets forth certain elements of our continuing operations as a percentage of net sales for the periods
indicated:
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Other operating (income) expense, net
Facility consolidation and severance expense, net
Operating income
Fiscal Year Ended
December 28,
2013
December 29,
2012
December 31,
2011
100.0%
100.0%
100.0 %
75.2%
24.8%
22.2%
0.1%
—%
2.5%
75.5%
24.5%
23.8%
—%
—%
0.7%
75.7 %
24.3 %
22.5 %
(0.1)%
(0.2)%
2.1 %
Fiscal Year Ended December 28, 2013 Compared with Fiscal Year Ended December 29, 2012
Net Sales. Net sales for the year ended December 28, 2013 were $345.1 million compared with $266.4 million in the year-earlier
period, an increase of 29.5% for the year-over-year comparison. The carpet industry reported a percentage increase in the mid-
single digits in net sales in 2013 compared with 2012. Our 2013 year-over-year carpet sales comparison reflected an increase
of 28.9% in net sales. Sales of residential carpet are up 28.5% and sales of commercial carpet increased 30.1%. Revenue from
carpet yarn processing and carpet dyeing and finishing services increased $4.1 million in 2013 compared with 2012. We believe
our residential and commercial sales were positively affected primarily as a result of the introduction of new products and the
expansion of our wool products.
Cost of Sales. Cost of sales, as a percentage of net sales, was basically unchanged in 2013 compared with 2012. Cost of
sales in 2013 included approximately $5.1 million of costs associated with acquisitions in late 2012 and 2013 as well as certain
process realignment and expansion initiatives undertaken during 2013. Cost of sales in 2012 included incremental costs of
approximately $1.4 million related to tufting equipment relocations and costs related to the transition of products from our beck
dyeing operations to our continuous dyeing operations acquired in the fourth quarter of 2012.
Gross Profit. Gross profit increased $20.3 million in 2013 compared with 2012. The increase in gross profit was primarily
attributable to higher sales. Gross profit in 2013 and 2012 was negatively affected by the incremental costs discussed above
related to costs of sales.
Selling and Administrative Expenses. Selling and administrative expenses were $76.6 million in 2013 compared with $63.5
million in 2012, a decline of 1.6 percentage points as a percentage of sales in 2013 compared with 2012. Selling and
administrative costs in 2013 included approximately $1.8 million of sampling costs incurred to incorporate the new wool products
associated with the Robertex acquisition and our launch of a new tile product line. 2012 included $1.7 million related to
investment in the development and sampling of new product initiatives, $409 thousand for incremental costs related to the two
acquisitions and $600 thousand of costs related to management changes.
Other Operating (Income) Expense, Net. Net other operating (income) expense was $494 thousand in 2013 compared with
$68 thousand in 2012. The change in 2013 was due to the disposal of certain manufacturing assets taken out of service, losses
on currency valuations and settlement of a claim against a supplier.
Operating Income. Operating income was $8.6 million in 2013 compared with operating income of $1.8 million in 2012. The
increase in 2013 was primarily a result of the increased level of sales in 2013, less the variable selling expenses associated with
the sales increase.
Interest Expense. Interest expense increased $610 thousand in 2013 principally due to higher levels of debt to support our
growth, including an increase in debt related to business acquisitions in late 2012 and during mid-2013.
Other (Income) Expense, Net. Other (income) expense, net was an expense of $26 thousand in 2013 compared to income of
$277 thousand in 2012. The change was primarily the result of a $187 thousand gain recognized on the sale of a non-operating
asset in 2012.
Income Tax Provision (Benefit). Our income tax provision was a benefit of $643 thousand in 2013 on positive earnings
primarily as a result of the reversal of $1.2 million of previously established reserves for state income tax loss and tax credit
carryforwards. The reversal of the reserves was based on a number of factors including current and future earnings
assumptions by taxing jurisdiction. Additionally, 2013 included certain tax credits of approximately $520 thousand related to the
years 2009 - 2011 determined to be available for utilization and $304 thousand of 2012 research and development tax credits
that could not be recognized until the extension of the credit was approved by Congress in 2013. Our effective income tax
benefit rate was 38.0% in 2012. The effective tax rate varied from statutory rates in 2012 primarily as a result of adjustments to
18
estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011
period, net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations.
Net Income (Loss). Continuing operations reflected income of $5.4 million, or $0.40 per diluted share in 2013, compared with a
loss from continuing operations of $653 thousand, or $0.05 per diluted share in 2012. Our discontinued operations reflected a
loss of $68 thousand, or $0.01 per diluted share in 2013, compared with a loss of $274 thousand, or $0.02 per diluted share in
2012. Including discontinued operations, our net income was $5.3 million, or $0.39 per diluted share, in 2013 compared with a
net loss of $927 thousand, or $0.07 per diluted share, in 2012.
Fiscal Year Ended December 29, 2012 Compared with Fiscal Year Ended December 31, 2011
Net Sales. Net sales for the year ended December 29, 2012 were $266.4 million compared with $270.1 million in the year-earlier
period, a decrease of 1.4% for the year-over-year comparison. Net sales in 2012 reflected an increase of 0.4% compared with
2011 on a "net sales as adjusted" basis. The carpet industry reported a percentage increase in the low single digits in net sales
in 2012. Our 2012 year-over-year carpet sales comparison reflected a decrease of 1.8% in net sales, or 0.1% on a "net sales as
adjusted" basis. Sales of residential carpet are up 2.5%, or 4.3% on a "net sales as adjusted" basis and sales of commercial
carpet declined 12.7%, or 11.1% on a "net sales as adjusted" basis. Revenue from carpet yarn processing and carpet dyeing
and finishing services increased $1.1 million in 2012 compared with 2011.
Cost of Sales. Cost of sales, as a percentage of net sales, was basically unchanged; a decrease of 0.2 percentage points in
2012 compared with 2011. Cost of sales included costs of approximately $926 thousand in 2012 related to tufting equipment
relocations. Other manufacturing efficiencies and cost improvements more than offset these relocation costs.
Gross Profit. Gross profit was basically unchanged in both total dollars and as a percentage of net sales in 2012 compared with
2011. Gross profit on lower sales in 2012 was affected by costs of approximately $926 thousand incurred in 2012 related to
tufting equipment relocations. However, we experienced more favorable product mix in our residential products in 2012
compared with 2011.
Selling and Administrative Expenses. Selling and administrative expenses reflected an increase of $2.8 million, or 1.3
percentage points as a percentage of sales in 2012 compared with 2011. The increase is primarily a result of an increase of
$1.7 million related to investment in the development and sampling of new product initiatives, $409 thousand for costs related to
the two acquisitions and $600 thousand of costs related to management changes.
Other Operating (Income) Expense, Net. Net other operating expense was $68 thousand in 2012 compared with net other
operating income of $266 thousand in 2011. The change was due to a settlement gain of $492 thousand recognized in 2011
related to a company-owned insurance policy, net of a decrease in certain retirement related expenses of $170 thousand in 2012
compared with 2011.
Facility Consolidation and Severance (Benefit) Expense, Net. Facility consolidation and severance expenses reflected a cost
reduction of $563 thousand in 2011. The gain in 2011 was a result of the favorable settlement of a lease obligation in 2011
compared with the amount previously reserved under our restructuring plan.
Operating Income (Loss). Operating income was $1.8 million in 2012 compared with operating income of $5.7 million in 2011.
The decrease in 2012 was primarily a result of the higher selling and administrative expenses and gains in 2011 related to the
facilities consolidation and company-owned life insurance of $563 thousand and $492 thousand, respectively.
Interest Expense. Interest expense decreased $324 thousand in 2012 principally due to lower interest rates in 2012 compared
with 2011.
Other (Income) Expense, Net. Other income was $277 thousand in 2012 compared with income of $75 thousand in 2011, an
improvement of $202 thousand. The change was primarily the result of a gain recognized on the sale of a non-operating asset
in 2012.
Refinancing Expenses. Expenses of $317 thousand were recorded in the third quarter of 2011 related to refinancing our senior
credit and term loan facility and included the costs associated with the extinguishment or modification of existing debt and the
addition of new debt arrangements.
Income Tax Provision (Benefit). Our effective income tax benefit rate was 38.0% in 2012, compared with an effective income
tax provision rate of 35.0% in 2011. The effective tax rate varied from statutory rates in 2012 primarily as a result of adjustments
to estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011
period, net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations.
Net Income (Loss). Continuing operations reflected a loss of $653 thousand, or $0.05 per diluted share in 2012, compared with
income from continuing operations of $1.3 million, or $0.10 per diluted share in 2011. Our discontinued operations reflected a
loss of $274 thousand, or $0.02 per diluted share in 2012, compared with a loss of $286 thousand, or $0.02 per diluted share in
19
2011. Including discontinued operations, our net loss was $927 thousand, or $0.07 per diluted share, in 2012 compared with net
income of $986 thousand, or $0.08 per diluted share, in 2011.
LIQUIDITY AND CAPITAL RESOURCES
We believe our operating cash flows, credit availability under our senior loan and security agreement and other sources of
financing are adequate to finance our normal foreseeable liquidity requirements. However, deterioration in our markets or
significant additional cash expenditures above our normal liquidity requirements could require supplemental financing or other
funding sources. There can be no assurance that such supplemental financing or other sources of funding can be obtained or
will be obtained on terms favorable to us.
Cash Sources and Uses. During the year ended December 28, 2013, cash provided from financing activities was $19.2 million.
$5.9 million was used to fund our operating activities, $11.4 million to invest in property, plant and equipment and $2.2 million
cash paid in business combination. Working capital increased $18.7 million in 2013, including an increase in inventories of
$21.4 million to support higher levels of business activity and an increase of $11.6 million in accounts receivable primarily related
to the higher level of sales. Additionally, other current assets increased approximately $2.0 million as a result of deposits related
to equipment financing arrangements and the current portion of deferred tax assets. Accounts payable increased $6.8 million in
2013 compared with 2012 primarily as a result raw material purchases associated with the increased levels of business and
accrued expenses increased $7.1 million primarily as a result of significant growth in our business during 2013. Additionally, the
current portion of debt reflected an increase of $2.2 million as of the 2013 balance sheet date compared with the 2012
comparative period related to increases in funded debt levels outside of our revolving facility.
Capital expenditures, excluding assets acquired under business acquisitions, were $13.3 million in 2013; $11.4 million through
funded debt and $1.9 million of equipment acquired under capital leases, $4.1 million in 2012 and $6.8 million in 2011.
Depreciation and amortization were $10.3 million in 2013, $9.4 million in 2012 and $9.6 million in 2011. A significant portion of
capital expenditures in 2013 were directed toward expanding manufacturing capabilities while capital expenditures in 2012 and
2011 were directed to a greater degree toward new and more efficient manufacturing capabilities and, to a lesser extent in each
year, computer software enhancements. We expect capital expenditures to be approximately $16 million in 2014, while
depreciation and amortization are expected to be approximately $12 million. Planned capital expenditures in 2014 are primarily
directed toward both new manufacturing equipment and an expansion and realignment of our warehousing, cut order,
distribution and certain manufacturing processes.
Senior Credit Facility. On September 14, 2011, we entered into a five-year, secured revolving credit facility (the "senior credit
facility"). The senior credit facility provided for a maximum of $90.0 million of revolving credit, subject to borrowing base
availability, including limited amounts of credit in the form of letters of credit and swingline loans. The borrowing base was equal
to specified percentages of our eligible accounts receivable, inventories and fixed assets less reserves established, from time to
time, by the administrative agent under the senior credit facility. We can use the proceeds of the senior credit facility for general
corporate purposes, including financing acquisitions and refinancing other indebtedness.
At our election, revolving loans under the senior credit facility bore interest at annual rates equal to either (a) LIBOR for 1, 2 or 3
month periods, as selected by us, plus an applicable margin of either 2.00% or 2.25%, or (b) the higher of the prime rate, the
Federal Funds rate plus 0.5%, or a daily LIBOR rate, plus an applicable margin of either 1.00% or 1.50%. The applicable margin
was determined based on availability under the senior credit facility with margins increasing as availability decreases. We also
paid an unused line fee on the average amount by which the aggregate commitments exceed utilization of the senior credit
facility equal to 0.375% per annum.
The senior credit facility included certain affirmative and negative covenants that imposed restrictions on our financial and
business operations, including limitations on debt, liens, investments, fundamental changes in our business, asset dispositions,
dividends and other similar restricted payments, transactions with affiliates, payments and modifications of certain existing debt,
future negative pledges, and changes in the nature of our business. We were also required to maintain a fixed charge coverage
ratio of 1.1 to 1.0 during any period that borrowing availability was less than $10.0 million.
Amended Senior Credit Facility. As amended, our senior credit facility ("amended senior credit facility") provides for a
maximum of $130.0 million of revolving credit, subject to borrowing base availability. The borrowing base is currently equal to
specified percentages of our eligible accounts receivable, inventories, fixed assets and real property less reserves established,
from time to time, by the administrative agent under the facility. In addition, the term of the facility was extended to August 1,
2018.
At our election, revolving loans under the amended senior credit facility bear interest at annual rates equal to either (a) LIBOR
for 1, 2 or 3 month periods, as selected by us, plus an applicable margin of either 1.50%, 1.75% or 2.00%, or (b) the higher of
the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate plus 1.00%, plus an applicable margin of either 0.50%,
0.75% or 1.00%. The applicable margin is determined based on availability under the amended senior credit facility with
margins increasing as availability decreases. We continue to pay an unused line fee on the average amount by which the
aggregate commitments exceed utilization of the senior credit facility equal to 0.375% per annum.
20
The amended senior credit facility continues to include certain affirmative and negative covenants that impose restrictions on our
financial and business operations. The amended senior credit facility requires that we maintain a fixed charge coverage ratio of
1.1 to 1.0 during any period that borrowing availability is less than $14.4 million. At December 28, 2013, we were in compliance
with the amended senior credit facility's covenants.
Average Interest Rates and Availability. The weighted-average interest rate on borrowings outstanding under the amended
senior credit facility was 2.66% at December 28, 2013 and 3.59% at December 29, 2012. As of December 28, 2013, the unused
borrowing availability under the amended senior credit facility was $32.6 million.
Mortgage Note Payable. On April 1, 2013, we terminated our five-year $11.1 million mortgage loan which had a balance of $9.8
million. The mortgage loan was secured by our Susan Street real estate and liens secondary to the senior credit facility. The
mortgage loan was scheduled to mature on September 13, 2016. Prior to the termination, the mortgage loan bore interest at a
variable rate equal to one month LIBOR plus 3.00% and was payable in equal monthly installments of principal of $61 thousand,
plus interest calculated on the declining balance of the mortgage loan, with a final payment of $7.4 million due on maturity.
Obligation to Development Authority of Gordon County. On November 2, 2012, we signed a 6% seller-financed note of $5.5
million with Lineage PCR, Inc. (“Lineage”) related to the acquisition of the continuous carpet dyeing facility in Calhoun, Georgia.
Effective December 28, 2012 through a series of agreements between us, the Development Authority of Gordon County, Georgia
(the “Authority”) and Lineage, obligations with identical payment terms as the original note to Lineage are now payment
obligations to the Authority. These transactions were consummated in order to provide us with a tax abatement to the related real
estate and equipment at this facility. The tax abatement plan provides for abatement for certain components of the real and
personal property taxes for up to ten years. At any time, we have the option to pay off the obligation, plus a nominal amount. The
debt to the Authority bears interest at 6% and is payable in equal monthly installments of principal and interest of $106 thousand
over 57 months.
Deferred Financing Costs and Refinancing Expenses. In connection with the amendments in 2013 and 2012, we incurred
additional financing costs of $351 thousand and $28 thousand, respectively, that are being amortized over the remaining term of
the facility. In addition, we incurred $37 thousand of financing costs related to an equipment note payable. Additionally in 2013,
we recognized $94 thousand of refinancing expenses related to the write-off of previously deferred financing costs related to our
mortgage note payable. During 2012, we incurred $187 thousand in financing costs related to the obligations to the Authority
that is being amortized over the term of the obligation. As a result of the refinancing in 2011, we paid $1.4 million in financing
cost that is being amortized over the term of the senior credit facility and the mortgage loan. Additionally in 2011, we recognized
$317 thousand of refinancing expenses of which $92 thousand related to the write-off of previously deferred financing costs and
$225 thousand related to fees paid to third parties in connection with the new senior credit facility and mortgage loan.
Equipment Notes Payable. Our equipment financing notes have terms ranging from four to seven years, are secured by the
specific equipment financed, bear interest ranging from 1.00% to 7.72% and are due in monthly installments of principal and
interest ranging from $2 thousand to $49 thousand through June 2020. The notes do not contain financial covenants.
Capital Lease Obligations. Our capital lease obligations have terms ranging from four to seven years, are secured by the
specific equipment leased, bear interest ranging from 2.90% to 7.72% and are due in monthly installments of principal and
interest ranging from $2 thousand to $32 thousand through November 2018.
Interest Payments. Interest payments for continuing operations were $3.1 million in 2013, $2.8 million in 2012 and $3.3 million
in 2011.
Stock-Based Awards. We recognize compensation expense related to share-based stock awards based on the fair value of the
equity instrument over the period of vesting for the individual stock awards that were granted. At December 28, 2013, the total
unrecognized compensation expense related to unvested restricted stock awards was $1.3 million with a weighted-average
vesting period of 4.2 years and unrecognized compensation expense related to unvested stock options was $18 thousand with a
weighted-average vesting period of 0.9 years.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements at December 28, 2013 or December 29, 2012.
Income Tax Considerations. During 2013, our tax benefit of $643 thousand included $1.2 million related to the reversal of
previously established reserves for state income tax loss and tax credit carryforwards. The reversal of the reserves was based
on a number of factors including current and future earnings assumptions by taxing jurisdiction. Additionally, 2013 included
certain tax credits of approximately $520 thousand related to the years of 2009 - 2011 determined to be available for utilization
and $304 thousand of 2012 research and development tax credits that could not be recognized until the extension of the credit
was approved by Congress in 2013.
During 2014, we anticipate cash outlays for income taxes to be relatively equivalent to our provision for income taxes unless it is
determined that additional state valuation allowances should be reversed in which case our provision would be expected to be
lower than cash outlays to the extent of the reversal of such valuation allowances. For 2015 and 2016, we expect our cash
outlay for taxes to exceed our tax provision based on the anticipated differences between the book basis and tax basis of long-
21
lived, depreciable assets. Such differences could be in the range of $2.0 million in each of the periods, although there are many
factors that could alter the actual experience. At December 28, 2013, we were in a net deferred tax asset position of $2.6
million. We performed an analysis, including an evaluation of certain tax planning strategies available to us, related to the net
deferred tax asset and believe that the net deferred tax asset is recoverable in future periods. Approximately $6.8 million of
future taxable income would be required to realize the deferred tax asset.
During the first quarter of 2012, we paid approximately $1.3 million representing a settlement reached with the Internal Revenue
Service for an audit for the tax years of 2004 through 2009. The settlement is related to temporary differences between the
carrying amounts of assets for financial reporting purposes and the tax basis of those assets; accordingly the settlement resulted
in an increase in deferred taxes and had no significant impact on tax expense.
Discontinued Operations - Environmental Contingencies. We have reserves for environmental obligations established at five
previously owned sites that were associated with our discontinued textile businesses. Each site has a Corrective Action Plan
(“CAP”) with the applicable authoritative state regulatory body responsible for oversight for environmental compliance. The CAP
for four of these sites involves natural attenuation (degradation of the contaminants through naturally occurring events) over
periods estimated at 10 to 20 years and the CAP on the remaining site involves a pump and treat remediation process,
estimated to occur over a period of 25 years. Additionally, we have a reserve for an environmental liability on the property of a
facility and related business that was sold in 2004. The CAP has a specified remaining remediation term estimated to be 4 years
subsequent to 2013. The total costs for remediation for all of these sites during 2013 were $83 thousand, all of which related to
normal ongoing remediation costs. We expect normal remediation costs to range from approximately $80 thousand to $100
thousand annually. We have a reserve of $1.8 million for environmental liabilities at these sites as of December 28, 2013. The
liability established represents our best estimate of loss and is the reasonable amount to which there is any meaningful degree
of certainty given the periods of estimated remediation and the dollars applicable to such remediation for those periods. The
actual timeline to remediate, and thus, the ultimate cost to complete such remediation through these remediation efforts, may
differ significantly from our estimates. Pre-tax costs for environmental remediation obligations classified as discontinued
operations were primarily a result of specific events requiring action and additional expense in each period.
Fair Value of Financial Instruments. At December 28, 2013, we had $2.8 million of liabilities measured at fair value that fall
under a level 3 classification in the hierarchy (those subject to significant management judgment or estimation).
Certain Related Party Transactions. During 2013, we purchased a portion of our requirements for polyester fiber from
Engineered Floors, an entity controlled by Robert E. Shaw. Mr. Shaw reported holding approximately 10% of our Common
Stock, which as of year-end represented approximately 4% of the total vote of all classes of our Common Stock. Engineered
Floors is our principal supplier of polyester fiber and polyester broadloom carpet. Total purchases from Engineered Floors for
2013 and 2012 were approximately $12 million and $8 million, respectively; or approximately 8% of our external yarn and carpet
purchases in 2013 and 2012. Purchases from Engineered Floors are based on market value, negotiated prices. We have no
contractual arrangements or commitments with Mr. Shaw associated with our business relationship with Engineered Floors.
Transactions with Engineered Floors were reviewed and approved by our board of directors.
During 2013, we entered into a 10-year lease with the Rothman Family Partnership to lease a manufacturing facility as part of
the Robertex acquisition. The Rothman Family Partnership includes Robert P. Rothman who is an associate of the Company.
Rent paid to the Rothman Family Partnership during 2013 was $127 thousand. The lease was based on current market values
for similar facilities.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires us to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition, we are required to present significant
amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. ASU 2013-02
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. Since the new standard
did not change the current requirements for reporting net income or other comprehensive income in the financial statements, the
adoption of this ASU did not have a material effect on our Consolidated Financial Statements.
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities.” The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to
enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is
required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within
those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all
comparative periods presented. In January 2013, the FASB issued ASU No. 2013-01, "Balance Sheet (Topic 210)—Clarifying
the Scope of Disclosures about Offsetting Assets and Liabilities". The ASU clarifies that ordinary trade receivables and payables
are not in the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse
purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with
specific criteria contained in the Codification or subject to a master netting arrangement or similar agreement. The effective date
22
is the same as the effective date of ASU 2011-11. We do not expect that the adoption of these ASUs will have a material effect
on our Consolidated Financial Statements.
In July 2012, the FASB issued ASU No. 2012-02, "Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment." This ASU states that an entity has the option first to assess qualitative factors to determine
whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible
asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than
not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity
concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the
quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic
350-30, "Intangibles--Goodwill and Other, General Intangibles Other than Goodwill." Under the guidance in this ASU, an entity
also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed
directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in
any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal
years beginning after September 15, 2012. The adoption of this ASU did not have a a material effect on our Consolidated
Financial Statements.
In February 2013, the FASB issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several
Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date". This ASU provides
guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements
for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations
addressed within existing guidance in GAAP. For public entities, the ASU is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013. The ASU shall be applied retrospectively to all prior periods presented for
those obligations within the scope of this Subtopic that exist at the beginning of an entity's fiscal year of adoption. Early adoption
is permitted. We do not expect that the adoption of this ASU will have a material effect on our Consolidated Financial
Statements.
In July 2013, the FASB issued ASU No. 2013-10, "Derivatives and Hedging (Topic 815) - Inclusion of the Fed Funds Effective
Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes". This ASU allows
the use of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a benchmark interest rate for hedge
accounting purposes in addition to interest rates on direct Treasury obligations of the United States government and LIBOR. In
addition, the ASU removes the restriction on using different benchmark rates for similar hedges. The ASU became effective on a
prospective basis for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption
of this ASU did not have a material effect on our Consolidated Financial Statements.
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". This ASU requires an
unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction
to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent
that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the
unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets.
This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. We do
not expect that the adoption of this ASU will have a material effect on our Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
Certain estimates and assumptions are made when preparing our financial statements. Estimates involve judgments with
respect to, among other things, future economic factors that are difficult to predict. As a result, actual amounts could differ from
estimates made when our financial statements are prepared.
The Securities and Exchange Commission requires management to identify its most critical accounting policies, defined as those
that are both most important to the portrayal of our financial condition and operating results and the application of which requires
our most difficult, subjective, and complex judgments. Although our estimates have not differed materially from our experience,
such estimates pertain to inherently uncertain matters that could result in material differences in subsequent periods.
We believe application of the following accounting policies require significant judgments and estimates and represent our critical
accounting policies. Other significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements.
• Revenue recognition. Revenues, including shipping and handling amounts, are recognized when the following criteria
are met: there is persuasive evidence that a sales agreement exists, delivery has occurred or services have been
rendered, the price to the buyer is fixed or determinable, and collection is reasonably assured. Delivery is considered
to have occurred when the customer takes title to products, which is generally on the date of shipment. At the time
revenue is recognized, we record a provision for the estimated amount of future returns based primarily on historical
experience and any known trends or conditions.
23
• Accounts receivable allowances. We provide allowances for expected cash discounts and doubtful accounts based
upon historical experience and periodic evaluations of the financial condition of our customers. If the financial
conditions of our customers were to significantly deteriorate, or other factors impair their ability to pay their debts, credit
losses could differ from allowances recorded in our Consolidated Financial Statements.
• Customer claims and product warranties. We provide product warranties related to manufacturing defects and
specific performance standards for our products. We record reserves for the estimated costs of defective products and
failure to meet applicable performance standards. The levels of reserves are established based primarily upon
historical experience and our evaluation of pending claims. Because our evaluations are based on historical
experience and conditions at the time our financial statements are prepared, actual results could differ from the
reserves in our Consolidated Financial Statements.
•
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out method
(LIFO), which generally matches current costs of inventory sold with current revenues, for substantially all inventories.
Reserves are also established to adjust inventories that are off-quality, aged or obsolete to their estimated net
realizable value. Additionally, rates of recoverability per unit of off-quality, aged or obsolete inventory are estimated
based on historical rates of recoverability and other known conditions or circumstances that may affect future
recoverability. Actual results could differ from assumptions used to value our inventory.
• Goodwill. Goodwill is tested annually for impairment during the fourth quarter or earlier if significant events or
substantive changes in circumstances occur that may indicate that goodwill may net be recoverable. The goodwill
impairment tests are based on determining the fair value of the specified reporting units based on management
judgments and assumptions using the discounted cash flows. The valuation approaches are subject to key judgments
and assumptions that are sensitive to change such as judgments and assumptions about sales growth rates, operating
margins and the weighted average cost of capital (“WACC”). When developing these key judgments and assumptions,
we consider economic, operational and market conditions that could impact the fair value of the reporting unit.
However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding
future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in
all likelihood, differ in some respects from actual future results. Should a significant or prolonged deterioration in
economic conditions occur key judgments and assumptions could be impacted.
• Contingent Consideration. Contingent consideration liabilities represent future amounts we may be required to pay in
conjunction with various business combinations. The ultimate amount of future payments is based on sales levels for
one contingent liability and incremental gross margin growth related to another contingent liability. We estimate the fair
value of the contingent consideration liability related to sales levels by forecasting estimated cash payments based on
projected sales and discounting the cash payment to its present value using a risk-adjusted rate of return. We estimate
the fair value of the contingent consideration liability associated with incremental gross margin growth by employing
Monte Carlo simulations to estimate the volatility and systematic relative risk of gross margin levels and discounting the
associated cash payment amounts to their present values using a credit-risk-adjusted interest rate. We evaluate our
estimates of the fair value of contingent consideration liabilities on a periodic basis. Any changes in the fair value of
contingent consideration liabilities are recorded through earnings. The total estimated fair value of contingent
consideration liabilities was $2.8 million and $1.9 million at December 28, 2013 and December 29, 2012, respectively,
and was included in accrued expenses and other liabilities in our consolidated balance sheets.
• Self-insured accruals. We estimate costs required to settle claims related to our self-insured medical, dental and
workers' compensation plans. These estimates include costs to settle known claims, as well as incurred and
unreported claims. The estimated costs of known and unreported claims are based on historical experience. Actual
results could differ from assumptions used to estimate these accruals.
•
Income taxes. The Company’s effective tax rate is based on its income, statutory tax rates and tax planning
opportunities available in the jurisdictions in which it operates. Tax laws are complex and subject to different
interpretations by the taxpayer and respective governmental taxing authorities. Deferred tax assets represent amounts
available to reduce income taxes payable on taxable income in a future period. The Company evaluates the
recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all
sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning
strategies. These sources of income inherently rely on estimates, including business forecasts and other projections of
financial results over an extended period of time. In the event that the Company is not able to realize all or a portion of
its deferred tax assets in the future, a valuation allowance is provided. The Company would recognize such amounts
through a charge to income in the period in which that determination is made or when tax law changes are enacted.
The Company had valuation allowances of $3.7 million at December 28, 2013 and $4.9 million at December 29, 2012.
For further information regarding the Company’s valuation allowances, see Note 13 to the consolidated financial
statements.
24
•
Loss contingencies. We routinely assess our exposure related to legal matters, environmental matters, product
liabilities or any other claims against our assets that may arise in the normal course of business. If we determine that it
is probable a loss has been incurred, the amount of the loss, or an amount within the range of loss, that can be
reasonably estimated will be recorded.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands)
Our earnings, cash flows and financial position are exposed to market risks relating to interest rates, among other factors. It is
our policy to minimize our exposure to adverse changes in interest rates and manage interest rate risks inherent in funding our
Company with debt. We address this financial exposure through a risk management program that includes maintaining a mix of
fixed and floating rate debt and the use of interest rate swap agreements (See Note 11 to the Consolidated Financial
Statements).
At December 28, 2013, $60,274, or approximately 56% of our total debt, was subject to floating interest rates. A 10% fluctuation
in the variable interest rates applicable to this floating rate debt would have an annual after-tax impact of approximately $81.
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
On November 11, 2013, the Audit Committee of the Board of Directors confirmed its engagement of Ernst & Young LLP (“E&Y”)
to audit the Company’s consolidated financial statements as of and for the year ending December 28, 2013, and the
effectiveness of the Company’s internal control over financial reporting as of December 28, 2013. Upon completion of all
procedures related to filing the Company’s Annual Report on Form 10-K for the year ended December 28, 2013, the
engagement of E&Y will end.
At that time, the Committee approved the engagement of Dixon Hughes Goodman LLP to serve as independent registered
public accountants for the Company for fiscal 2014.
During the fiscal years ended December 28, 2013 and December 29, 2012, Ernst & Young's reports on the Registrant's financial
statements did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit
scope or accounting principles.
During the fiscal years ended December 28, 2013 and December 29, 2012 and the subsequent periods through the date of this
report, (i) there were no disagreements between the Registrant and Ernst & Young on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction
of Ernst & Young, would have caused Ernst & Young to make reference to the subject matter of the disagreements in connection
with its reports on the Registrant's financial statements, and (ii) there were no reportable events as that term is described in Item
304(a)(1)(v) of Regulation S-K.
During the two most recent fiscal years and through the date of this report, neither the Registrant nor anyone on its behalf
consulted with Dixon Hughes Goodman regarding any of the following:
(i) The application of accounting principles to a specific transaction, either completed or proposed;
(ii) The type of audit opinion that might be rendered on the Registrant's financial statements, and none of the following was
provided to the Registrant:
(a) a written report; or (b) oral advice that Dixon Hughes Goodman concluded was an important factor considered by
the Registrant in reaching a decision as to an accounting, auditing or financial reporting issue; or
(iii) Any matter that was subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or a
reportable event, as described in Item 304(a)(1)(v) of Regulation S-K.
25
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures to ensure that
information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the commission's rules and forms and is accumulated and
communicated to management, including our principal executive officer and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”) 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 28, 2013, the date of the financial statements included in this Form 10-K (the “Evaluation Date”). Based on that
evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the Evaluation Date.
(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 materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
Our management report on internal control over financial reporting and the report of our independent registered public
accounting firm on our internal control over financial reporting are contained in Item 15(a)(1) of this report.
Item 9B.
OTHER INFORMATION
None.
26
PART III.
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections entitled "Information about Nominees for Director" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Proxy Statement of the registrant for the annual meeting of shareholders to be held April 29, 2014 is incorporated herein
by reference. Information regarding the executive officers of the registrant is presented in PART I of this report.
We adopted a Code of Business Conduct and Ethics (the "Code of Ethics") which applies to our 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 herein 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 407 (e)(5) of
Regulation S-K of the Securities Exchange Act of 1934, as amended, and is independent within the meaning of the applicable
Securities and Exchange Commission rules and NASDAQ standards. 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
We have a standing audit committee. At December 28, 2013, members of our audit committee are John W. Murrey, III,
Chairman, Charles E. Brock, J. Don Brock, Walter W. Hubbard, Lowry F. Kline, Hilda W. Murray and Michael L. Owens.
Item 11.
EXECUTIVE COMPENSATION
The sections entitled "Compensation Discussion and Analysis", "Executive Compensation Information" and "Director
Compensation" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held April 29, 2014 are
incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The section entitled "Principal Shareholders", as well as the the beneficial ownership table (and accompanying notes), in the
Proxy Statement of the registrant for the annual meeting of shareholders to be held April 29, 2014 is incorporated herein by
reference.
Equity Compensation Plan Information as of December 28, 2013
The following table sets forth information as to our equity compensation plans as of the end of the 2013 fiscal year:
Plan Category
(a)
Number of
securities to be
issued upon
exercise of the
outstanding
options, warrants
and rights
(b)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)
Equity Compensation Plans approved by security holders
759,995 (1)
$
10.64 (2)
622,819
(1) Does not include 525,799 shares issued but unvested Common Stock pursuant to restricted stock grants under our 2006 Stock Awards
(2)
Plan, with a weighted-average grant date value of $6.64 per share.
Includes the aggregate weighted-average of (i) the exercise price per share for outstanding options to purchase 555,105 shares of
Common Stock under our 2000 Stock Incentive Plan and 105,250 shares of Common Stock under our 2006 Stock Awards Plan and (ii) the
price per share of the Common Stock on the grant date for each of 99,640 Performance Units issued under the Directors' Stock Plan (each
unit equivalent to one share of Common Stock).
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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 April 29, 2014 is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The section entitled "Audit Fees Discussion" in the Proxy Statement of the Registrant for the Annual Meeting of Shareholders to
be held April 29, 2014 is incorporated herein by reference.
27
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV.
(a) (1) The response to this portion of Item 15 is submitted as a separate section of this report.
(2) No financial statements required.
(3) Please refer to the Exhibit Index which is attached hereto.
(b) Exhibits - The response to this portion of Item 15 is submitted as a separate section of this report. See Item 15(a) (3)
above.
28
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.
Date: March 12, 2014
The Dixie Group, Inc.
/s/ DANIEL K. FRIERSON
By: Daniel K. Frierson
Chairman of the Board
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.
Signature
Capacity
Date
/s/ DANIEL K. FRIERSON
Chairman of the Board, Director and Chief Executive Officer
March 12, 2014
Daniel K. Frierson
/s/ JON A. FAULKNER
Vice President, Chief Financial Officer
March 12, 2014
Jon A. Faulkner
/s/ D. KENNEDY FRIERSON, JR.
Vice President, Chief Operating Officer and Director
March 12, 2014
D. Kennedy Frierson, Jr.
/s/ D. EUGENE LASATER
Controller
D. Eugene Lasater
/s/ CHARLES E. BROCK
Director
Charles E. Brock
/s/ J. DON BROCK
J. Don Brock
Director
/s/ WALTER W. HUBBARD
Director
Walter W. Hubbard
/s/ LOWRY F. KLINE
Lowry F. Kline
Director
/s/ HILDA S. MURRAY
Director
Hilda S. Murray
/s/ JOHN W. MURREY, III
Director
John W. Murrey, III
/s/ MICHAEL L. OWENS
Director
Michael L. Owens
29
March 12, 2014
March 12, 2014
March 12, 2014
March 12, 2014
March 12, 2014
March 12, 2014
March 12, 2014
March 12, 2014
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 15(a)(1)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 28, 2013
THE DIXIE GROUP, INC.
CHATTANOOGA, TENNESSEE
30
FORM 10-K - ITEM 8 and ITEM 15(a)(1)
THE DIXIE GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of The Dixie Group, Inc. and subsidiaries are included in Item 8 and Item 15(a)(1):
Table of Contents
Management's Report on Internal Control over Financial Reporting
Reports of independent registered public accounting firm
Consolidated balance sheets - December 28, 2013 and December 29, 2012
Consolidated statements of operations - Years ended December 28, 2013, December 29, 2012, and
December 31, 2011
Consolidated statements of comprehensive income (loss) - Years ended December 28, 2013, December 29,
2012, and December 31, 2011
Consolidated statements of cash flows - Years ended December 28, 2013, December 29, 2012, and
December 31, 2011
Consolidated statements of stockholders' equity - Years ended December 28, 2013, December 29, 2012, and
December 31, 2011
Notes to consolidated financial statements
Page
32
33
35
36
37
38
40
41
31
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 Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of
its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures, as well as diverse interpretation of U. S. generally
accepted accounting principles by accounting professionals. It is also possible that internal control over financial reporting can
be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Furthermore,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. These
inherent limitations are known features of the financial reporting process; therefore, while it is possible to design into the process
safeguards to reduce such risk, it is not possible to eliminate all risk. Our internal control over financial reporting has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report on internal control over
financial reporting as of December 28, 2013.
Management, including our principal executive officer and principal financial officer, has used the criteria set forth in the report
entitled “Internal Control - Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) to evaluate the effectiveness of its internal control over financial reporting. Management has
concluded that its internal control over financial reporting was effective as of December 28, 2013, based on those criteria.
Daniel K. Frierson
Chairman of the Board and
Chief Executive Officer
Jon A. Faulkner
Chief Financial Officer
32
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of The Dixie Group, Inc.
We have audited The Dixie Group, Inc.'s internal control over financial reporting as of December 28, 2013, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (the COSO criteria). The Dixie Group, Inc.'s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The Dixie Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 28, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of The Dixie Group, Inc. as of December 28, 2013 and December 29, 2012, and the related
consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three
years in the period ended December 28, 2013 of The Dixie Group, Inc. and our report dated March 12, 2014 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 12, 2014
33
The Board of Directors and Shareholders of The Dixie Group, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of The Dixie Group, Inc. as of December 28, 2013 and
December 29, 2012, and the related consolidated statements of statements of operations, comprehensive income (loss),
stockholders' equity and cash flows for each of the three years in the period ended December 28, 2013. 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
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 financial statements referred to above present fairly, in all material respects, the consolidated financial
position of The Dixie Group, Inc. at December 28, 2013 and December 29, 2012, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 28, 2013, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
The Dixie Group, Inc.'s internal control over financial reporting as of December 28, 2013, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework) and our report dated March 12, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 12, 2014
34
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Inventories
Deferred income taxes
Other current assets
TOTAL CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT, NET
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses
Current portion of long-term debt
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
DEFERRED INCOME TAXES
OTHER LONG-TERM LIABILITIES
TOTAL LIABILITIES
December 28,
2013
December 29,
2012
$
255
$
44,063
93,667
6,622
5,182
149,789
74,485
24,592
491
32,469
72,245
5,615
4,235
115,055
69,483
17,232
$
$
248,866
$
201,770
$
21,679
26,202
6,229
54,110
101,759
4,072
18,154
178,095
14,891
19,147
4,059
38,097
80,166
3,824
15,637
137,724
COMMITMENTS AND CONTINGENCIES (See Note 17)
STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and
outstanding - 12,441,356 shares for 2013 and 12,173,961 shares for 2012
37,324
36,522
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares,
issued and outstanding - 870,287 shares for 2013 and 952,784 shares for 2012
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
TOTAL STOCKHOLDERS' EQUITY
2,611
137,170
(106,550)
216
70,771
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
248,866
$
2,858
136,744
(111,840)
(238)
64,046
201,770
See accompanying notes to the consolidated financial statements.
35
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
December 28,
2013
Year Ended
December 29,
2012
December 31,
2011
NET SALES
Cost of sales
GROSS PROFIT
Selling and administrative expenses
Other operating (income) expense, net
Facility consolidation and severance expenses, net
OPERATING INCOME
Interest expense
Other (income) expense, net
Refinancing expenses
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
TAXES
Income tax provision (benefit)
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from discontinued operations, net of tax
NET INCOME (LOSS)
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Net income (loss)
BASIC SHARES OUTSTANDING
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Net income (loss)
DILUTED SHARES OUTSTANDING
DIVIDENDS PER SHARE:
Common Stock
Class B Common Stock
See accompanying notes to the consolidated financial statements.
$
$
$
$
$
$
$
$
345,066
259,427
85,639
$
266,372
201,000
65,372
270,110
204,604
65,506
76,554
494
—
8,591
3,756
26
94
4,715
(643)
5,358
(68)
5,290
0.40
(0.01)
0.39
12,737
0.40
(0.01)
0.39
$
$
$
$
$
63,489
68
—
1,815
3,146
(277)
—
(1,054)
(401)
(653)
(274)
(927)
(0.05)
(0.02)
(0.07)
12,638
(0.05)
(0.02)
(0.07)
$
$
$
$
$
60,667
(266)
(563)
5,668
3,470
(75)
317
1,956
684
1,272
(286)
986
0.10
(0.02)
0.08
12,585
0.10
(0.02)
0.08
12,852
12,638
12,623
— $
—
— $
—
—
—
36
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized gain (loss) on interest rate swaps
Reclassification of loss into earnings from interest rate swaps
Amortization of unrealized loss on dedesignated interest rate
swaps
Unrecognized net actuarial gain on postretirement benefit plans
Reclassification of net actuarial gain into earnings from
postretirement benefit plans
Reclassification of prior service credits into earnings from
postretirement benefit plans
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
December 28,
2013
Year Ended
December 29,
2012
December 31,
2011
$
5,290
$
(927)
$
986
236
176
98
20
(22)
(54)
454
(476)
98
289
20
(27)
(54)
(150)
(412)
268
93
67
(18)
(55)
(57)
COMPREHENSIVE INCOME (LOSS)
$
5,744
$
(1,077)
$
929
See accompanying notes to the consolidated financial statements.
37
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
December 28,
2013
Year Ended
December 29,
2012
December 31,
2011
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating
activities, net of acquisitions:
Depreciation and amortization
Provision (benefit) for deferred income taxes
Net (gain) loss on property, plant and equipment disposals
Stock-based compensation expense
Excess tax benefits from stock-based compensation
Write-off of deferred financing costs
Changes in operating assets and liabilities:
Receivables
Inventories
Other current assets
Accounts payable and accrued expenses
Other operating assets and liabilities
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sales of property, plant and equipment
Purchase of property, plant and equipment
Net cash paid in business acquisitions
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on previous credit line
Payments on previous term loan
Net borrowings on current credit line
Borrowings on current mortgage note payable
Payments on current mortgage note payable
Payments on previous mortgage note payable
Payments on note payable related to acquisition
Borrowings on equipment financing
Payments on equipment financing
Payments on capitalized leases
Borrowings on notes payable
Payments on notes payable
Payments on subordinated indebtedness
Change in outstanding checks in excess of cash
Proceeds from stock option exercises
Repurchases of Common Stock
Excess tax benefits from stock-based compensation
Payments for debt issuance costs
NET CASH PROVIDED BY FINANCING ACTIVITIES
$
5,358
$
(68)
5,290
10,262
(1,037)
195
847
(151)
94
(11,479)
(19,283)
(878)
11,642
(1,423)
(5,921)
48
(11,438)
(2,170)
(13,560)
—
—
25,152
—
(10,141)
—
(852)
4,312
(1,212)
(688)
2,429
(851)
—
1,350
190
(207)
151
(388)
19,245
$
(653)
(274)
(927)
9,396
(643)
(186)
937
—
—
(3,296)
(8,115)
(2,506)
1,455
(827)
(4,712)
187
(3,386)
(1,197)
(4,396)
—
—
7,316
—
(737)
—
(161)
5,003
(1,293)
(204)
795
(746)
—
(205)
—
(199)
—
(268)
9,301
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
(236)
491
255
$
193
298
491
$
38
1,272
(286)
986
9,649
(254)
37
663
—
92
2,204
(5,650)
(313)
(1,724)
(636)
5,054
5
(6,740)
—
(6,735)
(30,503)
(11,324)
52,806
11,063
(185)
(5,736)
—
1,794
(2,660)
(360)
733
(609)
(12,162)
366
—
(131)
—
(1,357)
1,735
54
244
298
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under capital leases
Fair value of assets acquired in acquisitions
Liabilities assumed in acquisitions
Note payable related to acquisition
Accrued consideration related to acquisition
See accompanying notes to the consolidated financial statements.
$
1,865
8,062
(836)
(3,749)
(1,307)
$
666
$
9,184
(42)
(5,500)
(2,445)
14
—
—
—
—
39
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Balance at December 25, 2010
$ 35,926
$
2,603
$ 135,831
$ (111,899) $
(31) $
62,430
Common
Stock
Class B
Common
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Repurchases of Common Stock - 29,069
shares
Restricted stock grants issued - 91,340
shares
Class B converted into Common Stock -
6,197 shares
Stock-based compensation expense
Reclassification of deferred compensation
on Directors' stock
Net income
Other comprehensive loss
(87)
211
18
—
—
—
—
—
63
(18)
—
—
—
—
(44)
(274)
—
663
494
—
—
—
—
—
—
—
986
—
Balance at December 31, 2011
36,068
2,648
136,670
(110,913)
Repurchases of Common Stock - 50,444
shares
Restricted stock grants issued - 289,233
shares
Restricted stock grants forfeited - 17,229
shares
Class B converted into Common Stock -
15,925 shares
Stock-based compensation expense
Net loss
Other comprehensive loss
(151)
609
(52)
48
—
—
—
—
258
—
(48)
—
—
—
(48)
(867)
52
—
937
—
—
—
—
—
—
—
(927)
—
Balance at December 29, 2012
36,522
2,858
136,744
(111,840)
Common Stock issued - 50,464 shares
Repurchases of Common Stock - 38,815
shares
Restricted stock grants issued - 173,249
shares
Class B converted into Common Stock -
140,477 shares
Stock-based compensation expense
Excess tax benefits from stock-based
compensation
Net income
Other comprehensive income
151
(116)
346
421
—
—
—
—
—
—
39
(91)
174
(520)
(421)
—
—
—
—
—
847
151
—
—
—
—
—
—
—
—
5,290
—
Balance at December 28, 2013
$ 37,324
$
2,611
$ 137,170
$ (106,550) $
See accompanying notes to the consolidated financial statements.
—
—
—
—
—
—
(57)
(88)
—
—
—
—
—
—
(150)
(238)
—
—
—
—
—
—
—
454
216
(131)
—
—
663
494
986
(57)
64,385
(199)
—
—
—
937
(927)
(150)
64,046
190
(207)
—
—
847
151
5,290
454
$
70,771
40
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company's businesses consists principally of marketing, manufacturing and selling finished carpet and rugs. The Company
has one reportable segment, carpet and rug manufacturing. The Company sells carpet and rug products in both residential and
commercial applications. Additionally, the Company provides manufacturing support to its carpet businesses through its
separate processing operations.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of The Dixie Group, Inc. and its wholly-owned subsidiaries (the
"Company"). Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. 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 and these differences could be material.
Fiscal Year
The Company ends its fiscal year on the last Saturday of December. All references herein to "2013," "2012," and "2011," mean
the fiscal years ended December 28, 2013, December 29, 2012, and December 31, 2011, respectively. The year 2011
contained 53 weeks, all other years presented contained 52 weeks.
Reclassifications
The Company reclassified certain amounts in 2012 and 2011 to conform to the 2013 presentation.
Discontinued Operations
The financial statements separately report discontinued operations and the results of continuing operations (See Note 20).
Disclosures included herein pertain to the Company's continuing operations unless noted otherwise.
Cash and Cash Equivalents
Highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents.
Market Risk
The Company sells carpet to floorcovering retailers, the interior design, architectural and specifier communities and supplies
carpet yarn and carpet dyeing and finishing services to certain manufacturers. The Company's customers are located principally
throughout the United States. One customer accounted for, as a percentage of net sales, approximately 13% in 2013, 9% in
2012 and 12% in 2011. No other customer accounted for more than 10% of net sales in 2013, 2012 or 2011, nor did the
Company make a significant amount of sales to foreign countries during 2013, 2012 or 2011.
Credit Risk
The Company grants credit to its customers with defined payment terms, performs ongoing evaluations of the credit worthiness
of its customers and generally does not require collateral. Accounts receivable are carried at their outstanding principal
amounts, less an anticipated amount for discounts and an allowance for doubtful accounts, which management believes is
sufficient to cover potential credit losses based on historical experience and periodic evaluation of the financial condition of the
Company's customers. Notes receivable are carried at their outstanding principal amounts, less an allowance for doubtful
accounts to cover potential credit losses based on the financial condition of borrowers and collateral held by the Company.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method, which
generally matches current costs of inventory sold with current revenues, for substantially all inventories.
41
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Property, Plant and Equipment
Property, plant and equipment is stated at the lower of cost or impaired value. Provisions for depreciation and amortization of
property, plant and equipment have been computed for financial reporting purposes using the straight-line method over the
estimated useful lives of the related assets, ranging from 10 to 40 years for buildings and improvements, and 3 to 10 years for
machinery and equipment. Costs to repair and maintain the Company's equipment and facilities are expensed as incurred.
Such costs typically include expenditures to maintain equipment and facilities in good repair and proper working condition.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be fully
recoverable. When the carrying value of the asset exceeds the value of its estimated undiscounted future cash flows, an
impairment charge is recognized equal to the difference between the asset's carrying value and its fair value. Fair value is
estimated using discounted cash flows, prices for similar assets or other valuation techniques.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the fair market value of identified net assets acquired in business
combinations. The Company's goodwill is tested for impairment annually in the fourth quarter of each year or more frequently if
events or circumstances indicate that the carrying value of goodwill associated with a reporting unit may not be fully recoverable.
The first step in the goodwill assessment process is to identify potential goodwill impairments and involves a comparison of the
carrying value of a reporting unit, including goodwill, to the fair value of the reporting unit. The Company has identified its
reporting units as its residential floorcovering business and commercial floorcovering business. For this purpose, the Company
estimates fair value of the reporting unit based on expected current and future cash flows discounted at the Company's
weighted-average cost of capital ("WACC"). Such an estimate necessarily involves judgments and assumptions concerning,
among other matters, future sales and operating margins, as well as interest rates and other financial factors used to calculate
the WACC.
If an impairment is indicated in the first step of the assessment, a second step in the assessment is performed by comparing the
"implied fair value" of the Company's reporting units' goodwill with the carrying value of the reporting units' goodwill. For this
purpose, the "implied fair value" of goodwill for each reporting unit that has goodwill associated with its operations is determined
in the same manner as the amount of goodwill is determined in a business combination. (See Note 6).
Identifiable intangible assets with finite lives are generally amortized on a straight-line basis over their respective lives, which
range from 10 to 20 years.
Customer Claims and Product Warranties
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its
products. At the time sales are recorded, the Company records reserves for the estimated costs of defective products and
failure of its products to meet applicable performance standards. The level of reserves the Company establishes is based
primarily upon historical experience, including the level of sales and evaluation of pending claims.
Self-Insured Benefit Programs
The Company records liabilities to reflect an estimate of the ultimate cost of claims related to its self-insured medical and dental
benefits and workers' compensation. The amounts of such liabilities are based on an analysis of the Company's historical
experience for each type of claim.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the future tax consequences of the differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company
recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense.
Derivative Financial Instruments
The Company does not hold speculative financial instruments, nor does it hold or issue financial instruments for trading
purposes. The Company uses derivative instruments, currently interest rate swaps, to minimize interest rate volatility.
42
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The Company recognizes all derivatives on its Consolidated Balance Sheet at fair value. Derivatives that are designated as
cash flow hedges are linked to specific liabilities on the Company's balance sheet. The Company assesses, both at inception
and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes
in cash flows of the hedged items. When it is determined that a derivative is not highly effective or the derivative expires, is sold,
terminated, or exercised, the Company discontinues hedge accounting for that specific hedge instrument. Changes in the fair
value of effective cash flow hedges are deferred in accumulated other comprehensive income (loss) ("AOCIL") and reclassified
to earnings in the same periods during which the hedge transaction affects earnings. Changes in the fair value of derivatives
that are not effective cash flow hedges are recognized in income.
Treasury Stock
The Company classifies treasury stock as a reduction to Common Stock for the par value of such shares acquired and the
difference between the par value and the price paid for each share recorded either entirely to retained earnings or to additional
paid-in-capital for periods in which the Company does not have retained earnings. This presentation reflects the repurchased
shares as authorized but unissued as prescribed by state statute.
Revenue Recognition
Revenues, including shipping and handling amounts, are recognized when the following criteria are met: there is persuasive
evidence that a sales agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or
determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title
to the goods and assumes the risks and rewards of ownership, which is generally on the date of shipment. At the time revenue
is recognized, the Company records a provision for the estimated amount of future returns based primarily on historical
experience and any known trends or conditions that exist at the time revenue is recognized. Revenues are recorded net of
taxes collected from customers.
Advertising Costs and Vendor Consideration
The Company engages in promotional and advertising programs that include rebates, discounts, points and cooperative
advertising programs. Expenses relating to these programs are charged to earnings during the period of the related benefits.
These arrangements do not require significant estimates of costs. Substantially all such expenses are recorded as a deduction
from sales. The cost of cooperative advertising programs is recorded as selling and administrative expenses when the
Company can identify a tangible benefit associated with the program, and can reasonably estimate that the fair value of the
benefit is equal to or greater than its cost. The amount of advertising and promotion expenses included in selling and
administrative expenses was not significant for the years 2013, 2012 or 2011.
Cost of Sales
Cost of sales includes all costs related to manufacturing the Company's products, including purchasing and receiving costs,
inspection costs, warehousing costs, freight costs, internal transfer costs or other costs of the Company's distribution network.
Selling and Administrative Expenses
Selling and administrative expenses include all costs, not included in cost of sales, related to the sale and marketing of the
Company's products and general administration of the Company's business.
Operating Leases
Rent is expensed over the lease period, including the effect of any rent holiday and rent escalation provisions, which effectively
amortizes the rent holidays and rent escalations on a straight-line basis over the lease period. Leasehold improvements are
amortized over the shorter of their economic lives or the lease term, excluding renewal options. Any leasehold improvement
made by the Company and funded by the lessor is treated as a leasehold improvement and amortized over the shorter of its
economic life or the lease term. Any funding provided by the lessor for such improvements is treated as deferred costs and
amortized over the lease period.
Stock-Based Compensation
The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity or
liability instrument issued. Restricted stock grants with pro-rata vesting are expensed using the straight-line method. (Terms of
the Company's awards are specified in Note 15).
43
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires the Company to provide information about the
amounts reclassified out of accumulated other comprehensive income by component. In addition, the Company is required to
present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net
income. ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012.
Since the new standard did not change the current requirements for reporting net income or other comprehensive income in the
financial statements, the adoption of this ASU did not have a material effect on the Company's Consolidated Financial
Statements.
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities.” The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to
enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is
required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within
those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all
comparative periods presented. In January 2013, the FASB issued ASU No. 2013-01, "Balance Sheet (Topic 210)—Clarifying
the Scope of Disclosures about Offsetting Assets and Liabilities". The ASU clarifies that ordinary trade receivables and payables
are not in the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse
purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with
specific criteria contained in the Codification or subject to a master netting arrangement or similar agreement. The effective date
is the same as the effective date of ASU 2011-11. The Company does not expect that the adoption of these ASUs will have a
material effect on the Company's Consolidated Financial Statements.
In July 2012, the FASB issued ASU No. 2012-02, "Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment." This ASU states that an entity has the option first to assess qualitative factors to determine
whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible
asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than
not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity
concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the
quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic
350-30, "Intangibles--Goodwill and Other, General Intangibles Other than Goodwill." Under the guidance in this ASU, an entity
also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed
directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in
any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal
years beginning after September 15, 2012. The adoption of this ASU did not have a a material effect on the Company’s
Consolidated Financial Statements.
In February 2013, the FASB issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several
Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date". This ASU provides
guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements
for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations
addressed within existing guidance in GAAP. For public entities, the ASU is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013. The ASU shall be applied retrospectively to all prior periods presented for
those obligations within the scope of this Subtopic that exist at the beginning of an entity's fiscal year of adoption. Early adoption
is permitted. The Company does not expect that the adoption of this ASU will have a material effect on the Company's
Consolidated Financial Statements.
In July 2013, the FASB issued ASU No. 2013-10, "Derivatives and Hedging (Topic 815) - Inclusion of the Fed Funds Effective
Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes". This ASU allows
the use of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a benchmark interest rate for hedge
accounting purposes in addition to interest rates on direct Treasury obligations of the United States government and LIBOR. In
addition, the ASU removes the restriction on using different benchmark rates for similar hedges. The ASU became effective on a
prospective basis for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption
of this ASU did not have a material effect on the Company's Consolidated Financial Statements.
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". This ASU requires an
unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction
to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent
that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the
unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets.
44
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The
Company does not expect that the adoption of this ASU will have a material effect on the Company's Consolidated Financial
Statements.
NOTE 2 - RECEIVABLES, NET
Receivables are summarized as follows:
Customers, trade
Other receivables
Gross receivables
Less allowance for doubtful accounts
Net receivables
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
Raw materials
Work-in-process
Finished goods
Supplies, repair parts and other
LIFO reserve
Total inventories
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
Land and improvements
Buildings and improvement
Machinery and equipment
Accumulated depreciation
Property, plant and equipment, net
2013
2012
$
$
41,898
$
2,306
44,204
(141)
44,063
$
31,043
1,642
32,685
(216)
32,469
2013
2012
$
31,864
$
16,880
57,983
566
(13,626)
$
93,667
$
23,002
13,786
49,251
470
(14,264)
72,245
2013
2012
$
7,231
$
50,627
149,040
206,898
6,950
50,293
137,432
194,675
(132,413)
(125,192)
$
74,485
$
69,483
Depreciation of property, plant and equipment, including amounts for capital leases, totaled $9,866 in 2013, $9,070 in 2012 and
$9,417 in 2011.
NOTE 5 - ACQUISITIONS
2013 Acquisition
On June 30, 2013, the Company acquired Robertex Associates, Inc. ("Robertex") from Robert P. Rothman. The Company
acquired all the outstanding shares of capital stock of Robertex for an aggregate purchase price of $7,334, which included cash,
a seller-financed note and an accrued contingent liability. The seller-financed note consists of five annual payments of principal
and interest. The accrued contingent liability is payable in five annual payments based upon incremental growth in gross
margins of selected products for five years subsequent to the acquisition. The Company has incurred direct incremental costs of
approximately $350 related to this acquisition. These incremental costs are classified in selling and administrative expenses in
the Company's Consolidated Statements of Operations.
This acquisition is designed to increase the Company's market share in the wool markets it currently serves. Robertex produces
wool floorcovering products under its Robertex and Carousel brands.
45
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The purchase price consideration was as follows:
Cash paid
Seller-financed note
Contingent consideration
Total purchase price
$
$
2,278
3,749
1,307
7,334
The acquisition has been accounted for as a business combination which requires, among other things, that assets acquired and
liabilities assumed to be recognized at their fair values as of the acquisition date. The acquisition did not represent a material
business combination. The following table summarizes the estimates of fair values of the assets acquired and liabilities
assumed as of June 30, 2013 based on the purchase price allocation. The components of the purchase price allocation
consisted of the following:
Cash
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Definite-lived intangible assets
Goodwill
Accounts payable
Accrued expenses
Total purchase price
2012 Acquisitions
$
$
108
115
2,139
14
1,863
2,222
1,709
(643)
(193)
7,334
On November 2, 2012, the Company acquired a continuous carpet dyeing facility ("Colormaster") in Calhoun, Georgia from
Lineage PCR, Inc. for $6,562 which included cash, a seller financed note and the fair value of a five-year below market
agreement to process certain of the seller's products on a commission basis. The Company incurred direct, incremental costs of
$269 related to the acquisition which were expensed as incurred and included in general and administrative expenses in the
Company's Consolidated Financial Statements. With the acquisition of these continuous dyeing assets, the Company is moving
a significant volume of its dyeing production from its more costly beck dyeing assets as well as develop future products that
utilize the continuous dye process.
The purchase price consideration was as follows:
Cash paid
Seller-financed note
Below-market supply contract
Total purchase price
$
$
239
5,500
823
6,562
The acquisition has been accounted for as a business combination which requires, among other things, that assets acquired and
liabilities assumed be recognized at their fair values as of the acquisition date. The Company concluded that the acquisition did
not represent a material business combination. The allocation of the purchase price was based on estimates of the fair value of
the assets acquired as of November 2, 2012. The components of the purchase price allocation consisted of the following:
Property, plant and equipment
Inventory
Supplies
Purchase price
46
$
$
6,371
173
18
6,562
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
On November 28, 2012, the Company acquired the specialized wool rug tufting equipment and related business ("Crown Rug")
from Crown Manufacturing, Inc. for $2,580 which included cash, deferred payments and an accrued contingent liability. The
deferred payment is payable in three equal annual installments and the accrued contingent liability is three annual payments
based on sales volumes each year. The Company incurred direct incremental costs of $49 related to this acquisition and is
classified in general and administrative expenses in the Company's Consolidated Financial Statements. This acquisition was
designed to move and utilize the acquired assets in the Company's facilities to meet internal requirements as well as to enter
certain other markets not currently served by the Company. Prior to the acquisition of these assets from Crown Manufacturing,
the Company's requirements for products comprised a significant portion of the related machinery capacity at Crown
Manufacturing.
The purchase price consideration was as follows:
Cash paid
Deferred payments to seller
Contingent consideration
Total purchase price
$
$
958
471
1,151
2,580
The acquisition has been accounted for as a business combination which requires, among other things, that assets acquired and
liabilities assumed be recognized at their fair values as of the acquisition date. The Company concluded that the acquisition did
not represent a material business combination. The allocation of the purchase price was based on estimates of the fair value of
the assets acquired as of November 28, 2012. The components of the purchase price allocation consisted of the following:
Property, plant and equipment
Definite-lived intangible assets
Goodwill
Accrued payable
Purchase price
$
$
590
352
1,680
(42)
2,580
NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amounts of goodwill for the years ended 2013 and 2012 are as follows:
Goodwill
Accumulated
Impairment
Losses
Net
Balance at December 31, 2011
$
— $
— $
Additional goodwill recognized during the period (1)
Impairment losses recognized during the period
Other changes in the carrying amounts during the period
Balance at December 29, 2012
Additional goodwill recognized during the period (2)
Impairment losses recognized during the period
Other changes in the carrying amounts during the period
1,680
—
—
1,680
1,709
—
—
—
—
—
—
—
—
—
—
1,680
—
—
1,680
1,709
—
—
Balance at December 28, 2013
$
3,389
$
— $
3,389
(1) During 2012, the Company recorded goodwill related to the Crown Rug acquisition.
(2) During 2013, the Company recorded goodwill related to the Robertex acquisition.
47
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The following table represents the details of the Company's intangible assets for years ended 2013 and 2012:
Intangible assets subject to amortization:
2013
Accumulated
Amortization
Gross
Net
Gross
Customer relationships $
1,062
$
(40) $
1,022
$
Rug design coding
Trade names
Total
144
1,368
(14)
(34)
$
2,574
$
(88) $
130
1,334
2,486
Amortization expense for intangible assets is summarized as follows:
2012
Accumulated
Amortization
$
— $
Net
—
—
208
144
—
$
352
$
— $
2013
2012
2011
Customer relationships
Rug design coding
Trade names
Amortization expense
$
$
40
14
34
88
$
$
The estimated future amortization expense during each of the next five fiscal years is as follows:
Year
2014
2015
2016
2017
2018
Thereafter
NOTE 7 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
Compensation and benefits (1)
Provision for customer rebates, claims and allowances
Outstanding checks in excess of cash
Other
Total accrued expenses
208
144
—
352
—
—
—
—
Amount
146
146
146
146
146
1,756
— $
—
—
— $
$
2013
2012
8,233
$
6,202
3,873
7,894
5,637
4,389
2,523
6,598
26,202
$
19,147
$
$
(1)
Includes a liability related to the Company's self-insured Workers' Compensation program. This program is collateralized by letters of credit
in the aggregate amount of $1,717.
48
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE 8 - PRODUCT WARRANTY RESERVES
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its
products. Product warranty reserves are included in accrued expenses in the Company's Consolidated Financial Statements.
The following is a summary of the Company's product warranty activity.
Warranty reserve at beginning of year
Warranty liabilities accrued
Warranty liabilities settled
Changes for pre-existing warranty liabilities
Warranty reserve at end of year
NOTE 9 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
Revolving credit facility
Mortgage note payable
Obligation to Development Authority of Gordon County
Note payable - Robertex acquisition
Equipment notes payable
Notes payable
Capital lease obligations
Total long-term debt
Less: current portion of long-term debt
Total long-term debt, less current portion
Revolving Credit Facility
Senior Credit Facility
2013
2012
$
$
1,297
$
4,330
(3,905)
128
1,850
$
1,219
3,122
(3,118)
74
1,297
2013
2012
$
85,274
$
—
4,447
3,789
7,987
2,210
4,281
107,988
(6,229)
$
101,759
$
60,122
10,141
5,339
—
5,071
632
2,920
84,225
(4,059)
80,166
On September 14, 2011, the Company entered into a five-year, secured revolving credit facility (the "senior credit facility"). The
senior credit facility provided for a maximum of $90,000 of revolving credit, subject to borrowing base availability, including
limited amounts of credit in the form of letters of credit and swingline loans. The borrowing base was equal to specified
percentages of the Company's eligible accounts receivable, inventories and fixed assets less reserves established, from time to
time, by the administrative agent under the senior credit facility. The Company can use the proceeds of the senior credit facility
for general corporate purposes, including financing acquisitions and refinancing other indebtedness.
At the Company's election, revolving loans under the senior credit facility bore interest at annual rates equal to either (a) LIBOR
for 1, 2 or 3 month periods, as selected by the Company, plus an applicable margin of either 2.00% or 2.25%, or (b) the higher of
the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate, plus an applicable margin of either 1.00% or 1.50%.
The applicable margin was determined based on availability under the senior credit facility with margins increasing as availability
decreases. The Company also paid an unused line fee on the average amount by which the aggregate commitments exceed
utilization of the senior credit facility equal to 0.375% per annum.
The senior credit facility included certain affirmative and negative covenants that impose restrictions on the Company's financial
and business operations, including limitations on debt, liens, investments, fundamental changes in the Company's business,
asset dispositions, dividends and other similar restricted payments, transactions with affiliates, payments and modifications of
certain existing debt, future negative pledges, and changes in the nature of the Company's business. The Company was also
required to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability was less than
$10,000.
49
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Amended Senior Credit Facility
As amended, the Company's senior credit facility ("amended senior credit facility") provides for a maximum of $130,000 of
revolving credit, subject to borrowing base availability. The borrowing base is currently equal to specified percentages of the
Company's eligible accounts receivable, inventories, fixed assets and real property less reserves established, from time to time,
by the administrative agent under the facility. In addition, the term of the facility was extended to August 1, 2018.
At the Company's election, revolving loans under the amended senior credit facility bear interest at annual rates equal to either
(a) LIBOR for 1, 2 or 3 month periods, as selected by the Company, plus an applicable margin of either 1.50%, 1.75% or 2.00%,
or (b) the higher of the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate plus 1.00%, plus an applicable
margin of either 0.50%, 0.75% or 1.00%. The applicable margin is determined based on availability under the amended senior
credit facility with margins increasing as availability decreases. The Company continues to pay an unused line fee on the
average amount by which the aggregate commitments exceed utilization of the senior credit facility equal to 0.375% per annum.
The amended senior credit facility continues to include certain affirmative and negative covenants that impose restrictions on the
Company's financial and business operations. The amended senior credit facility requires that Company maintain a fixed charge
coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $14,440. At December 28, 2013, the
Company is in compliance with the amended senior credit facility's covenants.
Average Interest Rates and Availability
The weighted-average interest rate on borrowings outstanding under these facilities was 2.66% at December 28, 2013 and
3.59% at December 29, 2012. As of December 28, 2013, the unused borrowing availability under the amended senior credit
facility was $32,618.
Mortgage Note Payable
On April 1, 2013, the Company terminated its five-year $11,063 mortgage loan which had a balance of $9,833. The mortgage
loan was secured by the Company's Susan Street real estate and liens secondary to the senior credit facility. The mortgage
loan was scheduled to mature on September 13, 2016. Prior to the termination, the mortgage loan bore interest at a variable
rate equal to one month LIBOR plus 3.00% and was payable in equal monthly installments of principal of $61, plus interest
calculated on the declining balance of the mortgage loan, with a final payment of $7,436 due on maturity.
Obligation to Development Authority of Gordon County
On November 2, 2012, the Company signed a 6.00% seller-financed note of $5,500 with Lineage PCR, Inc. (“Lineage”) related
to the acquisition of the continuous carpet dyeing facility in Calhoun, Georgia. Effective December 28, 2012 through a series of
agreements between the Company, the Development Authority of Gordon County, Georgia (the “Authority”) and Lineage,
obligations with identical payment terms as the original note to Lineage are now payment obligations to the Authority. These
transactions were consummated in order to provide a tax abatement to the Company related to the real estate and equipment at
this facility. The tax abatement plan provides for abatement for certain components of the real and personal property taxes for up
to ten years. At any time, the Company has the option to pay off the obligation, plus a nominal amount. The debt to the Authority
bears interest at 6.00% and is payable in equal monthly installments of principal and interest of $106 over 57 months.
Note Payable - Robertex Acquisition
Only July 1, 2013, the Company signed a 4.50% seller-financed note of $4,000, which was recorded at a fair value of $3,749,
with Robert P. Rothman related to the acquisition of Robertex Associates, LLC ("Robertex") in Calhoun, Georgia. The note is
payable in five annual installments of principal of $800 plus interest. The note matures June 30, 2018.
Deferred Financing Costs and Refinancing Expenses
In connection with the amendments in 2013 and 2012, the Company incurred additional financing costs of $351 and $28,
respectively, that are being amortized over the remaining term of the facility. In addition, the Company incurred $37 of financing
costs related to an equipment note payable. Additionally in 2013, the Company recognized $94 of refinancing expenses related
to the write-off of previously deferred financing costs related to the Company's mortgage note payable. During 2012, the
Company incurred $187 in financing costs related to the obligations to the Authority that is being amortized over the term of the
obligation. As a result of the refinancing in 2011, the Company paid $1,410 in financing cost that is being amortized over the
term of the senior credit facility and the mortgage loan. Additionally in 2011, the Company recognized $317 of refinancing
expenses of which $92 related to the write-off of previously deferred financing costs and $225 related to fees paid to 3rd parties
in connection with the new senior credit facility and mortgage loan.
50
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Equipment Notes Payable
The terms of the Company's equipment financing notes are as follows:
Instrument
Note Payable - Equipment
Note Payable - Equipment
Note Payable - Equipment
Note Payable - Equipment
Note Payable - Equipment
Note Payable - Equipment
Note Payable - Equipment
Interest
Rate
Term
(Months)
Principal
and Interest
Payments
Frequency
Maturity Date
6.85%
7.72%
2.00%
5.94%
1.00%
6.84%
6.86%
84 $
48
60
75
84
60
60
38
2
38
41
18
3
49
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
May 1, 2014
June 1, 2014
August 1, 2016
February 1, 2019
June 14, 2020
July 1, 2018
October 1, 2018
In connection with certain of the equipment financing notes, the Company is required to maintain funds in a separate escrow
account. At December 28, 2013 and December 29, 2012, the balances held were $1,401 and $2,048, respectively, and are
included in other current assets on the Company’s consolidated balance sheets. The Company's equipment financing notes are
secured by the specific equipment financed and do not contain any financial covenants.
Capital Lease Obligations
The terms of the Company's capitalized lease obligations are as follows:
Instrument
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Capital Lease - Equipment
Interest
Rate
Term
(Months)
Principal
and Interest
Payments
Frequency
Maturity Date
7.04%
7.40%
2.90%
4.76%
5.74%
5.90%
5.75%
4.88%
7.04%
5.10%
84 $
48
60
72
56
60
60
48
60
60
8
4
11
32
2
7
7
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
16
Quarterly
8
3
Monthly
Monthly
December 1, 2015
June 1, 2014
August 1, 2017
October 1, 2018
October 1, 2017
April 1, 2018
July 1, 2018
April 1, 2017
October 1, 2018
November 1, 2018
The Company's capitalized lease obligations are secured by the specific equipment leased.
Convertible Subordinated Debentures
On October 5, 2011, the Company optionally redeemed all of the outstanding 7.00% convertible subordinated debentures
pursuant to the provisions of the Indenture dated May 15, 1987. The debentures were originally set to mature on May 15, 2012.
The redemption price of $9,925 represented 100% of the principal amount of the debentures plus accrued and unpaid interest.
The principal balance at October 5, 2011 was $9,662. The debentures were convertible by their holders into shares of the
Company's Common Stock at an effective conversion price of $32.20 per share. No holders exercised their right to convert their
debentures into shares of our Common Stock.
51
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Interest Payments and Debt Maturities
Interest payments for continuing operations were $3,067 in 2013, $2,795 in 2012, and $3,338 in 2011. Maturities of long-term
debt for periods following December 28, 2013 are as follows:
2014
2015
2016
2017
2018
Thereafter
Total
Long-Term
Debt
Capital Leases
(See Note 17)
Total
$
5,392
$
3,835
3,842
3,182
87,053
403
$
837
877
801
761
1,005
—
$
103,707
$
4,281
$
6,229
4,712
4,643
3,943
88,058
403
107,988
NOTE 10 - FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange value of an asset or a liability in an orderly transaction between market participants. The
fair value guidance outlines a valuation framework and establishes a fair value hierarchy in order to increase the consistency
and comparability of fair value measurements and disclosures. The hierarchy consists of three levels as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities as of the reported date;
Level 2 - Other than quoted market prices in active markets for identical assets or liabilities, quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other than
quoted prices for assets or liabilities and prices that are derived principally from or corroborated by market data by correlation or
other means; and
Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires
significant management judgment or estimation.
The following table reflects the fair values of assets and liabilities measured and recognized at fair value on a recurring basis on
the Company's Consolidated Balance Sheets as of December 28, 2013 and December 29, 2012:
Assets:
Rabbi trust (1)
Interest rate swaps (2)
Liabilities:
Interest rate swaps (2)
Deferred compensation plan (3)
Contingent consideration (4)
2013
2012
Fair Value
Hierarchy Level
14,242
$
11,894
556
—
Level 2
Level 2
813
$
13,210
2,751
1,086
11,066
1,928
Level 2
Level 1
Level 3
$
$
(1) The Company maintains a rabbi trust that serves as an investment designed to offset its deferred compensation plan liability. The
investment assets of the trust consist of life insurance policies for which the Company recognizes income or expense based upon changes
in cash surrender value.
(2) The fair value of the interest rate swaps was obtained from external sources. The interest rate swaps were valued using observable inputs
(e.g., LIBOR yield curves, credit spreads). Valuations of interest rate swaps may fluctuate considerably from period-to-period due to
volatility in underlying interest rates, which are driven by market conditions and the duration of the instrument. Credit adjustments could
have a significant impact on the valuations due to changes in credit ratings of the Company or its counterparties.
(3) Senior management and other highly compensated associates may defer a specified percentage of their compensation into a non-qualified
deferred compensation plan. Changes in the value of the deferred compensation under this plan is recognized each period based on the
fair value of the underlying measurement funds.
(4) As a result of the Colormaster and Crown Rug acquisitions in 2012 and the Robertex acquisition in 2013, the Company recorded contingent
consideration liabilities at fair value. These fair value measurements were based on calculations that utilize significant inputs not
observable in the market including forecasted revenues, gross margins and discount rates and thus represent Level 3 measurements.
52
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
These fair value measurements are directly impacted by the Company's estimates. Accordingly, if the estimates are higher or lower than
the estimates within the fair value measurement, the Company would record additional charges or benefits, respectively, as appropriate.
Changes in the fair value measurements using significant unobservable inputs (Level 3) during the years ending December 28,
2013 and December 29, 2012 were as follows:
Beginning balance
Contingent consideration liabilities recorded at fair value at acquisition
Fair value adjustments
Settlements
Ending balance
2013
2012
1,928
$
1,307
(23)
(461)
—
1,974
—
(46)
2,751
$
1,928
$
$
There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during 2013 or 2012. If any, the Company
recognizes the transfers in or transfers out at the end of the reporting period.
The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
Financial assets:
Cash and cash equivalents
Notes receivable, including current portion
Interest rate swaps
Financial Liabilities:
2013
2012
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
255
282
556
$
255
282
556
$
491
307
—
491
307
—
Long-term debt and capital leases, including current portion
107,988
101,752
Interest rate swaps
813
813
84,225
1,086
80,174
1,086
The fair values of the Company's long-term debt and capital leases were estimated using market rates the Company believes
would be available for similar types of financial instruments and represent level 2 measurements. The fair values of cash and
cash equivalents and notes receivable approximate their carrying amounts due to the short-term nature of the financial
instruments.
NOTE 11 - DERIVATIVES
The Company's earnings, cash flows and financial position are exposed to market risks relating to interest rates. It is the
Company's policy to minimize its exposure to adverse changes in interest rates and manage interest rate risks inherent in
funding the Company with debt. The Company addresses this risk by maintaining a mix of fixed and floating rate debt and
entering into interest rate swaps for a portion of its variable rate debt to minimize interest rate volatility.
The following is a summary of the Company's interest rate swaps as of December 28, 2013:
Type
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Notional
Amount
$
$
$
$
$
10,000
10,000
5,000
25,000
25,000
October 3, 2011 through September 1, 2016
Effective Date
Fixed
Rate
1.330%
Variable Rate
1 Month LIBOR
March 1, 2013 through September 1, 2016
1.620%
1 Month LIBOR
June 1, 2013 through September 1, 2016
1.700%
1 Month LIBOR
September 1, 2016 through September 1, 2021
3.105%
1 Month LIBOR
September 1, 2015 through September 1, 2021
3.304%
1 Month LIBOR
On September 14, 2011, the Company refinanced its senior revolving credit facility and entered into a new mortgage note
payable. The Company had two interest rate swaps that were designated as cash flow hedges of the interest rate risk created
by the variable interest rate paid on the revolving credit facility which matured on May 11, 2013 and the mortgage note payable
53
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
which matured on April 1, 2013. At the time of refinancing, the Company simultaneously dedesignated and redesignated these
swaps as cash flow hedges. At the time of the refinancing, the interest rate swaps had a negative fair value and were presented
as accrued expenses and other liabilities on the Company's Consolidated Balance Sheets. The related accumulated other
comprehensive loss of the swaps was frozen at the time of the refinancing and was amortized into interest expense through the
maturity dates of the cash flow hedges. The accumulated loss had an unamortized balance of $779 and $0 at September 14,
2011 and December 28, 2013, respectively. The Company amortized $158, $467 and $150 of losses into earnings related to
these two interest rate swaps during 2013, 2012 and 2011, respectively.
On September 14, 2011, the Company entered into two swaption agreements that permitted the Company to cancel two of the
existing interest rate swaps at specified dates. The Company did not designate these swaptions as cash flow hedges; therefore,
change in fair value related to these instruments were recognized into earnings. During 2012, the Company terminated the
swaptions and received consideration of $285.
The following table summarizes the fair values of derivative instruments included in the Company's Consolidated Balance
Sheets:
Location on Consolidated
Balance Sheets
Fair Value
2013
2012
Asset Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps
Other Assets
Derivatives not designated as hedging instruments:
Interest rate swaptions
Total Asset Derivatives
Other Assets
Liability Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps, current portion
Interest rate swaps, long term portion
Total Liability Derivatives
Accrued Expenses
Other Long-Term Liabilities
$
$
$
$
556
$
—
556
$
—
—
—
328
485
813
$
$
439
647
1,086
The following tables summarize the pre-tax impact of derivative instruments on the Company's financial statements:
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps
$
381
$
(767) $
(665)
Amount of Gain or (Loss) Recognized in AOCIL
on the effective portion of the Derivative
2013
2012
2011
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps
54
Amount of Gain or (Loss) Reclassified from
AOCIL on the effective portion into Income (1)(2)
2013
2012
2011
$
$
(442) $
(625) $
(583)
Amount of Gain or (Loss) Recognized on the
ineffective portion in Income on Derivative (3)
2013
2012
2011
— $
— $
—
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Amount of Gain or (Loss) Recognized in Income
on Derivative (4)
2013
2012
2011
Derivatives not designated as hedging instruments:
Interest rate swaptions
$
— $
87
$
43
(1) The amount of gain (loss) reclassified from AOCIL is included in interest expense on the Company's Consolidated Statements of
Operations.
(2) The amount of loss expected to be reclassified from AOCIL into earnings during the next 12 months subsequent to fiscal 2013 is $328.
(3) The amount of gain (loss) recognized in income on the ineffective portion of interest rate swaps is included in other (income) expense, net
on the Company's Consolidated Statements of Operations.
(4) The amount of gain (loss) recognized in income for derivatives not designated as hedging instruments is included in other (income)
expense, net on the Company's Consolidated Statements of Operations.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers a significant portion, or approximately 82% of the
Company's associates. This plan was modified in 2012 compared with prior years to include a mandatory Company match on
the first 1% of participants' contributions. The Company matches the next 2% of participants' contributions if the Company
meets prescribed earnings levels. The plan also provides for additional Company contributions above the 3% level if the
Company attains certain additional performance targets. The Company elected not to match participants' contributions in 2011.
Matching contribution expense for this 401(k) plan was $610 for 2013 and $247 for 2012.
Additionally, the Company sponsors a 401(k) defined contribution plan that covers those associates at one facility who are under
a collective-bargaining agreement, or approximately 18% of the Company's associates. Under this plan, the Company generally
matches participants' contributions, on a sliding scale, up to a maximum of 2.75% of the participant's earnings. Matching
contribution expense for the collective-bargaining 401(k) plan was $86 in 2013, $78 in 2012 and $87 in 2011.
Non-Qualified Retirement Savings Plan
The Company sponsors a non-qualified retirement savings plan that allows eligible associates to defer a specified percentage of
their compensation. The obligations owed to participants under this plan were $13,210 at December 28, 2013 and $11,066 at
December 29, 2012 and are included in other long-term liabilities in the Company's Consolidated Balance Sheets. The
obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets
of the Company, except as unsecured general creditors. The Company utilizes a Rabbi Trust to hold, invest and reinvest
deferrals and contributions under the plan. Amounts are invested in Company-owned life insurance in the Rabbi Trust and the
cash surrender value of the policies was $14,242 at December 28, 2013 and $11,894 at December 29, 2012 and is included in
other assets in the Company's Consolidated Balance Sheets.
Multi-Employer Pension Plan
The Company contributes to a multi-employer pension plan under the terms of a collective-bargaining agreement that covers its
union-represented employees. These union-represented employees represented approximately 18% of the Company's total
employees. The risks of participating in multi-employer plans are different from single-employer plans. If a participating
employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating
employers. If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay the
plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company's participation in the multi-employer pension plan for 2013 is provided in the table below. The "EIN/Pension Plan
Number" column provides the Employee Identification Number (EIN) and the three digit plan number. The most recent Pension
Protection Act (PPA) zone status available in 2013 and 2012 is for the plan's year-end at 2012 and 2011, respectively. The zone
status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other
factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded and plans
in the green zone are at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates a plan for which a
financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists
the expiration date of the collective-bargaining agreement to which the plan is subject.
55
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Pension Fund
EIN/Pension Plan
Number
Pension
Protection Act
Zone Status
2013
2012
FIP/RP Status
Pending/
Implemented
(1)
Contributions (2)
2013
2012
2011
Surcharge
Imposed
(1)
Expiration
Date of
Collective-
Bargaining
Agreement
The Pension Plan of the
National Retirement Fund
13-6130178 - 001 Red
Red
Implemented $ 279 $ 256 $ 292
Yes
6/8/2014
(1) The collective-bargaining agreement requires the Company to contribute to the plan at the rate of $0.37 per compensated hour for each
covered employee during the life of the collective-bargaining agreement. The Company will make additional contributions, as mandated by
law, in accordance with the agreed to schedule for the fund's 2010 Rehabilitation Plan. The Rehabilitation Plan was effective June 1, 2010
and requires a surcharge equal to $0.02 per hour (from $0.37 to $0.39) effective June 1, 2010 - May 31, 2011, a surcharge equal to $0.05
per hour (from $0.37 to $0.42) effective June 1, 2011 - May 31, 2012 a surcharge equal to $0.08 per hour (from $0.37 to $0.45) effective
June 1, 2012 to May 31, 2013 and a surcharge equal to $0.10 per hour (from $0.37 to $0.47) effective June 1, 2013 to May 31, 2014. Based
upon current employment and benefit levels, the Company's contributions to the multi-employer pension plan are expected to be
approximately $284 for 2014.
(2) The Company's contributions to the plan do not represent more than 5% of the total contributions to the plan for the most recent plan year
available.
Postretirement Plans
The Company sponsors a legacy postretirement benefit plan that provides life insurance to a limited number of associates as a
result of a prior acquisition. The Company also sponsors a postretirement benefit plan that provides medical insurance for a
limited number of associates who retired prior to January 1, 2003 and life insurance to a limited number of associates upon
retirement.
Information about the benefit obligation and funded status of the Company's postretirement benefit plans is summarized as
follows:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial gain
Benefits paid
Medicare Part D subsidy
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Participant contributions
Benefits paid
Medicare Part D subsidy
Fair value of plan assets at end of year
Unfunded amount
2013
2012
$
694
$
7
23
15
(137)
(5)
1
598
—
(11)
15
(5)
1
—
733
7
26
15
(80)
(11)
4
694
—
(8)
15
(11)
4
—
$
(598) $
(694)
56
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The balance sheet classification of the Company's liability for postretirement benefit plans is summarized as follows:
Accrued expenses
Other long-term liabilities
Total liability
2013
2012
$
$
18
$
580
598
$
17
677
694
Benefits expected to be paid on behalf of associates for postretirement benefit plans during the period 2014 through 2023 are
summarized as follows:
Years
2014
2015
2016
2017
2018
2019 - 2023
Postretirement
Plans
$
18
18
18
18
18
96
Assumptions used to determine benefit obligations of the Company's postretirement benefit plans are summarized as follows:
Weighted-average assumptions as of year-end:
Discount rate (benefit obligations)
Assumptions used and related effects of health care cost are summarized as follows:
Health care cost trend assumed for next year
Rate to which the cost trend is assumed to decline
Year that the rate reaches the ultimate trend rate
2013
2012
3.16%
2.81%
2013
2012
8.00%
5.00%
2017
9.00%
5.00%
2017
The effect of a 1% change in the health care cost trend on the Company's postretirement benefit plans is summarized as follows:
Accumulated postretirement benefit obligation
$
4
$
(3) $
3
$
(3)
2013
2012
1% Increase
1% Decrease
1% Increase
1% Decrease
Components of net periodic benefit cost (credit) for all postretirement plans are summarized as follows:
Service cost
Interest cost
Amortization of prior service credits
Recognized net actuarial gains
Settlement gain
Net periodic benefit cost (credit)
2013
2012
2011
$
$
$
7
23
(88)
(35)
(105)
(198) $
$
7
26
(88)
(45)
(48)
(148) $
7
33
(88)
(29)
(12)
(89)
57
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Pre-tax amounts included in AOCIL for the Company's postretirement benefit plans at 2013 are summarized as follows:
Prior service credits
Unrecognized actuarial gains
Totals
NOTE 13 - INCOME TAXES
Postretirement Benefit Plans
Balance at 2013
2014 Expected
Amortization
$
$
(190) $
(397)
(587) $
(88)
(39)
(127)
The provision (benefit) for income taxes on income (loss) from continuing operations consists of the following:
2013
2012
2011
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
$
216
178
394
(955)
(82)
(1,037)
$
154
$
88
242
(592)
(51)
(643)
Income tax provision (benefit)
$
(643) $
(401) $
725
213
938
(234)
(20)
(254)
684
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 before taxes are summarized as follows:
Federal statutory rate
Statutory rate applied to income (loss) from continuing
operations before taxes
Plus state income taxes, net of federal tax effect
Total statutory provision (benefit)
Increase (decrease) attributable to:
Nondeductible meals and entertainment
Domestic production activities deduction
Federal tax credits
Goodwill
Change in valuation allowance
Non-taxable insurance proceeds
Stock-based compensation
Other items
Total tax provision (benefit)
2013
2012
2011
35%
35%
35%
$
1,650
$
(369)
$
96
1,746
112
(208)
(1,326)
283
(1,190)
(71)
—
11
$
(643)
$
24
(345)
88
—
—
—
—
—
14
(158)
(401)
$
684
130
814
83
—
(179)
—
—
(174)
61
79
684
During 2013, the Company reversed $1,190 of previously established reserves related to state income tax loss carryforwards
and state income tax credit carryforwards. The reversal of the reserves was based on a number of factors including current and
future earnings assumptions by taxing jurisdiction. Additionally, 2013 included certain tax credits of approximately $520 related
to 2009 - 2011 determined to be available for utilization and $304 of 2012 research and development tax credits that could not
be recognized until the extension of the credit was approved by Congress in 2013.
58
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The Company’s 2012 effective income tax benefit rate varied from statutory rates primarily as a result of adjustments to
estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011
period; net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations.
During 2011, the Company agreed upon a settlement associated with an Internal Revenue Service audit for tax years 2004
through 2009. This settlement agreement resulted in a payable of approximately $1,300 related to certain temporary differences
between the carrying amounts of assets for financial reporting purposes and the tax basis of those assets. Thus, the settlement
agreement resulted in an increase in deferred tax assets and had no material impact on earnings. The settlement payment was
paid in 2012.
Income tax payments, net of income tax refunds received for continuing and discontinued operations were $58 in 2013, $1,318
in 2012 and $97 in 2011.
Significant components of the Company's deferred tax assets and liabilities are as follows:
2013
2012
Deferred tax assets:
Inventories
Retirement benefits
Federal/State net operating losses
Federal/State tax credit carryforwards
Allowances for bad debts, claims and discounts
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Total deferred tax liabilities
Net deferred tax asset
Balance sheet classification:
Current deferred tax assets
Non-current deferred tax liabilities
Net deferred tax asset
$
2,226
$
3,408
2,936
1,740
2,527
5,279
18,116
(3,748)
14,368
11,818
11,818
2,324
3,464
3,221
2,111
1,845
5,497
18,462
(4,938)
13,524
11,733
11,733
$
$
$
2,550
$
1,791
2013
2012
6,622
$
4,072
2,550
$
5,615
3,824
1,791
At December 28, 2013, $2,936 of deferred tax assets related to approximately $67,222 of state tax net operating loss
carryforwards and $1,740 state tax credit carryforwards were available to the Company that will expire in five to ten years. A
valuation allowance of $3,748 is recorded to reflect the estimated amount of deferred tax assets that may not be realized during
the carryforward periods. At December 28, 2013, the Company is in a net deferred tax asset position of $2,550. The Company
performed an analysis related to the net deferred tax asset and believes that the net tax asset is recoverable in future periods.
Tax Uncertainties
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions.
Unrecognized tax benefits were $291 at December 28, 2013 and $5 at December 29, 2012. There were no significant interest
or penalties accrued as of December 28, 2013 or December 29, 2012. The Company does not expect its unrecognized tax
benefits to change significantly during the next twelve months.
59
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The following is a summary of the change in the Company's unrecognized tax benefits:
2013
2012
2011
Balance at beginning of year
Additions based on tax positions taken during a prior period
Additions based on tax positions taken during a current period
Reductions related to settlement of tax matters
Reductions related to a lapse of applicable statute of limitations
Balance at end of year
$
$
5
$
250
41
—
(5)
291
$
$
16
—
—
—
(11)
5
$
47
—
—
(17)
(14)
16
The Company and its subsidiaries are subject to United States federal income taxes, as well as income taxes in a number of
state jurisdictions. The tax years subsequent to 2009 remain open to examination for U.S. federal income taxes. The majority of
state jurisdictions remain open for tax years subsequent to 2009. A few state jurisdictions remain open to examination for tax
years subsequent to 2008.
NOTE 14 - COMMON STOCK AND EARNINGS (LOSS) PER SHARE
Common & Preferred Stock
The Company's charter authorizes 80,000,000 shares of Common Stock with a $3 par value per share and 16,000,000 shares of
Class B Common Stock with a $3 par value per share. Holders of Class B Common Stock have the right to twenty votes per
share on matters that are submitted to Shareholders for approval and to dividends in an amount not greater than dividends
declared and paid on Common Stock. Class B Common Stock is restricted as to transferability and may be converted into
Common Stock on a one share for one share basis. The Company's charter also authorizes 200,000,000 shares of Class C
Common Stock, $3 par value per share, and 16,000,000 shares of Preferred Stock. No shares of Class C Common Stock or
Preferred Stock have been issued.
Earnings Per Share
The Company's unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or
unpaid, are considered participating securities and should be included in the computation of earnings per share. For 2012,
these participating securities were not included in the determination of EPS because to do so would be anti-dilutive.
The accounting guidance requires additional disclosure of EPS for common stock and unvested share-based payment awards,
separately disclosing distributed and undistributed earnings. Undistributed earnings represent earnings that were available for
distribution but were not distributed. Common stock and unvested share-based payment awards earn dividends equally. All
earnings were undistributed in all periods presented.
60
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
2013
2012
2011
Basic earnings (loss) per share:
Income (loss) from continuing operations
Less: Allocation of earnings to participating securities
Income (loss) from continuing operations available to common
shareholders - basic
Basic weighted-average shares outstanding (1)
Basic earnings (loss) per share - continuing operations
Diluted earnings (loss) per share:
Income (loss) from continuing operations available to common
shareholders - basic
Add: Undistributed earnings reallocated to unvested shareholders
Income (loss) from continuing operations available to common
shareholders - basic
Basic weighted-average shares outstanding (1)
Effect of dilutive securities:
Stock options (2)
Directors' stock performance units (2)
$
$
$
$
$
5,358
$
(212)
5,146
12,737
0.40
$
$
(653) $
—
(653) $
12,638
(0.05) $
5,146
$
(653) $
2
—
5,148
$
(653) $
12,737
12,638
54
61
—
—
Diluted weighted-average shares outstanding (1)(2)
12,852
12,638
Diluted earnings (loss) per share - continuing operations
$
0.40
$
(0.05) $
1,272
(31)
1,241
12,585
0.10
1,241
—
1,241
12,585
1
37
12,623
0.10
Includes Common and Class B Common shares, less shares held in treasury, in thousands.
(1)
(2) Because their effects are anti-dilutive, shares issuable under stock option plans where the exercise price is greater than the average market
price of the Company's Common Stock at the end of the relevant period, directors' stock performance units, and shares issuable on
conversion of subordinated debentures into shares of Common Stock have been excluded. Aggregate shares excluded were 510 in 2013,
827 shares in 2012 and 1,337 shares in 2011.
NOTE 15 - STOCK PLANS AND STOCK COMPENSATION EXPENSE
The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity
instrument issued and records such expense in selling and administrative expenses in the Company's Consolidated Financial
Statements. The number of shares to be issued is determined by dividing the specified dollar value of the award by the market
value per share on the grant date. Pursuant to a policy adopted by the Compensation Committee of the Board of Directors
applicable to awards granted for years 2009 through 2013, $5.00 per share will be used as the market value per share to
calculate the number of shares to be issued if the market value per share is less than $5.00 per share on the grant date. The
Company's stock compensation expense was $847 for 2013, $937 for 2012 and $663 for 2011.
2006 Stock Awards Plan
On May 3, 2006, the Company's shareholders' approved and adopted the Company's 2006 Stock Awards Plan (the "2006 Plan")
which provided for the issuance of up to 800,000 shares of Common Stock and/or Class B Common Stock as stock-based or
stock-denominated awards to directors of the Company and to salaried employees of the Company and its participating
subsidiaries. The 2006 Plan superseded and replaced The Dixie Group, Inc. Stock Incentive Plan (the "2000 Plan"), which was
terminated with respect to the granting of new awards. Awards previously granted under the 2000 Plan will continue to be
governed by the terms of that plan and will not be affected by its termination.
On April 27, 2010, the Company's shareholders' approved the amendment and restatement of the 2006 Plan to increase the
number of shares that may be issued under the plan from 800,000 to 1,300,000.
On April 30, 2013, the Company's shareholders' approved the amendment of the 2006 Plan to increase the number of shares
that may be issued under the plan from 1,300,000 to 1,800,000.
61
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Restricted Stock Awards
Each executive officer has the opportunity to earn a Primary Long-Term Incentive Award of restricted stock and separately receive
an award of restricted stock denominated as “Career Shares.” The number of shares issued, if any, is based on the market price
of the Company’s Common Stock at the time of grant of the award, subject to a $5.00 per share minimum value. Primary Long-
Term Incentive Awards vest over 3 years, and Career Shares vest when the participant becomes qualified to retire from the Company
at 60 years of age and has retained the Career Shares for 2 years following the grant date.
During 2013, the Company issued 173,249 shares of restricted stock to officers and other key employees. The grant-date fair
value of the awards was $899, or $5.190 per share, and will be recognized as stock compensation expense over the vesting
periods which range from 2 to 14 years from the date the awards were granted. Each award is subject to a continued service
condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's
Common Stock on the grant date.
During 2012, the Company issued 241,233 shares of restricted stock to officers and other key employees. The grant-date fair
value of the awards was $998, or $4.135 per share, and will be recognized as stock compensation expense over the vesting
periods which range from 2 to 15 years from the date the awards were granted. Additionally, the Company issued 48,000 shares
of restricted stock to certain key employees. The grant-date fair value of the awards was $156, or $3.255 per share, and will be
recognized as stock compensation over a 4 year vesting period from the date the awards were granted. Each award is subject
to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a
share of the Company's Common Stock on the grant date.
During 2011, the Company granted 91,340 shares of restricted stock to officers and other key employees. The grant-date fair
value of the awards was $417, or $4.565 per share, and will be recognized as stock compensation expense over the vesting
periods which range from 2 to 16 years from the date the awards were granted. Each award is subject to a continued service
condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's
Common Stock on the grant date.
During 2010, the Company granted 100,940 shares of restricted stock to officers and other key employees of the Company. The
grant-date fair value of the awards was $266, or $2.635 per share, and will be recognized as stock compensation expense over
the vesting periods which range from 2 to 17 years from the date the awards were granted. Each award is subject to a
continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share
of the Company's Common Stock on the grant date.
During 2009, the Company amended and restated a 125,000 share Restricted Stock Award ("award") originally granted to its
Chief Executive Officer on June 6, 2006 with a seven year term. The fair value on the date of the original award was $1,556, or
$12.45 per share, equivalent to 92% of the market value of a share of the Company's Common Stock. Such value was
determined using a binomial model and will be expensed over the term of the award. Vesting of the shares is contingent on a
35% increase in the market value of the Company's Common Stock (the "Market Condition") prior to five years from the date of
the original grant. Additionally, vesting of shares requires the Chief Executive Officer to meet a continued service condition
during the term of the award with a two year minimum vesting period. Shares subject to the award vest pro rata annually after
the Market Condition and minimum vesting period are met on the anniversary date of the award. The award was amended to
extend the term by one year to June 6, 2014, and to extend the time during which the awards' market condition may be met by
three years to June 6, 2014. The modification resulted in incremental stock compensation expense of $41 which is amortized
over the awards' remaining vesting period.
62
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Restricted stock activity for the three years ended December 28, 2013 is summarized as follows:
Outstanding at December 25, 2010
Granted
Vested
Forfeited
Outstanding at December 31, 2011
Granted
Vested
Forfeited
Outstanding at December 29, 2012
Granted
Vested
Forfeited
Outstanding at December 28, 2013
Number of Shares
301,179
$
91,340
(85,990)
—
306,529
289,233
(113,647)
(17,229)
464,886
173,249
(112,336)
—
525,799
$
Weighted-
Average Grant-
Date Fair Value
8.61
4.57
6.51
—
8.00
3.99
4.20
4.14
6.57
5.19
4.15
—
6.64
As of December 28, 2013, unrecognized compensation cost related to unvested restricted stock was $1,260. That cost is
expected to be recognized over a weighted-average period of 4.2 years. The total fair value of shares vested was approximately
$669, $439 and $385 during the year 2013, 2012 and 2011, respectively.
Stock Performance Units
The Company's non-employee directors receive an annual retainer of $12 in cash and $12 in value of Stock Performance Units
(subject to a $5.00 minimum per unit, for 2013, 2012 and 2011) under the Director's Stock Plan. The market value at the date of
the grants in 2010 was above $5.00 per share; therefore, there was no reduction in the number of units issued. Units in 2012
and 2011 were reduced to reflect the $5.00 per share minimum. Upon retirement, the Company issues the number of shares of
Common Stock equivalent to the number of Stock Performance Units held by non-employee directors at that time. As of
December 28, 2013, 99,640 Stock Performance Units were outstanding under this plan.
Stock Purchase Plan
The Company 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 28, 2013, 27,480 shares remained available for
issuance under the plan. Shares sold under this plan are held in escrow until paid for and are subject to repurchase agreements
which give the Company a right of first refusal to purchase the shares if they are subsequently sold. No shares were sold under
the plan in 2013, 2012 or 2011.
Stock Options
All stock options issued under the Company's 2000 Plan were exercisable generally at a cumulative rate of 25% per year after
the second year from the date the options were granted. Options granted under the Company's 2006 Plan are exercisable for
periods determined at the time the awards are granted. Effective 2009, the Company established a $5.00 minimum exercise
price on all options granted. No options were granted during 2013, 2012 or 2011.
The fair value of each option was estimated on the date of grant using the Black-Scholes model. Expected volatility was based
on historical volatility of the Company's stock, calculated using the most recent period equal to the expected life of the options.
The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the option at the time of
grant. The Company uses historical exercise behavior data of similar employee groups to determine the expected life of options.
63
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Option activity for the three years ended December 28, 2013 is summarized as follows:
Number of Shares
Weighted-
Average Exercise
Price
Weighted-
Average Fair
Value of Options
Granted During
the Year
Outstanding at December 25, 2010
786,728
$
10.91
$
Granted
Exercised
Forfeited
Outstanding at December 31, 2011
Granted
Exercised
Forfeited
Outstanding at December 29, 2012
Granted
Exercised
Forfeited
—
—
—
786,728
—
—
(89,321)
697,407
—
(37,052)
—
—
—
—
10.91
—
—
10.20
11.00
—
5.15
—
Outstanding at December 28, 2013
660,355
$
11.33
$
Options exercisable at:
December 31, 2011
December 29, 2012
December 28, 2013
682,478
$
638,407
630,855
11.81
11.56
11.63
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The following table summarizes information about stock options at December 28, 2013:
Options Outstanding
Range of Exercise Prices
Number of Shares
Weighted-Average
Remaining Contractual Life
Weighted-Average Exercise
Price
$4.20 - $5.00
$6.96 - $6.96
$11.85 - $17.58
$3.875 - $17.58
126,750
83,435
450,170
660,355
5.1 years
1.3 years
1.4 years
2.1 years
$
$
Options Exercisable
4.93
6.96
13.94
11.33
Range of Exercise Prices
Number of Shares
Weighted-Average
Remaining Contractual Life
Weighted-Average Exercise
Price
$4.20 - $5.00
$6.96 - $6.96
$11.85 - $17.58
$3.875 - $17.58
97,250
83,435
450,170
630,855
4.8 years
1.3 years
1.4 years
1.9 years
$
$
4.91
6.96
13.94
11.63
At December 28, 2013, the market value of all outstanding stock options exceeded their exercise price by $502 and the market
value of exercisable stock options exceeded their exercise price by $293. At December 28, 2013, unrecognized compensation
expense related to unvested stock options was $18 and is expected to be recognized over a weighted-average period of 0.9
years.
64
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE 16 - OTHER COMPREHENSIVE INCOME (LOSS)
Components of other comprehensive income (loss) are as follows:
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swaps:
Before income taxes
Income taxes
Net of taxes
$
Reclassification of loss into earnings from interest rate swaps:
Before income taxes
Income taxes
Net of taxes
Amortization of unrealized loss on dedesignated interest rate swaps:
Before income taxes
Income taxes
Net of taxes
Unrecognized net actuarial gain on postretirement benefit plans:
Before income taxes
Income taxes
Net of taxes
Reclassification of net actuarial gain into earnings from postretirement
benefit plans:
Before income taxes
Income taxes
Net of taxes
Reclassification of prior service credits into earnings from
postretirement benefit plans:
Before income taxes
Income taxes
Net of taxes
2013
2012
2011
381
145
236
284
108
176
158
60
98
32
12
20
(35)
(13)
(22)
(88)
(34)
(54)
$
(767) $
(291)
(476)
158
60
98
467
178
289
33
13
20
(45)
(18)
(27)
(88)
(34)
(54)
Other comprehensive income (loss)
$
454
$
(150) $
(665)
(253)
(412)
433
165
268
150
57
93
108
41
67
(29)
(11)
(18)
(88)
(33)
(55)
(57)
65
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Components of accumulated other comprehensive income (loss), net of tax, are as follows:
Interest Rate
Swaps
Post-
Retirement
Liabilities
Total
Balance at December 25, 2010
Unrealized gain (loss) on interest rate swaps, net of tax of $253
Reclassification of loss into earnings from interest rate swaps, net of tax of
$165
Amortization of unrealized loss on dedesignated interest rate swaps, net of tax
of $57
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of
$41
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $11
Reclassification of prior service credits into earnings from postretirement
benefit plans, net of tax of $33
Balance at December 31, 2011
Unrealized gain (loss) on interest rate swaps, net of tax of $291
Reclassification of loss into earnings from interest rate swaps, net of tax of
$60
Amortization of unrealized loss on dedesignated interest rate swaps, net of tax
of $178
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of
$13
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $18
Reclassification of prior service credits into earnings from postretirement
benefit plans, net of tax of $34
Balance at December 29, 2012
Unrealized gain (loss) on interest rate swaps, net of tax of $145
Reclassification of loss into earnings from interest rate swaps, net of tax of
$108
Amortization of unrealized loss on dedesignated interest rate swaps, net of tax
of $60
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of
$12
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $13
Reclassification of prior service credits into earnings from postretirement
benefit plans, net of tax of $34
$
(514) $
(412)
268
93
—
—
—
(565)
(476)
98
289
—
—
—
(654)
236
176
98
—
—
—
483
$
—
—
—
67
(18)
(55)
477
—
—
—
20
(27)
(54)
416
—
—
—
20
(22)
(54)
Balance at December 28, 2013
$
(144) $
360
$
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Commitments
(31)
(412)
268
93
67
(18)
(55)
(88)
(476)
98
289
20
(27)
(54)
(238)
236
176
98
20
(22)
(54)
216
The Company had purchase commitments of $11,619 at December 28, 2013, primarily related to machinery & equipment. At
December 28, 2013, the Company has outstanding letters of credit of $3 which relate to commitments to foreign vendors. The
Company enters into fixed-price contracts with suppliers to purchase natural gas to support certain manufacturing processes.
The Company had contract purchases of $1,109 in 2013, $1,127 in 2012 and $1,438 in 2011. At December 28, 2013, the
Company has commitments to purchase natural gas of $838 for 2014 and $304 for 2015.
66
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
The Company leases certain equipment under capital leases and certain buildings, machinery and equipment under operating
leases. Commitments for minimum rentals under non-cancelable leases, including any applicable rent escalation clauses, are
as follows:
2014
2015
2016
2017
2018
Thereafter
Total commitments
Less amounts representing interest
Total
Capital
Leases
Operating
Leases
$
1,040
$
1,037
919
838
1,037
—
4,871
(590)
$
4,281
$
2,421
2,132
1,898
1,470
1,067
4,739
13,727
—
13,727
During 2013, the Company entered into 10 year lease agreement to lease a warehouse in Adairsville, Georgia. The lease is
estimated to begin on or about May 1, 2014. Base annual rent is initially set at $64 per month with escalating amounts over the
lease term. Total base rent payable over the lease period is $7,976 which is included in the table above. The Company has two
options to extend the term of the lease for an additional five year period.
The Company is party to an operating lease with a related party which was entered into as part of the Robertex acquisition in
2013. Rent paid to the related party during 2013 was $127.
Rental expense was approximately $2,434, $2,188 and $2,334 during the years 2013, 2012 and 2011, respectively.
Property, plant and equipment includes machinery and equipment under capital leases which have asset cost and accumulated
depreciation of $5,390 and $914, respectively, at December 28, 2013, and $3,376 and $394, respectively, at December 29,
2012.
Contingencies
The Company assesses its exposure related to legal matters, including those pertaining to product liability, safety and health
matters and other items that arise in the regular course of its business. If the Company determines that it is probable a loss has
been incurred, the amount of the loss, or an amount within the range of loss, that can be reasonably estimated will be recorded.
Environmental Remediation
The Company accrues for losses associated with environmental remediation obligations when such losses are probable and
estimable. Remediation obligations are accrued based on the latest available information and are recorded at undiscounted
amounts. The Company regularly monitors the progress of environmental remediation. Should studies indicate that the cost of
remediation has changed from the previous estimate, an adjustment to the liability would be recorded in the period in which such
determination is made. (See Note 20)
Legal Proceedings
At December 28, 2013, the Company was a plaintiff in a lawsuit against a former raw material supplier. In its lawsuit, the Company
alleges that the former supplier sold defective materials to the Company over a period of time, which, when applied to certain of
the Company’s products, caused those products to become defective and unmerchantable in the ordinary course of the Company’s
business. On January 31, 2014, the Company and the supplier settled its claim for $400. The difference in the amount previously
recognized and the settlement amount was recorded in other operating (income) expense in 2013.
67
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
NOTE 18 - OTHER (INCOME) EXPENSE
Other operating (income) expense, net is summarized as follows:
Other operating (income) expense, net:
Insurance proceeds (1)
Loss on property, plant and equipment disposals
Retirement expenses
Contract settlement
Miscellaneous (income) expense
Other operating (income) expense, net
2013
2012
2011
$
$
(202) $
— $
195
154
172
175
494
1
201
—
(134)
$
68
$
(492)
37
371
—
(182)
(266)
(1) The Company recognized settlement gains of $202 and $492 from company-owned insurance policies during 2013 and 2011, respectively.
Other (income) expense, net is summarized as follows:
Other (income) expense, net:
(Gain) loss on non-hedged swaptions
Gain on sale of non-operating assets
Miscellaneous (income) expense
Other (income) expense, net
2013
2012
2011
$
$
— $
(87) $
—
26
26
(187)
(3)
$
(277) $
(43)
—
(32)
(75)
NOTE 19 - FACILITY CONSOLIDATION AND SEVERANCE EXPENSES, NET
2008 Facilities Consolidation
In 2008 and 2009, in response to the difficult economic conditions, the Company consolidated certain manufacturing operations
and ceased operating in a leased facility and made organizational changes to reduce staff and expenses throughout the
Company ("2008 Facilities Consolidation"). Costs related to the facilities consolidation included equipment and inventory
relocation, severance costs, employee relocation, asset impairments and costs associated with terminating a lease obligation.
During 2011, the Company terminated a lease obligation and paid a termination fee of $700 resulting in a gain of $551 from the
reduction of previously accrued estimates associated with this plan. Total costs to complete this restructuring plan were $7,410.
There are no remaining costs to be incurred under this plan.
Total restructuring costs related to the 2008 Facilities Consolidation are summarized as follows:
Total expenses by activity
$
3,192
$
1,095
$
1,459
$
1,664
$
7,410
Equipment
and
Inventory
Relocation
Severance
Pay and
Employee
Relocation
Asset
Impairments
Lease
Obligations
Total
2009 Organization Restructuring
In 2009, the Company developed and implemented a plan to realign its organizational structure to combine its three residential
carpet units into one business with three distinct brands ("2009 Organization Restructuring"). As a result, the Company's
residential business is organized much like its commercial carpet business and more like the rest of the industry. Costs related
to the organization realignment included severance costs, associate relocation expenses and costs related to the migration of
certain computer applications necessary to support the realignment. During 2011, the Company had a reduction of expenses of
$12 associated with this plan. Total costs to complete this restructuring plan were $1,450. There are no remaining costs to be
incurred under this plan.
68
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
Total restructuring costs related to the 2009 Organization Restructuring are summarized as follows:
Total expenses by activity
Severance
Pay and
Employee
Relocation
Computer
Systems
Conversion
Costs
Total
$
969
$
481
$
1,450
Expenses incurred under these plans are classified in "facility consolidation and severance (benefit) expense, net" in the
Company's Consolidated Statements of Operations.
NOTE 20 - DISCONTINUED OPERATIONS
The Company has previously either sold or discontinued certain operations that are accounted for as "Discontinued Operations"
under applicable accounting guidance. The Company has certain contingent obligations directly related to such operations,
primarily related to self-insured workers' compensation and environmental liabilities. Costs related to these obligations for those
businesses are classified as discontinued operations. Discontinued operations are summarized as follows:
Loss from discontinued operations:
Workers' compensation costs
Environmental remediation costs
Loss from discontinued operations, before taxes
Income tax benefit
Loss from discontinued operations, net of tax
Workers' Compensation
2013
2012
2011
$
$
(23) $
(143) $
(74)
(97)
(29)
(279)
(422)
(148)
(68) $
(274) $
(237)
(196)
(433)
(147)
(286)
Undiscounted reserves are maintained for the self-insured workers' compensation obligations. These reserves are administered
by a third party workers' compensation service provider under the supervision of Company personnel. Such reserves are
reassessed on a quarterly basis. Pre-tax cost incurred for workers' compensation as a component of discontinued operations
primarily represents a change in estimate for each period from unanticipated medical costs associated with the Company's
obligations.
Environmental Remediation
Reserves for environmental remediation obligations are established on an undiscounted basis. The Company has ongoing
obligations at five previously owned sites that were associated with its discontinued textile businesses. Each of these sites
contains relatively low levels of ground or ground water contaminants. Each site has a Corrective Action Plan ("CAP") with the
applicable authoritative state regulatory body responsible for oversight for environmental compliance and the Company contracts
with third party qualified environmental specialists for related remediation, monitoring and reporting for each location. The CAP
for four of these sites involves natural attenuation (degradation of the contaminants through naturally occurring events) over
periods currently estimated at 10 to 20 years and the CAP on the remaining site involves a pump and treat remediation process,
currently estimated to remediate over a period of 25 years. Additionally, the Company has an environmental liability related to
the property of a facility and related business that was sold in 2004. The CAP, involving an oxidation-based remediation plan,
was approved in 2010 and is currently estimated to remediate over a 7 year period beginning in 2010. The Company has an
accrual for environmental remediation obligations of $1,830 and $1,838 as of December 28, 2013 and December 29, 2012,
respectively. The liability established represents the Company's best estimate of possible loss and is the reasonable amount to
which there is any meaningful degree of certainty given the periods of estimated remediation and the dollars applicable to such
remediation for those periods. The actual timeline to remediate, and thus, the ultimate cost to complete such remediation
through these remediation efforts, may differ significantly from our estimates. Pre-tax cost for environmental remediation
obligations classified as discontinued operations were primarily a result of specific events requiring action and additional
expense in each period.
NOTE 21 - RELATED PARTY TRANSACTIONS
During 2013, the Company purchased a portion of its requirements for polyester fiber from Engineered Floors, an entity
controlled by Robert E. Shaw. Mr. Shaw reported holding approximately 10% of the Company's Common Stock, which as of
year-end represented approximately 4% of the total vote of all classes of the Company's Common Stock. Engineered Floors is
the Company's principal supplier of polyester fiber and polyester broadloom carpet. Total purchases from Engineered Floors for
69
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(Continued)
2013 and 2012 were approximately $12,000 and $8,000, respectively; or approximately 8% of the Company's external yarn and
carpet purchases in 2013 and 2012. Purchases from Engineered Floors are based on market value, negotiated prices. The
Company has no contractual arrangements or commitments with Mr. Shaw associated with its business relationship with
Engineered Floors. Transactions with Engineered Floors were reviewed and approved by the Company's board of directors.
During 2013, the Company entered into a 10-year lease with the Rothman Family Partnership to lease a manufacturing facility as
part of the Robertex acquisition. The Rothman Family Partnership includes Robert P. Rothman who is an associate of the
Company. Rent paid to the Rothman Family Partnership during 2013 was $127. The lease was based on current market values
for similar facilities.
NOTE 22 - SUBSEQUENT EVENTS
Debt Amendment
On January 20, 2014, the Company entered into a Seventh Amendment to its senior credit facility to amend certain definitions to
increase the other Permitted Purchase Money Indebtedness to an amount not to exceed $40,000.
Restructuring Plan
On January 20, 2014, the Company's Board of Directors approved a 2014 Warehousing/Distribution/Manufacturing Restructuring
Plan intended to align the Company's warehousing, distribution and manufacturing to support its growth and manufacturing
strategy. The plan is intended to create a better cost structure and improve distribution capabilities and customer service. The
key element and first major step of this plan is the leasing and occupancy of a 292,000 square foot finished goods warehouse,
cut-order and distribution facility in Adairsville, Georgia, such lease and occupancy to commence as of May 1, 2014.
The Company expects the plan to be substantially completed in the second quarter of the fiscal year ending December 26, 2015.
The Company currently expects the implementation of this plan will result in total restructuring expenses of approximately
$2,400, with approximately $1,300 such expenses during the fiscal year ending December 27, 2014 and approximately $1,100
such expenses during the fiscal year ending December 26, 2015, primarily consisting of moving and relocation expenses,
information technology expenses and expenses relating to conversion and realignment of equipment.
Joint Venture
On February 10, 2014, the Company announced that it had signed a letter of intent to enter into a Joint Venture with Desso, NV,
a Netherlands based Company, for the purpose of selling and distributing Hospitality floorcovering products in the United States
market, and such other territories as the parties may determine from time to time. The Joint Venture is intended to build the
company’s presence in the upscale Hospitality market by combining the parties’ sales forces and product offerings. Although the
letter of intent is non-binding, the parties anticipate working quickly to develop a mutually acceptable Joint Venture structure
designed to accomplish their goals.
At the same time, the parties announced that they had entered into a sales and distribution agreement that will permit the
Company to be the exclusive distributor of certain of Desso’s high performance tile products and Desso to distribute the
Company's products in Europe. This arrangement is conditioned upon, among other matters, achievement of certain sales levels
pursuant to the sales and distribution agreement and the successful launch of the Hospitality Joint Venture.
Restricted Stock Grant
On March 12, 2014, the Company issued 101,315 shares of restricted stock to officers of the Company. The shares will vest
over periods ranging from 2 to 13 years from the date of the awards were granted. Each award is subject to a continued service
condition.
70
ANNUAL REPORT ON FORM 10-K
ITEM 15(c)
EXHIBITS
YEAR ENDED DECEMBER 28, 2013
THE DIXIE GROUP, INC.
CHATTANOOGA, TENNESSEE
Exhibit Index
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(2.1)
(3.1)
(3.2)
Securities Purchase Agreement dated as of June
30, 2013.
Incorporated by reference to Exhibit (2.1) to Dixie's
Current Report on Form 8-K dated June 30, 2013. *
Text of Restated Charter of The Dixie Group, Inc.
as Amended - Blackline Version.
Incorporated by reference to Exhibit (3.4) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2003. *
Amended By-Laws of The Dixie Group, Inc. as of
February 22, 2007.
Incorporated by reference to Exhibit 3.1 to Dixie's
Current Report on Form 8-K dated February 26 2007.*
(10.1)
The Dixie Group, Inc. Director's Stock Plan. **
Incorporated by reference to Exhibit (10y) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 1997. *
(10.2)
(10.3)
The Dixie Group, Inc. New Non-qualified
Retirement Savings Plan effective August 1,
1999. **
Incorporated by reference to Exhibit (10.1) to Dixie's
Quarterly Report on Form 10-Q for the quarter ended
June 26, 1999. *
The Dixie Group, Inc. Deferred Compensation
Plan Amended and Restated Master Trust
Agreement effective as of August 1, 1999. **
Incorporated by reference to Exhibit (10.2) to Dixie's
Quarterly Report on Form 10-Q for the quarter ended
June 26, 1999. *
(10.4)
The Dixie Group, Inc. Stock Incentive Plan, as
amended. **
Incorporated by reference to Annex A to Dixie's Proxy
Statement dated April 5, 2002 for its 2002 Annual
Meeting of Shareholders. *
(10.5)
Form of Stock Option Agreement under The Dixie
Group, Inc. Stock Incentive Plan. **
Incorporated by reference to Exhibit (10.23) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2001. *
(10.6)
(10.7)
(10.8)
Form of Stock Rights and Restrictions Agreement
for Restricted Stock Award under The Dixie
Group, Inc. Stock Incentive Plan, as amended.**
Incorporated by reference to Exhibit (10.35) to Dixie's
Annual Report on Form 10-K for the year ended
December 25, 2004. *
Form of Stock Option Agreement under The Dixie
Group, Inc. Stock Incentive Plan for Non-
Qualified Options Granted December 20, 2005.**
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated December 20, 2005.
*
Summary Description of the Director
Compensation Arrangements for The Dixie
Group, Inc.**
Incorporated by reference to Exhibit (10.34) to Dixie's
Annual Report on Form 10-K for the year ended
December 25, 2004. *
(10.9)
The Dixie Group, Inc. 2006 Stock Awards Plan. **
(10.10)
Summary Description of the 2006 Incentive
Compensation Plan, approved February 23,
2006.**
Incorporated by reference to Annex A to the Company's
Proxy Statement for its 2006 Annual Meeting of
Shareholders, filed March 20, 2006. *
Incorporated by reference to Current Report on Form 8-
K dated March 1, 2006. *
71
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(10.11)
(10.12)
(10.13)
(10.14)
(10.15)
(10.16)
Summary Description of The Dixie Group, Inc.,
2006 Incentive Compensation Plan/Range of
Incentives.**
Filed herewith.
Material terms of the performance goals for the
period 2007-2011, pursuant to which incentive
compensation awards may be made to certain
key executives of the Company based on the
results achieved by the Company during such
years, approved March 14, 2006.**
Form of Award of Career Shares under the 2006
Incentive Compensation Plan for Participants
holding only shares of the Company's Common
Stock.**
Form of Award of Career Shares under the 2006
Incentive Compensation Plan for Participants
holding shares of the Company's Class B
Common Stock.**
Form of Award of Long Term Incentive Plan
Shares under the 2006 Incentive Compensation
Plan for Participants holding only shares of the
Company's Common Stock.**
Form of Award of Long Term Incentive Plan
Shares under the 2006 Incentive Compensation
Plan for Participants holding shares of the
Company's Class B Common Stock.**
Incorporated by reference to Current Report on Form 8-
K dated March 20, 2006. *
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated June 6, 2006. *
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated June 6, 2006. *
Incorporated by reference to Exhibit (10.3) to Dixie's
Current Report on Form 8-K dated June 6, 2006. *
Incorporated by reference to Exhibit (10.4) to Dixie's
Current Report on Form 8-K dated June 6, 2006. *
(10.17)
Award of 125,000 shares of Restricted Stock
under the 2006 Stock Awards Plan to Daniel K.
Frierson.**
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated June 7, 2006. *
(10.18)
Summary description of The Dixie Group, Inc.
2007 Annual Compensation Plan.**
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated February 26, 2007.*
(10.19)
(10.20)
Rule 10b5-1 and 10b-18 Repurchase Agreement
by and between The Dixie Group, Inc. and
Raymond James & Associates, Inc. dated
December 11, 2007*
Merger agreement between The Dixie Group, Inc.
and Unite Here National Retirement Fund
regarding the Company's Masland Bargaining
Unit Defined Benefit Pension Plan.**
Incorporated by reference to Exhibit (99.1) to Dixie's
Current Report on Form 8-K dated December 11, 2007*
Incorporated by reference to Exhibit (99.1) to Dixie's
Current Report on Form 8-K dated December 28, 2007*
(10.21)
Summary description of The Dixie Group, Inc.
2008 Annual Incentive Plan.**
Incorporated by reference to Exhibit 10.1 to Dixie's
Current Report on Form 8-K dated February 15, 2008*
(10.22)
Summary description of The Dixie Group, Inc.
2009 Annual Incentive Plan.**
Incorporated by reference to Exhibit 10.1 to Dixie's
Current Report on Form 8-K dated March 26, 2009*
(10.23)
(10.24)
Amended and restated award of 125,000 shares
of Restricted Stock under the 2006 Stock Awards
Plan to Daniel K. Frierson.**
Master Lease Agreement, Corporate Guaranty
and Schedule to the Master Lease Agreement by
and between General Electric Capital Corporation
and Masland Carpets, LLC dated August 21,
2009.
Incorporated by reference to Exhibit 10.1 to Dixie's
Current Report on Form 8-K dated May 21, 2009.*
Incorporated by reference to Exhibit (10.1, 10.2, 10.3) to
Dixie's Current Report on Form 8-K dated August 25,
2009.*
72
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(10.25)
Agreement by and between Raymond James &
Associates, Inc. dated November 6, 2008, to
repurchase shares of The Dixie Group, Inc.'s
Common Stock.
Incorporated by reference to Exhibit (99.1) to Dixie's
Current Report on Form 8-K dated November 6, 2008.*
(10.26)
Summary description of The Dixie Group, Inc.
2010 Incentive Compensation Plan/Range of
Incentives.**
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated March 3, 2010.*
(10.27)
Fixed Rate Swap Agreement between Bank of
America, N.A. and The Dixie Group, Inc.
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated April 19, 2010.*
(10.28)
Fixed Rate Swap Agreement between Bank of
America, N.A. and The Dixie Group, Inc.
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated July 8, 2010.*
(10.29)
(10.30)
(10.31)
(10.32)
(10.33)
(10.34)
(10.35)
(10.36)
Termination of interest rate swap between Bank
of America, N.A. and The Dixie Group, Inc. dated
April 19, 2010.
Summary Description of The Dixie Group, Inc.
2011 Incentive Compensation Plan/Range of
Incentives.**
Credit Agreement, by and among The Dixie
Group, Inc. and certain of its subsidiaries, as
Borrowers, cert of its subsidiaries, as Guarantor,
the Lendors from time to time party thereto, Wells
Fargo Bank Capital Finance LLC, as
Administrative Agent, and co-lender and Bank of
America and the Other parties thereto, dated
September 13, 2011.
Security Agreement, by and among The Dixie
Group, Inc. and certain of its subsidiaries, as
Borrowers, certain of its subsidiaries, as
Guarantor, the Lenders from time to time party
thereto, Wells Fargo Bank Capital Finance LLC,
as Administrative Agent, and co-lender and Bank
of America and the Other parties thereto, dated
September 13, 2011.
Form of Mortgages, by and among The Dixie
Group, Inc. and certain of its subsidiaries, as
Borrowers, certain of its subsidiaries, as
Guarantor, the Lenders from time to time party
thereto, Wells Fargo Bank Capital Finance LLC,
as Administrative Agent, and co-lender and Bank
of America and the Other parties thereto, dated
September 13, 2011.
Credit Agreement, by and between The Dixie
Group, Inc. and certain of its subsidiaries named
therein, and Wells Fargo Bank, N.A. as lender,
dated September 13, 2011.
Security Agreement, by and between The Dixie
Group, Inc. and certain of its subsidiaries named
therein, and Wells Fargo Bank, N.A. as lender,
dated September 13, 2011.
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated July 8, 2010.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated February 1, 2011.*
Incorporated by reference to Exhibit (10.10) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
Incorporated by reference to Exhibit (10.11) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
Incorporated by reference to Exhibit (10.12) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
Incorporated by reference to Exhibit (10.20) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
Incorporated by reference to Exhibit (10.21) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
First Mortgage, by and between The Dixie Group,
Inc. and certain of its subsidiaries named therein,
and Wells Fargo Bank, N.A. as lender, dated
September 13, 2011.
Incorporated by reference to Exhibit (10.22) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
(10.37)
Summary Description of The Dixie Group, Inc.
2012 Incentive Compensation Plan/Range of
Incentives.**
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated March 12, 2012.*
73
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(10.38)
(10.39)
(10.40)
(10.41)
(10.42)
(10.43)
(10.44)
(10.45)
Amended and Modified Financing Agreement, by
and between The Dixie Group, Inc. and certain of
its subsidiaries named therein, and General
Electric Credit Corporation, as lender, dated June
26, 2012.
Agreement to Reduce Security Deposit Amount
and Amendment to Security Deposit Pledge
Agreement, dated June 26, 2012.
Summary Description of The Dixie Group, Inc.
2012 Incentive Compensation Plan/Range of
Incentives.**
First Amendment to Credit Agreement dated as of
November 2, 2012, by and among The Dixie
Group, Inc., certain of its subsidiaries, and Wells
Fargo Bank, N.A. as Agent and the persons
identified as Lenders therein.
First Amendment to Credit Agreement dated as of
November 2, 2012, by and among The Dixie
Group, Inc., certain of it subsidiaries, and Wells
Fargo Capital Finance, LLC as Agent and the
persons identified as Lenders therein.
Intercreditor Agreement dated as of November 2,
2012, by and among Wells Fargo Capital
Finance, LLC and Wells Fargo Bank, N.A. as
Agents and The Dixie Group, Inc. and certain of
its subsidiaries.
Summary Description of The Dixie Group, Inc.
2013 Incentive Compensation Plan/Range of
Incentives.**
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Purchase and Sale Agreement dated
December 28, 2012.
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated June 26, 2012.*
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated June 26, 2012.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated August 22, 2012.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated November 5, 2012.*
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated November 5, 2012.*
Incorporated by reference to Exhibit (10.3) to Dixie's
Current Report on Form 8-K dated November 5, 2012.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated February 15, 2013.*
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
(10.46)
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Bill of Sale, dated December 28, 2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012. *
(10.47)
(10.48)
(10.49)
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Lease Agreement, dated December 28,
2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Short Form Lease Agreement, dated
December 28, 2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Option Agreement, dated December 28,
2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
(10.50)
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Pilot Agreement, dated December 28, 2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
74
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(10.51)
(10.52)
(10.53)
(10.54)
(10.55)
(10.56)
(10.57)
(10.58)
(10.59)
(10.60)
(10.61)
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Loan Agreement, dated December 28,
2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Loan and Security Agreement, dated
December 28, 2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Deed to Secure Debt and Security
Agreement, dated December 28, 2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Notice and Consent to Assignment, dated
December 28, 2012.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Absolute Assignment of Deed to Secure
Debt and Security Agreement and Other Loan
Documents, dated December 28, 2012.
Second Amendment to Credit Agreement dated
as of April 1, 2013, by and among The Dixie
Group, Inc. certain of its subsidiaries and Wells
Fargo Capital Finance, LLC, as Agent and the
persons identified as Lenders therein.
Third Amendment to Credit Agreement dated as
of May 22, 2013, by and among The Dixie Group,
Inc. certain of its subsidiaries and Wells Fargo
Capital Finance, LLC, as Agent and the persons
identified as Lenders therein.
Fourth Amendment to Credit Agreement dated as
of July 1, 2013, by and among The Dixie Group,
Inc. certain of its subsidiaries and Wells Fargo
Capital Finance, LLC, as Agent and the persons
identified as Lenders therein.
Fifth Amendment to Credit Agreement dated as of
July 30, 2013, by and among The Dixie Group,
Inc. certain of its subsidiaries and Wells Fargo
Capital Finance, LLC, as Agent and the persons
identified as Lenders therein.
Sixth Amendment to Credit Agreement dated as
of August 30, 2013, by and among The Dixie
Group, Inc. certain of its subsidiaries and Wells
Fargo Capital Finance, LLC, as Agent and the
persons identified as Lenders therein.
Seventh Amendment to Credit Agreement dated
as of January 20, 2014, by and among The Dixie
Group, Inc. certain of its subsidiaries and Wells
Fargo Capital Finance, LLC, as Agent and the
persons identified as Lenders therein.
Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
Incorporated by reference to Exhibit (10.01) to Dixie's
Current Report on Form 8-K dated April 3, 2013.*
Filed herewith.
Filed herewith.
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 10-Q dated August 7, 2013. *
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 10-Q dated November 6, 2013.
*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated January 21, 2014. *
(10.62)
Summary Description of The Dixie Group, Inc.
2014 Incentive Compensation Plan/Range of
Incentives.**
Filed herewith.
(14)
(16)
Code of Ethics, as amended and restated,
February 15, 2010.
Letter from Ernst & Young LLP regarding change
in certifying accountant.
Incorporated by reference to Exhibit 14 to Dixie's Annual
Report on Form 10-K for year ended December 26,
2009.*
Incorporated by reference to Exhibit 16 to Dixie's Form
8-K dated November 15, 2013.*
75
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(21)
(23)
(31.1)
(31.2)
(32.1)
(32.2)
Subsidiaries of the Registrant.
Consent of Independent Registered Public
Accounting Firm.
CEO Certification pursuant to Securities
Exchange Act Rule 13a-14(a).
CFO Certification pursuant to Securities
Exchange Act Rule 13a-14(a).
CEO Certification pursuant to Securities
Exchange Act Rule 13a-14(b).
CFO Certification pursuant to Securities
Exchange Act Rule 13a-14(b).
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
(101.INS)
XBRL Instance Document
Filed herewith.
(101.SCH)
XBRL Taxonomy Extension Schema Document
Filed herewith
(101.CAL)
XBRL Taxaonomy Extension Calculation
Linkbase Document
Filed herewith.
(101.DEF)
XBRL Taxonomy Extension Definition Linkbase
Document
Filed herewith.
(101.LAB)
XBRL Taxonomy Extension Label Linkbase
Document
(101.PRE)
XBRL Taxonomy Extension Presentation
Linkbase Document
Filed herewith.
Filed herewith.
* Commission File No. 0-2585.
** Indicates a management contract or compensatory plan or arrangement.
76
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
SCHEDULE 14A INFORMATION
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities and Exchange Act of 1934
(Amendment No. )
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14a-12
The Dixie Group, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1)
2)
3)
4)
5)
Title of each class of securities to which transaction applies:
Aggregate number of securities to which transaction applies:
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated and state how it was determined):
Proposed maximum aggregate value of transaction:
Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1)
2)
3)
4)
Amount Previously Paid:
Form, Schedule or Registrant Statement No.:
Filing Party:
Date Filed:
THE DIXIE GROUP, INC.
104 Nowlin Lane, Suite 101
Chattanooga, Tennessee 37421
(423) 510-7000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Dixie Group, Inc.:
The Annual Meeting of Shareholders of The Dixie Group, Inc. will be held at the Chattanoogan Hotel, Chattanooga,
Tennessee, on April 29, 2014 at 8:00 a.m., Eastern Time, for the following purposes:
1.
2.
3.
4.
5.
To elect nine individuals to the Board of Directors for a term of one year each;
To consider and approve the material terms of the Performance Goals of the Annual Incentive Compensation
Plan applicable to 2014 - 2018.
To cast an advisory vote on the Company’s Executive Compensation for its named executive officers (“say-on-
pay”);
To ratify appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants
of the Company for 2014; and
Such other business as may properly come before the Annual Meeting of Shareholders or any adjournment
thereof.
Only shareholders of record of the Common Stock and Class B Common Stock at the close of business on February 28,
2014, are entitled to notice of, and to vote at, the Annual Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this Notice for more complete information regarding the
matters to be acted upon at the Annual Meeting.
The Dixie Group, Inc.
Daniel K. Frierson
Chairman of the Board
Chattanooga, Tennessee
Dated: March 24, 2014
PLEASE READ THE ATTACHED MATERIAL CAREFULLY AND COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES OF
COMMON STOCK AND CLASS B COMMON STOCK WILL BE REPRESENTED AT THE MEETING. IF YOU ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON, SHOULD YOU SO DESIRE.
Important Notice
Regarding Internet
Availability of Proxy Materials
for the
Annual Meeting of Shareholders
to be held on
April 29, 2014
The proxy statement and annual report to shareholders are available under "Annual Report and Proxy Materials" at
www.thedixiegroup.com/investor/investor.html.
THE DIXIE GROUP, INC.
104 Nowlin Lane, Suite 101
Chattanooga, Tennessee 37421
(423) 510-7000
ANNUAL MEETING OF SHAREHOLDERS
April 29, 2014
PROXY STATEMENT
INTRODUCTION
The enclosed Proxy is solicited on behalf of the Board of Directors of the Company for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement and the enclosed Proxy will be mailed on or about
March 24, 2014, to shareholders of record of the Company’s Common Stock and Class B Common Stock as of the close of business
on February 28, 2014.
At the Annual Meeting, holders of the Company’s Common Stock, $3.00 par value per share (“Common Stock”), and Class
B Common Stock, $3.00 par value per share (“Class B Common Stock”), will be asked to: (i) elect nine individuals to the Board of
Directors for a term of one year each, (ii) approve the material terms of the Performance Goals of the Annual Incentive Compensation
Plan applicable to 2014 - 2018; (iii) cast an advisory vote on the Company’s compensation for its named executive officers; (iv)
ratify the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of the Company for
2014, and (v) transact any other business that may properly come before the meeting.
The Board of Directors recommends that the Company’s shareholders vote (i) FOR electing the nine (9) nominees for
director; (ii) FOR approving the material terms of the Performance Goals of the Annual Incentive Compensation Plan applicable to
2014 - 2018; (iii) FOR approving the Company’s executive compensation of its named executive officers; and (iv) FOR ratifying the
appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of the Company for 2014.
RECORD DATE, VOTE REQUIRED AND RELATED MATTERS
The Board has fixed the close of business on February 28, 2014, as the Record Date for the determination of shareholders
entitled to notice of, and to vote at, the Annual Meeting. In accordance with the Company’s Charter, each outstanding share of
Common Stock is entitled to one vote, and each outstanding share of Class B Common Stock is entitled to 20 votes, exercisable
in person or by properly executed Proxy, on each matter brought before the Annual Meeting. Cumulative voting is not permitted.
As of February 28, 2014, 12,453,166 shares of Common Stock, representing 12,453,166 votes, were held of record by approximately
2,350 shareholders (including an estimated 1,900 shareholders whose shares are held in nominee names, but excluding
approximately 580 participants in the Company’s 401(k) Plan who may direct the voting of shares allocated to their accounts), and
866,875 shares of Class B Common Stock, representing 17,337,500 votes, were held by 12 individual shareholders, together
representing an aggregate of 29,790,666 votes.
Shares represented at the Annual Meeting by properly executed Proxy will be voted in accordance with the instructions
indicated therein unless such Proxy has previously been revoked. If no instructions are indicated, such shares will be voted (i) FOR
electing the nine (9) nominees for director; (ii) FOR approving the material terms of the Performance Goals of the Annual Incentive
Compensation Plan applicable to 2014 - 2018; (iii) FOR approving the Company’s compensation of its named executive officers;
and (iv) FOR ratifying the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of
the Company for 2014.
Any Proxy given pursuant to this solicitation may be revoked at any time by the shareholder giving it by (i) delivering to
the Secretary of the Company a written notice of revocation bearing a later date than the Proxy, (ii) submitting a later-dated, properly
executed Proxy, or (iii) revoking the Proxy and voting in person at the Annual Meeting. Attendance at the Annual Meeting will not,
in and of itself, constitute a revocation of a Proxy. Any written notice revoking a Proxy should be sent to The Dixie Group, Inc., P.O.
Box 25107, Chattanooga, Tennessee 37422-5107, Attention: Starr T. Klein, Secretary.
The persons designated as proxies were selected by the Board of Directors and are Daniel K. Frierson, Lowry F. Kline
and John W. Murrey, III. The cost of solicitation of Proxies will be borne by the Company.
The presence, in person or by Proxy, of the holders of a majority of the aggregate outstanding vote of Common Stock and
Class B Common Stock entitled to vote is necessary to constitute a quorum at the Annual Meeting. In accordance with Tennessee
law, Directors are elected by the affirmative vote of a plurality of the votes cast that are represented in person or by Proxy at the
Annual Meeting.
1
The affirmative vote of a majority of the total votes cast is necessary for approval of the material terms of the Performance
Goals for the Annual Incentive Compensation Plan applicable to 2014 - 2018.
Ratification of the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of
the Company for 2014 will be approved if the votes properly cast favoring ratification exceed the votes cast opposing ratification.
Approval of the Company’s executive compensation for its named executive officers will be deemed to have been obtained
if the number of votes cast in favor of such compensation exceeds the number of votes cast against such compensation. Abstentions
and broker non-votes will have no effect on the outcome.
Shares covered by abstentions and broker non-votes, while counted for purposes of determining the presence of a quorum
at the Annual Meeting, are not considered to be affirmative votes. Abstentions and broker non-votes will have no effect upon the
election of a nominee for director, so long as such nominee receives any affirmative votes. For purposes of approval of the material
terms of the Performance Goals for the Annual Incentive Compensation Plan applicable to 2014 - 2018, abstentions and broker
non-votes will be considered negative votes. For purposes of ratification of the appointment of Dixon Hughes Goodman LLP, as
independent registered public accountants, abstentions and broker non-votes will not be considered negative votes.
A copy of the Company’s Annual Report for the year-ended December 28, 2013, is enclosed herewith.
The Board is not aware of any other matter to be brought before the Annual Meeting for a vote of shareholders. If, however,
other matters are properly presented, Proxies representing shares of Common Stock and Class B Common Stock will be voted
in accordance with the best judgment of the proxy holders.
2
PRINCIPAL SHAREHOLDERS
Shareholders of record at the close of business on February 28, 2014, the Record Date, will be entitled to notice of and to vote
at the Annual Meeting.
The following is information regarding beneficial owners of more than 5% of the Company's Common Stock or Class B Common
Stock. Beneficial ownership information is also presented for (i) the executive officers named in the Summary Compensation Table; (ii) all
directors and nominees; and (iii) all directors and executive officers, as a group, as of February 28, 2014 (except as otherwise noted).
Name and Address of Beneficial Owner
Title of Class
Daniel K. Frierson
Number of
Shares
Beneficially
Owned(1)(2)
111 East and West Road
Common Stock
1,226,463 (3)
Lookout Mountain, TN 37350
Class B Common Stock
866,875 (3) (4)
Dimensional Fund Advisors, L.P.
Palisades West, Building One, 6300 Bee Cave
Road
Common Stock
Austin, TX 78746
Class B Common Stock
1,022,142 (5)
—
Royce & Associates, LLC
1414 Avenue of the Americas
Common Stock
1,182,645 (6)
New York, NY 10019
Class B Common Stock
—
% of Class
9.1 %
100.0 %
8.2 %
— %
9.5 %
— %
Robert E. Shaw
115 West King Street
Dalton, GA 30722-1005
T. Rowe Price Associates, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
Common Stock
1,275,000 (7)
Class B Common Stock
—
10.2 %
— %
100 E. Pratt Street
Baltimore, MD 21202
Common Stock
1,218,620 (8)
Class B Common Stock
—
9.8 %
— %
Wells Fargo & Company, on behalf of the
following subsidiaries:
Wells Capital Management Incorporated
Wells Fargo Advisors, LLC
Wells Fargo Fund Management, LLC
Wells Fargo Bank, National Association
420 Montgomery Street
San Francisco, CA 94104
Common Stock
Class B Common Stock
602,772 (9)
—
4.8 %
— %
3
Additional Directors and Executive Officers
Title of Class
Number of
Shares
Beneficially
Owned (1)
% of Class
Charles E. Brock
Common Stock
4,380
(10)
Class B Common Stock
—
— *
J. Don Brock, Ph. D.
Common Stock
59,318
(11)
Class B Common Stock
—
— *
Paul B. Comiskey
Common Stock
85,714
(12)
Class B Common Stock
—
— *
Jon A. Faulkner
Common Stock
132,058
(13)
Class B Common Stock
—
1.1 %
— *
W. Derek Davis
Common Stock
105,396
(14)
Class B Common Stock
—
— *
Walter W. Hubbard
Common Stock
23,240
(15)
Class B Common Stock
—
— *
Lowry F. Kline
Common Stock
45,540
(16)
Class B Common Stock
—
— *
D. Kennedy Frierson, Jr.
Common Stock
200,036
(17)
Class B Common Stock
136,922
1.6 %
15.8 %
Hilda S. Murray
Common Stock
4,380
(18)
Class B Common Stock
—
— *
John W. Murrey, III
Common Stock
40,518
(19)
Class B Common Stock
—
— *
Michael L. Owens
Common Stock
Class B Common Stock
214
(20)
—
— *
All Directors, Named Executive Officers and
Common Stock
Executive Officers as Group (15 Persons) **
Class B Common Stock
1,802,328
866,875
(21)
(22)
13.1 %
100.0 %
* Percentage of shares beneficially owned does not exceed 1% of the Class.
** The total vote of Common Stock and Class B Common Stock represented by the shares held by all directors and executive
officers as a group is 19,139,827 votes or 61.6% of the total vote.
(1)
Under the rules of the Securities and Exchange Commission and for the purposes of these disclosures, a person is deemed
to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to
direct the voting of such security, or “investment power,” which includes the power to dispose or to direct the disposition of
such security. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
4
The Class B Common Stock is convertible on a share-for-share basis into shares of Common Stock, and accordingly,
outstanding shares of such stock are treated as having been converted to shares of Common Stock for purposes of determining
both the number and percentage of class of Common Stock for persons set forth in the table who hold such shares.
(2)
Does not include 286,682 shares of Common Stock owned by The Dixie Group, Inc. 401(k) Retirement Savings Plan (the
“401(k) Plan”) for which Daniel K. Frierson is a fiduciary and for which T. Rowe Price Trust Company serves as Trustee.
Participants in the 401(k) Plan may direct the voting of all shares of Common Stock held in their accounts, and the Trustee
must vote all shares of Common Stock held in the 401(k) Plan in the ratio reflected by such direction. Participants may also
direct the disposition of such shares. Accordingly, for purposes of these disclosures, shares held for participants in the 401
(k) Plan are reported as beneficially owned by the participants.
(3) Mr. Daniel K. Frierson's beneficial ownership of Common Stock and Class B Common Stock may be summarized as follows:
Held outright
Held by his wife
Held by his children, their spouses and grandchildren
Unvested restricted stock
Options to acquire Common Stock, exercisable within 60 days
Shares held in his Individual Retirement Account
Shares held in 401(k) Plan
Held as trustee of Rowena K. Frierson Charitable Remainder Unitrust
Deemed conversion of his Class B Common Stock
Total
(a) Sole voting and investment power
(b) Shared voting and investment power
(c) Sole voting and shared investment power
Number of
Shares
Common Stock
Number of
Shares Class B
Common Stock
263
—
90,730 (b)
35,864 (a)
228,077 (a)
3,567 (a)
1,087 (a)
—
866,875
1,226,463
372,960 (a)
94,879 (c)
189,300 (c)
187,189 (a)
—
17,061 (a)
—
5,486 (a)
—
866,875
(4) The 866,875 includes 189,300 shares of Class B Common Stock are held subject to Shareholder's Agreement's among Daniel
K. Frierson, his wife, their five children and respective family trusts, pursuant to which Daniel K. Frierson has been granted
a proxy to vote such shares.
(5) Dimensional Fund Advisors, L.P. has reported beneficial ownership of an aggregate of 1,022,142 shares of Common Stock,
as follows: 1,005,965 shares of Common Stock, for which it has sole voting power, and 1, 022,142 shares of Common Stock
for which it has sole dispositive power. The reported information is based upon the Schedule 13G filed by Dimensional Fund
Advisors, L.P. with the Securities and Exchange Commission on February 10, 2014.
(6) Royce & Associates LLC has reported beneficial ownership of 1,182,645 shares of Common Stock for which it has sole
dispositive power and sole voting power. The reported information is based upon the Schedule 13G filed by Royce & Associates
LLC with the Securities and Exchange Commission on January 8, 2014.
(7) Robert E. Shaw has reported the beneficial ownership of 1,275,000 shares of Common Stock for which he has sole voting
and sole dispositive power. The reported information is based upon the 13G filed by Mr. Shaw with the Securities and Exchange
Commission on February 14, 2014.
(8) T. Rowe Price Associates, Inc. and T. Rowe Price Small-Cap Value Fund, Inc. have reported beneficial ownership of an
aggregate of 1,218,620 shares of Common Stock. T. Rowe Price Associates, Inc. reports having sole dispositive power for
all 1,218,620 shares and sole voting power for 103,820 of such shares, while T. Rowe Price Small-Cap Value Fund, Inc.
reports sole voting power for the remaining 1,109,600 of such shares. The reported information is based upon the Schedule
13G filed jointly by T. Rowe Price Associates, Inc. and T. Rowe Price Small-Cap Value Fund, Inc. with the Securities and
Exchange Commission on February 10, 2014.
(9) Wells Fargo & Company has reported the beneficial ownership of an aggregate of 602,772 shares of Common Stock, on
behalf the following subsidiaries: Wells Capital Management Incorporated, Wells Fargo Advisors, LLC, Wells Fargo Funds
Management, LLC, and Wells Fargo Bank, National Association. It has reported sole power to vote 1 share and sole power
5
to dispose of 1 of such shares and 508,140 shares of Common Stock for which it has shared voting power. The reported
information is based on a Form 13G filed on November 12, 2013.
(10) Mr. Charles E. Brock's beneficial ownership may be summarized as follows:
Common Stock
Options to acquire Common Stock
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(11) Dr. J. Don Brock's beneficial ownership may be summarized as follows:
Common Stock, held outright
Options to acquire Common Stock, exercisable within 60 days
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(12) Mr. Paul B. Comiskey's beneficial ownership may be summarized as follows:
Common Stock, held outright
Unvested Restricted Stock
Held in 401(k) Plan
Exercisable Stock Options
Total
(13) Mr. Jon A. Faulkner's beneficial ownership may be summarized as follows:
Common Stock, held outright
Unvested Restricted Stock
Held in 401(k) Plan
Exercisable Stock Options
Total
(14) Mr. W. Derek Davis' beneficial ownership may be summarized as follows:
Common Stock, held outright
Unvested Restricted Stock
Held in 401(k) Plan
Exercisable Stock Options
Held by his wife
Total
6
Number of Shares
Common Stock
—
—
4,380
4,380
Number of Shares
Common Stock
22,768
7,000
29,550
59,318
Number of Shares
Common Stock
27,533
43,594
1,087
13,500
85,714
Number of Shares
Common Stock
17,920
68,688
—
45,450
132,058
Number of Shares
Common Stock
28,846
36,013
4,367
31,670
4,500
105,396
(15) Mr. Walter W. Hubbard's beneficial ownership may be summarized as follows:
Options to acquire Common Stock, exercisable within 60 days
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(16) Mr. Lowry F. Kline's beneficial ownership may be summarized as follows:
Common Stock, held outright
Options to acquire Common Stock, exercisable within 60 days
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(17) Mr. D. Kennedy Frierson Jr.'s beneficial ownership may be summarized as follows:
Number of Shares
Common Stock
8,000
15,240
23,240
Number of Shares
Common Stock
12,000
17,000
16,540
45,540
Held Outright
Options to acquire Common Stock, exercisable within 60 days
Shares held in 401(k)
Shares held in trust(s) for children
Unvested Restricted Stock
Deemed conversion of Class B Stock
Total
Number of
Shares
Common Stock
Number of
Shares Class B
Common Stock
—
54,500
2,407
2,585
3,622
136,922
200,036
56,125 (a)
—
—
6,000 (a)
74,797 (a)
—
136,922
(a) Subject to Shareholder's Agreement described in Note (4), above. Mr. Kennedy Frierson has sole investment power,
and no voting power with respect to such shares.
(18) Ms. Hilda S. Murray's beneficial ownership may be summarized as follows:
Common Stock
Options to acquire Common Stock
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(19) Mr. John W. Murrey's beneficial ownership may be summarized as follows:
Common Stock, held outright
Options to acquire Common Stock, exercisable within 60 days
Performance Units, convertible into shares of Common Stock on retirement as a director
Held by wife
Total
Number of Shares
Common Stock
—
—
4,380
4,380
Number of Shares
Common Stock
3,468
7,000
29,550
500
40,518
7
(20) Mr. Michael L. Owens' beneficial ownership may be summarized as follows:
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
Number of Shares
Common Stock
214
214
(21) Includes: (i) 144,163 shares of Common Stock owned directly by individuals in this group; (ii) 14,221 shares of Common Stock
allocated to accounts in the 401(k) Plan of members of this group; (iii) options, which are either immediately exercisable, or
exercisable within 60 days of the Record Date to purchase 433,249 shares of Common Stock; (iv) 99,854 shares of Common
Stock held pursuant to performance units issued as payment of one-half of the annual retainer for the Company's non-
employee directors; (v) 7,585 shares of Common Stock owned by immediate family members of certain members of this
group; (vi) 3,567 shares held in individual retirement accounts; (vii) 232,813 unvested restricted shares of Common Stock
held by individuals in this group, which shares may be voted by such individuals; and (viii) 866,875 shares of Class B Common
Stock held by individuals in this group, that could be converted on a share for share basis into shares of Common Stock.
(22) Includes: (i) 866,875 shares of Class B Common Stock held subject to the Shareholder Agreement described in Note (4)
above.
8
Information About Nominees for Director
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to the Company’s Bylaws, all Directors are elected to serve a one year term, or until their successors are elected
and qualified. The Board of Directors is permitted to appoint directors to fill the unexpired terms of directors who resign.
The names of the nominees for election to the Board, their ages, their principal occupation or employment (which has
continued for at least the past five years unless otherwise noted), directorships held by them in other publicly-held corporations or
investment companies, the dates they first became directors of the Company, and certain other relevant information with respect
to such nominees are as follows:
Charles E. Brock, age 49, is the President and Chief Executive Officer of Launch Tennessee, a public-private partnership,
focused on the development of high-growth companies in Tennessee. Previously, he served as the Executive Entrepreneur of The
Company Lab, a Chattanooga organization that serves as “the Front Door for Entrepreneurs” in Southeast Tennessee and one of
Launch Tennessee's regional accelerators. Mr. Brock was a founding partner of the Chattanooga Renaissance Fund, a locally
based angel investment group. Mr. Brock also serves as a director of Four Bridges Capital Advisors, a Chattanooga based boutique
investment bank as well as director of CapitalMark Bank and Trust. Mr. Brock is not related to J. Don Brock. Mr. Brock is a member
of the Company’s Audit Committee and a member of the Company's Compensation Committee. He has been a director of the
Company since 2012.
J. Don Brock, Ph. D., age 75, is the Chairman of the Board of Astec Industries, Inc., headquartered in Chattanooga,
Tennessee, and a manufacturer of specialized equipment for building and restoring the world’s infrastructure. He has been a director
of the Company since 1997. Dr. Brock is a member of the Company’s Audit Committee and a member of the Company’s Executive
Committee.
Daniel K. Frierson, age 72, is Chairman of the Board of the Company, a position he has held since 1987. He also has
been Chief Executive Officer of the Company since 1980 and a director of the Company since 1973. Mr. Frierson serves as a
director of Astec Industries, Inc., a manufacturer of specialized equipment for building and restoring the world’s infrastructure
headquartered in Chattanooga, Tennessee, and Louisiana-Pacific Corporation, a manufacturer and distributor of building materials
headquartered in Nashville, Tennessee. Mr. Frierson is Chairman of the Company’s Executive Committee and Chairman of the
Company’s Retirement Plans Committee.
D. Kennedy Frierson, Jr., age 47, is Chief Operating Officer of the Company, a position he has held since 2009. He has
been President of Masland Residential, General Manager of Dixie Home, President of Bretlin as well as various other positions in
operations, sales and senior management of the Company since 1998. Mr. Frierson is a member of the Company’s Retirement
Plans Committee. He has been a director of the Company since 2012.
Walter W. Hubbard, age 70, served as President and Chief Executive Officer of Honeywell Nylon, Inc., a wholly-owned
subsidiary of Honeywell International, a manufacturer of nylon products from 2003 until his retirement in 2005. Prior to becoming
President of Honeywell Nylon, Mr. Hubbard served as Group Vice President, Fiber Products of BASF Corporation from 1994 until
2003. He has been a director of the Company since 2005. Mr. Hubbard is a member of the Company’s Audit Committee and the
Company's Compensation Committee.
Lowry F. Kline, age 73, served as a director of Coca-Cola Enterprises, Inc. since April 2000, serving as Chairman from
April 2002 until April 2008, and as Vice Chairman from April 2000 to April 2003. Mr. Kline served as Chief Executive Officer of Coca-
Cola Enterprises, Inc. from April 2001 until January 2004 and from December 2005 to April 2006. Prior to becoming Chief Executive
Officer for Coca-Cola Enterprises, Inc., he held a number of positions with said company, including Chief Administrative Officer,
Executive Vice President and General Counsel. Mr. Kline is a member of the Board of Directors of Jackson Furniture Industries,
Inc., headquartered in Cleveland, Tennessee, and McKee Foods Corporation, headquartered in Collegedale, Tennessee. He has
been a director of the Company since 2004. Mr. Kline is Chairman of the Company’s Compensation Committee and a member of
the Company’s Audit Committee and a member of the Company’s Executive Committee.
Hilda S. Murray, age 59, is the Corporate Secretary and Executive Vice President of TPC Printing & Packaging, a specialty
packaging and printing company in Chattanooga, TN. She is also founder and President of Greener Planet, LLC, an environmental
compliance consultant to the packaging and printing industry. Ms. Murray is a member of the Company’s Audit Committee and the
Company’s Retirement Plans Committee. She has been a director of the Company since 2012.
John W. Murrey, III, age 71, previously served as a Senior member of the law firm of Witt, Gaither & Whitaker, P.C. in
Chattanooga, Tennessee until June 30, 2001. Since 1993, Mr. Murrey has served as a director of Coca-Cola Bottling Co.
Consolidated, a Coca-Cola bottler headquartered in Charlotte, North Carolina and has served on its Audit Committee. From 2003
to 2007, he also served as a director of U. S. Xpress Enterprises, Inc., a truckload carrier headquartered in Chattanooga, Tennessee,
and was Chairman of its Audit Committee. Mr. Murrey has been a director of the Company since 1997 and is Chairman of the
Company’s Audit Committee and a member of the Company’s Compensation Committee.
9
Michael L. Owens, age 57, is Assistant Dean of Graduate Programs and Lecturer in the College of Business at the University
of Tennessee at Chattanooga, Chattanooga, Tennessee. Prior to joining the University of Tennessee at Chattanooga, Mr. Owens
was President of Coverdell & Company, Atlanta, Georgia. Prior to joining Coverdell, he was Senior Vice President and Chief
Operating Officer of Monumental Life Insurance Company. He has been a director of the Company since January 2014 and is a
member of the Company's Audit Committee.
D. Kennedy Frierson, Jr., the Company’s Vice President and Chief Operating Officer, is the son of Daniel K. Frierson. No
other director, nominee, or executive officer of the Company has any family relationship, not more remote than first cousin, to any
other director, nominee, or executive officer.
Considerations with Respect to Nominees
In selecting this slate of nominees for 2014, the Independent Directors of the Board considered the familiarity of the
Company’s incumbents with the business and prospects of the Company, developed as a result of their service on the Company’s
Board. The Board believes that such familiarity will be helpful in their service on the Company’s Board.
In addition, the Independent Directors of the Board noted the particular qualifications, experience, attributes and skills
possessed by its slate of nominees. These qualifications are reflected in the business experience listed under each nominee’s
name, above. In order of the list of nominees, such information may be summarized as follows: Mr. Brock is experienced in
establishing new businesses having been involved in the establishment of both Foxmark Media and CapitalMark Bank and Trust.
Dr. Brock has a long history of executive management experience with Astec Industries, Inc., an international manufacturing
company, headquartered in Chattanooga, Tennessee. Additionally, Dr. Brock has served with the Company as a director since 1997,
including service on the Audit and Executive Committees of the Board. Mr. Daniel K. Frierson has served with the Company in
several management and executive capacities his entire adult life, and has been Chief Executive Officer since 1980 and a Board
member since 1973. In such capacity, he has been instrumental in planning and implementing the transition of the Company to its
current position as a manufacturer of residential and commercial soft floorcovering products. Additionally, Mr. Frierson has experience
as a board member of other public companies as well as significant trade group experience relevant to the Company’s business.
He is well known and respected throughout the industry. Mr. D. Kennedy Frierson, Jr. has served with the Company in various
capacities since 1992. He is currently Chief Operating Officer and has most recently led the Company’s Masland Residential
business. Mr. Hubbard has highly relevant industry experience with businesses that are fiber producers and fiber suppliers, and
that have served as fiber suppliers to the Company. Mr. Hubbard’s experience in the management of Honeywell Nylon and BASF
Corporation, as outlined above, has given him valuable experience in management, relevant to his duties as a Director of the
Company. Ms. Murray has a long history of executive management experience at TPC Printing and Packaging, a provider to the
specialty packaging business as well as experience with environmental controls and footprint through Greener Planet. Mr. Kline
has a long history of management and board level experience with the world’s largest bottler and distributor of Coca Cola Products.
Additionally, he has an extensive background in business, corporate and securities law. Mr. Kline has served as a Director of the
Company for several years, as reflected above, and serves on the Company’s Audit, Compensation and Executive Committees.
Mr. Murrey has extensive experience in corporate, securities and business law, has experience drawn from board and committee
service with several publicly-traded Companies, other than the Company; prior to his retirement in 2001, he represented the Company
as counsel. Mr. Owens has extensive business and management experience, having served as President of Coverdell & Company
prior to joining the University of Tennessee at Chattanooga. In addition, he has auditing experience having been employed as a
certified public accountant.
The Board of Directors recommends that the Company’s shareholders vote FOR electing the nine (9) nominees for director.
Meetings of the Board of Directors
The Board of Directors of the Company met six (6) times in 2013.
Committees, Attendance, and Directors' Fees
The Company has a standing Executive Committee, Audit Committee, Retirement Plans Committee, and
Compensation Committee. As described in detail below, pursuant to provisions in its charter, the Company’s Compensation
Committee, which consists entirely of independent directors, also performs the functions of a corporate governance committee
and a nominating committee. Copies of the Charter of the Company’s Audit Committee and Compensation Committee may be
found on the Company’s website at www.thedixiegroup.com/investor/investor.html.
Members of the Executive Committee are Daniel K. Frierson, Chairman, J. Don Brock and Lowry F. Kline. Except as
otherwise limited by law or by resolution of the Board of Directors, the Executive Committee has and may exercise all of the powers
and authority of the Board of Directors for the management of the business and affairs of the Company, which power the Executive
Committee exercises between the meetings of the full Board of Directors. The Executive Committee did not meet in 2013.
Members of the Audit Committee are John W. Murrey, III, Chairman, Charles E. Brock, J. Don Brock, Walter W. Hubbard,
Lowry F. Kline, Hilda S. Murray, and Michael L. Owens. All of the members of the Audit Committee are “independent directors” as
10
that term is defined by the applicable rule of the National Association of Securities Dealers, Inc. (“NASD”). The Audit Committee
evaluates audit performance, handles relations with the Company’s independent auditors, and evaluates policies and procedures
relating to internal accounting functions and controls. The Audit Committee has the authority to engage the independent accountants
for the Company. The Audit Committee operates pursuant to an Audit Committee Charter adopted by the Board of Directors. The
Audit Committee has implemented pre-approval policies and procedures related to the provision of audit and non-audit services
performed by the independent auditors. Under these procedures, the Audit Committee approves the type of services to be provided
and the estimated fees related to those services.
The Audit Committee met four (4) times in 2013.
Members of the Retirement Plans Committee are Daniel K. Frierson, Chairman, D. Kennedy Frierson, Jr., and Hilda S.
Murray. The Retirement Plans Committee administers the Company’s retirement plans. The Retirement Plans Committee met one
(1) time in 2013.
Members of the Compensation Committee are Lowry F. Kline, Chairman, Charles E. Brock, Walter W. Hubbard, and John
W. Murrey, III. The Compensation Committee administers the Company’s compensation plans, reviews and may establish the
compensation of the Company’s officers, and makes recommendations to the Board of Directors concerning such compensation
and related matters. The Compensation Committee acts pursuant to a written Charter adopted by the Board of Directors.
The Compensation Committee may request recommendations from the Company’s management concerning the types
and levels of compensation to be paid to the Company’s executive officers. Additionally, the Compensation Committee is authorized
to engage compensation consultants and may review and consider information and recommendations of compensation consultants
otherwise engaged by the Company or the Board of Directors in connection with the assessment, review and structuring of
compensation plans and compensation levels. For a description of the Compensation Committee actions with respect to
Compensation of Executive Officers in 2013, see Compensation Discussion and Analysis - Compensation for 2013.
Annually, the Compensation Committee reviews the performance of the Chief Executive Officer against goals and objectives
established by the Committee as part of the process of determining his compensation. The Compensation Committee reports to
the Board on its performance review.
In addition to its responsibilities with respect to executive and director compensation, the Compensation Committee
discharges responsibilities with respect to corporate governance. In that capacity, the Compensation Committee develops and,
recommends for board approval, corporate governance guidelines.
The Compensation Committee’s Charter also includes the duties of a nominating committee. Only nominees approved by
a majority of the Compensation Committee are recommended to the full Board. In selecting and approving director nominees, the
independent directors that make up the Committee consider, among other factors, the existing composition of the Board and the
mix of Board members appropriate for the perceived needs of the Company. The Compensation Committee believes continuity in
leadership and board tenure increase the Board’s ability to exercise meaningful board oversight. Because qualified incumbent
directors provide stockholders the benefit of continuity of leadership and seasoned judgment gained through experience as a director
of the Company, the Compensation Committee will generally give priority as potential candidates to those incumbent directors
interested in standing for re-election who have satisfied director performance expectations, including regular attendance at,
preparation for and meaningful participation in Board and committee meetings.
The Compensation Committee also considers the following in selecting the proposed nominee slate:
•
•
•
at all times, at least a majority of directors must be “independent” in the opinion of the Board as determined in
accordance with NASDAQ standards;
at all times at least three members of the Board must satisfy heightened standards of independence for Audit Committee
members; and
at all times the Board should have at least one member who satisfies the criteria to be designated by the Board as
an “audit committee financial expert.”
In selecting the current slate of director nominees, the Committee considered overall qualifications and the requirements
of the make up of the Board of Directors rather than addressing separate topics such as diversity in its selection. The Board
considered the value of the incumbents’ familiarity with the Company and its business as well as the considerations outlined above
under the heading Considerations with Respect to Nominees.
The Compensation Committee met three (3) times in 2013.
Nominations for Director - Stockholder Recommendations
11
Generally, the Board will consider stockholder recommendations of proposed director nominees if such recommendations
are timely received. To be timely for next year’s annual meeting, recommendations must be received in writing at the principal
executive offices of the Company no later than November 22, 2014. In addition, any stockholder director nominee recommendation
must include the following information:
•
•
•
•
the proposed nominee’s name and qualifications and the reason for such recommendation;
the name and record address of the stockholder(s) proposing such nominee;
the number of shares of stock of the Company which are beneficially owned by such stockholder(s); and
a description of any financial or other relationship between the stockholder(s) and such nominee or between the
nominee and the Company or any of its subsidiaries.
In order to be considered by the Board, any candidate proposed by one or more stockholders will also be required to
submit appropriate biographical and other information equivalent to that required of all other director candidates.
Board Leadership Structure
Mr. Daniel K. Frierson currently serves as the Chairman of the Board and the Chief Executive Officer of the Company.
The positions of Chief Executive Officer and Chairman of the Board are combined. Executive sessions of the Board are chaired by
the chairman of the Compensation Committee, Lowry Kline, who, as noted above, has extensive management and Board experience
independent of his experience with the Company. Mr. Kline and the independent directors set their own agenda for meetings in
executive session and may consider any topic relevant to the Company and its business. The Company believes that regular,
periodic, meetings held in executive session, in the absence of management members or management directors, provide the Board
an adequate opportunity to review and address issues affecting management or the Company that require an independent
perspective. Additionally, the Company’s Audit Committee holds separate executive sessions with the Company’s independent
registered public accounts, internal auditor and management. This Committee also sets its own agenda and may consider any
relevant topic in its executive sessions.
Director Attendance
During 2013, no director attended fewer than 75% of the total number of meetings of the Board of Directors and any
Committee of the Board of Directors on which he served. All directors are invited and encouraged to attend the annual meeting of
shareholders. In general, all directors attend the annual meeting of shareholders unless they are unable to do so due to unavoidable
commitments or intervening events. Eight (8) of the nine incumbent directors attended the 2013 annual meeting of shareholders.
Director Compensation
Directors who are employees of the Company do not receive any additional compensation for their services as members
of the Board of Directors. Non-employee directors receive an annual retainer of $24,000, payable one-half in cash and one-half in
value of Performance Units under the Directors Stock Plan. Performance Units are redeemable upon a director’s retirement for an
equivalent number of shares of the Company’s Common Stock, and the number of units issued is determined generally by the
market value of the Company’s Common Stock on the date of grant of the units. In addition to the annual retainer, directors who
are not employees of the Company receive $1,500 for each Board meeting attended and $1,000 for each committee meeting
attended ($1,500 for the Committee Chairman). Fees for attending telephonic meetings are one-half those for in-person meetings,
such that each non-employee director receives $750 per telephonic board meeting and $500 per committee meeting ($750 for the
Chairman of the Committee). For an additional discussion of Director Compensation, see the tabular information below under the
heading, “Director Compensation.”
Independent Directors
The Board has determined that Charles E. Brock, Dr. J. Don Brock, Walter W. Hubbard, Lowry F. Kline, Hilda S. Murray,
John W. Murrey, III, and Michael L. Owens are independent within the meaning of the standards for independence set forth in the
Company’s corporate governance guidelines, which are consistent with the applicable Securities and Exchange Commission (“SEC”)
rules and NASDAQ standards.
Executive Sessions of the Independent Directors
The Company’s independent directors meet in executive session at each regularly scheduled quarterly meeting of the
Board, with the chair of the Compensation Committee serving as chair of such executive sessions.
12
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, and regulations of the SEC thereunder, require the Company’s
executive officers and directors and persons who beneficially own more than 10% of the Company’s Common Stock, as well as
certain affiliates of such persons, to file initial reports of such ownership and monthly transaction reports covering any changes in
such ownership with the SEC and the National Association of Securities Dealers. Executive officers, directors and persons owning
more than 10% of the Company’s Common Stock are required by SEC regulations to furnish the Company with all such reports
they file. Based on its review of the copies of such reports received by it, the Company believes that, during fiscal year 2013, all
filing requirements applicable to its executive officers, directors, and owners of more than 10% of the Company’s Common Stock
were complied with, with the exception of one filing for W. Derek Davis, which was inadvertently filed one day late.
Management Succession
Periodically, the Board reviews a succession plan, developed by management, addressing the policies and principles for
selecting successors to the Company’s executive officers, including the Company’s CEO. The succession plan includes an
assessment of the experience, performance and skills believed to be desirable for possible successors to the Company’s executive
officers.
Certain Transactions Between the Company and Directors and Officers
The Company’s Compensation Committee has adopted written policies and procedures concerning the review, approval
or ratification of all transactions required to be disclosed under the SEC’s Regulation S-K, Rule 404. These policies and procedures
cover all related party transactions required to be disclosed under the SEC’s rules as well as all material conflict of interest transactions
as defined by relevant state law and the rules and regulations of NASDAQ that are applicable to the Company, and require that all
such transactions be identified by management and disclosed to the Company’s Compensation Committee for review. If required
and appropriate under the circumstances, the Compensation Committee will consider such transactions for approval or ratification.
Full disclosure of the material terms of any such transaction must be made to the Compensation Committee, including:
•
•
•
the parties to the transaction and their relationship to the Company, its directors and officers;
the terms of the transaction, including all proposed periodic payments; and
the direct or indirect interest of any related parties or any director, officer or associate in the transaction.
To be approved or ratified, the Compensation Committee must find any such transaction to be fair to the Company. Prior
approval of such transactions must be obtained generally, if they are material to the Company. If such transactions are immaterial,
such transactions may be ratified and prior approval is not required. Ordinary employment transactions may be ratified.
Certain Related Party Transactions
During its fiscal year ended December 28, 2013, the Company purchased a portion of its products needs in the form of
fiber, yarn, carpet and dyeing services from Engineered Floors, and its subsidiary Bentley Dye Services, an entity substantially
controlled by Robert E. Shaw, a shareholder of the Company. Mr. Shaw has reported holding approximately 10.2% of the Company’s
Common Stock, which, as of year-end, represented approximately 4.1% of the total vote of all classes of the Company’s Common
Stock. Engineered Floors is one of several suppliers of such services to the Company. Total purchases from Engineered Floors
(including Bentley Dye Services) for 2013 were approximately $12.1 million; or approximately 8.4% of all the Company’s comparable
purchases in 2013. In accordance with the terms of its charter, the Compensation Committee reviewed the Company’s supply
relationship with Engineered Floors. The dollar value of Mr. Shaw’s interest in the transactions with Engineered Floors is not known
to the Company.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is composed of seven members, each of whom is an independent, non-
employee director. The Audit Committee operates under a written Audit Committee Charter adopted and approved by the Board of
Directors. The Charter is reviewed at least annually by the Committee. While the Committee has the responsibilities and powers
set forth in its written charter, it is not the duty of the Committee to plan or conduct audits. This function is conducted by the Company’s
management and its independent registered public accountants.
The Committee has reviewed and discussed with management the audited financial statements of the Company for the
year ended December 28, 2013 (the “Audited Financial Statements”). In addition, the Committee has discussed with Ernst & Young
LLP the matters required by Statement on Auditing Standards No. 61, “Communications with Audit Committees” (SAS 61), as
amended and as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T.
13
The Committee also has received the written report, disclosure and the letter from Ernst & Young LLP required by PCAOB
Rule 3526, “Communication with Audit Committees Concerning Independence”, and the Committee has reviewed, evaluated, and
discussed with that firm the written report and its independence from the Company. The Committee also has discussed with
management of the Company and Ernst & Young LLP such other matters and received such assurances from them as the Committee
deemed appropriate.
On November 11, 2013, the Audit Committee of the Board of Directors confirmed its engagement of Ernst & Young LLP
(“E&Y”) to audit the Company’s consolidated financial statements as of and for the year ending December 28, 2013, and the
effectiveness of the Company’s internal control over financial reporting as of December 28, 2013. Upon completion of all procedures
related to filing the Company’s Annual Report on Form 10-K for the year ended December 28, 2013, the engagement of E&Y will
end.
At that time, the Committee approved the engagement of Dixon Hughes Goodman LLP to serve as independent registered
public accountants for the Company for fiscal 2014.
During the fiscal years ended December 28, 2013 and December 29, 2012, Ernst & Young’s reports on the Registrant’s
financial statements did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the fiscal years ended December 28, 2013 and December 29, 2012 and the subsequent periods through the date
of this report, (i) there were no disagreements between the Registrant and Ernst & Young on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction
of Ernst & Young, would have caused Ernst & Young to make reference to the subject matter of the disagreements in connection
with its reports on the Registrant’s financial statements, and (ii) there were no reportable events as that term is described in Item
304(a)(1)(v) of Regulation S-K.
During the two most recent fiscal years and through the date of this report, neither the Registrant nor anyone on its behalf
consulted with Dixon Hughes Goodman regarding any of the following:
(i)
(ii)
The application of accounting principles to a specific transaction, either completed or proposed;
The type of audit opinion that might be rendered on the Registrant’s financial statements, and none of the following
was provided to the Registrant:
(a)
a written report; or (b) oral advice that Dixon Hughes Goodman concluded was an important factor
considered by the Registrant in reaching a decision as to an accounting, auditing or financial reporting
issue; or
(iii)
Any matter that was subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K,
or a reportable event, as described in Item 304(a)(1)(v) of Regulation S-K.
Based on the foregoing review and discussions and relying thereon, the Committee has recommended to the Company’s
Board of Directors the inclusion of the Company’s Audited Financial Statements in the Company’s Annual Report on Form 10-K for
the year ended December 28, 2013, to be filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
John W. Murrey, III, Chairman
Charles E. Brock
Dr. J. Don Brock
Walter W. Hubbard
Lowry F. Kline
Hilda S. Murray
Michael L. Owens
AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that John W. Murrey, III is an audit committee financial expert as defined by Item 407(d)(5) of
Regulation S-K of the Securities Exchange Act of 1934, as amended, and is independent within the meaning of Rule 10A-3(b)(l)
of the Securities Exchange Act of 1934 of the Securities Exchange Act of 1934. For a brief list of Mr. Murrey’s relevant
experience, please refer to Mr. Murrey’s biographical information as set forth in the Election of Directors section of this proxy
statement.
14
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee sets compensation for the Company’s executive officers, and its decisions are reported to
and reviewed by the Board of Directors. The Compensation Committee currently consists of four independent directors chosen
annually by the Board.
Compensation of the Company’s executive officers is intended to be competitive with compensation offered by other
companies generally similar to the Company in size and lines of business. In determining what types and levels of compensation
to offer, the Committee may review relevant, publicly available data and, from time to time, it may receive advice and information
from professional compensation consultants.
The Elements of Executive Officer Compensation
Compensation for each of the Company’s executive officers consists generally of base salary, retirement plan benefits
and other customary employment benefits, as well as potential cash incentive awards and stock plan awards pursuant to an annual
incentive plan reviewed and adopted by the Committee at the beginning of each year. The annual incentive plan is customarily
structured so that a significant portion of each executive’s potential, annual compensation may consist of equity awards, the value
of which is tied to increases in the value of the Company’s common stock.
Compensation for 2013. Effective February 14, 2013, the Compensation committee selected performance goals and a
range of possible incentives for the Company’s 2013 Incentive Compensation Plan (the “2013 Plan”). Pursuant to the 2013 Plan,
each executive officer had the opportunity to earn a Cash Incentive Award, a Primary Long-Term Incentive Award of restricted stock,
and an award of restricted stock denominated as “Career Shares.” The potential range of cash incentives and conditions to vesting
of the restricted stock awards are described below.
For 2013, each executive officer also received customary retirement plan benefits and other customary employment
benefits, as in prior years.
Salary for 2013. The base salaries for the executive officers were adjusted on August 1, 2013. The current salaries are:
Mr. Daniel K. Frierson - $625,000; Mr. D. Kennedy Frierson, Jr. - $320,000; Mr. Paul C. Comiskey - $300,000; Mr. Jon A. Faulkner
- $270,000 and Mr. W. Derek Davis - $230,000. See the 2013 Summary Compensation Table for an explanation of the amount of
salary and other compensation elements in proportion to total compensation.
Potential Incentive Awards. The CEO and all executive officers whose responsibilities primarily relate to corporate level
administration had the opportunity to earn a cash payment ranging from 15% to no more than 75% of such executive’s base salary.
Forty percent of the amount of the potential award was based on achievement of specified levels of operating income from continuing
operations for the Company’s residential business operations, as adjusted for unusual items, 40% of the amount was based on
achievement of specified levels of the Company’s consolidated operating income, as adjusted for unusual items, and 20% of the
amount was based on achievement of specified levels of the Company’s commercial business operating income, as adjusted for
unusual items.
Executive officers whose responsibilities primarily relate to one of the Company’s business units, had the opportunity to
earn a cash payment ranging from 15% to no more than 75% of such participant’s base salary. Fifty percent of the amount was
based on achievement of specified levels of their annual business unit operating income, as adjusted for unusual items, 25% was
based on the achievement of specified levels of the Company’s consolidated operating income, as adjusted for unusual items, and
25% was based on achievement of specified levels of the annual operating income of the Company’s other business units, as
adjusted for unusual items.
The Compensation Committee retained the discretion to reduce any award by up to 30% of the amount otherwise earned
based on the participant’s failure to achieve individual performance goals set by the committee.
The Committee also retained discretion to eliminate unusual items from its assessment of whether specified operating
income levels were achieved.
Primary Long-Term Incentive Share Awards and Career Shares Awards. The incentive plan provided for two possible
awards of restricted stock: Primary Long-Term Incentive Share Awards and Career Share Awards. Receipt of the Primary Long-
Term Incentive Share Awards and Career Share Awards were made contingent on the Company’s achievement of minimum adjusted
levels of operating income and, in the case of Career Share Awards, improvement in operating income levels as adjusted. Awards
were granted in 2014 for 2013, as described more fully below and in the footnotes to the accompanying tables.
The Primary Long-Term Incentive Share Award was designed as a possible award of restricted shares, in value equal to
no more than 35% of the executive’s base salary as of the beginning of 2013 plus any cash incentive award paid for such year.
The Primary Long-Term Incentive Share Awards vest ratably over three years.
Career Shares were designed as a possible award of restricted stock valued at 20% of each executive officer’s base salary
as of the beginning of the year. In accordance with past practice, any such award, if earned, would be granted in 2014. The Career
15
Share Awards granted in 2014 with respect to 2013 vest when the participant becomes (i) qualified to retire from the Company and
(ii) has retained such shares for 24 months following the grant date. Awards granted to a participant who is age 60 or is already
age 60 or older, vest ratably over the stated vesting or retention period of such awards. Additionally, Career Share Awards are
subject to accelerated vesting or forfeiture under certain conditions as follows: death, disability or a change in control will result in
immediate vesting of Career Share Awards; termination without cause will also result in immediate vesting of Career Share Awards;
voluntary termination of employment prior to retirement, or termination for cause will result in forfeiture of all unvested awards; upon
retirement, vesting will accelerate to the extent that the Company has recognized compensation expense related to the shares
subject to the awards.
2014 Awards. Cash Awards were made to the following named executive officers in 2014 for 2013: Mr. Daniel K. Frierson
- $326,650, Mr. D. Kennedy Frierson, Jr. - $148,532, Mr. Paul B. Comiskey - $151,174, Mr. W. Derek Davis - $120,810 and Mr.
Jon A. Faulkner - $127,003.
Primary Long-Term Incentive Share Awards were granted in 2014 with respect to 2013 for the following named executive
officers: Mr. Daniel K. Frierson - 22,586 shares, Mr. D. Kennedy Frierson, Jr. - 10,407 shares, Mr. Paul B. Comiskey - 10,219
shares, Mr. W. Derek Davis - 8,299 shares and Mr. Jon A. Faulkner - 8,839 shares.
Career Share Awards were granted in 2014 with respect to 2013 for the following named executive officers: Mr. Daniel
K. Frierson - 8.151 shares, Mr. D. Kennedy Frierson, Jr. - 3,785 shares, Mr. Paul B. Comiskey - 3,639. Mr. W. Derek Davis - 2,984
shares and Mr. Jon A. Faulkner - 3,202 shares.
The 2014 Incentive Compensation Plan. Following year-end, the Committee adopted changes to the incentive plan
for 2014. The plan is similar in structure to the plan adopted for 2013, as described in detail above; however, the percentage weight
given to operating income achievement levels was adjusted to 50%, 30% and 20%, respectively, for Company, Residential and
Contract business unit results with respect to the CEO and corporate level officers, and 55%, 30%, and 15%, respectively, for
business unit, Company, and other business unit results, with respect to officers whose primary responsibility relates to one of the
Company’s business units. Additionally, for 2014 the highest possible incentive award level is adjusted to a maximum of 105% of
executive compensation, and the level of career share awards is increased to 35% and 30%, respectively, of the Chief Operating
Officer’s and Chief Financial Officer’s base salary, with vesting of such awards occurring ratably over 5 years beginning on the
participant’s 61st birthday.
Retirement Plans and Other Benefits. The Company’s compensation for its executive officers also includes the
opportunity to participate in two retirement plans, one qualified and one non-qualified for federal tax purposes, and certain health
insurance, life insurance, relocation allowances, and other benefits. Such benefits are designed to be similar to the benefits available
to other exempt, salaried associates of the Company, and to be comparable to and competitive with benefits offered by businesses
with which the Company competes for executive talent.
Executive officers may elect to contribute a limited amount of their compensation to the qualified plan and make deferrals
into the non-qualified plan (up to 90% of total compensation). Although the plans permit the Company to make discretionary
contributions in an aggregate amount equal to up to 3% of the executive officer’s cash compensation, for 2013 the Company made
a contribution of 2% to the qualified plan, while no Company contributions were made to the non-qualified plan.
Compensation Considerations for 2013. The tax effect of possible forms of compensation on the Company and on the
executive officers is a factor considered in determining types of compensation to be awarded. Similarly, the accounting treatment
accorded various types of compensation may be an important factor used to determine the form of compensation. For 2013, the
Committee considered the tax effects of the possible grant of cash incentives and equity incentive awards that may not qualify as
“incentive compensation” under Section 162m of the Internal Revenue Code and concluded that no executive would have
compensation that exceeded the applicable threshold. The Company held its first “Say on Pay” vote at its annual meeting in 2013.
At that meeting approximately 99% of the votes cast were “For” approval of our executive compensation as described in the Proxy
Statement for that meeting. The Committee intends to consider these results as part of its ongoing review of executive compensation.
Termination Benefits. The Company’s restricted stock awards provide for acceleration of vesting of awards under certain
circumstances upon termination of the participant’s employment.
Upon retirement of a Participant, all Long-Term Incentive Plan and Career Share restricted stock awards vest to the extent
such awards have been expensed in the Company’s financial statements. As of year-end, Daniel K. Frierson, Paul B. Comiskey
and W. Derek Davis were the only Named Executive Officers eligible for retirement in accordance with the terms of the restricted
stock awards. If Mr. Frierson had retired at year end, the number of shares subject to such awards that would have vested and the
value of such shares would have been 64,558 shares and $718,004. If Mr. Comiskey had retired at year end, the number of shares
subject to such awards that would have vested and the value of such shares would have been 27,658 shares and $311,096. If Mr.
Davis had retired at year end, the number of shares subject to such awards that would have vested and the value of such shares
would have been 19,733 shares and $235,447. For purposes of valuing the foregoing awards, the Company used the year-end
market value of the Company’s Common Stock, which was $12.09/share. Vesting of the restricted stock award made in 2006 to
Mr. Frierson of 119,873 shares of Class B Common Stock and 5,127 shares of Common Stock is contingent, in all events other
than a change-in-control, on meeting the market condition of the award prior to June 6, 2014.
16
No termination benefit was paid to or accrued for any executive officer named in the accompanying tables in the fiscal
year ended December 28, 2013.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, set forth above,
with management.
Based on our review and the discussions we held with management, we have recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the Company’s Proxy Materials.
Respectfully submitted,
Lowry F. Kline, Chairman
Charles E. Brock
Walter W. Hubbard
John W. Murrey, III
EXECUTIVE COMPENSATION INFORMATION
The following table sets forth information as to all compensation earned during the fiscal years ended December 31, 2011,
and December 29, 2012 and December 28, 2013 to (i) the Company's Chief Executive Officer; and (ii) the Company's Chief Financial
Officer, and (iii) the three other most highly compensated executive officers who served as such during the fiscal year ended
December 28, 2013 (the “Named Executive Officers”). For a more complete discussion of the elements of executive compensation,
this information should be read in conjunction with the other tabular information presented in the balance of this section.
Summary Compensation Table
Name and Principal
Position
(a)
Year
(b)
Salary ($)
(c)(1)
Bonus ($)
(d)(2)
Stock
Awards ($)
(e)(3)
Option
Awards ($)
(f)
Nonqualified
Compensation
Earnings ($)
(h)(4)
All Other
Compensation ($)
(i)(5)
Total $)(j)
Daniel K Frierson
Chief Executive Officer
2013
2012
587,083
104,592
288,720
560,000
109,072
286,290
2011
556,500
—
102,256
D. Kennedy Frierson, Jr.
Chief Operating Officer
2013
2012
285,000
260,000
47,549
133,783
50,641
132,917
2011
260,000
—
47,476
Paul B. Comiskey
Vice President,
President Residential
2013
2012
270,833
250,000
44,643
128,359
47,038
127,331
2011
250,000
—
45,650
Jon A. Faulkner, Chief
Financial Officer
2013
2012
240,833
220,000
41,090
113,427
43,301
112,602
2011
219,646
—
40,172
W. Derek Davis, Vice
President, Human
Resources
2013
2012
215,417
205,000
39,883
106,104
40,769
105,047
2011
204,146
—
37,433
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Includes all amounts deferred at the election of the Named Executive Officer.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17
2,879
2,879
2,879
2,224
2,056
2,056
2,419
2,274
2,274
1,918
1,780
1,780
1,964
1,780
1,780
983,274
958,241
661,635
468,556
445,614
309,532
446,254
426,643
297,924
397,268
377,683
261,598
363,368
352,596
243,359
(2) Cash incentives awarded for 2013 performance are described in the 2014 Awards section of the Compensation Discussion
and Analysis. Cash bonuses are shown in the year granted, not earned, because continued employment is a condition
of earning the award. No cash incentive was earned in 2011.
(3) Amounts reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for the year
presented of stock awards to the Named Executive Officers.
(4) The Dixie Group does not provide above-market or preferential earnings on deferred compensation. The Named Executive
Officers did not participate in any defined benefit or actuarial pension plans for the periods presented.
(5) The following table is a summary and quantification of all amounts included in column (i)
All Other Compensation
Name (a)
Year (b)
Registrant
Contributions to
Defined
Contributions Plans
($)(c)
Insurance
Premiums ($)(d)
Other ($)(f)
Total Perquisites
and Other Benefits
($)(g)(1)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,879
2,879
2,879
2,224
2,056
2,056
2,419
2,274
2,274
1,918
1,780
1,780
1,964
1,780
1,780
2,879
2,879
2,879
2,224
2,056
2,056
2,419
2,274
2,274
1,918
1,780
1,780
1,964
1,780
1,780
(1) No named Executive Officer received any tax reimbursement, discounted securities purchases, or payment or accrual on
termination plans for the period presented.
18
Grants of Plan-Based Awards
Estimated Future Payouts Under Equity Incentive Plan Awards (1)
Non-Equity Incentive Plan Awards
Name (a)
Grant
Date (b)
Threshold
($) or (#)
(c)
Target
($) or (#)
(d)
Maximum
($) or (#)
(e)
Shares of
Stock or
Units (#)
(i)
Securities
Underlying
Options (#)
(j)
Base Price
of Option
($) or (#)
(k)
Daniel K. Frierson
3/12/2013
D. Kennedy Frierson, Jr.
3/12/2013
Paul B. Comiskey
3/12/2013
Jon A. Faulkner
3/12/2013
W. Derek Davis
3/12/2013
55,630
25,777
24,732
21,855
20,444
Grant
Date Fair
Value of
Stock and
Option
Awards
($)
288,720
133,783
128,359
113,427
106,104
(1) The amount set forth in the table reflects the grant date fair value of the award determined in accordance with FASB ASC
Topic 718, with respect to the awards granted February 12, 2013.
All awards of restricted stock made to the Named Executive Officers under the 2013 Incentive Compensation Plan were granted
in 2014, in accordance with the terms of the plan. Such awards are as follows:
Name
Daniel K. Frierson*
D. Kennedy Frierson, Jr.*
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
Long-Term Incentive
Award Shares
Career Shares
Total Shares
22,586
10,407
10,219
8,839
8,299
8,151
3,785
3,639
3,202
2,984
30,737
14,192
13,858
12,041
11,283
*Pursuant to Mr. Daniel K. Frierson’s election, 18,442 shares of the total of his awards were granted as shares of Class B
Common Stock and pursuant to Mr. D. Kennedy Frierson, Jr.'s election, 13,567 shares of the total of his awards were granted as
Class B Common Stock.
19
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
Option Exercises and Stock Vested
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise (#)(b)
Value Realized on
Exercise ($)(c)
Number of Shares
Acquired on
Vesting (#)(d)
Value Realized on
Vesting ($)(e)(1)
—
—
—
—
—
—
38,012
202,808
7,248
38,414
10,000
41,700
9,000
64,740
6,144
32,563
10,000
56,000
13,935
74,348
(1) The value realized is calculated as the closing price on the relevant vesting date times the number of vested shares.
The following table sets forth information concerning the Company’s Non-Qualified Defined Contribution Plan for each of the Named
Executive Officers for the fiscal year ended December 28, 2013. The Company does not maintain any other non-tax qualified
deferred compensation plans. There were no withdrawals or distributions by or to the Named Executive Officers in the fiscal year
ended 2013.
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
Nonqualified Deferred Compensation
Executive
Contribution
in Last FY ($)
(1)(b)
Registrant
Contribution
in Last FY ($)
(c)
Aggregate
Earnings in
Last FY ($)
(2)(d)
Aggregate
Withdrawals/
Distributions
($)(e)
Aggregate
Balance at
Last FYE ($)
(3)(f)
39,813
26,610
—
62,660
—
—
—
—
—
—
511,535
81,412
8,279
192,613
2,387
—
—
—
—
—
1,869,223
323,191
34,631
915,147
8,387
(1) For each of the named executive officers, the entire amount reported in this column (c) is included within the amount
report in column (c) of the 2013 Summary Compensation Table.
(2) None of the amounts reported in this column (d) are reported in column (h) of the 2013 Summary Compensation Table
because the Company does not pay guaranteed, above-market or preferential earnings on deferred compensation.
(3) Amounts reported in this column (f) for each named executive officer include amounts previously reported in the
Company's Summary Compensation Table last year when earned if that officer's compensation was required to be
disclosed in the previous year. This total reflects the cumulative value of each named executive officer's deferrals and
investment experience.
20
The following table sets forth information concerning outstanding equity awards for each of the Named Executive Officers at
fiscal year-end.
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Stock Awards
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Option (#)(d)
Option
Exercise
Price ($)
(e)
Option
Expiration
Date (f)
Number of
Shares or
Units of Stock
That Have
Not Vested (#)
(g)(1)
Market Value
of Shares or
Units of Stock
Held That
Have Not
Vested($)(h)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(i)(2)
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)(j)(2)
Name (a)
Exercisable
(#)(b)
Unexercisable
(#)(c)
Daniel K. Frierson
125,000
1,511,250
98,053 1,185,461
D. Kennedy
Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
44,287
5,000
50,000
31,290
60,000
37,500
12,000
4,113
1,887
20,000
16,500
—
—
—
—
—
—
—
6.96
4.78
5/2/2015
8/12/2015
— 11.85
8/5/2014
— 15.98
12/6/2014
— 13.51 12/20/2015
12,500
5.00
11/4/2019
—
—
—
—
5,500
12.56
17.58
15.98
4/20/2014
12/6/2014
12/6/2014
13.51 12/20/2015
5.00
11/4/2019
13,500
4,500
5.00
11/4/2019
15,000
4,098
3,102
15,000
8,250
10,000
5,510
1,160
15,000
1,875
—
—
—
—
2,750
—
—
—
—
625
4.60
15.98
15.98
2/5/2015
12/6/2014
12/6/2014
13.51 12/20/2015
5.00
11/4/2019
11.85
15.98
15.98
8/5/2014
12/6/2014
12/6/2014
13.51 12/20/2015
5.00
11/4/2019
—
—
78,419
948,086
—
—
—
43,594
527,051
—
68,688
830,438
—
—
36,016
435,397
(1)
125,000 shares of restricted stock were awarded to the Chief Executive Officer on June 6, 2006, under the Company’s 2006
Stock Awards Plan. Such award consisted of 119,873 shares of Class B Common Stock and 5,127 shares of Common Stock.
Vesting of the Award is subject to both a service and a market condition. Pursuant to the terms of the award, Mr. Frierson
has the right to any dividends declared and paid on such shares and the right to vote such shares from the date of grant.
21
(2)
The market value of the restricted stock set forth in the table has been calculated by multiplying the closing price of the
Company’s Common Stock at year-end ($12.09/share) by the number of shares of unvested restricted stock subject to the
award.
Set forth below is a table presenting compensation information with respect to all non-employee directors of the Company.
Compensation information for the Company's Chief Executive Officer, Daniel K. Frierson, and the Company's Chief Operating
Officer, D. Kennedy Frierson, Jr. is reported in the Summary Compensation Table appearing elsewhere in this Proxy Statement.
DIRECTOR COMPENSATION
Name (a)
Fees earned or
paid in cash ($)
(b)(1)
Stock Awards ($)
(c)(2)
Option Awards ($)
(d)
All Other
Compensation ($)
(e)(3)
Total ($)(4)
Charles E. Brock
25,000
12,000
J. Don Brock, Ph. D.
21,750
12,000
Paul K. Frierson
4,750
—
Walter W. Hubbard
25,500
12,000
Lowry F. Kline
28,000
12,000
Hilda S. Murray
23,750
12,000
John W. Murrey
27,500
12,000
—
—
—
—
—
—
—
—
—
37,000
33,750
10,430
15,180
—
—
—
—
37,500
40,000
35,750
39,500
(1) Directors who are employees of the Company do not receive any additional compensation for their services as members
of the Board of Directors. Non-employee directors receive an annual retainer of $24,000, payable $12,000 in cash and
the remainder in Performance Units (subject, for payments made in 2011, 2012 and 2013, to a $5.00 minimum value per
unit) under the Directors Stock Plan. In addition to the annual retainer, directors who are not employees of the Company
received $1,500 for each Board meeting attended and $1,000 for each committee meeting attended ($1,500 for the
Committee Chairman). Fees for attending telephonic meetings are one-half those for in-person meetings, such that each
non-employee director receives $750 per telephonic board meeting and $500 per committee meeting ($750 for Chairman
of the Committee). Additionally, directors receive reimbursement of the expenses they incur in attending all board and
committee meetings.
(2) The value presented is the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. The value
of the Performance Units awarded to each non-employee director under the Directors Stock Plan in 2013 was $9,312.
(3) This represents Mr. Paul K. Frierson's commissions prior to his retirement on April 30, 2013.
22
At fiscal year-end, each non-employee director held the following outstanding equity awards:
Name (a)
Charles E. Brock
Stock Options (2)
Performance Units
(#)(b)(1)
Number of
Securities
Underlying
Options (c)
Option
Exercise
Price ($)(d)
Option
Expiration
Date(e)
4,380
—
—
—
J. Don Brock, Ph. D.
29,550
2,500
3,000
4,000
12.18
15.98
13.51
2/19/2014
12/6/2014
12/20/2015
Walter W. Hubbard
Lowry F. Kline
Hilda S. Murray
John W. Murrey, III
15,240
8,000
13.51
12/20/2015
16,540
10,000
3,000
4,000
12.63
15.98
13.51
5/6/2014
12/6/2014
12/20/2015
4,380
—
—
—
29,550
2,500
3,000
4,000
12.18
15.98
13.51
2/19/2014
12/6/2014
12/20/2015
(1) The performance units represent an equal number of shares of the Company's Common Stock. At year-end, the aggregate
value of such stock was $ 1,204,648, determined by multiplying the number of performance units by the year-end per
share market value of the Company's Common Stock ($12.09/share).
(2) All such options are presently exercisable.
23
SHAREHOLDER PROPOSALS
FOR INCLUSION IN NEXT YEAR'S PROXY STATEMENT
In the event any shareholder wishes to present a proposal at the 2015 Annual Meeting of Shareholders, such proposal
must be received by the Company on or before November 21, 2014, to be considered for inclusion in the Company's proxy materials.
All shareholder proposals should be addressed to the Company at its principal executive offices, P.O. Box 25107, Chattanooga,
Tennessee 37422-5107, Attention: Corporate Secretary, and must comply with the rules and regulations of the Securities and
Exchange Commission.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders who wish to communicate with members of the Board, including the independent directors individually or
as a group, may send correspondence to them in care of the Secretary at the Company’s corporate headquarters, 104 Nowlin
Lane, Suite 101, Chattanooga, TN 37421.
PROPOSAL TWO
TO CONSIDER AND APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS OF THE ANNUAL
INCENTIVE COMPENSATION PLAN APPLICABLE TO 2014 - 2018.
The Company seeks generally to preserve its ability to claim tax deductions for compensation paid to its executive officers.
Section 162(m) of the Internal Revenue Code (the code) sets limits on deductibility for compensation paid to (i) the Chief Executive
Officer and (ii) the other most highly compensated executive officers whose compensation is reported in the Summary Compensation
Table (covered employees). “Qualified performance based compensation”, as defined in the Code, (which can include compensation
from stock options, SARS, stock units, stock payments, cash awards and grants of restricted stock) is not subject to the applicable
deductibility limits if certain conditions are met. One of the conditions is shareholder approval of the material terms of the performance
goals under which compensation is paid.
On March 5, 2014, the Compensation Committee approved the material terms of the Annual Incentive Compensation Plan
applicable to 2014 - 2018. The material terms of the performance goals upon which awards may be based are being submitted to
you for shareholder approval at the Annual Meeting, in order to allow awards granted under the plan to satisfy the requirements for
“qualified performance-based compensation” under the Code, thereby allowing the company to take a federal income tax deduction
for the related compensation expense notwithstanding the limitations of Section 162(m).
Material Terms of the Performance Goals
Under the Annual Incentive Compensation Plan applicable to 2014 - 2018, cash incentive and stock based incentive
awards may be granted based on achievement of the plan’s performance goals. The stock based incentive awards consist of Long
Term Incentive Share Awards and Career Share Awards, as described above under the heading Primary Long Term Incentive Share
Awards and Career Share Awards.
The material terms of the performance goals for such awards consist of: (i) the class of employees eligible to receive the
awards (eligible employees); (ii) the performance criteria on which goals are based (performance criteria); and (iii) the maximum
payout of an award that can be provided to any employee and to all covered employees under the plan during a specified period
(maximum payout).
Eligible Employees
All covered employees and any additional key executives chosen by the compensation committee are eligible to receive
awards under the plan. This group is comprised of approximately 20 individuals.
Performance Criteria-2014 - 2018
The performance Criteria related to awards under the Annual Incentive Compensation Plan applicable to 2014 - 2018,
include the following measures: minimum levels of corporate (Company) and business unit Operating Income, as adjusted for
specific and unusual items, and a minimum level of profitability (with respect to Career Share Awards).
Cash Incentive Awards
The Cash Incentive Award component is equal to a range of from 15% to a maximum of 105% of base salary as of the
beginning of the year.
The percentage weight given to Operating Income achievement levels was set at 50%, 30% and 20%, respectively, for
Company, residential, and contract business unit results to determine the cash incentive for the Chief Executive Officer and all other
participants whose primary responsibility is at the corporate level.
24
The percentage weight given to Operating Income achievement levels was set at 55%, 30% and 15%, respectively, for
business unit, Company, and other business unit results, to determine the cash incentive for officers whose primary responsibility
relates to one of the Company’s business units.
Share Based Awards
The plan also provides that each participant may earn a restricted stock award consisting of Long Term Incentive Shares
and Career Shares.
Vesting of the restricted share awards of Long Term Incentive Shares and Career Shares is as described above for 2013,
except in the case of the Company’s Chief Operating Officer and Chief Financial Officer whose Career Share Awards for 2014, if
received, will vest ratably over 5 years from the individual’s 61st birthday.
Maximum Payout
The maximum Annual Cash Incentive Award that could be paid to any one participant for 2014 - 2018 is $750,000 and the
maximum amount of cash awards that can be paid to all covered employees is $2,500,000.
The maximum Annual value of stock based awards that could be issued to any one participant in would be $650,000 and
the maximum value of stock awards that could be issued to all covered employees would be $2,500,000.
General
The Compensation Committee has the authority to establish, review and certify achievement of the performance criteria
and to administer and interpret the Incentive Compensation Plan. The plan also provides that the Committee may, in its discretion,
reduce, but not increase, any participant’s award (by an amount equal to up to 30% of such award) based on subjective criteria
related to the individuals’ performance during the year.
In accordance with past practice, determination of whether and to what extent awards under the plan applicable to 2014
will be granted, will be made by the Compensation Committee during the first quarter of 2015.
The affirmative vote of a majority of the total votes cast that are represented in person or by proxy at the Annual Meeting
is necessary for approval of the material terms of the performance goals for the plan. Abstentions and broker non-votes will be
treated as negative votes in determining whether a majority of the total votes cast has been obtained.
The board of Directors recommends that the Company’s shareholders vote FOR approval of the material terms
of the Performance Goals of the Annual Incentive Compensation Plan applicable to 2014 - 2018.
PROPOSAL THREE
ADVISORY VOTE ON EXECUTIVE COMPENSATION
As required under recent amendments to the Securities Exchange Act of 1934, our stockholders may cast an advisory
vote on the compensation of our Named Executive Officers, as described in this proxy statement.
Our executive compensation programs are designed to attract, motivate, and retain our Named Executive Officers, who
are critical to our success. Please read the Compensation Discussion and Analysis for additional details about our executive
compensation programs, including information about the fiscal 2013 compensation of our Named Executive Officers.
We are asking our Shareholders to indicate their support for our Named Executive Officer compensation as described in
this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express
their views on our Named Executive Officers’ compensation. This vote is not intended to address any specific item of compensation,
but rather the overall compensation of our Named Executive Officers and the philosophy, policies and practices described in this
proxy statement. We recommend that stockholders vote, on an advisory basis, “FOR” the following resolution:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s
named executive officers, as discussed and disclosed in the Compensation Discussion and Analysis, the executive
compensation tables and related narrative executive compensation disclosure in this proxy statement.”
The above resolution will be deemed to be approved if it receives the affirmative vote of a majority of the total votes cast
on Proposal Three at the annual meeting. Abstentions and broker non-votes are not considered to be votes cast and, accordingly,
will have no effect on the outcome of the vote. As this vote is an advisory vote, the outcome is not binding on us with respect to
future executive compensation decisions, including those relating to our named executive officers. Our Board of Directors and our
Compensation Committee, however, value the opinions of our stockholders, and to the extent there is any significant vote against
the Named Executive Officer compensation as disclosed in this proxy statement, the Compensation Committee will consider our
stockholders’ concerns and will evaluate whether any actions are necessary to address those concerns.
25
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF PROPOSAL THREE.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2013
The firm of Ernst & Young LLP served as independent registered public accountants for the Company for fiscal year 2013.
Subject to ratification of its decision by the Company’s shareholders, the Company has selected the firm of Dixon Hughes Goodman
LLP to serve as its independent registered public accountants for its 2014 fiscal year. A representative of Dixon Hughes Goodman
LLP is expected to be present at the Annual Meeting and will have the opportunity to make a statement if he so desires and to
respond to appropriate questions from shareholders. Representatives of Ernst & Young and Dixon Hughes Goodman will be
available to make a statement and answer questions either in person or by telephone.
The Board of Directors recommends that you vote in favor of Proposal Three. In the event that the Company’s shareholders
do not ratify the selection of Dixon Hughes Goodman LLP as independent registered public accountants for fiscal 2014, the Board
of Directors will consider other alternatives, including appointment of another firm to serve as independent registered public
accountants for fiscal 2014.
AUDIT FEES DISCUSSION
The following table sets forth the fees paid to Ernst & Young LLP for services provided during fiscal years 2012 and 2013:
Total Audit Fees (1)
2013
2012
$791,461
$563,775
(1) Represents fees for professional services provided in connection with the audit of the Company’s annual financial
statements, and audit of the effectiveness of internal control over financial reporting during the 2013, review of the
Company’s quarterly financial statements, review of other SEC filings and technical accounting issues. Amounts
include $70,032 and $69,000 related to the review of acquisitions by the Company in 2013 and 2012, respectively.
Additionally, 2012 includes $6,000 related to the review of an SEC comment letter to the Company.
It is the policy of the Audit Committee to pre-approve all services provided by its independent registered public accountants.
In addition, the Audit Committee has granted the Chairman of the Audit Committee the power to pre-approve any services that the
Committee, as a whole, could approve. None of the fees were approved by the Audit Committee pursuant to the de minimis exception
of Reg S-X T Rule 2-01(c)(7)(i)(C).
ADDITIONAL INFORMATION
The entire cost of soliciting proxies will be borne by the Company. In addition to solicitation of proxies by mail, proxies may
be solicited by the Company’s directors, officers, and other employees by personal interview, telephone, and telegram. The persons
making such solicitations will receive no additional compensation for such services. The Company also requests that brokerage
houses and other custodians, nominees, and fiduciaries forward solicitation materials to the beneficial owners of the shares of
Common Stock held of record by such persons and will pay such brokers and other fiduciaries all of their reasonable out-of-pocket
expenses incurred in connection therewith.
As of the date of this Proxy Material, the Board does not intend to present, and has not been informed that any other
person intends to present, any matter for action at the Annual Meeting other than those specifically referred to herein. If other
matters should properly come before the Annual Meeting, it is intended that the holders of the proxies will vote in accordance with
their best judgment.
OTHER MATTERS
Dated: March 24, 2014
The Dixie Group, Inc.
Daniel K. Frierson
Chairman of the Board
26
(THIS PAGE INTENTIONALLY BLANK)
(THIS PAGE INTENTIONALLY BLANK)
(THIS PAGE INTENTIONALLY BLANK)
The environment encompasses all that is around us.
At Dixie Group, we have a global perspective about the
environment and our impact upon it. With customers
around the world, we are mindful that our actions
reflect our commitment as an environmentally sound
manufacturer.
Improvement in all areas of performance, including
reducing the environmental impact of our
manufacturing processes, is an inherent part of our
corporate strategy. We are committed to providing a
safe and healthy environment for our associates and our
communities.
Dixie is focused on leading industry efforts to integrate
sustainability into product creation and manufacturing.
We are committed to making our environment thrive
through our attention to products, processes and
services.
Please see the listing inside the 2013 Annual Report
front cover for The Dixie Group residential and
commercial brands.
2208 South Hamilton Street | Dalton, Georgia 30721-4974