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2 0 1 6 A N N U A L R E P O R T A N D P R O X Y S T A T E M E N T
T H E D I X I E G R O U P 2 0 1 6 A N N U A L R E P O R T
01
THE DIXIE GROUP is the prominent provider of high-end carpets
and rugs to both the residential and corporate markets. Our focus on
sophistication and style, brilliant color, exclusive design, and superb
quality are all known in upper-end retailer communities. Our emphasis
on superior product design continues to lead fashion trends and satisfy
the discerning consumer and corporate customer.
Fabrica, Masland and Dixie Home encompass the brands of our high end residential offerings. These brands are
known for fine quality, innovative styling that provide beauty and comfort to the home setting. Our commercial
offering consists of Masland Contract, Masland Hospitality, Atlas Carpet Mills and Dixie International. Our com-
mercial brands service the high end corporate, hotel and related commercial markets. We are focused on our
primary competencies of distinctive design and excellent quality. Our commitment is to provide a unique line of
brands that satisfy the needs of the upper-end of the soft floor covering market.
T H E D I X I E G R O U P 2 0 1 6 A N N U A L R E P O R T
Letter to Shareholders,
2016 was a year of adjustment and change, both in the
pointillist touch. With the introduction of many beautiful
marketplace and in our company. We had multiple
new products, and the disruption of the restructuring
challenges during the year. The market did not coop-
behind us, our residential brands should continue to
erate as the soft floorcovering industry sales were
outperform the industry.
affected by both the general economy slowdown
during the election cycle and the continued shift to
hard surfaces. We struggled with our commercial
product sales and the continued shift to modular car-
pet tile. Finally, internally we had a major inventory
adjustment during the first and fourth quarters with
production significantly below sales, severely impact-
ing our operating results.
02
Commercially last year we lagged the industry due to
our lack of growth in modular carpet tile products. We
have addressed this issue through multiple changes.
The first action has been to promote David Hobbs to
President and Don Dolan to Executive Vice President
of Sales of Masland Contract. David’s background
serving the modular carpet tile marketplace with Don’s
strengths in our traditional specified designer market
Despite this difficult year from a profit perspective, we
we feel will get us back on track with this important
have made several significant changes to improve our
area of growth. Secondly, we moved our Avant offer-
results in the future. We completed our restructuring
ing into the Masland Contract brand to give these
earlier in the year, setting the stage for a more produc-
products greater exposure. Both our Atlas and
tive manufacturing environment. This completes the
Masland Contract brands are ramping up the number
separation of our east coast commercial and residen-
of product launches for 2017, expanding both the styl-
tial businesses. Our claims expense has declined sig-
ing and price points we service, particularly in modular
nificantly as our workforce training has taken effect,
carpet tile. New products, including the Atlas success-
improving our quality. We refinanced our debt, push-
ful launch of our Bellissimo Collection, made with our
ing out the maturity until 2021. We have reduced our
multi-color Visionweave technology and Masland
inventory to levels in line with our sales and reflecting
Contract’s success with Lava, show how we are regain-
the improvements in reduced waste and shorter
ing momentum in this market. We are beginning to see
throughput times. Our service is back in line with cus-
the results of this effort in our current business.
tomer expectations. At the year end, the industry
announced a price increase based on many increases
in cost of both labor and raw material. This increase
included both residential and commercial products.
We launched a series of new distinctive products in
our residential market in 2016. Our Fabrica brand con-
tinues to create patterns that maintain our history of
elegant fashion, such as the recently released Alluvial
pattern. Masland continues to launch new patterns
such as “This and That” with a hint of texture with tonal
variations that create contrast and visual depth with a
In the coming years the housing market will be in the
middle of two massive demographic waves, millennials
and baby boomers, with both groups driving demand
for at least the next decade. This trend should provide
steady growth in the floorcovering market. We are
particularly pleased with the growth in single family
housing and the rate of existing home sales. In addi-
tion there has been a significant change in the flooring
marketplace as hard surface products have grown at a
rate much faster than soft surface products over the
T H E D I X I E G R O U P 2 0 1 6 A N N U A L R E P O R T
03
last several years. Today, on a square foot basis, hard
We see this next year as one in which we will continue
surface flooring makes up approximately 45% of the
to emphasize cost reduction projects and continued
floor covering market. We have responded to this
operational improvements as we forge new areas of
accelerated shift to hard surface flooring by launching
growth in our existing soft surface and new hard sur-
several initiatives in both our residential and commer-
face markets. We are optimistic about our opportuni-
cial brands. We introduced the Calibrè line of luxury
ties as the country settles down after a year of dramatic
vinyl tile products in the fall of 2016 through our
swings both politically and economically. We have
Masland Contract brand. Masland Contract has
hired T.M. Nuckols, formerly of Invista, to succeed Paul
brought their own unique styling to the market as they
Comiskey as head of our residential business as Paul
do with their soft flooring categories. These products
plans to retire in early 2018. Paul has built a fine team
have been engineered for high performance, available
of professionals in the residential market as he has led
for quick delivery, with exceptional styling and a great
the consolidation of our three residential brands into a
value.
Residentially, our Dixie Home and Masland Residential
brands are supplying Stainmaster PetProtect® luxury
vinyl tile which includes a “Claw Scratch Shield” coat-
ing to help resist scratching from pets along with “Pet
Traction Action” for pet paws. With its resistance to liq-
uid absorption, the new LVT flooring effectively resists
pet odors and stains. Dixie Home will be offering this
superior residential product line with a limited lifetime
warranty while Masland will be offering a commercial
grade version of the PetProtect® line featuring a lim-
ited lifetime residential warranty and a 12-year limited
commercial warranty, one of the heaviest wear layers
cohesive unit. T.M., long acquainted with Dixie, brings
a history of supporting differ entiated branded prod-
uct in the soft floorcovering market.
We want to thank all of our associates for all of the hard
work they have been through this past year, and we
appreciate their efforts to move us forward to sus-
tained profitability. We appreciate both our investors
and our board of directors for their input during this
period of changes in the marketplace. And, as we con-
tinue to supply fine floorcovering products that meet
the style, design and quality standards our customers
have come to expect from us, we would like to thank
them for the support that they have shown us through-
available in the industry, keeping us a step ahead of
out the past year.
the competition. As the primary supplier with the
Stainmaster PetProtect® luxury vinyl tile product offer-
Sincerely,
ing, we feel that our residential business is carving out
a high end niche that meets the needs of the more dis-
cerning customer. Finally, we are planning to launch a
high end engineered wood line through our Fabrica
DANIEL K. FRIERSON
brand that will offer more sophisticated looks and
Chairman and Chief Executive Officer
sizes to the design channels we currently serve.
March 23, 2017
04
T H E D I X I E G R O U P 2 0 1 6 A N N U A L R E P O R T
Fabrica, Masland and Dixie Home encompass the brands of our high-end
residential offerings. These brands are known for fine quality, innovative
styling that provide beauty and comfort to the home setting. Through an
exceptional line of brands, our upper-end residential products are
marketed to domestic and international customers in residential markets.
05
While we continue to lead with carpet as our primary
offering we will enter into the Luxury Vinyl Tile segment
this year with our Masland and Dixie Home brands. Our
STAINMASTER™ PetProtect™ LVT offerings perfectly
complement the already diverse range of residential
flooring options with a range of high-end designs, con-
structions and price points, allowing us to immediately
compete in the fastest growing residential flooring
segment.
FABRICA fulfills the promise of our corporate mission
of “Quality without Compromise.” Fabrica manufac-
tures carpets and rugs for the most demanding seg-
ments 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.
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 manufac-
turer in the United States. The tradition of manufactur-
ing quality products has been practiced for over 150
years and continues to be practiced today.
DIXIE HOME was founded in early 2003 on the prem-
ise 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 broad-
loom carpets that fall within more moderately priced
segments of the high-style residential market.
T H E D I X I E G R O U P 2 0 1 6 A N N U A L R E P O R T
06
Dixie has assembled a group of unique commercial brands with one
common denominator. Each of our divisions market to brand conscious
companies where smart design enhances their image and helps them achieve
their goals. The diverse spaces we build products for—hotels, office
buildings, restaurants, universities and more, are all design conscious and
we style and construct products that will reflect their brand image in the
best possible way.
MASLAND CONTRACT draws on over 150 years of
expertise in flooring and combines the latest trends in
commercial design to bring a performance line of
innovative products to the markets we serve. Masland
Contract has long been a style leader and now with
the introduction of Luxury Vinyl Tile and an extensive
area rug line to compliment hard surface, we are
capable of any solution for brand savvy interiors.
ATLAS CARPET MILLS is a style leader that has been
designing and manufacturing unique broadloom, car-
pet tile and area rugs for commercial environments over
the past 40 years. Known for creating award-winning
products, the company provides a wide array of excep-
tional patterns and textures for interior spaces that
require superior aesthetics and performance. In addition
to the diverse running line collection, Atlas also offers
extensive custom design capabilities for its customers.
The use of Atlas products provides the ability to dif-
ferentiate an environment from competitors, thereby
attracting and maintaining both external and internal
customers.
MASLAND HOSPITALITY offers high styled products
to a market that places high emphasis on defining
brand as a way to distinguish themselves from the rest
of the industry. Coupled with a wide array of technol-
ogies to provide custom solutions, Masland Hospitality
is strategically positioned to provide unparalleled
distinction to hoteliers around the world.
07
T H E D I X I E G R O U P 2 0 1 6 A N N U A L R E P O R T
THE DIXIE GROUP continues to strive towards the creation
of a healthier planet for the people of today, as well as our
future generations.
08
The Dixie Group is committed to embracing new
When building product portfolios, The Dixie
technologies for more efficient ways to manufac-
Group places high priority on materials selected
ture our products, conserving our natural
for recycled content. We have also initiated pro-
resources, and creating less waste. We under-
grams within our tufting facilities to rewind and
stand that everything we do has an impact on our
recycle short ends of yarn into other production
planet, and we are committed to leaving the
runs, preventing waste which would otherwise
smallest possible footprint impacting our environ-
end up outside the recycle chain. Our manufac-
ment. At the Dixie Group, we have a global per-
turing facilities also divert over 140,000 pounds of
spective about the environment and our impact
carpet and yarn waste from landfills each year, for
upon it.
reprocessing into other products, such as carpet
padding, automobile parts, and roof shingles.
Our philosophy is to embrace four basic principles:
When possible, each of the companies within The
the sustainable selection and efficient use of raw
Dixie Group attempts to house their inventory
materials, the conservation of energy, the man-
within one localized facility, in order to eliminate
agement of waste, and the recycling of materials.
transportation costs of moving supplies from one
The Dixie Group also believes in working smarter
facility to another.
to create all of our products, and eliminating
Consumption of water, electricity and natural gas
wasteful production methods. Our factories have
used in the dyeing and finishing processes has
been recycling scrap metal, fiber waste, card-
been significantly reduced—in some areas, energy
board, and plastic sheeting for years. We are
use is down by over 25% since 1999. In our Atmore
proud to say that our Fabrica division won the
production facility, 100% of energy consumption
WRAP Award from the California Integrated Waste
is offset 1:1 by renewable energy credits. This is
Management Board for being recognized as one
where the amount of energy consumed is matched
of the local businesses which had implemented
by energy generated by a clean power facility and
outstanding waste reduction efforts.
added back to the national electric grid.
1 0 - K R E P O R T
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 31, 2016
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
62-0183370
(State or other jurisdiction of incorporation of organization)
(I.R.S. Employer Identification No.)
475 Reed Road, Dalton, GA 30720
(706) 876-5800
(Address of principal executive offices and zip code)
(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
Securities registered pursuant to Section 12(g) of the Act:
Title of class
None
Name of each exchange on which registered
NASDAQ Stock Market, LLC
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 24, 2016 (the last business day of the registrant's most recently
completed fiscal second quarter) was $46,495,937. 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 24, 2017
15,248,338
shares
870,714
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 May 3, 2017 (Part III).
DOCUMENTS INCORPORATED BY REFERENCE
1
THE DIXIE GROUP, INC.
Index to Annual Report
on Form 10-K for
Year Ended December 31, 2016
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
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2016 and December 26, 2015
Consolidated Statements of Operations - Years ended December 31, 2016, December 26, 2015, and
December 27, 2014
Consolidated Statements of Comprehensive Income (Loss) - Years ended December 31, 2016,
December 26, 2015, and December 27, 2014
Consolidated Statements of Cash Flows - Years ended December 31, 2016, December 26, 2015,
and December 27, 2014
Consolidated Statements of Stockholders' Equity - December 31, 2016, December 26, 2015, and
December 27, 2014
Notes to Consolidated Financial Statements
Exhibit Index
2
4
7
10
10
10
11
11
12
15
16
24
24
24
24
25
26
26
26
26
26
27
28
32
33
34
35
36
38
39
67
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 floorcovering products to high-end residential and
commercial customers through our various sales forces and brands. We focus exclusively on the upper-end of the floorcovering
market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer
relationships. Our Fabrica, Masland, and Dixie Home brands have a significant presence in the high-end residential floorcovering
markets. Our Atlas Carpet Mills, Masland Contract and Masland Hospitality brands, participate in the upper-end specified commercial
marketplace. Dixie International sells all of our brands outside of the North American market.
Our business is primarily 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. However, the growth rate, measured as market sales volume
in square feet, has been substantially higher for hard surface products than soft surface products over the past several years.
Therefore, during the fourth quarter of 2016, we began offering luxury vinyl tile (“LVT”) products under the Calibre brand which was
our first hard surface offering in the commercial markets. These new LVT products are being sold by our existing Masland Contract
sales force. Residentially, our Dixie Home and Masland Residential brands will be supplying Stainmaster PetProtect® luxury vinyl.
Finally, we are preparing to launch a high-end engineered wood line through our Fabrica brand.
We have one line of business, floorcovering.
Our Brands
Our brands are well known, highly regarded and complementary; by being differentiated, we offer meaningful alternatives to the
discriminating customer.
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.
Fabrica consists of extremely high quality carpets and area rugs in both nylon and wool, with a wide variety of patterns and textures.
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. Beginning in 2017, it will offer luxury vinyl tile products to the marketplace it serves. 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 residential tufted broadloom and rugs to selected retailers and home centers under the Dixie Home and private
label brands. Beginning in 2017, it will offer luxury vinyl tile products to the marketplace it serves. 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 residential market. Its
products are marketed at selling prices which we believe average two times the soft floorcovering industry's average selling price.
Atlas Carpet Mills is our premium commercial brand. Atlas has long been known for superior style and design. Atlas’ focus is the
specified design community including architects and designers who serve the upper-end commercial marketplace. The Atlas brand
has unique styling, as evident in both its broadloom and modular carpet tile product offerings. Atlas’ high quality offerings are
manufactured utilizing just in time manufacturing techniques in our California operations.
Masland Contract markets and manufactures broadloom and modular carpet tile for the specified commercial marketplace. During
2016, Masland Contract began offering luxury vinyl tile to the 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.
Masland Hospitality focuses on the hospitality market with both custom designed and running line products. Utilizing computerized
yarn placement technology, as well as offerings utilizing our state of the art Infinity tufting technology, this brand provides excellent
service and design flexibility to the hospitality market serving upper-end hotels, conference centers and senior living markets. Its
4
broadloom and rug product offerings are designed for the interior designer in the upper-end of the hospitality market who appreciates
sophisticated texture, color and patterns with excellent service.
Industry
We are a flooring manufacturer in an industry composed of a wide variety of companies from small privately held firms to large
multinationals. In 2015, the U.S. floorcovering industry reported $23.1 billion in sales, up approximately 4.2% over 2014's sales of
$22.2 billion. In 2015, the primary categories of flooring in the U.S., based on sales, were carpet and rug (46%), wood (16%),
resilient (includes vinyl and LVT) and rubber (14%), ceramic tile (14%), stone (6%) and laminate (4%). In 2015, the primary categories
of flooring in the U.S., based on square feet, were carpet and rug (55%), resilient (includes vinyl and LVT) and rubber (18%), ceramic
tile (12%), wood (8%), laminate (5%) and stone (2%). Each of these categories is influenced by the residential construction,
commercial construction, and residential remodeling markets. These markets are influenced by many factors including consumer
confidence, spending for durable goods, turnover in housing and the overall strength of the economy.
The carpet and rug category 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. In addition, the industry provides multiple floorcovering surfaces such as luxury vinyl tile and wood. Though soft
floorcovering is still the dominant floorcovering surface, it has gradually lost market share to hard floorcovering surfaces over the
last 25 years. 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 floorcovering markets are styling, color, product design, quality and
service. In the high-end residential and commercial markets, we compete with various other floorcovering suppliers. 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, such as the providers of Stainmaster® for which we utilize both
branded yarns and luxury vinyl tile, and significant 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", “Atlas Carpet Mills”, “Masland Contract” and "Masland Hospitality" 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 10% in 2016, 9% in 2015,
and 9% in 2014. No other customer was more than 10 percent of our sales during the periods presented. During 2016, sales to our
top ten customers accounted for 15% percent of our sales and our top 20 customers accounted for 18% percent of our sales. We
do not make a material amount of sales in foreign countries.
5
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
2016
66%
34%
2015
64%
36%
2014
67%
33%
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 among the second, third and fourth quarters. Working capital requirements have
normally reached their highest levels in the third and fourth quarters of the year.
Environmental
Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and
regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected
to have a material adverse impact in the future. See "Risk Factors” in Item 1A of this report.
Raw Materials
Our primary raw material is bulk continuous filament for yarn. Nylon is the primary yarn we utilize and, to a lesser extent, wool and
polyester 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 international sources. Our other raw materials are purchased primarily from domestic suppliers,
although the majority of our luxury vinyl tile is sourced outside the United States. 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 dyeing and 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 31, 2016, we employed 1,746 associates in our operations.
6
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 floorcovering 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 floorcovering industry, in which we participate, 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. We
derive a majority of our sales from the replacement segment of the market. Therefore, economic changes that result in a significant
or prolonged decline in spending for remodeling and replacement activities could have a material adverse effect on our business
and results of operations.
The floorcovering industry is highly dependent on construction activity, including new construction, which is cyclical in nature. The
U.S. and global economies, along with the residential and commercial markets in such economies, can negatively impact the
floorcovering industry and our business. Although the impact of a decline in new construction activity is typically accompanied by
an increase in remodeling and replacement activity, these activities typically lag during a cyclical downturn. Although the difficult
economic conditions have improved since the last cyclical downturn in 2008, 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 our 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. A significant
reduction of sales through such 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 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. The cost and terms of such financing is uncertain. These and other economic factors could have a material
adverse effect on demand for our products and on our 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 floorcovering industry is highly competitive. We face competition from a number of domestic manufacturers and independent
distributors of floorcovering products and, in certain product areas, foreign manufacturers. Significant consolidation within the
floorcovering 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
7
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 and the accelerated growth of hard surface alternatives, have resulted in decreased demand for our soft floorcovering
products and in the loss of market share to hard surface products. As a result, competition from providers of other soft surfaces
has intensified and may result in decreased demand for our products. In addition, we face, and will continue to face, competitive
pressures on our sales price and cost of our products. 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 vary and the inability to either offset or pass on such cost increases or avoid passing on decreases
larger than the cost decrease to our customers could materially adversely affect our business, results of operations and
financial condition.
We require substantial amounts of raw materials to produce our products, including nylon and polyester yarn, as well as wool yarns,
synthetic backing, latex, and dyes. Substantially all of the raw materials we require are purchased from outside sources. The prices
of raw materials and fuel-related costs vary significantly with market conditions. The fact that we source a significant amount of raw
materials means that several months of raw materials and work in process are moving through our supply chain at any point in
time. We are sourcing the majority of our new luxury vinyl tile and wood product lines from overseas. We are not able to predict
whether commodity costs will significantly increase or decrease in the future. If commodity costs increase in the future and we are
not able to reduce or eliminate the effect of the cost increases by reducing production costs or implementing price increases, our
profit margins could decrease. If commodity costs decline, we may experience pressures from customers to reduce our selling
prices. The timing of any price reductions and decreases in commodity costs may not align. As a result, our margins could be
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 floorcovering products. A significant portion of such yarn is purchased from one
supplier. Our yarn supplier is one 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 competitiveness of our products. While we believe there are other sources of nylon yarns, an unanticipated termination or
interruption of our current supply of branded 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 and branded fiber products. An interruption in the supply of these or other raw
materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our
operations, which could have a material adverse effect on our business.
We rely on information systems in managing our operations and any system failure or deficiencies of such systems
may have an adverse effect on our business.
Our businesses rely on sophisticated systems to obtain, rapidly process, analyze and manage data. We rely on these systems to,
among other things facilitate the purchase, manufacture and distribution of our products; receive, process and ship orders on a
timely basis; and to maintain accurate and up-to-date operating and financial data for the compilation of management information.
We rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and
distribution systems, and certain of our production processes are managed and conducted by computer. Any damage by unforeseen
events or system failure which causes interruptions to the input, retrieval and transmission of data or increase in the service time,
whether caused by human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, various forms of
cybercrimes including and not limited to hacking, intrusions and malware or otherwise, could disrupt our normal operations. There
can be no assurance that we can effectively carry out our disaster recovery plan to handle the failure of our information systems,
or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The
occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer
satisfaction and harm to our reputation, which could result in loss of customers, increased operating expenses and financial losses.
Any such events could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects.
8
We may experience certain risks associated with internal expansion, acquisitions, joint ventures and strategic investments.
We have recently embarked on several strategic and tactical initiatives, including aggressive internal expansion, acquisitions and
investment in new products, to strengthen our future and to enable us to return to sustained growth and profitability. Growth through
expansion and acquisition involves risks, many of which may continue to affect us after the acquisition or expansion. An acquired
company, operation or internal expansion 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. Further, internally generated growth that involves expansion
involves risks as well. Such risks include the integration of computer systems, alignment of human resource policies and the retention
of valued talent. 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 or expansion of our existing operations could lead to the potential loss of customers of the
acquired or existing business, the potential loss of employees who may be vital to the new or existing 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 expansion or 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 regulations 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, regulations or regulatory guidelines 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. For
example, producer responsibility regulations regarding end-of-life disposal could impose additional cost and complexity to our
business.
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.
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 to 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.
9
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 such as adverse weather conditions or other disruptions to our facilities,
supply chain or our customer's facilities. 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 24,
2017:
Location
Administrative:
Saraland, AL
Commerce, CA*
Santa Ana, CA
Calhoun, GA
Dalton, GA*
Chattanooga, TN*
Type of Operation
Administrative
Administrative
Administrative
Administrative
Administrative
Administrative
Total Administrative
Manufacturing and Distribution:
Atmore, AL
Roanoke, AL
Saraland, AL
Commerce, CA*
Santa Ana, CA
Adairsville, GA
Calhoun, GA *
Calhoun, GA
Chickamauga, GA*
Eton, GA
Carpet Manufacturing, Distribution
Carpet Yarn Processing
Carpet, Rug and Tile Manufacturing, Distribution
Carpet Manufacturing, Distribution
Carpet and Rug Manufacturing, Distribution
Samples and Rug Manufacturing, Distribution
Carpet Wool Manufacturing
Carpet Dyeing & Processing
Carpet Manufacturing
Carpet Manufacturing, Distribution
Total Manufacturing and Distribution
* Leased properties
TOTAL
Approximate Square Feet
29,000
21,800
4,000
10,600
47,900
3,500
116,800
610,000
204,000
384,000
253,800
200,000
292,000
99,000
193,300
107,000
408,000
2,751,100
2,867,900
In addition to the facilities listed above, we lease a small amount of office space in various locations.
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
We have been sued, together with the 3M Company and approximately 30 other carpet manufacturers, by the Gadsden (Alabama)
Water Works in the circuit court of Etowah County Alabama [The Water Works and Sewer Board of the City of Gadsden v. 3M
Company, et al, civil action No. 31-CV-2016-900676.00], in a case seeking monetary damages and injunctive relief related to the
use of certain chemical compounds in the manufacture and finishing of carpet products “in and around Dalton Georgia.” On motion
of the defendants, the case was removed to the U.S. District Court for the Northern District of Alabama (Middle Division) Case No.
4:16-CV-01755-SGC. As alleged in the lawsuit, the chemicals are perflourinated compounds (“PFC”) perflourinated acid (“PFOA”)
and perfluorooctane sulfonate (“PFOS”) manufactured by 3M and used in certain finishing and treatment processes by the defendants
10
and, as a consequence of such use, either discharged into or leached into the water systems around Dalton, Georgia. The Complaint
seeks damages “in excess of $10 thousand dollars”, but otherwise unspecified in amount in addition to injunctive relief. We intend
to defend the matter vigorously and are unable to estimate our potential exposure to loss, if any, at this time.
We are one of multiple parties to two lawsuits, both filed in Madison County Illinois, styled Sandra D. Watts, Individually and as
Special Administrator of the Estate of Dianne Averett, Deceased vs. 4520 Corp., Inc. f/k/a Benjamin F. Shaw Company, et al No.
12-L-2032 and styled Brenda Bridgeman, Individually and as Special Administrator of the Estate of Robert Bridgeman, Deceased,
vs. American Honda Motor Co., Inc., f/k/a Metropolitan Life Insurance Co., et al No. 15-L-374. Each lawsuit entails a claim for
damages to be determined in excess of $50,000 filed on behalf of the estate of an individual which alleges that the deceased
contracted mesothelioma as a result of exposure to asbestos while employed by the Company. Discovery in both matters is ongoing,
and tentative trial dates have been set. We have denied liability, are defending the matters vigorously and are unable to estimate
our potential exposure to loss, if any, at this time.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable
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 24, 2017, 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, 75
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. He is currently Chairman
of The Carpet and Rug Institute. He serves as Director of Astec Industries, Inc. headquartered
in Chattanooga, Tennessee; and Louisiana-Pacific Corporation headquartered in Nashville,
Tennessee.
D. Kennedy Frierson, Jr., 49
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, 56
Vice President and Chief
Financial Officer
Paul B. Comiskey, 65
Vice President and President,
Dixie Residential
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.
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.
E. David Hobbs, 65
Vice President and President,
Masland Contract
President, Masland Contract since September 2016. Executive President of Operations,
Masland Contract from 2012 to September 2016. Vice President of Planning, Mohawk
Industries from 2010 to 2011, Interface Americas from 1984 to 2010, President, Interface
Americas from 2005 to 2009.
W. Derek Davis, 66
Vice President, Human
Resources and Corporate
Secretary
Vice President of Human Resources since January 1991 and Corporate Secretary since
January 2016. Corporate Employee Relations Director, 1988 to 1991.
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 24, 2017, the total number of holders of our Common Stock was approximately 3,000 including an estimated 2,600
shareholders who hold our Common Stock in nominee names. The total number of holders of our Class B Common Stock was 10.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
Fiscal Month Ending
October 29, 2016
November 26, 2016
December 31, 2016
Three Fiscal Months Ended December 31, 2016
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
— $
4,234
200
4,434
$
—
3.96
3.40
3.93
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
—
4,234
200
4,434
$
2,344,158
(1) During the three months ended December 31, 2016, 4,234 shares were withheld from an employee in lieu of cash payments
for withholding taxes due for a total amount of $16,767.
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 31, 2016 and December 26, 2015. Due to rounding, the totals of the quarterly information for each of the years reflected
below may not necessarily equal the annual totals. There is a restriction on the payment of dividends under our revolving credit
facility.
12
THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
(unaudited) (dollars in thousands, except per share data)
2016
Net sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Loss from discontinued operations
Income (loss) on disposal of 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
2015
Net sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Basic earnings 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 (1)
$
89,234
$
105,316
$
100,297
$
102,606
19,506
(5,840)
(4,757)
(10)
—
28,242
3,403
1,615
(3)
65
25,831
1,916
573
(39)
—
21,846
(2,894)
(2,638)
(79)
(5)
(4,767) $
1,677
$
534
$
(2,722)
(0.30) $
0.10
$
0.04
$
—
—
—
(0.30) $
0.10
$
0.04
$
(0.30) $
0.10
$
0.04
$
—
—
—
(0.30) $
0.10
$
0.04
$
(0.17)
(0.01)
(0.18)
(0.17)
(0.01)
(0.18)
$
5.66
3.25
$
4.89
3.00
$
5.15
3.15
5.56
3.20
1ST
2ND
3RD
4TH
95,855
$
109,957
$
108,908
$
107,763
23,339
(2,683)
(2,380)
(88)
29,306
2,177
516
(12)
27,265
1,253
84
(18)
(2,468) $
504
$
66
$
(0.15) $
(0.01)
(0.16) $
(0.15) $
(0.01)
(0.16) $
0.03
$
0.01
$
—
—
0.03
$
0.01
$
0.03
$
0.01
$
—
—
0.03
$
0.01
$
9.60
7.77
$
11.40
$
11.50
$
8.76
8.81
26,320
1,243
(498)
(30)
(528)
(0.03)
—
(0.03)
(0.03)
—
(0.03)
9.89
4.75
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) The fourth quarter of 2016 contains 14 weeks, all other quarters presented in 2016 and 2015 contain 13 weeks.
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 31, 2016. The
comparison assumes that $100.00 was invested on December 31, 2011, 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 & notes,
including deposits utilized and accrued purchases
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
2016 (1)
2015 (2)
2014 (3)(4)
2013 (5)
2012
$
397,453
$
422,483
$
406,588
$
344,374
$
266,372
95,425
(3,415)
(8,829)
(3,622)
(5,207)
13,515
—
4,904
427
106,230
1,990
(2,992)
(714)
(2,278)
14,119
—
6,826
5,403
95,497
(5,236)
1,726
1,053
673
12,850
—
9,492
23,333
85,570
8,855
4,979
(577)
5,556
10,230
—
11,438
1,865
65,372
1,815
(1,054)
(401)
(653)
9,396
—
3,386
666
$
268,987
$
298,218
$
290,447
$
243,557
$
196,820
81,727
98,256
87,122
98,632
115,907
90,804
100,602
117,153
92,977
89,057
100,521
70,771
71,343
79,040
64,046
$
(0.33) $
(0.15) $
(0.33)
(0.15)
$
0.03
0.03
$
0.42
0.42
(0.05)
(0.05)
—
—
5.40
—
—
5.67
—
—
5.90
—
—
5.32
—
—
4.88
Weighted-average common shares outstanding:
Basic
Diluted
Number of shareholders (6)
Number of associates
15,638,112
15,535,980
14,381,601
12,736,835
12,637,657
15,638,112
15,535,980
14,544,073
12,851,917
12,637,657
3,000
1,746
3,000
1,822
3,000
1,740
2,350
1,423
1,800
1,200
(1) Includes expenses of $1,456, or $859 net of tax, for facility consolidation expenses in 2016.
(2) Includes expenses of $2,946, or $1,915 net of tax, for facility consolidation expenses in 2015.
(3) Includes the results of operations of Atlas Carpet Mills, Inc. and Burtco Enterprises, Inc. subsequent to their acquisitions on March 19, 2014
and September 22, 2014, respectively.
(4) Includes expenses of $5,514, or $3,364 net of tax, for facility consolidation expenses, $1,133, or $691 net of tax, for impairment of assets and
income of $11,110, or $6,777 net of tax, for bargain purchases on the acquisitions of Atlas Carpet Mills and Burtco Enterprises.
(5) Includes the results of operations of Robertex, Inc subsequent to its acquisition on June 30, 2013.
(6) The approximate number of record holders of our Common Stock for 2012 through 2016 includes Management's estimate of shareholders who
held our Common Stock in nominee names as follows: 2012 - 1,255 shareholders; 2013 - 1,900 shareholders; 2014 - 2,550 shareholders;
2015 - 2,550 shareholders; 2016 - 2,600 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
Our business consists principally of marketing, manufacturing and selling floorcovering products to high-end residential and
commercial customers through our various sales forces and brands. We focus exclusively on the upper-end of the floorcovering
market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer
relationships. Our Fabrica, Masland, and Dixie Home brands have a significant presence in the high-end residential floorcovering
markets. Our Atlas Carpet Mills, Masland Contract and Masland Hospitality brands, participate in the upper-end specified commercial
marketplace. Dixie International sells all of our brands outside of the North American market.
During 2016, our net sales decreased 5.9%, or 7.2% on a “net sales as adjusted” basis, compared with 2015. Sales of residential
products decreased 1.8%, or 3.0% on a “net sales as adjusted” basis, in 2016 versus 2015, while, we estimate, the industry was
down in low single digits. We anticipate the residential housing market will have steady but moderate growth over next several
years. Commercial product sales decreased 10.0%, or 11.5% on a “net sales as adjusted” basis, during 2016, while, we believe,
the industry was down slightly. We anticipate the commercial market to have moderate growth for next year. (See Reconciliation
of Net Sales to Net Sales as Adjusted below.)
In 2016, we incurred an operating loss of $3.4 million compared with operating income of $2.0 million in 2015. Despite improvements
in quality-related costs due to more strict and consistent quality standards and reduced associate medical expenses from a new
plan design, the unabsorbed fixed cost due to the lower sales volume substantially offset those cost savings in 2016. In addition,
operations were impacted by the reduction of inventories as we under produced our sales volume, thus negatively affecting our
cost structure during the year.
During 2016, we completed our capacity expansion and facility consolidation plans which began in 2014. Under these plans, we
aligned our warehousing, distribution and manufacturing with our growth and manufacturing strategy. They were designed to create
a better cost structure as well as improve distribution capabilities and provide for more efficient manufacturing processes. In addition,
we consolidated three of our leased divisional and corporate offices to a single leased facility. Total expenses of the plans since
inception were $9.9 million including $1.5 million during 2016.
Despite a difficult year from a profitability perspective, we have made several changes to improve our results in the future. By
completing our restructuring plans earlier in the year, we have set the stage for a more productive manufacturing environment. We
reduced our claims expense significantly as our workforce training has taken affect and improved our quality. We have reduced
inventory to levels commensurate with our sales and our service is in line with our customers expectations. In addition, the industry
announced a price increase based on increases in cost of both labor and raw material. This price increase includes both residential
and commercial products.
In response to the high rate of growth for hard surface products in the last several years, we decided to initiate a series of product
launches in luxury vinyl tile and engineered wood hard surface flooring products. During the fourth quarter of 2016, we began
offering luxury vinyl tile (“LVT”) products under the Calibre brand which was our first hard surface offering in the commercial markets.
These new LVT products are being sold by our existing Masland Contract sales force. Residentially, our Dixie Home and Masland
Residential brands will be supplying Stainmaster PetProtect® luxury vinyl tile in 2017. Finally, we are preparing to launch a high-
end engineered wood line through our Fabrica brand. The growth rate, measured as market sales volume in square feet, has been
substantially higher for hard surface products than soft surface products over the past 4 years.
16
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 2016 Compared with Fiscal Year Ended December 26, 2015
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Other operating expense, net
Facility consolidation expenses, net
Operating income (loss)
Interest expense
Other expense, net
Loss before taxes
Income tax benefit
Loss from continuing operations
Loss from discontinued operations
Income on disposal of discontinued operations
Fiscal Year Ended
December 31,
2016
% of Net
Sales
December 26,
2015
% of Net
Sales
Increase
(Decrease)
%
Change
397,453
100.0 %
422,483
100.0 %
(25,030)
302,028
76.0 %
316,253
74.9 %
(14,225)
(5.9)%
(4.5)%
95,425
96,983
401
1,456
24.0 %
24.4 %
0.1 %
0.4 %
(3,415)
(0.9)%
5,392
22
(8,829)
(3,622)
(5,207)
(131)
60
1.4 %
— %
(2.3)%
(0.9)%
(1.4)%
— %
— %
106,230
25.1 %
(10,805)
(10.2)%
100,422
23.8 %
(3,439)
(3.4)%
872
2,946
1,990
4,935
47
(2,992)
(714)
(2,278)
(148)
—
0.2 %
0.7 %
0.4 %
1.2 %
— %
(0.8)%
(0.2)%
(0.6)%
— %
— %
(471)
(54.0)%
(1,490)
(50.6)%
(5,405)
(271.6)%
457
9.3 %
(25)
(53.2)%
(5,837)
195.1 %
(2,908)
407.3 %
(2,929)
128.6 %
17
60
(11.5)%
— %
Net loss
(5,278)
(1.4)%
(2,426)
(0.6)%
(2,852)
117.6 %
Our fiscal year ended December 31, 2016 had 53 weeks and fiscal year ended December 26, 2015 had 52 weeks. Discussions
below related to percentage changes in net sales for the annual periods have been adjusted to reflect the comparable number of
weeks and are qualified with the term “net sales as adjusted”. For comparative purposes, we define "net sales as adjusted" as net
sales less the last week of sales in a 53 week fiscal year. We believe “net sales as adjusted” will assist our financial statement
users in obtaining comparable data between the reporting periods. (See reconciliation of net sales to net sales as adjusted in the
table below.)
Reconciliation of Net Sales to Net Sales as Adjusted
December 31,
2016
Week 53
Fiscal Year Ended
Net Sales as
Adjusted
December 31,
2016
December 26,
2015
Increase
(Decrease)
Net Sales
as Adjusted
% Change
Net sales as adjusted
$
397,453 $
(5,380) $
392,073
$
422,483 $
(30,410)
(7.2)%
Net Sales. Net sales for the year ended December 31, 2016 were $397.5 million compared with $422.5 million in the year-earlier
period, a decrease of 5.9%, or 7.2% on a “net sales as adjusted” basis, for the year-over-year comparison. Sales for the carpet
industry were down slightly for 2016 compared with the prior year. Our 2016 year-over-year carpet sales comparison reflected a
decrease of 4.7%, or 6.0% on a “net sales as adjusted” basis, in net sales. Sales of residential carpet were down 1.8%, or 3.0%
on a “net sales as adjusted” basis, and sales of commercial carpet decreased 10.0%, or 11.5% on a “net sales as adjusted” basis.
Revenue from carpet yarn processing and carpet dyeing and finishing services decreased 45.4%, or 45.7% on a “net sales as
adjusted” basis, in 2016 compared with 2015. We experienced weaker demand across all brands during 2016 compared with 2015.
Cost of Sales. Cost of sales, as a percentage of net sales, increased 1.1 percentage points, as a percentage of net sales in 2016
compared with 2015. During 2015, we were challenged with high quality-related costs as we consolidated several of our facilities.
In addition, we experienced high associate medical expenses. During 2016, we reduced our quality-related costs through several
quality improvement initiatives and lowered our associate medical expenses with a new plan design. These improvements were
substantially offset by unabsorbed fixed cost due to the lower sales volumes experienced in 2016. In addition, operations were
impacted by the reduction of inventories as we under produced our sales volume, thus negatively affecting our cost structure during
the year.
17
Gross Profit. Gross profit, as a percentage of net sales, decreased 1.1 percentage points in 2016 compared with 2015. The
decrease in gross profit as a percentage of net sales was attributable to the factors discussed above.
Selling and Administrative Expenses. Selling and administrative expenses were $97.0 million in 2016 compared with $100.4
million in 2015, or an increase of 0.6% as a percentage of sales. Selling and administrative expenses increased as a percentage
of sales primarily as a result of the lower sales volumes offset in part to lower sample expenses during 2016.
Other Operating Expense, Net. Net other operating (income) expense was an expense of $401 thousand in 2016 compared with
expense of $872 thousand in 2015. We recognized a gain of $841 thousand from a settlement related to the 2010 BP oil spill offset
by a $460 thousand expense related to the disposal of certain machinery and equipment.
Facility Consolidation Expenses, Net. Facility consolidation expenses were $1.5 million in 2016 compared with $2.9 million in
the year-earlier period. Facility consolidation expenses decreased in 2016 as we completed our consolidation plans during the
year. During 2016, we initially accrued $690 thousand to finalize the cleanup of the site of our former waste water treatment plant
that was disposed of in 2014. During the fourth quarter of 2016, we lowered the accrual by $359 thousand as we were able to
refine the plan. Accordingly, if the actual costs are higher or lower, we would record an additional charge or benefit, respectively,
as appropriate.
Operating Income (Loss). Operations reflected an operating loss of $3.4 million in 2016 compared with operating income of $2.0
million in 2015. The increase in operating loss was attributable to the factors above.
Interest Expense. Interest expense increased $457 thousand in 2016 principally due to long-term fixed interest rate swap contracts
that are at higher rates than a year ago offset by lower levels of debt during 2016.
Other (Income) Expense, Net. Other (income) expense, net was an expense of $22 thousand compared with expense of $47
thousand in 2015.
Income Tax Provision (Benefit). Our effective income tax rate was a benefit of 41.0% in 2016. In 2016, we increased our valuation
allowances by $106 thousand related to state income tax loss carryforwards and state income tax credit carryforwards. Additionally,
2016 included approximately $395 thousand of federal tax credits. Our effective income tax rate was a benefit of 23.9% in 2015.
In 2015, we increased our valuation allowances by $977 thousand related to state income tax loss carryforwards and state income
tax credit carryforwards. Additionally, 2015 included approximately $441 thousand of federal tax credits.
Net Income (Loss). Continuing operations reflected a loss of $5.2 million, or $0.33 per diluted share in 2016, compared with a loss
from continuing operations of $2.3 million, or $0.15 per diluted share in 2015. Our discontinued operations reflected a loss of $131
thousand, or $0.01 per diluted share and income on disposal of discontinued operations of $60 thousand, or $0.00 per diluted share
in 2016 compared with a loss of $148 thousand, or $0.01 per diluted share in 2015. Including discontinued operations, we had a
net loss of $5.3 million, or $0.34 per diluted share, in 2016 compared with a net loss of $2.4 million, or $0.16 per diluted share, in
2015.
18
Fiscal Year Ended December 26, 2015 Compared with Fiscal Year Ended December 27, 2014
Net sales
Cost of sales
Gross profit
Fiscal Year Ended
December 26,
2015
% of Net
Sales
December 27,
2014
% of Net
Sales
Increase
(Decrease)
%
Change
422,483
100.0 %
406,588
100.0 %
316,253
74.9 %
311,091
76.5 %
15,895
5,162
3.9 %
1.7 %
106,230
25.1 %
95,497
23.5 %
10,733
11.2 %
Selling and administrative expenses
100,422
23.8 %
93,182
22.9 %
7,240
7.8 %
Other operating expense, net
Facility consolidation expenses, net
Impairment of assets
Operating income (loss)
Interest expense
Other (income) expense, net
Gain on purchase of businesses
Income (loss) before taxes
Income tax provision (benefit)
872
2,946
—
1,990
4,935
47
—
0.2 %
0.7 %
— %
0.4 %
1.2 %
— %
— %
(2,992)
(0.8)%
(714)
(0.2)%
Income (loss) from continuing operations
(2,278)
(0.6)%
904
5,514
1,133
0.2 %
1.4 %
0.3 %
(32)
(3.5)%
(2,568) 100.0 %
(1,133) 100.0 %
(5,236)
(1.3)%
7,226 (138.0)%
4,302
(154)
1.1 %
— %
633
14.7 %
201 (130.5)%
(11,110)
(2.7)%
11,110
100.0 %
1,726
1,053
673
0.3 %
0.3 %
— %
(4,718) (273.3)%
(1,767) (167.8)%
(2,951) (438.5)%
Loss from discontinued operations
Loss on disposal of discontinued operations
(148)
—
— %
— %
(608)
(0.1)%
460
(75.7)%
(1,467)
(0.4)%
1,467
100.0 %
Net loss
(2,426)
(0.6)%
(1,402)
(0.5)%
(1,024)
73.0 %
Net Sales. Net sales for the year ended December 26, 2015 were $422.5 million compared with $406.6 million in the year-earlier
period, an increase of 3.9% for the year-over-year comparison. Sales for the carpet industry were down slightly for annual 2015
compared with the prior year. Our 2015 year-over-year carpet sales comparison reflected an increase of 4.5% in net sales. Sales
of residential carpet were down 0.4% and sales of commercial carpet increased 14.4%. Revenue from carpet yarn processing and
carpet dyeing and finishing services decreased 11.9% in 2015 compared with 2014. We believe our growth in both the residential
and commercial sales were positively affected by the introduction of new and innovative product offerings.
Cost of Sales. Cost of sales, as a percentage of net sales, decreased 1.6 percentage points, as a percentage of net sales in 2015
compared with 2014. During the expansion and restructuring initiatives, we have experienced high training, quality and waste costs.
These costs were offset by improvements in operating efficiencies and lower raw material costs.
Gross Profit. Gross profit, as a percentage of net sales, increased 1.6 percentage points in 2015 compared with 2014. The increase
in gross profit as a percentage of net sales was attributable to the factors discussed above.
Selling and Administrative Expenses. Selling and administrative expenses were $100.4 million in 2015 compared with $93.2
million in 2014, or an increase of 0.9% as a percentage of sales. Our increase in selling and administrative expenses as a percentage
of sales was primarily driven by the higher levels of investment in new products in our Residential and Commercial brands compared
with the prior year.
Other Operating Expense, Net. Net other operating (income) expense was an expense of $872 thousand in 2015 compared with
expense of $904 thousand in 2014.
Operating Income (Loss). Operations reflected operating income of $2.0 million in 2015 compared with an operating loss of $5.2
million in 2014. Facility consolidation expenses of $2.9 million and $5.5 million were included in the 2015 and 2014 results,
respectively. In addition, related asset impairment expenses of $1.1 million were included in the 2014 operating results.
Interest Expense. Interest expense increased $633 thousand in 2015 principally due to higher interest rates associated with
previously locked in future interest rate swaps from 2015 until 2021 to fix a portion of the Company's revolving credit facility.
Other (Income) Expense, Net. Other (income) expense, net was an expense of $47 thousand compared with income of $154
thousand in 2014. Earnings from equity investments of $209 thousand were included in 2014.
19
Gain on Purchase of Businesses. During 2014, we recognized gains of $11.1 million on business acquisitions. The acquisition
of Atlas resulted in a gain of $10.9 million and the acquisition of Burtco resulted in a gain of $173 thousand.
Income Tax Provision (Benefit). Our effective income tax rate was a benefit of 23.9% in 2015. In 2015, we increased our valuation
allowances by $977 thousand related to state income tax loss carryforwards and state income tax credit carryforwards. This was
the result of a pretax loss in 2015 that put the Company in a three-year cumulative loss. Therefore, we cannot rely on future earnings
to project the utilization of these carryforwards. Additionally, 2015 included approximately $441 thousand of federal tax credits. Our
effective income tax rate was 61.0% in 2014 and included an increase of $569 thousand in increased valuation allowances related
to state income tax carryforwards and state income tax credit carryforwards.
Loss from Discontinued Operations and Loss on Disposal of Discontinued Operations, net of tax. In the fourth quarter of
2014, we discontinued the Carousel specialty tufting and weaving operation that was part of the 2013 Robertex, Inc. acquisition.
As a result, we recognized a loss on the disposal of the discontinued operation of $1.5 million, net of tax, which included the
impairment of certain intangibles associated with Carousel and its related machinery and equipment. Additionally, 2014 included
a loss from the discontinued Carousel operations of $598 thousand, net of tax.
Net Income (Loss). Continuing operations reflected a loss of $2.3 million, or $0.15 per diluted share in 2015, compared with income
from continuing operations of $673 thousand, or $0.03 per diluted share in 2014. Our discontinued operations reflected a loss of
$148 thousand, or $0.01 per diluted share in 2015 compared with a loss of $608 thousand, or $0.04 per diluted share, and a loss
on disposal of discontinued operations of $1.5 million, or $0.10 per diluted share in 2014. Including discontinued operations, we
had a net loss of $2.4 million, or $0.16 per diluted share, in 2015 compared with a net loss of $1.4 million, or $0.11 per diluted share,
in 2014.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2016, cash provided by operations was $23.9 million. Inventories decreased $17.9 million
and receivables decreased $7.2 million which was offset by a decrease in accounts payable and accrued expenses of $6.8 million.
In order to better service our customers during our facility consolidations, we had increased inventory levels over the past few years.
In addition, inventories were increased last year to build inventories from a supplier that was going through a year-end software
conversion. Now that those activities are complete, we decreased inventories to more normal levels. Receivables decreased on
lower sales volume.
Capital asset acquisitions for the year ended December 31, 2016 were $5.3 million; $4.9 million of cash used in investing activities,
$169 thousand of equipment acquired under capital leases and $258 thousand for accrued purchases. Depreciation and amortization
for the year ended December 31, 2016 were $13.5 million. We expect capital expenditures to be approximately $8.0 million in 2017
while depreciation and amortization is expected to be approximately $13.3 million. Planned capital expenditures in 2017 are primarily
for new equipment.
During the year ended December 31, 2016, cash used in financing activities was $19.2 million. We had payments of $10.0 million
on the revolving credit facility and payments of $10.5 million on notes payable and lease obligations.
We believe our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate
to finance our anticipated liquidity requirements under our current operating conditions. As of December 31, 2016, the unused
borrowing availability under our revolving credit facility was $45.6 million. Our revolving credit facility requires us to maintain a fixed
charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $16.5 million. As of the date hereof, our
fixed coverage ratio was less than 1.1 to 1.0, accordingly the unused availability accessible by us was $29.1 million (the amount
above $16.5 million) at December 31, 2016. Significant additional cash expenditures above our normal liquidity requirements or
significant deterioration in economic conditions could affect our business and 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.
Debt Facilities
Revolving Credit Facility. On September 23, 2016, we amended our revolving credit facility to revise certain definitions and extend
the maturity date from March 2019 to September 2021. The revolving credit facility provides for a maximum of $150.0 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. The revolving credit facility is secured by a first priority lien on substantially all of our assets.
At our election, advances of the revolving 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 ranging between 1.50% and 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 ranging between 0.50% and 1.00%.
The applicable margin is determined based on availability under the revolving credit facility with margins increasing as availability
decreases, with the exception that the applicable margin cannot go below 1.75% until after March 31, 2017. As of December 31,
2016, the applicable margin on our revolving credit facility was 1.75%. We pay an unused line fee on the average amount by which
20
the aggregate commitments exceed utilization of the revolving credit facility equal to 0.375% per annum. The weighted-average
interest rate on borrowings outstanding under the revolving credit facility was 4.40% at December 31, 2016 and 3.12% at December
26, 2015.
The revolving credit facility includes certain affirmative and negative covenants that impose restrictions on our financial and business
operations. The revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that
borrowing availability was less than $16.5 million. As of December 31, 2016, the unused borrowing availability under the revolving
credit facility was $45.6 million; however, since our fixed charge coverage ratio was less than 1.1 to 1.0, the unused availability
accessible by us was $29.1 million (the amount above $16.5 million) at December 31, 2016.
Notes Payable - Buildings. On November 7, 2014, we entered into a ten-year $8.3 million note payable to purchase a previously
leased distribution center in Adairsville, Georgia. The note payable is scheduled to mature on November 7, 2024 and is secured
by the distribution center. The note payable bears interest at a variable rate equal to one month LIBOR plus 2.0% and is payable
in equal monthly installments of principal of $35 thousand, plus interest calculated on the declining balance of the note, with a final
payment of $4.2 million due on maturity. In addition, we entered into an interest swap with an amortizing notional amount effective
November 7, 2014 which effectively fixes the interest rate at 4.50%.
On January 23, 2015, we entered into a ten-year $6.3 million note payable to finance an owned facility in Saraland, Alabama. The
note payable is scheduled to mature on January 7, 2025 and is secured by the facility. The note payable bears interest at a variable
rate equal to one month LIBOR plus 2.0% and is payable in equal monthly installments of principal of $26 thousand, plus interest
calculated on the declining balance of the note, with a final payment of $3.1 million due on maturity. In addition, we entered into a
forward interest rate swap with an amortizing $5.7 million notional amount effective January 7, 2017 which will effectively fix the
interest rate at 4.30%.
Acquisition Note Payable - 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.
Acquisition Note Payable - Robertex. On July 1, 2013, we signed a 4.5% seller-financed note of $4.0 million, which was recorded
at a fair value of $3.7 million 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 thousand plus interest. The note matures June 30,
2018.
Notes Payable - Equipment and Other. Our equipment financing notes have terms ranging from five to seven years, bear interest
ranging from 1.00% to 6.86% and are due in monthly or quarterly installments through their maturity dates. The notes are secured
by the specific equipment financed and do not contain financial covenants. (See Note 10 to our Consolidated Financial Statements).
Capital Lease Obligations. Our capital lease obligations have terms ranging from three to seven years, bear interest ranging from
2.90% to 7.37% and are due in monthly or quarterly installments through their maturity dates. The capital lease obligations are
secured by the specific equipment leased. (See Note 10 to our Consolidated Financial Statements).
Contractual Obligations
The following table summarizes our future minimum payments under contractual obligations as of December 31, 2016
Payments Due By Period
(dollars in millions)
Debt
Interest - debt (1)
Capital leases
Interest - capital leases
Operating leases
Purchase commitments
Totals
2017
2018
2019
2020
2021
Thereafter
Total
$
$
6.8
4.5
3.3
0.5
3.1
4.2
$
4.6
4.2
3.1
0.3
2.8
0.4
$
2.8
4.0
1.9
0.2
1.9
—
22.4
15.4
10.8
1.9
3.9
1.7
0.1
1.4
—
9.0
$
72.3
$
3.0
1.1
—
1.0
—
9.7
1.1
—
—
4.3
—
98.1
20.7
11.1
1.1
14.5
4.6
77.4
15.1
150.1
(1) Interest rates used for variable rate debt were those in effect at December 31, 2016.
21
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 31, 2016, the total unrecognized compensation
expense related to unvested restricted stock awards was $1.9 million with a weighted-average vesting period of 6.9 years. At
December 31, 2016, the total unrecognized compensation expense related to Directors' Stock Performance Units was $41 thousand
with a weighted-average vesting period of 0.3 years. At December 31, 2016, there was no unrecognized compensation expense
related to unvested stock options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements at December 31, 2016 or December 26, 2015.
Income Tax Considerations
During 2016, we increased our valuation allowances by $106 thousand related to state income tax loss carryforwards and state
income tax credit carryforwards. The increase was based on a number of factors including current and future earnings assumptions
by taxing jurisdictions.
During 2017 and 2018, we do not anticipate any cash outlays for income taxes. This is due to tax loss carryforwards and tax credit
carryforwards that will be used to offset taxable income. At December 31, 2016, we were in a net deferred tax asset position of $7.6
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 $20.0 million of future
taxable income would be required to realize the deferred tax asset.
Discontinued Operations - Environmental Contingencies
We have reserves for environmental obligations established at five previously owned sites that were associated with our discontinued
textile businesses. We have a reserve of $1.7 million for environmental liabilities at these sites as of December 31, 2016. 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 cost 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 31, 2016, we had $200 thousand 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 2016, we purchased a portion of our product needs in the form of fiber, yarn and carpet from Engineered Floors, an entity
substantially controlled by Robert E. Shaw, a shareholder of our company. An affiliate of Mr. Shaw reported holding approximately
7.4% of our Common Stock, which as of year-end represented approximately 3.4% of the total vote of all classes of our Common
Stock. Engineered Floors is one of several suppliers of such materials. Total purchases from Engineered Floors for 2016, 2015
and 2014 were approximately $7.3 million, $8.8 million and $11.3 million, respectively; or approximately 2.4%, 2.8% and 3.6% of
our consolidated costs of sales in 2016, 2015 and 2014, respectively. Purchases from Engineered Floors are based on market
value, negotiated prices. We have no contractual commitments with Mr. Shaw associated with our business relationship with
Engineered Floors. Transactions with Engineered Floors are reviewed annually by our board of directors.
We are party to a 5-year lease with the seller of Atlas Carpet Mills, Inc. to lease three manufacturing facilities as part of the acquisition
in 2014. The lessor is controlled by an associate of our company. Rent paid to the lessor during 2016, 2015 and 2014 was $793
thousand, $458 thousand and $343 thousand, respectively. The lease was based on current market values for similar facilities.
We are party to a 10-year lease with the Rothman Family Partnership to lease a manufacturing facility as part of the Robertex
acquisition in 2013. The lessor is controlled by an associate of our company. Rent paid to the lessor during 2016, 2015 and 2014
was $267 thousand, $262 thousand and $257 thousand, respectively. The lease was based on current market values for similar
facilities. In addition, we have a note payable to Robert P. Rothman related to the acquisition of Robertex, Inc. (See Note 10 to our
Consolidated Financial Statements).
22
Recent Accounting Pronouncements
See Note 2 in the Notes to the Consolidated Financial Statements of this Form 10-K for a discussion of new accounting
pronouncements which is incorporated herein by reference.
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 including product warranties and customer claims based
primarily on historical experience and any known trends or conditions.
• 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.
• 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.
•
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 not 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 and comparable company market valuation approaches. We have identified our reporting
unit as our floorcovering business for the purposes of allocating goodwill and assessing impairments. 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, the weighted average cost of capital (“WACC”) and comparable company
market multiples. 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 or a decline in comparable company market
multiples, then key judgments and assumptions could be impacted. We performed our annual assessment of goodwill in
the fourth quarters of 2016, 2015 and 2014 and no impairment was indicated.
• 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 incremental gross
margin growth related to the contingent liability. We estimate the fair value of the contingent consideration liability by
forecasting estimated cash payments based on incremental gross margin growth 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
23
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 $200
thousand and $584 thousand at December 31, 2016 and December 26, 2015, 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. Our effective tax rate is based on income, statutory tax rates and tax planning opportunities available in
the jurisdictions in which we operate. 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. We evaluate 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
we are not able to realize all or a portion of our deferred tax assets in the future, a valuation allowance is provided. We
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. We had valuation allowances of $5.4 million at December 31, 2016 and $5.3 million at December
26, 2015. For further information regarding our valuation allowances, see Note 14 to the consolidated financial statements.
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 12 to the Consolidated Financial Statements).
At December 31, 2016, $26,270, or approximately 24% of our total debt, was subject to floating interest rates. A one-hundred basis
point fluctuation in the variable interest rates applicable to this floating rate debt would have an annual after-tax impact of
approximately $155.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The supplementary financial information required by ITEM 302 of Regulation S-K is included in PART II, ITEM 5 of this report and
the Financial Statements are included in a separate section of this report.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. 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 management, under the supervision and with the participation
of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation
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 31, 2016, 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. No changes in our internal control over financial reporting occurred
during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
24
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 management report on internal control over financial reporting is contained in Item 15(a)(1) of this report.
Item 9B.
OTHER INFORMATION
None.
25
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III.
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 May 3, 2017 are 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 Michael L. Owens 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. Owens' 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 31, 2016, members of our audit committee are Michael L. Owens, Chairman,
William F. Blue, Jr., Charles E. Brock, Walter W. Hubbard, Lowry F. Kline, Hilda W. Murray and John W. Murrey, III.
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 May 3, 2017 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 beneficial ownership table (and accompanying notes), in the Proxy
Statement of the registrant for the annual meeting of shareholders to be held May 3, 2017 are incorporated herein by reference.
Equity Compensation Plan Information as of December 31, 2016
The following table sets forth information as to our equity compensation plans as of the end of the 2016 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
219,732 (1)
$
5.94 (2)
774,800
(1)
(2)
Includes the options to purchase 103,500 shares of Common Stock under our 2006 Stock Awards Plan and 116,232 Performance Units issued
under the Directors Stock Plan, each unit being equivalent to one share of Common Stock. Does not include shares of Common Stock issued
but not vested pursuant to outstanding restricted stock awards.
Includes the aggregate weighted-average of (i) the exercise price per share for outstanding options to purchase 103,500 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 116,232 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 May 3, 2017 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 May 3, 2017 is incorporated herein by reference.
26
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV.
(a) (1) Financial Statements - The response to this portion of Item 15 is submitted as a separate section of this report.
(2) Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this
report.
(3) Exhibits - 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.
(c) Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report.
See Item 15(a)(2)
27
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 13, 2017
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 13, 2017
Daniel K. Frierson
/s/ JON A. FAULKNER
Vice President, Chief Financial Officer
March 13, 2017
Jon A. Faulkner
/s/ D. KENNEDY FRIERSON, JR.
Vice President, Chief Operating Officer and Director
March 13, 2017
D. Kennedy Frierson, Jr.
/s/ WILLIAM F. BLUE, JR.
Director
William F. Blue, Jr.
/s/ CHARLES E. BROCK
Director
Charles E. Brock
/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
28
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 15(a)(1) AND ITEM 15(a)(2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 2016
THE DIXIE GROUP, INC.
DALTON, GEORGIA
29
FORM 10-K - ITEM 8 and ITEM 15(a)(1) and (2)
THE DIXIE GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and financial statement schedules of The Dixie Group, Inc. and subsidiaries are included in Item
8 and Item 15(a)(1) and 15(c):
Table of Contents
Management's report on internal control over financial reporting
Report of independent registered public accounting firm
Consolidated balance sheets - December 31, 2016 and December 26, 2015
Consolidated statements of operations - Years ended December 31, 2016, December 26, 2015, and
December 27, 2014
Consolidated statements of comprehensive income (loss) - Years ended December 31, 2016, December 26,
2015, and December 27, 2014
Consolidated statements of cash flows - Years ended December 31, 2016, December 26, 2015, and
December 27, 2014
Consolidated statements of stockholders' equity - Years ended December 31, 2016, December 26, 2015, and
December 27, 2014
Notes to consolidated financial statements
Schedule II - Valuation and Qualifying Accounts
Page
31
32
33
34
35
36
38
39
66
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions, or are inapplicable, or the information is otherwise shown in the
financial statements or notes thereto, and therefore such schedules have been omitted.
30
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.
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 (2013 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 31, 2016, based on those criteria.
Daniel K. Frierson
Chairman of the Board and
Chief Executive Officer
Jon A. Faulkner
Chief Financial Officer
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of The Dixie Group, Inc.
We have audited the accompanying consolidated balance sheets of The Dixie Group, Inc. (the "Company") as of December 31, 2016
and December 26, 2015, 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 31, 2016. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting as of December 31, 2016. Our audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. as of December 31, 2016 and December 26, 2015, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Dixon Hughes Goodman LLP
Atlanta, Georgia
March 13, 2017
32
THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net
Prepaid expenses
TOTAL CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT, NET
GOODWILL AND OTHER INTANGIBLES
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
OTHER LONG-TERM LIABILITIES
TOTAL LIABILITIES
December 31,
2016
December 26,
2015
$
140
$
43,605
97,237
4,376
145,358
92,807
6,156
24,666
268,987
$
$
20,683
32,826
10,122
63,631
98,256
19,978
181,865
$
$
281
50,806
115,146
3,362
169,595
101,146
6,461
21,016
298,218
26,483
34,338
10,142
70,963
115,907
20,544
207,414
COMMITMENTS AND CONTINGENCIES (See Note 18)
STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and
outstanding - 15,248,338 shares for 2016 and 15,155,274 shares for 2015
45,745
45,466
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares,
issued and outstanding - 870,714 shares for 2016 and 851,693 shares for 2015
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes to the consolidated financial statements.
2,612
156,381
(115,656)
(1,960)
87,122
2,555
155,734
(110,378)
(2,573)
90,804
$
268,987
$
298,218
33
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Year Ended
December 31,
2016
December 26,
2015
December 27,
2014
$
397,453
$
422,483
$
NET SALES
Cost of sales
GROSS PROFIT
Selling and administrative expenses
Other operating expense, net
Facility consolidation expenses, net
Impairment of assets
OPERATING INCOME (LOSS)
Interest expense
Other (income) expense, net
Gain on purchase of businesses
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
Income tax provision (benefit)
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from discontinued operations, net of tax
Income (loss) on disposal of discontinued operations, net of tax
NET LOSS
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Disposal of discontinued operations
Net loss
BASIC SHARES OUTSTANDING
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Disposal of discontinued operations
Net loss
DILUTED SHARES OUTSTANDING
DIVIDENDS PER SHARE:
Common Stock
Class B Common Stock
See accompanying notes to the consolidated financial statements.
$
$
$
$
$
$
34
302,028
95,425
96,983
401
1,456
—
(3,415)
5,392
22
—
(8,829)
(3,622)
(5,207)
(131)
60
(5,278) $
(0.33) $
(0.01)
(0.00)
(0.34) $
316,253
106,230
100,422
872
2,946
—
1,990
4,935
47
—
(2,992)
(714)
(2,278)
(148)
—
(2,426) $
(0.15) $
(0.01)
—
(0.16) $
406,588
311,091
95,497
93,182
904
5,514
1,133
(5,236)
4,302
(154)
(11,110)
1,726
1,053
673
(608)
(1,467)
(1,402)
0.03
(0.04)
(0.10)
(0.11)
15,638
15,536
14,382
(0.33) $
(0.01)
(0.00)
(0.34) $
(0.15) $
(0.01)
—
(0.16) $
0.03
(0.04)
(0.10)
(0.11)
15,638
15,536
14,544
— $
—
— $
—
—
—
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
NET LOSS
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized loss on interest rate swaps
Income taxes
Unrealized loss on interest rate swaps, net
Reclassification of loss into earnings from interest rate swaps (1)
Income taxes
Reclassification of loss into earnings from interest rate swaps, net
Unrecognized net actuarial gain (loss) on postretirement benefit plans
Income taxes
Unrecognized net actuarial gain (loss) on postretirement benefit plans,
net
Reclassification of net actuarial gain into earnings from postretirement
benefit plans (2)
Income taxes
Reclassification of net actuarial gain into earnings from postretirement
benefit plans, net
Reclassification of prior service credits into earnings from
postretirement benefit plans (2)
Income taxes
Reclassification of prior service credits into earnings from
postretirement benefit plans, net
Year Ended
December 31,
2016
December 26,
2015
December 27,
2014
$
(5,278) $
(2,426) $
(1,402)
(263)
(100)
(163)
1,291
491
800
(3)
(1)
(2)
(33)
(13)
(20)
(4)
(2)
(2)
(2,410)
(916)
(1,494)
(3,110)
(1,182)
(1,928)
777
295
482
48
18
30
(40)
(15)
(25)
(86)
(33)
(53)
372
141
231
67
26
41
(31)
(12)
(19)
(88)
(34)
(54)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
613
(1,060)
(1,729)
COMPREHENSIVE LOSS
$
(4,665) $
(3,486) $
(3,131)
(1) Amounts for cash flow hedges reclassified from accumulated other comprehensive income (loss) to net income (loss) were included in interest
expense in the Company's Consolidated Statement of Operations.
(2) Amounts for postretirement plans reclassified from accumulated other comprehensive income (loss) to net income (loss) were included in
selling and administrative expenses in the Company's Consolidated Statement of Operations.
See accompanying notes to the consolidated financial statements.
35
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
December 31,
2016
Year Ended
December 26,
2015
December 27,
2014
$
(5,207) $
(131)
60
(5,278)
(2,278) $
(148)
—
(2,426)
673
(608)
(1,467)
(1,402)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations
Loss from discontinued operations
Income (loss) on disposal of discontinued operations
Net loss
Adjustments to reconcile net loss to net cash provided by operating
activities, net of acquisitions:
Depreciation and amortization -
Continuing operations
Discontinued operations
Provision (benefit) for deferred income taxes
Net (gain) loss on property, plant and equipment disposals
Impairment of assets -
Continuing operations
Discontinued operations
Gain on purchase of businesses
Stock-based compensation expense
Excess tax benefits from stock-based compensation
Bad debt expense
Changes in operating assets and liabilities:
Receivables
Inventories
Other current assets
Accounts payable and accrued expenses
Other operating assets and liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sales of property, plant and equipment
Deposits on property, plant and equipment
Purchase of property, plant and equipment
Proceeds from sale of equity investment
Proceeds from sale of assets held for sale
Net cash paid in business acquisitions
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on revolving credit facility
Borrowings on notes payable - buildings
Payments on notes payable - buildings
Payments on notes payable related to acquisitions
Borrowings on notes payable - equipment and other
Payments on notes payable - equipment and other
Payments on capital leases
Change in outstanding checks in excess of cash
Proceeds from equity offering, net of issuance costs
Proceeds from exercise of stock options
Repurchases of Common Stock
Excess tax benefits from stock-based compensation
Payments for debt issuance costs
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
13,515
—
(3,260)
725
—
—
—
1,324
(3)
38
7,163
17,909
(1,014)
(6,827)
(371)
23,921
1
—
(4,904)
—
—
—
(4,903)
(9,986)
—
(731)
(1,924)
2,674
(4,653)
(3,171)
(932)
—
—
(152)
3
(287)
(19,159)
14,119
—
(730)
(114)
—
—
—
1,406
(318)
146
(335)
(10,939)
751
7,606
(557)
8,609
68
—
(6,826)
—
—
—
(6,758)
(2,328)
6,290
(705)
(1,840)
1,923
(4,387)
(2,742)
1,816
—
275
(584)
318
—
(1,964)
12,850
59
264
11
1,133
2,363
(11,110)
1,195
(379)
399
(1,686)
743
679
(925)
(733)
3,461
473
(1,184)
(9,492)
870
5,501
(17,739)
(21,571)
(2,378)
—
(35)
(1,761)
5,193
(3,017)
(1,539)
(2,683)
24,559
192
(497)
379
(164)
18,249
139
255
394
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
(141)
281
140
$
(113)
394
281
$
36
SUPPLEMENTAL CASH FLOW INFORMATION:
Equipment purchased under capital leases
Equipment purchased under notes payable
Deposits utilized on purchased equipment, net
Building purchased under notes payable
Assets acquired in acquisitions, net of cash acquired
Liabilities assumed in acquisitions
Accrued consideration for working capital adjustment in acquisitions
Accrued consideration for holdbacks in acquisition
Deposits on property, plant & equipment financed
Accrued purchases of equipment
Shortfall of tax benefits from stock-based compensation
Note receivable on sale of equipment
See accompanying notes to the consolidated financial statements.
December 31,
2016
Year Ended
December 26,
2015
December 27,
2014
169
—
—
—
—
—
—
—
—
258
(192)
—
496
2,850
1,857
—
—
—
—
—
—
200
(102)
93
10,078
4,925
—
8,330
36,649
(6,397)
(216)
(887)
(965)
—
(607)
—
37
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
Balance at December 28, 2013
Common Stock issued - 30,952 shares
Common Stock issued under equity offering
- 2,500,000 shares
Repurchases of Common Stock - 47,296
shares
Restricted stock grants issued - 101,315
shares
Restricted stock grants forfeited - 125,000
shares
Class B converted into Common Stock -
20,400 shares
Stock-based compensation expense
Excess tax benefits from stock-based
compensation
Net loss
Common
Stock
$ 37,324
Class B
Common
Stock
$
2,611
Additional
Paid-In
Capital
$ 137,170
86
7,500
(142)
208
(15)
61
—
—
—
7
—
—
96
(360)
(61)
—
—
—
99
17,059
(355)
(304)
375
—
1,195
(112)
—
Other comprehensive loss
Balance at December 27, 2014
—
45,022
—
2,293
—
155,127
Common Stock issued - 53,372 shares
Common Stock issued under Directors'
Stock Plan - 30,738
Repurchases of Common Stock - 64,304
shares
Restricted stock grants issued - 224,625
shares
Restricted stock grants forfeited - 9,078
shares
Class B converted into Common Stock -
28,459 shares
Stock-based compensation expense
Excess tax benefits from stock-based
compensation
Net loss
161
92
(193)
326
(27)
85
—
—
—
—
—
—
347
—
(85)
—
—
—
114
(92)
(391)
(673)
27
—
1,406
216
—
Other comprehensive loss
Balance at December 26, 2015
—
45,466
—
2,555
—
155,734
Repurchases of Common Stock - 35,815
shares
Restricted stock grants issued - 149,215
shares
Restricted stock grants forfeited - 1,314
shares
Class B converted into Common Stock -
12,144 shares
Stock-based compensation expense
Excess tax benefits from stock-based
compensation
Net loss
(107)
354
(4)
36
—
—
—
—
93
—
(36)
—
—
—
(45)
(447)
4
—
1,324
(189)
—
Other comprehensive income
Balance at December 31, 2016
—
$ 45,745
$
—
2,612
—
$ 156,381
See accompanying notes to the consolidated financial statements.
38
Accumulated
Deficit
$ (106,550) $
Accumulated
Other
Comprehensive
Income (Loss)
216
Total
Stockholders'
Equity
$
70,771
—
—
—
—
—
—
—
—
(1,402)
—
(107,952)
—
—
—
—
—
—
—
—
(2,426)
—
(110,378)
—
—
—
—
—
—
(5,278)
—
$ (115,656) $
—
—
—
—
—
—
—
—
—
(1,729)
(1,513)
—
—
—
—
—
—
—
—
—
(1,060)
(2,573)
—
—
—
—
—
—
—
613
(1,960) $
192
24,559
(497)
—
—
—
1,195
(112)
(1,402)
(1,729)
92,977
275
—
(584)
—
—
—
1,406
216
(2,426)
(1,060)
90,804
(152)
—
—
—
1,324
(189)
(5,278)
613
87,122
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company's businesses consist principally of marketing, manufacturing and selling finished carpet, rugs and luxury vinyl tile in
the domestic floorcovering market. The Company has one reportable segment, floorcovering. The Company sells floorcovering
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 "2016," "2015," and "2014," mean the
fiscal years ended December 31, 2016, December 26, 2015, and December 27, 2014, respectively. The year 2016 contained 53
weeks, all other years presented contained 52 weeks.
Reclassifications
The Company reclassified certain amounts in 2015 and 2014 to conform to the 2016 presentation.
Discontinued Operations
The financial statements separately report discontinued operations and the results of continuing operations (See Note 21).
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. As a percentage of net sales, one customer accounted for approximately 10% in 2016, 9% in 2015 and 9% in
2014. No other customer accounted for more than 10% of net sales in 2016, 2015 or 2014, nor did the Company make a significant
amount of sales to foreign countries during 2016, 2015 or 2014.
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.
39
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts 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 value of identified net assets acquired in business combinations. In
accordance with the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic
("ASC") 350, “Intangibles-Goodwill and Other,” the Company tests goodwill 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 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 and comparable company market valuation
approaches. The Company has identified its reporting unit as its floorcovering business for the purposes of allocating goodwill and
assessing impairments. 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, the weighted average cost of capital (“WACC”)
and comparable company market multiples. When developing these key judgments and assumptions, the Company considers
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 or a decline in comparable company market
multiples, then key judgments and assumptions could be impacted.
In the first step of the goodwill assessment process, the Company compares the carrying value of a reporting unit, including goodwill,
to the fair value of the reporting unit to identify potential goodwill impairments. The Company estimates the fair value of the reporting
unit by using both a discounted cash flow and comparable company market valuation approach. 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 7).
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 (See Note 7).
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.
40
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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 the effects of interest rate volatility.
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 results of operations.
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 results of operations 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 2016, 2015, or 2014.
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
41
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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 16).
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers
(Topic 606)". The ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. The ASU and all subsequently issued clarifying ASUs will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative
effect transition method. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date." The amendments in ASU 2015-14 deferred the effective date of ASU 2014-09 for all entities by one
year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU
2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting
period. Management is continuing to evaluate the standard’s impact on the Company’s Consolidated Financial Statements. The
Company has developed a project team relative to the process of adopting this ASU and is currently completing a detailed review
of the Company’s revenue arrangements to determine any necessary adjustments to existing accounting policies. For the majority
of these arrangements, no significant impacts are expected as these transactions generally consist of a single performance obligation
to transfer promised goods or services. The Company currently anticipates utilizing the retrospective method upon adoption.
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." The guidance requires an entity to evaluate
whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain
circumstances. The guidance was effective for the annual period ending after December 15, 2016, and for annual and interim
periods thereafter. The adoption of this ASU in 2016 did not have a significant impact on the Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." ASU
2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud
computing arrangement includes a software license, then the customer should account for the software license element of the
arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software
license, the customer should account for the arrangement as a service contract. The guidance did not change GAAP for a customer's
accounting for service contracts. The adoption of this ASU in 2016 did not have a significant impact on the Consolidated Financial
Statements.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." Topic 330
currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable
value, or net realizable value less an approximately normal profit margin. This ASU does not apply to inventory that is measured
using last-in, first-out (LIFO) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. The Company measures substantially all inventories using the LIFO method;
therefore, the Company does not believe the adoption of this ASU will have a significant impact on the Consolidated Financial
Statements.
In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments." The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated
amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined,
rather than retrospectively adjusting amounts previously reported. The amendments require that the acquirer record, in the same
period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a
result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. This
ASU was effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within
those fiscal years. The adoption of this ASU in 2016 did not have a significant impact on the Consolidated Financial Statements.
42
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments?Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities," which addresses the recognition, measurement, presentation and
disclosure of financial assets and liabilities. The ASU primarily affects the accounting for equity investments, financial liabilities under
the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies the
valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt
securities. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. The Company does not believe the adoption of this ASU will have a significant impact on the Consolidated
Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires lessees to recognize on the balance
sheet a right-of use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases
with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the
amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition
approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for
annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted.
The Company is continuing to evaluate the impact of the adoption of this ASU on the Consolidated Financial Statements. The
Company has developed a project team relative to the process of adopting this ASU and is currently completing a detailed review
of the Company’s leasing arrangements to determine the impact.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting," which is intended to simplify several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the
statement of cash flows. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early application is permitted. The Company does not believe the adoption of this ASU will
have a significant impact on the Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments," which amends the impairment model to utilize an expected loss methodology in place of the currently
used incurred loss methodology, which will result in the more timely recognition of losses. For public entities, ASU 2016-13 is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early application will be
permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
The Company does not believe the adoption of this ASU will have a significant impact on the Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments," which provides clarification guidance on certain cash flow presentation issues that have developed due to
diversity in practice. These issues include certain cash receipts and payments for debt prepayment or extinguishment costs, the
maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance
settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization.
ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot
be separated, classification will depend on the predominant source or use. For public entities, ASU 2016-15 is effective for annual
periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The
Company does not believe the adoption of this ASU will have a significant impact on the Consolidated Financial Statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which clarifies
guidance on the classification and presentation of restricted cash in the statement of cash flows. Under the ASU, changes in restricted
cash and restricted cash equivalents would be included along with those of cash and cash equivalents in the statement of cash
flows. In addition, a reconciliation between the balance sheet and the statement of cash flows would be disclosed when the balance
sheet includes more than one line item for cash and cash equivalents and restricted cash and cash equivalents. For public entities,
ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years
with early adoption permitted. Entities are required to apply the standard’s provisions on a retrospective basis. The Company does
not believe the adoption of this ASU will have a significant impact on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,”
which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be
accounted for as an acquisition (or disposal) of assets or a business. The definition of a business affects areas of accounting such
as acquisitions, disposals and goodwill. Under this ASU, fewer acquired sets are expected to be considered businesses. For public
entities, ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those
fiscal years with early adoption permitted under certain circumstances. The Company would apply this guidance to applicable
transactions after the adoption date.
43
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment.” Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an
entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of
a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. For public
entities, ASU 2017-04 is effective for annual or any interim goodwill impairment tests in annual periods beginning after December
15, 2019, with early adoption permitted. The Company does not believe the adoption of this ASU will have a significant impact on
the Consolidated Financial Statements.
NOTE 3 - RECEIVABLES, NET
Receivables are summarized as follows:
Customers, trade
Other receivables
Gross receivables
Less: allowance for doubtful accounts
Receivables, net
Bad debt expense was $38 in 2016, $146 in 2015, and $399 in 2014.
NOTE 4 - INVENTORIES, NET
Inventories are summarized as follows:
Raw materials
Work-in-process
Finished goods
Supplies and other
LIFO reserve
Inventories, net
2016
2015
39,749
$
3,963
43,712
(107)
43,605
$
46,110
5,166
51,276
(470)
50,806
2016
2015
34,261
$
16,739
57,053
120
(10,936)
97,237
$
46,164
21,306
58,037
192
(10,553)
115,146
$
$
$
$
Reduction of inventory quantities in 2016 resulted in liquidations of LIFO inventories carried at prevailing costs established in prior
years and increased cost of sales by $141 in 2016.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
Land and improvements
Buildings and improvements
Machinery and equipment
Assets under construction
Accumulated depreciation
Property, plant and equipment, net
2016
2015
$
7,781
$
62,055
177,745
2,386
249,967
(157,160)
$
92,807
$
7,610
61,396
174,636
2,819
246,461
(145,315)
101,146
Depreciation of property, plant and equipment, including amounts for capital leases, totaled $12,944 in 2016, $13,525 in 2015 and
$12,212 in 2014.
44
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 6 - ACQUISITIONS
Atlas Carpet Mills, Inc.
Effective March 19, 2014, the Company acquired all outstanding stock of Atlas Carpet Mills, Inc. ("Atlas") for total purchase price
consideration of $18,759, including a cash payment of $16,543, accrued consideration relating to holdbacks for certain inventories
and customer claims of $923 and accrued consideration for a working capital adjustment of $1,293. The Company financed the
transaction with availability under its amended credit facility. The Company incurred direct acquisition costs of approximately $645
related to this acquisition. These incremental costs are classified as selling and administrative expenses in the Company's
Consolidated Statements of Operations.
Atlas is a California-based manufacturer and marketer of high-end commercial broadloom and tile carpeting serving soft floorcovering
markets. Atlas has a strong reputation for exceptional design, quality and service. This brand is sold through the existing Atlas sales
force and broadens the Company's product offerings for commercial applications along with the Company's Masland Contract
brand.
The acquisition was accounted for as a business combination which generally requires, among other things, that assets acquired
and liabilities assumed be recognized at their fair values as of the acquisition date. The acquisition did not represent a significant
business combination. The fair value of the net assets acquired exceeded the purchase price resulting in a bargain purchase of
$10,937 ($6,781 after tax). The following table summarizes the fair values of the assets acquired and liabilities assumed. The
components of the purchase price allocation consisted of the following:
Cash
Receivables
Inventories
Other current assets
Assets held for sale
Property, plant and equipment
Finite intangible asset
Other assets
Accounts payable
Accrued expenses
Capital lease obligation
Fair value of net assets acquired
Total consideration
Gain on purchase of business
$
$
$
2,466
4,998
10,981
797
5,152
6,716
3,300
859
(2,286)
(2,883)
(404)
29,696
18,759
(10,937)
The Company believes that several factors were significant in the recognition of a gain from the acquisition of Atlas. Atlas had higher
cost of dyeing due to the lack of capacity utilization and therefore needed to lower costs by combining dye facilities with another
operation. In addition, Atlas had a higher cost of modular carpet tile manufacturing due to outsourcing the tile manufacturing
operations. Therefore, Atlas would have had to make significant investments in product and manufacturing equipment to be
competitive in the modular carpet manufacturing business. Finally, the Seller had the desire to see Atlas operated as an independent
brand and organization in the future. All of these objectives were achieved by combining Atlas with the Company in a mutually
advantageous relationship.
Burtco Enterprises, Inc.
Effective September 22, 2014, the Company acquired certain assets and assumed certain liabilities of Burtco Enterprises, Inc.
("Burtco") for total purchase price consideration of $2,549, including a cash payment of $2,430 and accrued consideration for a
working capital adjustment of $119. The Company incurred direct acquisition costs of approximately $101 related to this acquisition.
These incremental costs are classified as selling and administrative expenses in the Company's Consolidated Statements of
Operations.
Since 1979, Burtco has created high-quality, custom-crafted carpet designed for the hospitality industry. Burtco manufactures both
wool and solution-dyed computer yarn placement (CYP) products that are used in public spaces and hotel guest rooms. These
products broaden the product offerings for commercial applications under the Company's Masland Contract brand.
45
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
The acquisition was accounted for as a business combination which generally requires, among other things, that assets acquired
and liabilities assumed be recognized at their fair values as of the acquisition date. The acquisition did not represent a significant
business combination. The fair value of the net assets acquired totaled $2,722. The fair value of the net assets acquired exceeded
the purchase price resulting in a pre-tax bargain purchase of $173.
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amount of goodwill is $3,389 as of December 31, 2016 and December 26, 2015. The Company performed its annual
assessment of goodwill in the fourth quarters of 2016, 2015 and 2014 and no impairment was indicated. The following table
represents the details of the Company's intangible assets subject to amortization:
2016
Accumulated
Amortization
$
(64) $
(57)
(764)
Gross
208
144
3,300
2015
Accumulated
Amortization
$
(48) $
(43)
(489)
208
144
3,300
Net
Gross
144
87
2,536
2,767
$
$
Net
160
101
2,811
3,072
$
3,652
$
(885) $
3,652
$
(580) $
Customer relationships $
Rug design coding
Trade names
Total
Amortization expense for intangible assets is summarized as follows:
2016
2015
2014
Customer relationships
Rug design coding
Trade names
Amortization expense
$
$
16
14
275
305
$
$
The estimated future amortization expense during each of the next five fiscal years is as follows:
Year
2017
2018
2019
2020
2021
NOTE 8 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
Compensation and benefits (1)
Provision for customer rebates, claims and allowances
Advanced customer deposits
Outstanding checks in excess of cash
Other
Accrued expenses
16
14
275
305
$
$
$
Amount
59
15
277
351
305
305
305
305
305
2016
2015
$
7,492
8,882
8,212
2,074
6,166
9,173
8,995
6,674
3,006
6,490
32,826
$
34,338
$
$
(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 $1,873.
46
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 9 - 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.
Product warranty reserve at beginning of period
Warranty liabilities accrued
Warranty liabilities settled
Changes for pre-existing warranty liabilities
Product warranty reserve at end of period
NOTE 10 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
Revolving credit facility
Notes payable - buildings
Acquisition note payable - Development Authority of Gordon County
Acquisition note payable - Robertex
Notes payable - equipment and other
Capital lease obligations
Deferred financing costs, net
Total long-term debt
Less: current portion of long-term debt
Long-term debt
Revolving Credit Facility
2016
2015
$
$
$
2,159
6,406
(6,687)
429
2,307
$
2,214
6,201
(8,695)
2,439
2,159
2016
2015
$
70,583
$
13,150
1,147
1,564
11,633
11,145
(844)
108,378
10,122
$
98,256
$
80,569
13,881
2,314
2,321
15,008
12,751
(795)
126,049
10,142
115,907
On September 23, 2016, the Company amended its revolving credit facility to revise certain definitions and extend the maturity
date from March 2019 to September 2021. The revolving credit facility provides for a maximum of $150,000 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. The revolving credit facility is secured by a first priority lien on substantially all of the Company's assets.
At the Company's election, advances of the revolving 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 ranging between 1.50% and 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 ranging between
0.50% and 1.00%. The applicable margin is determined based on availability under the revolving credit facility with margins
increasing as availability decreases, with the exception that the applicable margin cannot go below 1.75% until after March 31,
2017. As of December 31, 2016, the applicable margin on our revolving credit facility was 1.75%. The Company pays an unused
line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to
0.375% per annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 4.40% at
December 31, 2016 and 3.12% at December 26, 2015.
The revolving credit facility includes certain affirmative and negative covenants that impose restrictions on the Company's financial
and business operations. The revolving credit facility requires the Company to maintain a fixed charge coverage ratio of 1.1 to 1.0
during any period that borrowing availability was less than $16,500. As of December 31, 2016, the unused borrowing availability
under the revolving credit facility was $45,614; however, since the Company's fixed charge coverage ratio was less than 1.1 to 1.0,
the unused availability accessible by the Company was $29,114 (the amount above $16,500) at December 31, 2016.
Notes Payable - Buildings
On November 7, 2014, the Company entered into a ten-year $8,330 note payable to purchase a previously leased distribution
center in Adairsville, Georgia. The note payable is scheduled to mature on November 7, 2024 and is secured by the distribution
47
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
center. The note payable bears interest at a variable rate equal to one-month LIBOR plus 2.0% and is payable in equal monthly
installments of principal of $35, plus interest calculated on the declining balance of the note, with a final payment of $4,165 due on
maturity. In addition, the Company entered into an interest rate swap with an amortizing notional amount effective November 7,
2014 which effectively fixes the interest rate at 4.50%.
On January 23, 2015, the Company entered into a ten-year $6,290 note payable to finance an owned facility in Saraland, Alabama.
The note payable is scheduled to mature on January 7, 2025 and is secured by the facility. The note payable bears interest at a
variable rate equal to one-month LIBOR plus 2.0% and is payable in equal monthly installments of principal of $26, plus interest
calculated on the declining balance of the note, with a final payment of $3,145 due on maturity. In addition, the Company entered
into a forward interest rate swap with an amortizing notional amount effective January 7, 2017 which will effectively fix the interest
rate at 4.30%.
Acquisition Note Payable - 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 a 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 became 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.
Acquisition Note Payable - Robertex
On 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.
Notes Payable - Equipment and Other
The Company's equipment financing notes have terms ranging from 5 to 7 years, bear interest ranging from 1.00% to 6.86% and
are due in monthly or quarterly installments through their maturity dates. The Company's equipment financing notes are secured
by the specific equipment financed and do not contain any financial covenants.
Capital Lease Obligations
The Company's capitalized lease obligations have terms ranging from 3 to 7 years, bear interest ranging from 2.90% to 7.37% and
are due in monthly or quarterly installments through their maturity dates. The Company's capital lease obligations are secured by
the specific equipment leased.
Interest Payments and Debt Maturities
Interest payments for continuing operations were $5,088 in 2016, $4,449 in 2015, and $3,757 in 2014. Maturities of long-term debt
for periods following December 31, 2016 are as follows:
2017
2018
2019
2020
2021
Thereafter
Total maturities of long-term debt
Deferred financing costs, net
Total long-term debt
Long-Term
Debt
Capital Leases
(See Note 18)
Total
6,782
$
3,340
$
4,584
2,761
1,866
72,320
9,764
3,115
1,949
1,677
1,050
14
98,077
$
11,145
$
(844)
—
10,122
7,699
4,710
3,543
73,370
9,778
109,222
(844)
97,233
$
11,145
$
108,378
$
$
$
48
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 11 - 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 31, 2016 and December 26, 2015:
Liabilities:
Interest rate swaps (1)
Contingent consideration (2)
2016
2015
Fair Value
Hierarchy Level
$
3,695
$
200
4,689
584
Level 2
Level 3
(1) The Company uses certain external sources in deriving the fair value of the interest rate swaps. 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.
(2) As a result of the Robertex acquisition in 2013, the Company recorded a contingent consideration liability at fair value. This fair value
measurement was 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. This fair value measurement is directly impacted by the Company's
estimates. Accordingly, if the estimates within the fair value measurement are higher or lower, 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 31,
2016 and December 26, 2015 were as follows:
Beginning balance
Fair value adjustments
Settlements
Ending balance
2016
2015
584
$
(230)
(154)
200
$
1,855
(657)
(614)
584
$
$
There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during 2016 or 2015. If any, the Company
recognizes the transfers in or transfers out at the end of the reporting period.
49
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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
Financial liabilities:
2016
2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
140
282
$
140
282
$
281
282
281
282
Long-term debt and capital leases, including current portion
Interest rate swaps
108,378
3,695
105,270
3,695
126,049
4,689
123,318
4,689
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 12 - 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 31, 2016:
Type
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
$
$
$
$
Notional
Amount
25,000
25,000
Effective Date
Fixed
Rate
Variable Rate
September 1, 2016 through September 1, 2021
3.105%
1 Month LIBOR
September 1, 2015 through September 1, 2021
3.304%
1 Month LIBOR
7,462 (1) November 7, 2014 through November 7, 2024
4.500%
1 Month LIBOR
5,661 (2) January 7, 2017 through January 7, 2025
4.300%
1 Month LIBOR
(1) Interest rate swap notional amount amortizes by $35 monthly to maturity.
(2) Interest rate swap notional amount amortizes by $26 monthly to maturity.
The following table summarizes the fair values of derivative instruments included in the Company's Consolidated Balance Sheets:
Liability Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps, current portion
Interest rate swaps, long-term portion
Total Liability Derivatives
Location on Consolidated
Balance Sheets
Fair Value
2016
2015
Accrued Expenses
Other Long-Term Liabilities
$
$
1,342
2,353
3,695
$
$
1,159
3,530
4,689
50
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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
$
(263) $
(2,410) $
(3,110)
Amount of Gain or (Loss) Recognized in AOCIL on the
effective portion of the Derivative
2016
2015
2014
Amount of Gain or (Loss) Reclassified from AOCIL on
the effective portion into Income (1)(2)
2016
2015
2014
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps
$
(1,291) $
(777) $
(372)
(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 2016 is $1,342.
The amount of gain (loss) recognized in income on the ineffective portion of interest rate swaps, if any, is included in other (income)
expense, net on the Company's Consolidated Statements of Operations. There was no ineffective portion for the periods presented.
NOTE 13 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers a significant portion, or approximately 87% of the Company's
associates. This plan includes 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. Matching contribution
expense for this 401(k) plan was $425 in 2016, $454 in 2015 and $382 in 2014.
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 13% 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 $71 in 2016, $82 in 2015 and $87 in 2014.
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 $14,992 at December 31, 2016 and $14,155 at
December 26, 2015 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 $15,679 at December 31, 2016 and $14,981 at December 26, 2015 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 13% 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 2016 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 2016 and 2015 is for the plan's year-end at 2015 and 2014, 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
51
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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.
Pension Fund
EIN/Pension Plan
Number
Pension
Protection Act
Zone Status
2016
2015
FIP/RP Status
Pending/
Implemented
(1)
Contributions (2)
2016
2015
2014
Surcharge
Imposed
(1)
Expiration
Date of
Collective-
Bargaining
Agreement
The Pension Plan of the
National Retirement Fund
13-6130178 - 001 Red
Red
Implemented $ 274 $ 268 $ 279
Yes
6/3/2017
(1) The collective-bargaining agreement requires the Company to contribute to the plan at the rate of $0.47 per compensated hour for each covered
employee. The Company will make additional contributions, as mandated by law, in accordance with the fund's 2010 Rehabilitation Plan which
required a surcharge equal to $0.03 per hour (from $0.47 to $0.50) effective June 1, 2014 to May 31, 2015, a surcharge equal to $0.03 per hour
(from $0.50 to $0.53) effective June 1, 2015 to May 31, 2016, and a surcharge equal to $0.02 per hour (from $0.53 to $0.55) effective June 1,
2016 to May 31, 2017, respectively. Based upon current employment and benefit levels, the Company's contributions to the multi-employer
pension plan are expected to be approximately $287 for 2017.
(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 inherited 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 dental 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 as
part of a collective bargaining agreement.
Information about the benefit obligation and funded status of the Company's postretirement benefit plans is summarized as follows:
2016
2015
$
290
$
7
15
—
3
(1)
—
314
—
1
—
(1)
—
$
—
(314) $
315
7
18
2
(48)
(5)
1
290
—
2
2
(5)
1
—
(290)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial (gain) loss
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
52
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts 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
2016
2015
$
$
13
301
314
$
$
12
278
290
Benefits expected to be paid on behalf of associates for postretirement benefit plans during the period 2017 through 2026 are
summarized as follows:
Years
2017
2018
2019
2020
2021
2022 - 2026
Postretirement
Plans
$
13
12
12
12
12
66
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
2016
2015
4.00%
4.25%
2016
2015
—%
—%
8.00%
5.00%
2017
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)
2016
2015
2014
$
7
15
(4)
(33)
—
(15) $
$
7
18
(86)
(40)
—
(101) $
7
22
(88)
(31)
(251)
(341)
$
$
Pre-tax amounts included in AOCIL for the Company's postretirement benefit plans at 2016 are summarized as follows:
Prior service credits
Unrecognized actuarial gains
Totals
53
Postretirement Benefit Plans
Balance at 2016
2017 Expected
Amortization
$
$
(12) $
(400)
(412) $
(4)
(33)
(37)
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 14 - INCOME TAXES
The provision (benefit) for income taxes on income (loss) from continuing operations consists of the following:
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
Income tax provision (benefit)
2016
2015
2014
$
$
(396) $
34
(362)
(3,003)
(257)
(3,260)
(3,622) $
277
$
(261)
16
(641)
(89)
(730)
(714) $
1,081
(292)
789
232
32
264
1,053
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)
Effect of differences:
Nondeductible meals and entertainment
Domestic production activities deduction
Federal tax credits
Reserve for uncertain tax positions
Goodwill
Change in valuation allowance
Stock-based compensation
Other items
Income tax provision (benefit)
2016
2015
2014
35%
35%
35%
$
(3,090)
$
(1,047)
$
(145)
(3,235)
148
—
(395)
31
(13)
106
—
(264)
(227)
(1,274)
147
—
(441)
35
(124)
977
—
(34)
604
(169)
435
143
112
(483)
109
(124)
569
117
175
$
(3,622)
$
(714)
$
1,053
In 2016, the company increased valuation allowances by $106 related to state income tax loss carryforwards and state income tax
credit carryforwards to reflect the estimated amount of deferred tax assets that may not be realized during the carryforward periods.
In 2015, the Company increased valuation allowances by $977 related to state income tax loss carryforwards and state income tax
credit carryforwards to reflect the estimated amount of deferred tax assets that may not be realized during the carryforward periods.
In 2014, the Company increased valuation allowances by $569 related to state income tax loss carryforwards and credit
carryforwards. This was primarily the result of actual 2014 pretax earnings being significantly less than the 2014 forecasted earnings
used in the 2013 analysis, a change in California apportionment rules that limit the utilization of net operating loss and credit
carryforwards in future years and a projected tax loss in 2014 that resulted in the need to record a valuation allowance against that
loss in separate company reporting states.
Income tax payments, net of (income tax refunds) received for continuing and discontinued operations were $(190) in 2016, $48
in 2015 and $345 in 2014.
54
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Significant components of the Company's deferred tax assets and liabilities are as follows:
Deferred tax assets:
Inventories
Retirement benefits
State net operating losses
Federal net operating losses
State tax credit carryforwards
Federal 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
$
2016
2015
$
4,057
3,387
3,672
5,930
1,728
3,361
3,442
5,001
30,578
(5,400)
25,178
17,568
17,568
3,927
3,337
3,563
4,345
1,731
2,943
3,688
4,856
28,390
(5,294)
23,096
18,370
18,370
Net deferred tax asset
$
7,610
$
4,726
At December 31, 2016, $5,930 of deferred tax assets related to approximately $16,943 of federal net operating loss carryforwards
and $3,672 of deferred tax assets related to approximately $83,088 of state net operating loss carryforwards. In addition, $3,361
of federal tax credit carryforwards and $1,728 of state tax credit carryforwards were available to the Company. The federal net
operating loss carryforwards and the federal tax credit carryforwards will expire between 2029 and 2036. The state net operating
loss carryforwards and the state tax credit carryforwards will expire between 2017 and 2037. A valuation allowance of $5,400 is
recorded to reflect the estimated amount of deferred tax assets that may not be realized during the carryforward periods. At
December 31, 2016, the Company is in a net deferred tax asset position of $7,610 which is included in other assets in the Company's
Consolidated Balance Sheets. 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 $406 and $375 at December 31, 2016 and December 26, 2015, respectively. Such benefits, if
recognized, would affect the Company's effective tax rate. There were no significant interest or penalties accrued as of December
31, 2016 and December 26, 2015.
The following is a summary of the change in the Company's unrecognized tax benefits:
Balance at beginning of year
Additions based on tax positions taken during a current period
Reductions related to settlement of tax matters
Balance at end of year
$
$
375
$
31
—
406
$
400
$
35
(60)
375
$
291
109
—
400
2016
2015
2014
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 2012 remain open to examination for U.S. federal income taxes. The majority of state
jurisdictions remain open for tax years subsequent to 2012. A few state jurisdictions remain open to examination for tax years
subsequent to 2011.
55
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 15 - 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.
On May 20, 2014, the Company completed an equity offering of 2,500,000 shares of Common Stock at a price of $10.65 per share,
raising approximately $24,559 after deducting underwriter fees and costs directly related to the offering. The Company used the
net proceeds from the offering for general corporate purposes and to reduce the balance under the Company's revolving credit
facility, including borrowings associated with the acquisition of Atlas Carpet Mills.
Earnings (Loss) 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 are included in the computation of earnings per share. 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.
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
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)
Diluted weighted-average shares outstanding (1)(2)
Diluted earnings (loss) per share - continuing operations
2016
2015
2014
$
$
$
$
$
$
(5,207) $
—
(5,207) $
15,638
(0.33) $
(5,207) $
—
(5,207) $
15,638
(2,278) $
—
(2,278) $
15,536
(0.15) $
(2,278) $
—
(2,278) $
15,536
—
—
—
—
15,638
15,536
(0.33) $
(0.15) $
673
(197)
476
14,382
0.03
476
3
479
14,382
97
65
14,544
0.03
Includes Common and Class B Common shares, 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 during the relevant period and directors' stock performance units have been excluded. Aggregate
shares excluded were 220 in 2016, 333 in 2015 and 434 in 2014.
56
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 16 - 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. The Company's stock compensation expense was $1,324 in 2016, $1,406 in 2015 and $1,195 in 2014.
2016 Incentive Compensation Plan
On May 3, 2016, the Company's shareholders' approved and adopted the Company's 2016 Incentive Compensation Plan (the
"2016 Incentive Compensation Plan") which provides for the issuance of a maximum of 800,000 shares of Common Stock and/or
Class B Common Stock for the grant of options, and/or other stock-based or stock-denominated awards to employees, officers,
directors, and agents of the Company and its participating subsidiaries. The 2016 Incentive Compensation Plan and the allocation
of shares thereunder superseded and replaced The Dixie Group, Inc. Stock Awards Plan, as amended (the "2006 Plan") and the
allocation of shares thereunder. The 2006 Plan was terminated with respect to new awards. Awards previously granted under the
2006 Plan continue to be governed by the terms of that plan and are not affected by its termination.
2006 Stock Awards Plan
The Company had a Stock Awards Plan, ("2006 Plan"), as amended, which provided for the issuance of up to 1,800,000 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.
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. For participants over age 60, Career Share Awards fully vest when the participant becomes
(i) qualified to retire from the Company and (ii) has retained such shares 2 years following the grant date. For the participants under
age 60, Career Shares vest ratably over 5 years beginning on the participant's 61st birthday.
On March 11, 2016, the Company issued 149,215 shares of restricted stock to officers and other key employees. The grant-date
fair value of the awards was $651, or $4.360 per share, and is expected to be recognized as stock compensation expense over a
weighted-average period of 8.7 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.
On March 12, 2015, the Company issued 114,625 shares of restricted stock to officers and other key employees. The grant-date
fair value of the awards was $1,021, or $8.910 per share, and is expected to be recognized as stock compensation expense over
a weighted-average period of 7.4 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.
On April 29, 2015, the Company granted 100,000 shares of restricted stock to the Company's Chief Executive Officer. The grant-
date fair value of the award was $982, or $9.815 per share and will be recognized as stock compensation expense over a 4 year
vesting period from the date the award was granted. Vesting of the award is subject to both a service condition and performance
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.
On August 1, 2015, the Company granted 10,000 shares of restricted stock to an employee. The grant-date fair value of the award
was $100, or $9.980 per share and will be recognized as stock compensation over a 3 year vesting period from the date the award
was granted. The 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 2014, the Company issued 101,315 shares of restricted stock to officers and other key employees. The grant-date fair value
of the awards was $1,588, or $15.675 per share, and will be recognized as stock compensation expense over the vesting periods
which range from 2 to 13 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.
57
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Restricted stock activity for the three years ended December 31, 2016 is summarized as follows:
Outstanding at December 28, 2013
Granted
Vested
Forfeited
Outstanding at December 27, 2014
Granted
Vested
Forfeited
Outstanding at December 26, 2015
Granted
Vested
Forfeited
Outstanding at December 31, 2016
Number of Shares
525,799
$
101,315
(144,875)
(125,000)
357,239
224,625
(155,991)
(9,078)
416,795
149,215
(107,318)
(1,314)
457,378
$
Weighted-
Average Grant-
Date Fair Value
6.64
15.68
4.50
12.78
7.92
9.36
7.18
10.97
8.90
4.36
8.88
15.68
7.41
As of December 31, 2016, unrecognized compensation cost related to unvested restricted stock was $1,915. That cost is expected
to be recognized over a weighted-average period of 6.9 years. The total fair value of shares vested was approximately $456, $1,410
and $1,512 during 2016, 2015 and 2014, respectively.
Stock Performance Units
The Company's non-employee directors receive an annual retainer of $18 in cash and $18 in value of Stock Performance Units
(subject to a $5.00 minimum per unit) under the Director's Stock Plan. If market value at the date of the grants is above $5.00 per
share; there is no reduction in the number of units issued. However, if the market value at the date of the grants is below $5.00,
units will be 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 31, 2016,
116,232 Stock Performance Units were outstanding under this plan. As of December 31, 2016, unrecognized compensation cost
related to Stock Performance Units was $41. That cost is expected to be recognized over a weighted-average period of 0.3 years.
Stock Options
Options granted under the Company's 2006 Plan were 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
2016, 2015 or 2014.
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.
58
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Option activity for the three years ended December 31, 2016 is summarized as follows:
Weighted-
Average Exercise
Price
Weighted-Average
Remaining
Contractual Life
(in years)
Weighted-
Average Fair
Value of Options
Granted During
the Year
Number of Shares
Outstanding at December 28, 2013
660,355
$
Exercised
Forfeited
Outstanding at December 27, 2014
Exercised
Forfeited
Outstanding at December 26, 2015
Exercised
Forfeited
(53,950)
(167,170)
439,235
(89,435)
(246,300)
103,500
—
—
Outstanding at December 31, 2016
103,500
$
Options exercisable at:
December 27, 2014
December 26, 2015
December 31, 2016
439,235
$
103,500
103,500
11.33
10.22
14.36
10.31
6.78
13.82
5.00
—
—
5.00
10.31
5.00
5.00
$
2.8
$
2.8
—
—
—
—
—
—
—
—
—
—
—
—
—
At December 31, 2016, there was no intrinsic value of outstanding stock options and no intrinsic value of exercisable stock options.
The intrinsic value of stock options exercised during 2016, 2015 and 2014 was $0, $221 and $140, respectively. At December 31,
2016, there was no unrecognized compensation expense related to unvested stock options.
59
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Components of accumulated other comprehensive income (loss), net of tax, are as follows:
Balance at December 28, 2013
Unrealized loss on interest rate swaps, net of tax of $1,182
Reclassification of loss into earnings from interest rate swaps, net of tax of $141
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of
$26
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $12
Reclassification of prior service credits into earnings from postretirement benefit
plans, net of tax of $34
Balance at December 27, 2014
Unrealized loss on interest rate swaps, net of tax of $916
Reclassification of loss into earnings from interest rate swaps, net of tax of $295
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of
$18
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $15
Reclassification of prior service credits into earnings from postretirement benefit
plans, net of tax of $33
Balance at December 26, 2015
Unrealized loss on interest rate swaps, net of tax of $100
Reclassification of loss into earnings from interest rate swaps, net of tax of $491
Unrecognized net actuarial loss on postretirement benefit plans, net of tax of $1
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 $2
Balance at December 31, 2016
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Commitments
Interest
Rate Swaps
Post-
Retirement
Liabilities
(144)
(1,928)
231
—
—
—
(1,841)
(1,494)
482
—
—
—
(2,853)
(163)
800
—
—
360
—
—
41
(19)
(54)
328
—
—
30
(25)
(53)
280
—
—
(2)
(20)
Total
216
(1,928)
231
41
(19)
(54)
(1,513)
(1,494)
482
30
(25)
(53)
(2,573)
(163)
800
(2)
(20)
—
(2,216) $
$
(2)
256
$
(2)
(1,960)
The Company had purchase commitments of $3,517 at December 31, 2016, primarily related to machinery and equipment. The
Company enters into fixed-price contracts with suppliers to purchase natural gas to support certain manufacturing processes. The
Company had contract purchases of $855 in 2016, $1,151 in 2015 and $977 in 2014. At December 31, 2016, the Company has
commitments to purchase natural gas of $640 for 2017 and $428 for 2018.
60
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts 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:
2017
2018
2019
2020
2021
Thereafter
Total commitments
Less amounts representing interest
Total
Capital
Leases
Operating
Leases
$
3,836
$
3,439
2,141
1,776
1,074
14
12,280
(1,135)
$
11,145
$
3,114
2,779
1,895
1,436
1,042
4,267
14,533
—
14,533
Rental expense was approximately $3,575, $3,593 and $4,066 during 2016, 2015 and 2014, respectively.
Property, plant and equipment includes machinery and equipment under capital leases which have asset cost and accumulated
depreciation of $17,987 and $5,881, respectively, at December 31, 2016, and $16,654 and $3,985, respectively, at December 26,
2015.
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. If 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 Notes 20 & 21)
Legal Proceedings
The Company has been sued, together with the 3M Company and approximately 30 other carpet manufacturers, by the Gadsden
(Alabama) Water Works in the circuit court of Etowah County Alabama [The Water Works and Sewer Board of the City of Gadsden
v. 3M Company, et al, civil action No. 31-CV-2016-900676.00], in a case seeking monetary damages and injunctive relief related
to the use of certain chemical compounds in the manufacture and finishing of carpet products “in and around Dalton Georgia.” On
motion of the defendants, the case was removed to the U.S. District Court for the Northern District of Alabama (Middle Division)
Case No. 4:16-CV-01755-SGC. As alleged in the lawsuit, the chemicals are perflourinated compounds (“PFC”) perflourinated acid
(“PFOA”) and perfluorooctane sulfonate (“PFOS”) manufactured by 3M and used in certain finishing and treatment processes by
the defendants and, as a consequence of such use, either discharged into or leached into the water systems around Dalton, Georgia.
The Complaint seeks damages “in excess of $10”, but otherwise unspecified in amount in addition to injunctive relief. The Company
intends to defend the matter vigorously and is unable to estimate its potential exposure to loss, if any, at this time.
The Company is one of multiple parties to two lawsuits, both filed in Madison County Illinois, styled Sandra D. Watts, Individually
and as Special Administrator of the Estate of Dianne Averett, Deceased vs. 4520 Corp., Inc. f/k/a Benjamin F. Shaw Company, et
al No. 12-L-2032 and styled Brenda Bridgeman, Individually and as Special Administrator of the Estate of Robert Bridgeman,
Deceased, vs. American Honda Motor Co., Inc., f/k/a Metropolitan Life Insurance Co., et al No. 15-L-374. Each lawsuit entails a
claim for damages to be determined in excess of $50 filed on behalf of the estate of an individual which alleges that the deceased
contracted mesothelioma as a result of exposure to asbestos while employed by the Company. Discovery in both matters is ongoing,
and tentative trial dates have been set. The Company has denied liability, is defending the matters vigorously and is unable to
estimate its potential exposure to loss, if any, at this time.
61
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 19 - OTHER (INCOME) EXPENSE
Other operating (income) expense, net is summarized as follows:
Other operating expense, net:
(Gain) loss on property, plant and equipment disposals
Loss on currency exchanges
Amortization of intangibles
Retirement expenses
BP settlement gain (1)
Miscellaneous (income) expense
Other operating expense, net
$
$
2016
2015
2014
$
(114) $
725
167
305
154
(841)
(109)
401
$
602
305
212
—
(133)
872
$
(30)
587
351
135
—
(139)
904
(1) On November 21, 2016, the Company entered into a full and final release agreement with BP Exploration and Production, Inc. and various
related entities pursuant to which the Company released any and all claims related to the Deepwater Horizon oil spill which occurred on April
20, 2010. In exchange for this release, the Company will receive a net amount of $841 from the settlement. Payment of the settlement amount
is scheduled to be paid by April 15, 2017. As of December 31, 2016, this amount is included in receivables and other operating income
(expense), net on the Company’s Consolidated Financial Statements.
Other (income) expense, net is summarized as follows:
Other (income) expense, net:
Earnings from equity investments
Loss on sale of non-operating assets
Miscellaneous (income) expense
Other (income) expense, net
2016
2015
2014
—
—
22
22
$
14
—
33
47
$
(209)
41
14
(154)
$
NOTE 20 - FACILITY CONSOLIDATION EXPENSES, NET
2014 Warehousing, Distribution & Manufacturing Consolidation Plan
The Company developed a plan to align its warehousing, distribution and manufacturing to support its growth and manufacturing
strategy resulting in better cost structure and improved distribution capabilities and customer service. The key element and first
major step of this plan was the acquisition of a facility to serve as a finished goods warehouse and a cut-order and distribution
center in Adairsville, Georgia. Costs related to the consolidation included moving and relocation expenses, information technology
expenses and expenses relating to conversion and realignment of equipment. In addition, this plan included the elimination of both
carpet dyeing and yarn dyeing in the Company's Atmore, Alabama facility designed to more fully accommodate the distribution and
manufacturing realignment. As a result, the dyeing operations in Atmore were moved to the Company's continuous dyeing facility,
skein dyeing operation and other outside dyeing processors.
To complete the Warehousing, Distribution & Manufacturing Consolidation Plan, the Company moved its Saraland rug operation
from an expiring leased building to an owned facility in March 2016. The Company completed this consolidation plan during 2016.
As a result of eliminating its dyeing operations in Atmore, Alabama, the Company disposed of its waste water treatment plant in
2014. Subsequently, after extensive testing, it was determined that the Company still had some contaminants above background
levels and that it would need to install a soil cap. During the first quarter of 2016, the Company accrued $690 to finalize the cleanup
of the site of the Company's former waste water treatment plant. During the fourth quarter of 2016, the Company lowered the
accrual by $359 as the Company was able to refine the plan. Accordingly, if the actual costs are higher or lower, the Company
would record an additional charge or benefit, respectively, as appropriate.
2014 Atlas Integration Plan
As a part of the March 19, 2014 acquisition of Atlas, the Company developed a plan to close the operations of the Atlas dyeing
facility in Los Angeles and move the carpet dyeing of their products to the Company's dyeing operation located in Santa Ana,
California. Costs related to the consolidation included equipment relocation, computer systems modifications and severance costs.
These costs were completed in fiscal 2015.
62
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
2015 Corporate Office Consolidation Plan
In April 2015, the Company's Board of Directors approved the Corporate Office Consolidation Plan, to cover the costs of consolidating
three of the Company's existing leased divisional and corporate offices to a single leased facility located in Dalton, Georgia. The
Company paid a fee to terminate one of the leased facilities, did not renew a second facility and vacated the third facility. Related
to the vacated facility, the Company recorded the estimated costs related to the fulfillment of its contractual lease obligation and
on-going facility maintenance, net of an estimate of sub-lease expectations. Accordingly, if the estimates differ, the Company would
record an additional charge or benefit, as appropriate. Costs related to the consolidation included the lease termination fee,
contractual lease obligations and moving costs.
Costs related to the facility consolidation plans are summarized as follows:
Accrued
Balance at
December 26,
2015
2016
Expenses
(1)
2016 Cash
Payments
Accrued
Balance at
December 31,
2016
Total Costs
Incurred to
Date
Total
Expected
Costs
As of December 31,
2016
Warehousing, Distribution and
Manufacturing Consolidation Plan
Atlas Integration Plan
Corporate Office Consolidation Plan
Total All Plans
$
$
Asset impairments (2)
— $
1,381
$
1,115
$
266
$
7,444
$
—
341
341
—
75
—
168
$
1,456
$
1,283
$
—
248
514
1,669
803
9,916
1,133
$
$
$
$
7,444
1,669
803
9,916
1,133
Accrued
Balance at
December 27,
2014
2015
Expenses
(1)
2015 Cash
Payments
Accrued
Balance at
December 26,
2015
Warehousing, Distribution and
Manufacturing Consolidation Plan
Atlas Integration Plan
Corporate Office Consolidation Plan
Total All Plans
$
$
— $
2,016
$
2,016
$
—
—
202
728
202
387
— $
2,946
$
2,605
$
—
—
341
341
(1) Costs incurred under these plans are classified as "facility consolidation expenses, net" in the Company's Consolidated Statements of Operations.
(2) Asset impairments under these plans, when applicable, are classified as "impairment of assets" in the Company's Consolidated Statements of
Operations.
63
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 21 - DISCONTINUED OPERATIONS
The Company has either sold or discontinued certain operations that are accounted for as "Discontinued Operations" under applicable
accounting guidance. Discontinued operations are summarized as follows:
Net sales - Carousel operations
Loss from discontinued operations:
Loss from Carousel operations
Workers' compensation costs from former textile operations
Environmental remediation costs from former textile operations
Loss from discontinued operations, before taxes
Income tax benefit
Loss from discontinued operations, net of tax
Income (loss) on disposal of Carousel discontinued operations before
income taxes
Income tax provision (benefit)
Income (loss) on disposal of discontinued operations, net of tax
$
$
$
$
$
$
2016
2015
2014
— $
417
$
1,168
— $
(2)
(216)
(218) $
(87)
(131) $
100
40
60
$
$
(116) $
(53)
(68)
(237) $
(89)
(148) $
— $
—
— $
(863)
(55)
(62)
(980)
(372)
(608)
(2,363)
(896)
(1,467)
In the fourth quarter of 2014, the Company discontinued the Carousel specialty tufting and weaving operation that was part of the
2013 Robertex, Inc. acquisition, resulting in the impairment of customer relationships of $786 and trade names of $1,271. These
amounts have been included in the loss on disposal of discontinued operations in the Company's Consolidated Statements of
Operations.
Undiscounted reserves are maintained for the self-insured workers' compensation obligations related to the Company's former
textile operations. 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.
Reserves for environmental remediation obligations are established on an undiscounted basis. The Company has an accrual for
environmental remediation obligations related to discontinued operations of $1,686 as of December 31, 2016 and $1,591 as of
December 26, 2015. 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 22 - RELATED PARTY TRANSACTIONS
The Company is a party to a 5-year lease with the seller of Atlas Carpet Mills, Inc. to lease three manufacturing facilities as part of
the acquisition in 2014. The lessor is controlled by an associate of the Company. Rent paid to the lessor during 2016, 2015, and
2014 was $793, $458, and $343. The lease was based on current market values for similar facilities.
The Company purchases a portion of its product needs in the form of fiber, yarn and carpet from Engineered Floors, an entity
substantially controlled by Robert E. Shaw, a shareholder of the Company. An affiliate of Mr. Shaw holds approximately 7.4% of the
Company's Common Stock, which represents approximately 3.4% of the total vote of all classes of the Company's Common Stock.
Engineered Floors is one of several suppliers of such materials to the Company. Total purchases from Engineered Floors for 2016,
2015 and 2014 were approximately $7,300, $8,800 and $11,300, respectively; or approximately 2.4%, 2.8%, and 3.6% of the
Company's cost of goods sold in 2016, 2015, and 2014, respectively. Purchases from Engineered Floors are based on market
value, negotiated prices. The Company has no contractual commitments with Mr. Shaw associated with its business relationship
with Engineered Floors. Transactions with Engineered Floors are reviewed annually by the Company's board of directors.
64
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
The Company is a party to a 10-year lease with the Rothman Family Partnership to lease a manufacturing facility as part of the
Robertex acquisition in 2013. The lessor is controlled by an associate of the Company. Rent paid to the lessor during 2016, 2015,
and 2014 was $267, $262, and $257, respectively. The lease was based on current market values for similar facilities. In addition,
the Company has a note payable to Robert P. Rothman related to the acquisition of Robertex Inc. (See Note 10).
NOTE 23 - SUBSEQUENT EVENT
On March 10, 2017, the Company granted 40,000 shares of restricted stock to certain key employees of the Company. The grant-
date fair value of the awards was $140, or $3.500 per share, and will be recognized as stock compensation expense over a 3 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.
65
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE DIXIE GROUP, INC.
(dollars in thousands)
Balance at
Beginning
of Year
Additions -
Charged to
Costs and
Expenses
Additions -
Charged to
Other
Account -
Describe
Deductions
- Describe
Balance at
End of
Year
Description
Year ended December 31, 2016:
Reserves deducted from asset accounts:
Allowance for doubtful accounts
$
470
$
38
$
—
$
401 (1) $
107
Reserves classified as liabilities:
Provision for claims, allowances and
warranties
Year ended December 26, 2015:
Reserves deducted from asset accounts:
5,684
10,362
—
10,026 (3)
6,020
Allowance for doubtful accounts
$
450
$
146
$
—
$
126 (1) $
470
Reserves classified as liabilities:
Provision for claims, allowances and
warranties
Year ended December 27, 2014:
Reserves deducted from asset accounts:
4,647
14,254
—
13,217 (3)
5,684
Allowance for doubtful accounts
$
141
$
399
$
—
$
90 (1) $
450
Reserves classified as liabilities:
Provision for claims, allowances and
warranties
3,377
9,249
606
(2)
8,585 (3)
4,647
(1) Uncollectible accounts written off, net of recoveries.
(2) Assumed reserve in business combinations.
(3) Reserve reductions for claims, allowances and warranties settled.
66
ANNUAL REPORT ON FORM 10-K
ITEM 15(b)
EXHIBITS
YEAR ENDED DECEMBER 31, 2016
THE DIXIE GROUP, INC.
DALTON, GEORGIA
Exhibit Index
EXHIBIT NO. EXHIBIT DESCRIPTION
INCORPORATION BY REFERENCE
(1.1)
(2.1)
(3.1)
(3.2)
(5.1)
Underwriting Agreement for 2,500,000 Shares of
The Dixie Group, Inc.
Securities Purchase Agreement between
Masland Carpets, LLC and Robert P. Rothman
dated as of June 30, 2013.
Text of Restated Charter of The Dixie Group, Inc.
as Amended - Blackline Version.
Amended By-Laws of The Dixie Group, Inc. as of
February 22, 2007.
Shelf Registration Statement on Form S-3.
(10.1)
The Dixie Group, Inc. Director's Stock Plan. **
The Dixie Group, Inc. New Non-qualified
Retirement Savings Plan effective August 1,
1999. **
The Dixie Group, Inc. Deferred Compensation
Plan Amended and Restated Master Trust
Agreement effective as of August 1, 1999. **
The Dixie Group, Inc. Stock Incentive Plan, as
amended. **
Form of Stock Option Agreement under The Dixie
Group, Inc. Stock Incentive Plan. **
Form of Stock Rights and Restrictions Agreement
for Restricted Stock Award under The Dixie
Group, Inc. Stock Incentive Plan, as amended.**
Form of Stock Option Agreement under The Dixie
Group, Inc. Stock Incentive Plan for Non-
Qualified Options Granted December 20, 2005.**
Summary Description of the Director
Compensation Arrangements for The Dixie
Group, Inc.**
The Dixie Group, Inc. 2006 Stock Awards Plan. **
Summary Description of the 2006 Incentive
Compensation Plan, approved February 23,
2006.**
(10.2)
(10.3)
(10.4)
(10.5)
(10.6)
(10.7)
(10.8)
(10.9)
(10.10)
(10.11)
(10.12)
Incorporated by reference to Exhibit (1.1) to Dixie's
Current Report on Form 8-K dated May 20, 2014.*
Incorporated by reference to Exhibit (2.1) to Dixie's
Current Report on Form 8-K dated June 30, 2013. *
Incorporated by reference to Exhibit (3.4) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2003. *
Incorporated by reference to Exhibit 3.1 to Dixie's
Current Report on Form 8-K dated February 26 2007.*
Incorporated by reference to Exhibit (5.1) to Dixie's
Current Report on Form 8-K dated May 20, 2014.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 1997. *
Incorporated by reference to Exhibit (10.1) to Dixie's
Quarterly Report on Form 10-Q for the quarter ended
June 26, 1999. *
Incorporated by reference to Exhibit (10.2) to Dixie's
Quarterly Report on Form 10-Q for the quarter ended
June 26, 1999. *
Incorporated by reference to Annex A to Dixie's Proxy
Statement dated April 5, 2002 for its 2002 Annual
Meeting of Shareholders. *
Incorporated by reference to Exhibit (10.23) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2001. *
Incorporated by reference to Exhibit (10.35) to Dixie's
Annual Report on Form 10-K for the year ended
December 25, 2004. *
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated December 20, 2005.
*
Incorporated by reference to Exhibit (10.34) to Dixie's
Annual Report on Form 10-K for the year ended
December 25, 2004. *
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. *
Summary Description of The Dixie Group, Inc.,
2006 Incentive Compensation Plan/Range of
Incentives.**
Incorporated by reference to Exhibit (10.62) to Dixie's
Annual Report on Form 10-K for the year ended
December 28, 2013 .*
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.**
67
Incorporated by reference to Current Report on Form 8-
K dated March 20, 2006. *
(10.13)
(10.14)
(10.15)
(10.16)
(10.17)
(10.18)
(10.19)
(10.20)
(10.21)
(10.22)
(10.23)
(10.24)
(10.25)
(10.26)
(10.27)
(10.28)
(10.29)
(10.30)
(10.31)
(10.32)
(10.33)
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.**
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 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. *
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated June 7, 2006. *
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.*
Merger agreement between The Dixie Group, Inc.
and Unite Here National Retirement Fund
regarding the Company's Masland Bargaining
Unit Defined Benefit Pension Plan.**
Summary description of The Dixie Group, Inc.
2008 Annual Incentive Plan.**
Incorporated by reference to Exhibit (99.1) to Dixie's
Current Report on Form 8-K dated December 28, 2007*
Incorporated by reference to Exhibit 10.1 to Dixie's
Current Report on Form 8-K dated February 15, 2008*
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*
Amended and restated award of 125,000 shares
of Restricted Stock under the 2006 Stock Awards
Plan to Daniel K. Frierson.**
Summary description of The Dixie Group, Inc.
2010 Incentive Compensation Plan/Range of
Incentives.**
Summary Description of The Dixie Group, Inc.
2011 Incentive Compensation Plan/Range of
Incentives.**
Summary Description of The Dixie Group, Inc.
2012 Incentive Compensation Plan/Range of
Incentives.**
Summary Description of The Dixie Group, Inc.
2012 Incentive Compensation Plan/Range of
Incentives.**
Summary Description of The Dixie Group, Inc.
2013 Incentive Compensation Plan/Range of
Incentives.**
Summary Description of The Dixie Group, Inc.
2014 Incentive Compensation Plan/Range of
Incentives.**
Rule 10b5-1 and 10b-18 Repurchase Agreement
by and between The Dixie Group, Inc. and
Raymond James & Associates, Inc. dated
December 11, 2007*
Agreement by and between Raymond James &
Associates, Inc. dated November 6, 2008, to
repurchase shares of The Dixie Group, Inc.'s
Common Stock.
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 May 21, 2009.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated March 3, 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 (10.1) to Dixie's
Current Report on Form 8-K dated March 12, 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 February 15, 2013.*
Incorporated by reference to Exhibit (10.62) to Dixie's
Annual Report on Form 10-K for the year ended
December 28, 2013 .*
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 November 6, 2008.*
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated April 19, 2010.*
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.*
Termination of interest rate swap between Bank
of America, N.A. and The Dixie Group, Inc. dated
April 19, 2010.
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated July 8, 2010.*
68
(10.34)
(10.35)
(10.36)
(10.37)
(10.38)
(10.39)
(10.40)
(10.41)
(10.42)
(10.43)
(10.44)
(10.45)
(10.46)
(10.47)
(10.48)
(10.49)
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.
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, 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.
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Purchase and Sale Agreement dated
December 28, 2012.
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Bill of Sale, dated December 28, 2012.
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Lease Agreement, dated December 28,
2012.
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Short Form Lease Agreement, dated
December 28, 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 (10.1, 10.2, 10.3) to
Dixie's Current Report on Form 8-K dated August 25,
2009.*
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 (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
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 (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
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 (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, 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 .*
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Loan Agreement, dated December 28,
2012.
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Loan and Security Agreement, dated
December 28, 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.
Obligation to the Development Authority of
Gordon County; by and among Masland Carpets,
LLC, Notice and Consent to Assignment, dated
December 28, 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.
Obligation to the Development Authority of
Murray County; by and among TDG Operations,
LLC, Series 2014 Bond, dated October 17, 2014.
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 (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
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 (4.12) to Dixie's
Annual Report on Form 10-K for the year ended
December 29, 2012 .*
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 (10.48) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Obligation to the Development Authority of
Murray County; by and among TDG Operations,
LLC, PILOT Agreement, dated October 1, 2014
Incorporated by reference to Exhibit (10.49) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
69
(10.50)
(10.51)
(10.52)
(10.53)
(10.54)
(10.55)
(10.56)
(10.57)
(10.58)
(10.59)
(10.60)
(10.61)
(10.62)
(10.63)
Obligation to the Development Authority of
Murray County; by and among TDG Operations,
LLC, Bond Purchase Loan Agreement, dated
October 1, 2014
Incorporated by reference to Exhibit (10.50) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Obligation to the Development Authority of
Murray County; by and among TDG Operations,
LLC, Option Agreement, dated October 1, 2014
Incorporated by reference to Exhibit (10.51) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Obligation to the Development Authority of
Murray County; by and among TDG Operations,
LLC, Bill of Sale, dated October 1, 2014
Incorporated by reference to Exhibit (10.52) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Obligation to the Development Authority of
Murray County; by and among TDG Operations,
LLC, Assignment of Rents and Leases and
Security Agreement dated October 1, 2014
Project Development Agreement, by and between
TDG Operations, LLC, a Georgia Limited Liability
Company doing business as Masland Carpets
and the City of Atmore, Alabama, dated
December 11, 2014.
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.
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.
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.
70
Incorporated by reference to Exhibit (10.53) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.54) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
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.*
Incorporated by reference to Exhibit (10.22) to Dixie's
Current Report on Form 8-K dated September 14,
2011.*
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.*
(10.64)
(10.65)
(10.66)
(10.67)
(10.68)
(10.69)
(10.70)
(10.71)
(10.72)
(10.73)
(10.74)
(10.75)
(10.76)
(10.77)
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.
Eighth Amendment to Credit Agreement dated as
of March 14, 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.
Term Note 1 dated November 7, 2014, by TDG
Operations, LLC, a Georgia limited liability
company and First Tennessee Bank National
Association.
Deed to Secure Debt, Assignment of Rents and
Leases, Security Agreement and Fixture Filing by
TDG Operations, LLC, a Georgia limited liability
company and First Tennessee Bank National
Association, dated November 7, 2014.
Term Note 2 dated November 7, 2014, by TDG
Operations, LLC, a Georgia limited liability
company and First Tennessee Bank National
Association.
Amendment to Term Loan Agreement, Note 2,
dated November 7, 2014, by TDG Operations,
LLC, a Georgia limited liability company and First
Tennessee Bank National Association.
Term Note 3 dated January 23, 2015, by TDG
Operations, LLC, a Georgia limited liability
company and First Tennessee Bank National
Association.
Mortgage, Assignment of Rents and Leases,
Security Agreement and Fixture Filing by TDG
Operations, LLC, a Georgia limited liability
company and First Tennessee Bank National
Association, dated January 23, 2015.
Mortgagee's Subordination and Consent, dated
January 23, 2015, by and between Wells Fargo
Capital Finance, LLC, as Agent, and The Dixie
Group, Inc. and it subsidiaries, as Borrower, and
First Tennessee Bank National Association, as
Mortgagee.
71
Incorporated by reference to Exhibit (10.01) to Dixie's
Current Report on Form 8-K dated April 3, 2013.*
Incorporated by reference to Exhibit (10.57) to Dixie's
Annual Report on Form 10-K for the year ended
December 28, 2013 .*
Incorporated by reference to Exhibit (10.58) to Dixie's
Annual Report on Form 10-K for the year ended
December 28, 2013 .*
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. *
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated March 20, 2014. *
Incorporated by reference to Exhibit (10.71) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.72) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.73) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.74) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.75) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.76) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.77) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
(10.78)
(10.79)
(10.80)
Amended and Restated Mortgagee's
Subordination and Consent, dated January 23,
2015, by and between Wells Fargo Capital
Finance, LLC, as Agent, and The Dixie Group,
Inc. and it subsidiaries, as Borrower, and First
Tennessee Bank National Association, as
Mortgagee.
Amendment to Deed to Secure Debt, Assignment
of Rents and Leases, Security Agreement and
Fixture Filing, dated January 23, 2015, between
TDG Operations, LLC, a Georgia limited liability
company, and First Tennessee Bank National
Association.
Stock Purchase Agreement between TDG
Operations, LLC, a wholly owned subsidiary of
The Dixie Group, Inc. and James Horwich,
Trustee under the Horwich Trust of 1973, to
purchase all outstanding capital stock of Atlas
Carpet Mills, Inc.
Incorporated by reference to Exhibit (10.78) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.79) to Dixie's
Annual Report on Form 10-K for the year ended
December 27, 2014 .*
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated March 20, 2014. *
(10.81)
Summary of Annual Incentive Compensation Plan
Applicable to 2015
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
(10.82)
Form of LTIP award (B shareholder)
(10.83)
Form of LTIP award (common only)
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
Incorporated by reference to Exhibit (10.3) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
(10.84)
Form of Career Share award (B shareholder)
Incorporated by reference to Exhibit (10.4) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
(10.85)
Form of Career Share award (common only)
Incorporated by reference to Exhibit (10.5) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
(10.86)
Form of Retention Grant (Service Condition only)
Incorporated by reference to Exhibit (10.6) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
(10.87)
Form of Retention Grant (Performance Condition
and Service Condition)
Incorporated by reference to Exhibit (10.7) to Dixie's
Current Report on Form 8-K dated March 13, 2015. *
(10.88)
Form of Award of 100,000 share of Restricted
Stock under the 2006 Stock Awards Plan to
Daniel K. Frierson
(10.89)
Thornton Edge LLC Lease for Reed Road Facility
(10.90)
Thornton Edge LLC First Lease Amendment for
Reed Road Facility
(10.91)
Thornton Edge LLC Second Lease Amendment
for Reed Road Facility
(10.92)
Summary of Incentive Plan for 2016
Incorporated by Reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated April 30,2015. *
Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 10-Q dated November 4, 2015.
*
Incorporated by reference to Exhibit (10.2) to Dixie's
Current Report on Form 10-Q dated November 4, 2015.
*
Incorporated by reference to Exhibit (10.3) to Dixie's
Current Report on Form 10-Q dated November 4, 2015.
*
Incorporated by Reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated March 11,2016. *
(10.93)
Long Term Incentive Plan Award B Shareholder
Incorporated by Reference to Exhibit (10.2) to Dixie's
Current Report on Form 8-K dated March 11,2016. *
(10.94)
Long Term Incentive Plan Award Common
Incorporated by Reference to Exhibit (10.3) to Dixie's
Current Report on Form 8-K dated March 11,2016. *
(10.95)
Career Shares B Shareholder
(10.96)
Career Shares Common
Incorporated by Reference to Exhibit (10.4) to Dixie's
Current Report on Form 8-K dated March 11,2016. *
Incorporated by Reference to Exhibit (10.5) to Dixie's
Current Report on Form 8-K dated March 11,2016. *
72
(10.97)
Tenth Amendment to Credit Agreement, First
Amendment to Security Agreement, and First
Amendment to Guaranty
Incorporated by Reference to Exhibit (10.1) to Dixie's
*
Current Report on Form 8-K dated September 26,2016.
(14)
(16)
(21)
(23)
(31.1)
(31.2)
(32.1)
(32.2)
(101.INS)
Code of Ethics, as amended and restated,
February 15, 2010.
Letter from Ernst & Young LLP regarding change
in certifying accountant.
Subsidiaries of the Registrant.
Consent of Dixon Hughes Goodman LLP
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).
XBRL Instance Document
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.*
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
(101.SCH)
XBRL Taxonomy Extension Schema Document
Filed herewith
(101.CAL)
(101.DEF)
(101.LAB)
(101.PRE)
XBRL Taxaonomy Extension Calculation
Linkbase Document
XBRL Taxonomy Extension Definition Linkbase
Document
XBRL Taxonomy Extension Label Linkbase
Document
XBRL Taxonomy Extension Presentation
Linkbase Document
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
* Commission File No. 0-2585.
** Indicates a management contract or compensatory plan or arrangement.
73
P R O X Y S T A T E M E N T
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.
475 Reed Road
Dalton, Georgia 30720
(706) 876-5800
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 Corporate Office, 475 Reed Road, Dalton,
Georgia, on May 3, 2017 at 8:00 a.m., Eastern Time, for the following purposes:
1.
2.
3.
4.
To elect nine individuals to the Board of Directors for a term of one year each;
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 2017; 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 24,
2017, 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
Dalton, Georgia
Dated: March 23, 2017
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
May 3, 2017
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.
475 Reed Road
Dalton, Georgia 30720
Phone (706) 876-5800
ANNUAL MEETING OF SHAREHOLDERS
May 3, 2017
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 23, 2017, to shareholders of record of the Company’s Common Stock and Class B Common Stock as of the close of business
on February 24, 2017.
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 (9) individuals to the Board
of Directors for a term of one year each, (ii) cast an advisory vote on the Company’s executive compensation for its named executive
officers; (iii) ratify the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of the
Company for 2017, and (iv) 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 Company’s executive compensation of its named executive officers; and (iii) FOR ratifying the
appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of the Company for 2017.
RECORD DATE, VOTE REQUIRED AND RELATED MATTERS
The Board has fixed the close of business on February 24, 2017, 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 24, 2017, 15,248,338 shares of Common Stock, representing 15,248,338 votes, were held of record by approximately
3,000 shareholders (including an estimated 2,600 shareholders whose shares are held in nominee names) and 870,714 shares of
Class B Common Stock, representing 17,414,280 votes, were held by 10 individual shareholders, together representing an aggregate
of 32,662,618 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 Company’s executive compensation of its named executive
officers; and (iii) FOR ratifying the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants
of the Company for 2017.
Any Proxy given pursuant to this solicitation may be revoked at any time by the shareholder giving it by (i) delivering to
the Corporate 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 2007, Dalton, Georgia 30722-2007, Attention: Derek Davis.
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 in person or by Proxy at the Annual Meeting.
1
Approval of the Company’s executive compensation for its named executive officers will be deemed to have been obtained
if the number of votes properly cast in favor of such compensation exceeds the number of votes cast against such compensation.
Ratification of the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of
the Company for 2017 will be approved if the votes properly cast favoring ratification exceed the votes cast opposing ratification.
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 or negative 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.
A copy of the Company’s Annual Report for the year-ended December 31, 2016, 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 24, 2017, 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 24, 2017 (except as
otherwise noted).
Name and Address of Beneficial Owner
Title of Class
Daniel K. Frierson
111 East and West Road
Common Stock
Lookout Mountain, TN 37350
Class B Common Stock
Number of
Shares
Beneficially
Owned(1)(2)
% of Class
1,005,634
870,714
(3)
(4)
6.2 %
100.0 %
Dimensional Fund Advisors, L.P.
Palisades West, Building One,
6300 Bee Cave Road
Austin, TX 78746
Hodges Capital Holdings, Inc.
2905 Maple Avenue
Dallas, TX 75201
Royce & Associates, LLC
745 Fifth Avenue
New York, NY 10151
Robert E. Shaw
115 West King Street
Dalton, GA 30722-1005
Wells Fargo & Company, on behalf of the
following subsidiaries:
Wells Capital Management Incorporated
Wells Fargo Fund Management, LLC
Wells Fargo Clearing Services, LLC
420 Montgomery Street
San Francisco, CA 94163
Common Stock
1,091,102
(5)
7.2 %
Common Stock
2,280,660
(6)
15.0 %
Common Stock
1,366,631
(7)
9.0 %
Common Stock
1,125,000
(8)
7.4 %
Common Stock
1,554,810
(9)
10.2 %
3
Additional Directors and Executive Officers
Title of Class
Number of
Shares
Beneficially
Owned (1)
% of Class
William F. Blue, Jr.
Common Stock
18,091
(10)
Charles E. Brock
Common Stock
10,941
(11)
Paul B. Comiskey
Common Stock
106,486
(12)
W. Derek Davis
Jon A. Faulkner
D. Kennedy Frierson, Jr.
Common Stock
73,222
(13)
Common Stock
139,522
(14)
Common Stock
Class B Common Stock
214,487
180,700
(15)
(4)
1.4 %
20.8 %
*
*
*
*
*
E. David Hobbs
Common Stock
7,259
(16)
Walter W. Hubbard
Common Stock
21,801
(17)
Lowry F. Kline
V. Lee Martin
Common Stock
54,299
(18)
Common Stock
30,381
(19)
Hilda S. Murray
Common Stock
10,941
(20)
John W. Murrey, III
Common Stock
40,079
(21)
Michael L. Owens
Common Stock
6,775
(22)
*
*
*
*
*
*
*
All Directors, Named Executive Officers and
Executive Officers as Group (14 Persons) **
Common Stock
Class B Common Stock
1,556,333
870,714
(23)
(24)
9.6 %
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 18,099,899 votes or 55.4% of the total vote.
(1)
(2)
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.
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.
Does not include 244,775 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.
4
(3) Mr. Daniel K. Frierson's beneficial ownership of Common Stock and Class B Common Stock may be summarized as follows:
Shares held outright
Shares held in his Individual Retirement Account
Shares held in 401(k) Plan
Shares held by his wife
Shares held by his children, their spouses and grandchildren
Unvested restricted stock
Shares held by family Unitrust
Options to acquire Common Stock, exercisable within 60 days
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
3,263
3,567
796
—
55,690
21,404
—
50,000
870,714
1,005,434
(a)
(a)
(b)
(a)
(a)
(a)
(a)
(c)
(c)
(a)
(a)
405,306
17,061
—
94,879
230,072
117,910
5,486
—
—
870,714
(4)
(5)
(6)
(7)
(8)
The 870,714 includes 324,951 shares of Class B Common Stock are held subject to a Shareholder's Agreement among
Daniel K. Frierson, his wife, two of their five children (including D. Kennedy Frierson, Jr.) and certain family trusts which hold
Class B Common Stock, pursuant to which Daniel K. Frierson has been granted a proxy to vote such shares. The Shareholder's
Agreement relates only to shares of Class B Common Stock held by each of the parties to the agreement. Pursuant to the
agreement Daniel K. Frierson is granted a proxy to vote such shares of Class B Common Stock so long as they remain
subject to the agreement. The Class B Common Stock is convertible on a share for share basis in to shares of Common
Stock; however, upon conversion such shares are no longer subject to the agreement. Nevertheless, the parties to the
agreement may be deemed to be members of a "group" for purposes of Section 13(d) of the act and for purposes of reporting
beneficial ownership of the Common Stock of The Dixie Group, Inc., and accordingly Daniel K. Frierson, and the other parties
to the agreement have jointly filed a report on Schedule 13(d) reporting beneficial ownership of the Common Stock which
they own.
Dimensional Fund Advisors, L.P. has reported beneficial ownership of an aggregate of 1,091,102 shares of Common Stock,
as follows: 1,071,615 shares of Common Stock, for which it has sole voting power, and 1,091,102 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 9, 2017.
Hodges Capital Holdings, Inc. Craig Hodges, First Dallas Securities, Inc., Hodges Capital Management, Inc., Hodges Fund,
Hodges Pure Contrarian Fund, and Hodges Small Fund has reported beneficial ownership of an aggregate of 2,280,660
shares of Common Stock. Hodges Capital Holdings, Inc. reports having shared voting power of 1,903,855 and 2,280,666
shared dispositive power. The reported information is based upon the Schedule 13G filed by Hodges Capital Holdings, Inc.
with the Securities and Exchange Commission on February 17, 2017.
Royce & Associates LLC has reported beneficial ownership of 1,366,631 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 6, 2017.
Robert E. Shaw has reported the beneficial ownership of an aggregate of 1,125,000 shares of Common Stock for which he
has 1,125,000 shared voting power and 1,125,000 shared dispositive power. The reported information is based upon the
13G filed by Mr. Shaw with the Securities and Exchange Commission on February 8, 2017.
(9) Wells Fargo & Company has reported the beneficial ownership of an aggregate of 1,554,810 shares of Common Stock, on
behalf the following subsidiaries: Wells Capital Management Incorporated, Wells Fargo Funds Management, LLC, and Wells
Fargo Clearing Services, LLC. It has reported 764,313 shares of Common Stock for which it has shared voting power. The
reported information is based on a Form 13G filed on January 9, 2017.
5
(10) Mr. William F. Blue's beneficial ownership may be summarized as follows:
Shares held outright
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(11) Mr. Charles E. Brock's beneficial ownership may be summarized as follows:
Shares held outright
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:
Shares held outright
Unvested Restricted Stock
Held in 401(k) Plan
Exercisable Stock Options
Total
(13) Mr. W. Derek Davis's beneficial ownership may be summarized as follows:
Shares held outright
Shares held by his wife
Unvested Restricted Stock
Held in 401(k) Plan
Exercisable Stock Options
Total
(14) Mr. Jon A. Faulkner's beneficial ownership may be summarized as follows:
Shares held outright
Unvested Restricted Stock
Exercisable Stock Options
Total
Number of Shares
Common Stock
11,529
6,562
18,091
Number of Shares
Common Stock
—
10,941
10,941
Number of Shares
Common Stock
39,023
48,663
800
18,000
106,486
Number of Shares
Common Stock
47,502
4,500
14,463
4,257
2,500
73,222
Number of Shares
Common Stock
54,033
74,489
11,000
139,522
6
(15) Mr. D. Kennedy Frierson Jr.'s beneficial ownership may be summarized as follows:
Shares held outright
Shares held by his wife
Shares held in trust(s) for children
Shares held in 401(k)
Unvested Restricted Stock
Options to acquire Common Stock, exercisable within 60 days
Deemed conversion of Class B Stock
Total
Number of
Shares
Common Stock
Number of
Shares Class B
Common Stock
—
100
2,585
2,301
6,801
22,000
180,700
214,487
85,140 (a)
—
12,000 (a)
—
83,560 (a)
—
— (a)
180,700
(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.
(16) Mr. E. David Hobbs' beneficial ownership may be summarized as follows:
Shares held outright
Unvested Restricted Stock
Total
(17) Mr. Walter W. Hubbard's beneficial ownership may be summarized as follows:
Shares held outright
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(18) Mr. Lowry F. Kline's beneficial ownership may be summarized as follows:
Shares held outright
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
Number of Shares
Common Stock
2,364
4,895
7,259
Number of Shares
Common Stock
—
21,801
21,801
Number of Shares
Common Stock
31,198
23,101
54,299
(19) Mr. V. Lee Martin resigned from the company on September 15, 2016. His beneficial ownership may be summarized as
follows:
Shares held outright
Unvested Restricted Stock
Total
Number of Shares
Common Stock
30,381
—
30,381
7
(20) Ms. Hilda S. Murray's beneficial ownership may be summarized as follows:
Shares held outright
Performance Units, convertible into shares of Common Stock on retirement as a director
Total
(21) Mr. John W. Murrey's beneficial ownership may be summarized as follows:
Shares held outright
Performance Units, convertible into shares of Common Stock on retirement as a director
Held by wife
Total
(22) Mr. Michael L. Owens' beneficial ownership may be summarized as follows:
Shares held outright
Performance Units, convertible into shares of Common Stock on retirement as a director
Number of Shares
Common Stock
—
10,941
10,941
Number of Shares
Common Stock
3,468
36,111
500
40,079
Number of Shares
Common Stock
—
6,775
6,775
Total
(23)
Includes: (i) 221,579 shares of Common Stock owned directly by individuals in this group; (ii) 8,154 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 103,500 shares of Common Stock; (iv) 116,232 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) 60,690 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) 170,715 unvested restricted shares of Common Stock
held by individuals in this group, which shares may be voted by such individuals; and (viii) 870,714 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.
(24)
Includes: (i) 870,714 shares of Class B Common Stock held subject to the Shareholder Agreement described in Note (4)
above.
8
PROPOSAL ONE
ELECTION OF DIRECTORS
Information About Nominees for Director
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:
William F. Blue, Jr., age 58, is Chairman of the Board of The Hopeway Foundation in Charlotte, North Carolina. From
2008 until his retirement in 2014, he served as Vice Chairman of Investment Banking and Capital Markets, part of Wells Fargo
Securities, LLC, in Charlotte. Throughout his 29-year investment banking career, he represented foreign and domestic corporations
in financing and advisory assignments, including acquisitions, divestitures, recapitalizations, fairness opinions, and public and
private equity and debt offerings. From 1998 until 2008, Mr. Blue served as group head of the Wachovia Consumer and Retail
Investment Banking group. Before joining Wachovia, he was a managing director in the Mergers and Acquisitions group of
NationsBanc Montgomery Securities, the predecessor firm to Banc of America Securities. Mr. Blue is a member of the Company's
Audit Committee, the Company's Compensation Committee and the Company's Executive Committee. He has been a director of
the Company since October 2014.
Charles E. Brock, age 52, 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 Pinnacle Financial Partners. Mr. Brock is a member of the Company’s Audit Committee and
a member of the Company's Nominations and Corporate Governance Committee. He has been a director of the Company since
2012.
Daniel K. Frierson, age 75, 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.
D. Kennedy Frierson, Jr., age 50, 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. He has been a director of the Company since 2012.
Walter W. Hubbard, age 73, 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. Mr. Hubbard is a member of the Company’s Audit Committee and the Company's Compensation Committee. He has been
a director of the Company since 2005.
Lowry F. Kline, age 76, served as a director of Coca-Cola Enterprises, Inc. from April 2000 until April 2008, 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 is a former director of McKee Foods Corporation,
headquartered in Collegedale, Tennessee. Mr. Kline is Chairman of the Company’s Compensation Committee, a member of the
Company’s Audit Committee and a member of the Company’s Executive Committee. He has been a director of the Company since
2004.
Hilda S. Murray, age 62, is the Corporate Secretary and Executive Vice President of TPC Printing & Packaging, a specialty
packaging and printing company in Chattanooga, Tennessee. 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 Nominations and Corporate Governance Committee. She has been a director of the Company since
2012.
9
John W. Murrey, III, age 74, 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 a member of the
Company’s Audit Committee and is Chairman of the Company’s Nominations and Corporate Governance Committee.
Michael L. Owens, age 60, 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 2014 and is Chairman
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 the slate of nominees for 2017, the independent directors of the Board considered the familiarity of the
Company’s incumbent Directors 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. With respect to
all nominees, the independent directors of the Board noted the particular qualifications, experience, attributes and skills possessed
by each nominee. 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. Blue is an experienced investment banker having been
Vice Chairman of Wells Fargo Securities and involved with capital formation, mergers, acquisitions and financing of various types
of ventures. Mr. Brock is experienced in establishing new businesses having been involved in the establishment of both Foxmark
Media and CapitalMark Bank and Trust. 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 chairs the Company’s Compensation Committee. 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. Murrey is chairman of the Company's
Nominations and Corporate Governance Committee. 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 and is Chairman of the Company's Audit Committee
The Board of Directors recommends that the Company’s shareholders vote FOR electing the nine (9) nominees
for director.
10
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Meetings of the Board of Directors
The Board of Directors of the Company met six (6) times in 2016.
Committees, Attendance, and Directors' Fees
The Company has a standing Executive Committee, Audit Committee, Compensation Committee, and Nominations and
Corporate Governance Committee. Copies of the Charters of the Company’s Audit Committee, Compensation Committee and
Nominations and Corporate Governance Committees 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, William F. Blue, Jr. 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 acted once, by
written consent, in 2016.
Members of the Audit Committee are Michael L. Owens, Chairman, William F. Blue, Jr., Charles E. Brock, Walter W.
Hubbard, Lowry F. Kline, Hilda S. Murray, and John W. Murrey, III. All of the members of the Audit Committee are “independent
directors” as that term is defined by applicable regulations and rules 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 2016.
Members of the Compensation Committee are Lowry F. Kline, Chairman, William F. Blue, Jr., and Walter W. Hubbard. 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 2016, see Compensation Discussion and Analysis - Compensation for 2016.
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.
The Compensation Committee met one (1) time in 2016.
The members of the Nominations and Corporate Governance Committee are John W. Murrey, III, Chairman, Charles E.
Brock, and Hilda S. Murray. The Nominations and Corporate Governance Committee develops and recommends for board approval
corporate governance guidelines.
The Nominations and Corporate Governance Committee’s Charter includes the duties of a nominating committee.
Nominees approved by a majority of the Committee are recommended to the full Board. In selecting and approving director nominees,
the Committee considers, among other factors, the existing composition of the Board and the mix of Board members appropriate
for the perceived needs of the Company. The 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 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.
11
The Nominations and Corporate Governance 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 relevant regulatory and NASD 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 makeup 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 Nominations and Corporate Governance Committee met one (1) time in 2016.
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 F. 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. The Audit Committee also sets its own agenda and may consider
any relevant topic in its executive sessions.
Director Attendance
During 2016, 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.
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 $36,000, payable one-half in cash and one-half in
value of Performance Units (subject to a $5.00 per share minimum value for determination of the number of performance units to
be issued). Performance Units are redeemable upon a director’s retirement for an equivalent number of shares of the Company’s
Common Stock. 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. Chairmen of the Audit and Compensation committees receive
an additional annual payment of $8,000 and the Chairmen of the Nominations and Corporate Governance Committee receives an
additional annual payment of $4,000. For an additional discussion of Director Compensation, see the tabular information below
under the heading, “Director Compensation.”
Independent Directors
The Board has determined that William F. Blue, Jr., Charles E. 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 2016, all
filing requirements applicable to its executive officers, directors, and owners of more than 10% of the Company's Common Stock
have been met.
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 Nominations and Corporate Governance 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 committee for
review. If required and appropriate under the circumstances, the committee will consider such transactions for approval or ratification.
Full disclosure of the material terms of any such transaction must be made to the 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 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 31, 2016, the Company purchased a portion of its product needs in the form of
fiber, yarn, and carpet from Engineered Floors, an entity substantially controlled by Robert E. Shaw, a shareholder of the Company.
Mr. Shaw has reported holding approximately 7.4% of the Company’s Common Stock, which, as of year-end, represented
approximately 3.4% of the total vote of all classes of the Company’s Common Stock. Engineered Floors is one of several suppliers
of such products to the Company. Total purchases from Engineered Floors for 2016 were approximately $7.3 million; or approximately
2.4% of the Company’s cost of goods sold in 2016. 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.
13
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 31, 2016 (the “Audited Financial Statements”). In addition, the Committee has discussed with Dixon Hughes
Goodman LLP all matters required by applicable auditing standards.
The Committee also has received the written report, disclosure and the letter from Dixon Hughes Goodman 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 Dixon Hughes Goodman LLP such other matters and received such assurances
from them as the Committee deemed appropriate.
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 31, 2016, to be filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Michael L. Owens, Chairman
William F. Blue, Jr.
Charles E. Brock
Walter W. Hubbard
Lowry F. Kline
Hilda S. Murray
John W. Murrey, III
AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that Michael L. Owens, Chairman of the Audit Committee, 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.
Owens’ relevant experience, please refer to Mr. Owens’ biographical information as set forth in the Election of Directors section of
this proxy statement. Additionally, the Board believes the remaining members of the Audit Committee would qualify as audit
committee financial experts, within the meaning of applicable rules, based on each individual's qualification and expertise.
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 three 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 award
value of which is tied to accomplishing both financial and non-financial goals and objectives.
Compensation for 2016.
Effective February 11, 2016, the Compensation Committee selected performance goals and a range of possible incentives
for the Company’s 2016 Incentive Compensation Plan (the “2016 Plan”). Pursuant to the 2016 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 2016, each executive officer also received customary retirement plan benefits and other customary employment
benefits, as in prior years.
Salary for 2016. The base salaries for the executive officers were not adjusted during 2016. See the 2016 Summary
Compensation Table for a tabular presentation of the amount of salary and other compensation elements paid in proportion to total
compensation for each named executive officer.
Potential Incentive Awards for 2016. 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 105% of such
executive’s base salary (from 45% to 105% for the Chief Executive Officer and Chief Operating Officer, and from 30% to 90% for
the Chief Financial Officer and from 15% to 75% for all other officers). Fifty percent of the amount of the potential award was based
on achievement of specified levels of operating income from continuing operations for the Company, as adjusted for unusual items,
30% of the amount was based on achievement of specified levels of operating income of the Company’s residential business
operations, 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 five percent of the amount
was based on achievement of specified levels of their annual business unit operating income, as adjusted for unusual items, 30%
was based on the achievement of specified levels of the Company’s consolidated operating income, as adjusted for unusual items,
and 15% was based on achievement of specified levels of the annual operating income of the Company’s other business units, as
adjusted for unusual items.
Primary Long-Term Incentive Share Awards and Career Shares Awards for 2016. 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 was contingent on the Company’s achievement of minimum levels of adjusted operating
income and, in the case of Career Share Awards was contingent on the Company's having a profitable operating income, as adjusted.
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 2016 plus any cash incentive award paid for such year.
Any Primary Long-Term Incentive Share Awards, if earned, 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, excluding the Company’s Chief Operating Officer and Chief Financial Officer. The level of career
share awards was set at 35% and 30%, respectively, of the Chief Operating Officer’s and Chief Financial Officer’s base salary for
2016.
15
In accordance with past practice, any such award, if earned, would be granted in 2017. For participants age 61 or older,
the Career Share Awards vest ratably over two years from the date of the grant. For the participants age 60 or younger, shares
vest ratably over five years from the date of grant after the participant reaches age 61.
Additionally, all Share Awards are subject to vesting or forfeiture under certain conditions as follows: death, disability or
a change in control will result in immediate vesting of all Share Awards; termination without cause will also result in immediate
vesting of all Career Share Awards and in immediate vesting of that portion of Long-Term Incentive Share Awards that have been
expensed; voluntary termination of employment prior to retirement, or termination for cause will result in forfeiture of all unvested
awards; to the extent that the Company has recognized compensation expense related to the shares subject to the awards, such
amounts vest at retirement age and are paid out by March 15th of the subsequent year.
All awards of restricted stock are subject to a $5.00 minimum price per share when determining the number of shares
awarded. 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.
2016 Incentive Awards. No cash Awards were made for 2016 for the named executive officers. No Primary Long-Term
Incentive Share Awards were granted in 2017 with respect to 2016 for the named executive officers. No Career Share Awards were
granted in 2017 with respect to 2016 for the named executive officers.
Incentive Compensation Applicable to 2017. Following year-end, the Committee adopted an incentive plan for 2017
providing for possible cash incentive awards and restricted stock awards in the form of Long-Term Incentive Share Awards and
Career Share awards, as in prior years, and similar in structure to the annual plan adopted for 2016. Any such awards, if earned,
would be paid, in the case of the cash award, or granted, in the case of the restricted stock awards, in March 2018.
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 2016 the Company made
a contribution of 1% to the qualified plan, while no Company contributions were made to the non-qualified plan.
Compensation Considerations for 2016 and 2017. 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. The
incentive compensation rules under section 162m are technical and complex. Accordingly, as in past years, the Committee
considered the possible tax effects of cash incentives and equity incentive awards that may not qualify as “incentive compensation”
under Section 162m of the Internal Revenue Code. The Company held a “Say on Pay” vote at its annual meeting in 2016. At that
meeting, in excess of 93% of the votes were cast “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. Upon a Participant's reaching retirement age (as defined in the plan), 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, and Paul B. Comiskey 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 21,142 shares and $76,110. 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
9,984 shares and $35,943. For purposes of valuing the foregoing awards, the Company used the year-end market value of the
Company’s Common Stock, which was $3.60/share.
For the year ended December 31, 2016, termination benefits will be payable to Mr. V. Lee Martin, who resigned September
15, 2016, in the form of a continuation of his salary for the 9 month period following his resignation. Additionally, the restricted stock
awards that were vested as of his resignation were paid to him. See All Other Compensation table following the Summary
Compensation table.
16
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, set forth above,
with management.
Based on our review and the discussions we held with management, we have recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the Company’s Proxy Materials.
Respectfully submitted,
Lowry F. Kline, Chairman
William F. Blue, Jr.
Walter W. Hubbard
17
EXECUTIVE COMPENSATION INFORMATION
The following table sets forth information as to all compensation earned during the fiscal years ended December 27, 2014
and December 26, 2015 and December 31, 2016 to (i) the Company's Chief Executive Officer; and (ii) the Company's Chief Financial
Officer, (iii) the three other most highly compensated executive officers who served as such during the fiscal year ended December
31, 2016 (the “Named Executive Officers”), and Mr. V. Lee Martin, who resigned effective September 2016. For a more complete
discussion of the elements of executive compensation, this information should be read in conjunction with the other tabular information
presented in the balance of this section.
Summary Compensation Table
Name and Principal
Position (a)
Year
(b)
Salary ($)
(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
D. Kennedy Frierson, Jr.
Chief Operating Officer
Paul B. Comiskey
Vice President,
President Residential
Jon A. Faulkner, Chief
Financial Officer
W. Derek Davis, Vice
President, Human
Resources
V. Lee Martin,
Vice President,
President Masland
Contract (6)
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
625,000
625,000
—
109,000
— 1,102,427
625,000
326,650
481,802
320,000
320,000
—
—
97,664
108,355
320,000
148,532
222,460
300,000
300,000
—
—
52,320
325,349
300,000
151,174
217,224
270,000
270,000
—
—
70,632
78,363
270,000
127,003
188,743
230,000
230,000
—
—
40,112
44,505
230,000
120,810
176,861
162,917
230,000
—
—
40,112
44,505
243,333
108,415
175,058
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,479
739,479
5,004
1,732,431
6,866
1,440,318
5,479
5,004
6,597
5,479
5,004
6,755
5,389
5,004
6,634
5,056
5,004
6,664
423,143
433,359
697,589
357,799
630,353
675,153
346,021
353,367
592,380
275,168
279,509
534,335
62,252
265,281
4,907
6,216
279,412
533,022
(1) Includes all amounts deferred at the election of the Named Executive Officer.
(2) Cash bonuses are shown in the year granted, not earned, because employment through year-end is a condition of earning
the award. No cash incentive was earned for 2016.
(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).
(6) Mr. V. Lee Martin resigned on September 15, 2016.
18
All Other Compensation
Name (a)
Year (b)
Registrant
Contributions to
Defined
Contributions Plans
($)(c)
Insurance
Premiums ($)(d)
Other ($)(f) (1&2)
Total Perquisites
and Other Benefits
($)(g)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
V. Lee Martin
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2,600
2,125
3,987
2,600
2,125
3,987
2,600
2,125
3,987
2,600
2,125
3,987
2,300
2,125
3,987
2,300
2,125
4,000
2,879
2,879
2,879
2,879
2,879
2,610
2,879
2,879
2,768
2,789
2,879
2,647
2,756
2,879
2,677
2,452
2,782
2,216
57,500
5,479
5,004
6,866
5,479
5,004
6,597
5,479
5,004
6,755
5,389
5,004
6,634
5,056
5,004
6,664
62,252
4,907
6,216
(1) No named Executive Officer received any tax reimbursement, discounted securities purchases, or payment or accrual on
termination plans for the period presented.
(2) Mr. Martin will receive severance payments following his resignation for a period of 9 months from date of separation equal
to his monthly salary. Under the stock awards grants Mr. Martin forfeited 1,314 primary long-term incentive shares and
received 13,086 vested primary long term incentive and career shares.
19
Grants of Plan-Based Awards
Estimated Future Payouts Under Equity Incentive Plan Awards (1)
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
V. Lee Martin
Securities
Underlying
Options (#)
(j)
Base Price
of Option
($/#) (k)
Shares of
Stock or
Units (#)
(i)
Grant
Date Fair
Value of
Stock and
Option
Awards
($)
25,000
109,000
22,400
97,664
12,000
52,320
16,200
70,632
9,200
40,112
9,200
40,112
Grant
Date (b)
3/11/2016
3/11/2016
3/11/2016
3/11/2016
3/11/2016
3/11/2016
(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 11, 2016.
No awards were made to the Named Executive Officers under the 2016 Incentive Compensation Plan.
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
V. Lee Martin
Option Exercises and Stock Vested
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise (#)(b)
Value Realized on
Exercise ($)(c) (1)
Number of Shares
Acquired on
Vesting (#)(d)
Value Realized on
Vesting ($)(e)(2)
—
—
—
—
—
—
—
—
—
—
—
—
29,466
132,450
8,594
38,630
13,393
60,202
7,297
32,800
10,837
48,712
24,778
102,794
(1) The value realized is calculated as average of the high and low price on the relevant exercise date minus the option price
times the number of acquired shares.
(2) The value realized is calculated as the average of the high and low price on the relevant vesting date times the number of
vested shares.
20
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 31, 2016. 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 2015.
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Paul B. Comiskey
Jon A. Faulkner
W. Derek Davis
V. Lee Martin
Nonqualified Deferred Compensation
Executive
Contribution
in Last FY ($)
(b)(1)(2)
Registrant
Contribution
in Last FY ($)
(c)(1)(2)
Aggregate
Earnings in
Last FY ($)
(d)(1)(2)(3)
Aggregate
Withdrawals/
Distributions
($)(e)
Aggregate
Balance at
Last FYE ($)
(f)
31,250
19,200
18,000
32,400
—
—
—
—
—
—
—
—
138,440
42,351
8,488
79,161
389
—
—
—
—
—
—
—
2,190,973
492,233
100,592
1,269,218
9,241
—
(1) For each of the named executive officers, the entire amount reported in this column (b) is included within the amount report
in column (c) of the 2016 Summary Compensation Table.
(2) None of the amounts reported in this column (d) are reported in column (h) of the 2016 Summary Compensation Table
because the Company does not pay guaranteed, above-market or preferential earnings on deferred compensation.
(3) Amounts reported in this column (f) for each named executive officer include amounts previously reported in the Company's
Summary Compensation Table last year when earned if that officer's compensation was required to be disclosed in the
previous year. This total reflects the cumulative value of each named executive officer's deferrals and investment experience.
21
The following table sets forth information concerning outstanding equity awards for each of the Named Executive Officers at fiscal
year-end.
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Name (a)
Exercisable
(#)(b)
Unexercisable
(#)(c)
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Option (#)(d)
Option
Exercise
Price ($)
(e)
Option
Expiration
Date (f)
Stock Awards
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(i)
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)(j)
Daniel K. Frierson
50,000
D. Kennedy
Frierson, Jr.
22,000
Paul B. Comiskey
18,000
Jon A. Faulkner
11,000
W. Derek Davis
2,500
V. Lee Martin
—
—
—
—
—
—
—
—
5.00
11/4/2019
139,314
501,530
—
5.00
11/4/2019
90,361
325,300
—
5.00
11/4/2019
48,663
175,187
—
5.00
11/4/2019
74,489
268,160
—
5.00
11/4/2019
14,463
52,067
—
—
—
—
(1)
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 ($3.60/share) by the number of shares of unvested restricted stock subject to the
award.
22
DIRECTOR COMPENSATION
Name (a)
Fees earned or
paid in cash ($)
(b)(1)
Stock Awards ($)
(c)(2)
Option Awards ($)
(d)(3)
All Other
Compensation ($)
(e)(4)
William F. Blue, Jr.
32,000
16,920
Charles E. Brock
32,000
16,920
Walter W. Hubbard
32,000
16,920
Lowry F. Kline
40,000
16,920
Hilda S. Murray
32,000
16,920
John W. Murrey, III
36,000
16,920
Michael L. Owens
39,000
16,920
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total ($)
48,920
48,920
48,920
56,920
48,920
52,920
55,920
(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 $36,000, payable $18,000 in cash and
the remainder in Performance Units (subject, for payments made in 2014, 2015 and 2016, to a $5.00 minimum value per
unit). For 2016 the value awarded was $16,920 in Performance Units determined as of the date of grant. 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. Chairmen of the Audit and Compensation committees receive an additional
annual payment of $8,000 and the Chairmen of the Nominations and Corporate Governance Committee receives an
additional annual payment of $4,000. Also, directors receive reimbursement of the expenses they incur in attending all
board and committee meetings. 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.
(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 2016 was $16,920.
23
At fiscal year-end, each non-employee director was issued the following outstanding equity awards, with respect to service for 2016:
Name (a)
William F. Blue, Jr.
Charles E. Brock
Walter W. Hubbard
Lowry F. Kline
Hilda S. Murray
John W. Murrey, III
Michael L. Owens
Performance Units
(#)(b)(1)
3,600
3,600
3,600
3,600
3,600
3,600
3,600
(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 $90,720, determined by multiplying the number of performance units issued by the year-end per
share market value of the Company's Common Stock ($3.60/share).
24
PROPOSAL TWO
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 2016 compensation of our Named Executive Officers.
We are asking our Shareholders to indicate their approval of 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 Two 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.
The Board of Directors recommends that the Company’s shareholders vote FOR the approval of Proposal Two.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2017
The firm of Dixon Hughes Goodman LLP served as independent registered public accountants for the Company for fiscal
year 2016. 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 2017 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.
The Board of Directors recommends that that the Company’s shareholders vote FOR 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 2017, the Board of Directors will consider other alternatives, including appointment of another
firm to serve as independent registered public accountants for fiscal 2017.
25
AUDIT FEES DISCUSSION
The following table sets forth the fees paid to Dixon Hughes Goodman LLP for services provided during fiscal year 2015
and 2016:
Audit related fees paid to Dixon Hughes Goodman LLP (1)
Fees related to a registration statement
Total Audit Fees
2016
2015
$
$
$
663,899 $
8,187 $
672,086 $
682,239
—
682,239
(1) Represents fees for professional services paid to Dixon Hughes Goodman LLP provided in connection with the audit of
the Company’s annual financial statements, review of the Company’s quarterly financial statements, review of other
SEC filings and technical accounting issues during 2015 and 2016, and audit of the effectiveness of internal control over
financial reporting during 2015.
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).
SHAREHOLDER PROPOSALS
FOR INCLUSION IN NEXT YEAR'S PROXY STATEMENT
In the event any shareholder wishes to present a proposal at the 2018 Annual Meeting of Shareholders, such proposal
must be received by the Company on or before November 17, 2017, 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 2007, Dalton, Georgia
30722-2007, 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 Corporate Secretary at the Company’s corporate headquarters, P.O.
Box 2007, Dalton, Georgia 30722-2007.
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.
OTHER MATTERS
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.
Dated: March 23, 2017
The Dixie Group, Inc.
Daniel K. Frierson
Chairman of the Board
26
Officers
Daniel K. Frierson
Chairman of the Board and
Chief Executive Officer
D. Kennedy Frierson, Jr.
Vice President and
Chief Operating Officer
Jon A. Faulkner
Vice President and
Chief Financial Officer
W. Derek Davis
Vice President, Human Resources
Paul B. Comiskey
Vice President and President,
Dixie Residential
T.M. Nuckols
Executive Vice President,
Dixie Residential
E. David Hobbs
Vice President and President,
Masland Commercial
Directors
Daniel K. Frierson (1)
Chairman of the Board
The Dixie Group, Inc.
William F. Blue, Jr. (1) (2) (4)
Chairman of the Board,
The Hopeway Foundation
Charles E. Brock (3) (4)
President and Chief Executive Officer,
Launch Tennessee
D. Kennedy Frierson, Jr.
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,
TPC Printing & Packaging
John W. Murrey, III (3) (4)
Retired, Assistant Professor,
Appalachian School of Law
Michael L. Owens (4)
Assistant Dean of Graduate Programs
& Lecturer,
College of Business,
University of Tennessee at Chattanooga
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Nomination and Corporate Governance Committee
(4) Member of Audit Committee
Corporate Information
Corporate Office
475 Reed Road
Dalton, Georgia 30720
(706) 876-5800
Independent Registered
Public Accountants
Dixon Hughes Goodman LLP
191 Peachtree Street, NE
Suite 2700
Atlanta, Georgia 30303
Legal Counsel
Miller & Martin PLLC
1000 Volunteer Building
832 Georgia Avenue
Chattanooga, Tennessee 37402
Investor Contact
Jon A. Faulkner
Vice President and
Chief Financial Officer
The Dixie Group, Inc.
475 Reed Road
Dalton, Georgia 30720
(706) 876-5814
Form 10-K and Other Information
A copy of the Company’s Annual Report
on Form 10-K for the fiscal year ended
December 31, 2016, is included with
this report.
Annual Meeting
The Annual Meeting of Shareholders
of The Dixie Group, Inc. will be held
at 8:00 A.M. EDT on May 3, 2017, at
the Corporate Office in Dalton, Georgia.
Stock Listing
The Dixie Group’s Common Stock is
listed on the NASDAQ Global Market
under the symbol DXYN.
Stock Transfer Agent
Computershare Investor Services, LLC
Post Office Box 30170
College Station, Texas 77845
The Dixie Group maintains a website,
www.thedixiegroup.com, where
additional information about the
Company may be obtained.
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