(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)(cid:26)(cid:26)(cid:25)(cid:24)(cid:30)(cid:28)(cid:23)(cid:29)(cid:28)(cid:31)
2 0 1 9 A N N U A L R E P O R T
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(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)(cid:26)(cid:26)(cid:25)(cid:24)(cid:30)(cid:28)(cid:23)(cid:29)(cid:28)(cid:31)
PROUD OF OUR PAST
EXCITED ABOUT OUR FUTURE
We have been “workin’ together” at Dixie for 100 years. Our company is all about our people and our customers.
Though our products have changed, from making fine mercerized cotton yarns to designing and selling beautiful
floorcovering products, our emphasis has stayed the same —to exceed our customer’s expectations. Founded in
Chattanooga in 1920 as Dixie Mercerizing Company, we have been transformed first from a producer of cotton
yarns, through the rise of specialty synthetic yarns in the textile and carpet business, through the transformation
to become a manufacturer of carpets and rugs, and finally into a full service provider of both hard and soft surface
floorcovering products focused on the premium portion of the market. Our goal has always been to offer special-
ized and beautiful products to the discerning consumer that command a premium for quality, design, and style.
And the foundation of our success is dedication to our people. From an emphasis on safety in our operations to
sponsoring the George R. West College Scholarships to children of Dixie associates, we want to support our
people as they have supported us and our customers. At the heart of this is a motto by J. Burton Frierson, president
Dixie Yarns, Inc.
Dixie Mercerizing Company
changes its name to Dixie
Yarns, Inc.
1964
1951
Candlewick Yarns
Candlewick Yarns is acquired,
which produced tufting yarns for
bedspreads, robes, scatter rugs
and bathmats. This acquisition
opened the way for the company
to enter into the floorcovering
market.
Lupton City Facilities Begin Operation
The spinning plant at Lupton City begins operation
on a 200-acre site. Facilities at Lupton City include
a community store, post office, school, church, the-
atre, medical clinic and 72 company-owned houses
for employees.
1923
Nylon Plant Built
The “Nylon Plant” is designed
and built in Lupton City for the
processing of synthetic fibers.
1950
1920
Dixie Mercerizing Company Founded
Dixie Mercerizing Company, headquartered in
Chattanooga, Tennessee, is founded to specially
treat cotton yarn for the hosiery trade. Mercer-
ized cotton, long popular in England because
of its silk-like luster, was not then widely used in
the United States.
“ Wheels turning at Dixie Plant”
newspaper headline.
1942
Military Production
Seventy percent of the compa-
ny’s output goes into yarns for
military applications, including
blackout curtains, parachutes
and GI shoelaces of nylon.
THE DIXIE GROUP 2019 Annual Report
1
of Dixie from 1947 until 1964, “We are trying to build people as we build our business”. “Workin’ together” is
more than just a phrase, it is skilled hands doing their best, all for the common good of the company and our
valued customers. Creativity is one of the most important ingredients for our ability to make products that
are beautiful, functional and stylish. We are willing to try new and different machinery, yarn designs, patterns
or techniques. We are constantly striving to anticipate the needs of our customers because no force in modern
business can equal the power of customer goodwill. This means we have had to learn to live with and embrace
change. Sometimes change is hard, such as when we left the textile industry to enter into the carpet industry in
the 1990’s or when we merged our Atlas and Masland Contract business in the last few years. But dramatic change
that comes about from wrenching market forces can often produce the best results, such as when we combined
our three residential businesses during the downturn in 2009, and set the stage to double our residential market
share over the subsequent years. Other times change is exciting, such as when we are developing new wool carpet
styles in our Fabrica TECHnique collection, our new Sustaina™ environmentally superior carpet backing or our
TRUCOR™ Luxury Vinyl flooring offering. In all cases, we change because we are driven to meet the needs of
our discerning customer. For we want to continue to follow our motto which embraces change in the future as
we “Lead, Win and Have Fun.”
New President & CEO
Dan Frierson becomes
president & CEO.
Winter Storm Crushes
9 Acres of Carriage Buildings
One day after the purchase of Carriage Industries
a winter storm of record magnitude slammed into
the East Tennessee, North Georgia area. Snow
packs up to 20 feet deep formed on the roof of the
Carriage plant, crushing it like a tin can.
Dixie Yarns Enters the High-end Carpet Business
Dixie Yarns and Prudential Life acquire C.H.
Masland and Company. The acquisition gave Dixie
working control of Masland’s high-end carpet busi-
ness. In 1993 Dixie Yarns acquired all publicly-held
stock of C.H. Masland and Company.
1979
1988
1993
1973
Dixie Goes West
1st Plant in Lemoore, California.
We have plants in California, even now.
1986
Dixie Yarns, Inc.
Listed on NASDAQ
The public offering raised
capital that would serve as
“currency to make acquisitions.”
—Dan Frierson
1993
Carriage Industries and
Bretlin Are Acquired
Acquires Carriage Industries,
a vertically-integrated carpet
manufacturer and Bretlin
Needlebond, its subsidiary.
Dixie Yarns acquired all
publicly-heldstock of C.H.
Masland and Company.
2
DE A R SH A R E HOL DE R S: 2019 was a year for
completing projects and preparing for the next phase
in our transition from a carpet and rug supplier into a
supplier of fine flooring for both the hard surface and
soft surface markets. We completed the consolidation
of our AtlasMasland brands, after the decision by one
of our suppliers to eliminate a major source of raw
materials that was critically important to Atlas. This con-
solidation, which included shutting down or re-aligning
five facilities, moving our commercial tufting operations
from California to Alabama and consolidating our com-
mercial sales and marketing, is now complete. As part
of this overall restructuring effort we have seen our cost
of quality reduced by 28% since 2015. Our head count
is down 20% from the beginning of 2018. We reduced
our debt by over $50 million from a combination of
the sale of our Susan Street facility and reductions in
our working capital through better inventory control
and more focus on just in time planning and schedul-
ing since the third quarter of 2018. Through medical
plan design changes, we anticipate lowering our cost
by over $2 million per year. Our continued focus on
lower costs through our supply chain as well as focus
on waste reduction efforts internally have helped us
hold the line on costs. 2019 was also a year in which
the industry dealt with several headwinds. The overall
industry sales were down in carpets and rugs by mid-
single digits in dollars and slightly more in units as we
have seen a shift to higher value modular carpet tile in
the commercial business. At the start of 2019 we had
dealers diverting funds to beat the tariffs by stocking
luxury vinyl flooring and diverting investment away
from carpet and rugs. Despite all of this, we continued
preparing for the future.
Our residential business was impacted by the weakness
in soft floorcovering for the industry. The residential
soft surface market was down high-single digits in 2019
relative to 2018. We saw increased market share in each
residential market except our mass merchant channel.
We have seen changes in our mass merchant sales as
this channel has shifted more to hard surface flooring
products, and we did not repeat a large initial stock-
ing order to this channel which occurred during this
period in 2018. This shift at our mass merchant channel
impacted our production volumes in the second half
of the year. We have a number of initiatives to grow
our soft surface product area despite the decline in
carpet sales through our mass merchant channel. We
are continuing to expand our offering using EnVision™
6,6 nylon. EnVision™ 6,6 allows us to grow our business
using a superior carpet fiber at more moderate price
points. We continue to see success with our Energy
main street commercial line through our network of
high end retailers. We have increased the number of
products we offer in our west coast oriented Dixie
Home Pacific Living and Masland California Classics
carpet lines. Our rug product lines continue to grow
in both our Masland and Fabrica brands. In 2020 our
The Dixie Group Has a New Name
Shareholders vote to change the company’s name
to The Dixie Group, Inc. The company acquires
Danube Carpet Mills and merges its operations
into Candlewick and Carriage Carpets. General Felt
Industries is also acquired and merges its needle-
bond and artificial turf business into Bretlin.
1997
Fabrica Is Acquired
Fabrica International is
acquired. Dixie’s sales decline
when the factory-built housing
market suddenly plummets.
2000
Colormaster and Crown
Rugs Is Acquired
Acquires Colormaster, a carpet
dyeing facility in Calhoun, GA.
Crown Rugs is purchased and
merged into the Masland Brand.
2012
1999
The Dixie Group Successfully
Exits the Textile Business
Dan Frierson told fellow
shareholders and associates
that it “Marked the end of Dixie
as the textile company we have
all known since 1920...and the
beginning of Dixie as a floorcov-
ering company.” It was the finish
line as well as the starting gate.
2003
Dixie Home Brand Is Established
Sells North Georgia yarn extrusion and carpet
operations (Carriage Carpets) to focus on
the upper end of the carpet market. The
Dixie Home brand, aimed to deliver affordable
fashion to the residential floorcovering market,
is established. Masland’s commercial division
launches the eNeRGy brand.
THE DIXIE GROUP 2019 Annual Report
2
3
Fabrica division is introducing our TECHnique wool col-
lection. This collection uses new technology that gives
us a sharp crisp woven look in fine New Zealand wool.
We have continued to focus on growing our hard sur-
face sales with the successful launch of TRUCOR™ and
TRUCOR™ Prime. Our dealer placements of new dis-
plays, along with growing our SKU count in TRUCOR™
by over 40%, has positioned us well for 2020. We are
expanding our sales capabilities by adding dedicated
hard surface sales representatives to our residential
sales team. This will allow us to generate more sales
and allow our sales representatives who are dedicated
to soft surface in that territory to manage the large
number of offerings we currently have in broadloom,
rugs, modular and custom opportunities.
Our commercial business has finished its re-alignment
and is now excited to introduce one of the most unique
innovations in our modular carpet tile offering. The
introduction of our Crafted collection with our new
Sustaina™ backing is truly a game changer in being
environmentally conscious and installer friendly in a
beautiful set of patterns that any designer could love.
The Sustaina™ modular tile backing system is a PVC
and polyurethane free cushion modular carpet tile
backing with very high recycled content. The product
is breathable and able to be installed in environments
up to 99% relative humidity and up to a pH of 12 when
utilizing our custom formulated Sustaina™ 99 adhesive.
The product provides the cushion backing benefits of
increased under foot comfort, appearance retention
and sound absorption. The Crafted collection with our
Sustaina™ backing system has an 81.5% total recycled
content, the highest available on the market today. We
are expanding our capacity in custom commercial rugs
as we grow this business which allows our designer cus-
tomers to make a unique presentation. These unique
products, differentiating us in the market place and
fulfilling the needs of our discerning environmentally
conscious customers, we believe will accelerate our
growth in 2020.
As we look at our last 100 years, we see a company that
has responded to dramatic market changes while main-
taining the core of what we believe, faith in our associ-
ates and dedication to serving our customers. We see
the year of 2020 as an opportunity to grow with differ-
entiated floorcovering offering as we look forward to
the next 100 years. We want to thank our associates for
their dedication and hard work this past year. We espe-
cially want to thank our customers for their continued
support as we have tried to develop products which
meet their needs for fine floorcovering products.
Sincerely,
Daniel K. Frierson
Chairman and Chief Executive Officer
Atlas Carpet Mills and
Burtco Are Acquired
Acquires Atlas Carpet Mills, a
high end manufacturer of com-
mercial flooring located in Los
Angeles, CA. Acquires Burtco,
which has become Masland
hospitality and a part of our
contract offering.
2014
Atlas and Masland Contract Merge
Atlas and Masland Contract merge into one operat-
ing division and combine product portfolios, sales
force and manufacturing. The corporate office and
manufacturing is relocated to Alabama.
2018
2013
Robertex and Carousel Brands Are Acquired
Acquires Robertex and Carousel brands, which are
known for producing fine wool floorcovering. Many
of the Robertex products are added to the Masland
line which help to expand the brand’s wool portfolio.
The Carousel brand was discontinued.
2017
Hard Surface Floor Covering
Enters into hard surface floor
covering segment, introducing
Dixie Home and Masland Luxury
Vinyl Flooring.
2019
TruCor™ LVF Launched
4
EXCEPTIONAL
RESIDENTIAL PRODUCTS
THE DIXIE GROUP 2019 Annual Report
Fabrica, Masland, Dixie Home, and TRUCOR encompass the brands of
our high-end residential flooring products. Each brand has an essential
framework to provide differentiated style, design, and quality through
product innovation. The goal is to create unique choices that will trans-
form interior spaces by manufacturing products that give the consumer
endless opportunities for their home décor. Through an exceptional line
of brands, our upper-end residential flooring products are marketed to
domestic and international customers in residential markets. While we
continue to lead with carpet as our primary offering, we have success-
fully entered into the hard surface category. TRUCOR™, TRUCOR™
Prime Luxury Vinyl Flooring, and our Fabrica Fine Wood offerings com-
bine to become a perfect complement to our diverse range of flooring
options. It is allowing us to compete in the fastest-growing residential
flooring segment immediately. Our brands live in the heart of the
American Home. We believe that The Dixie Group brands exist to create
the world’s most beautiful floors.
5
Dixie Home
Attainable Style and Beauty. At Dixie Home,
we believe all families deserve beautiful
flooring that lasts. To fulfill that vision, we
drew on decades of textile knowledge and
experience. We combined the latest patterns
and colors using premium branded yarns
and carefully chosen materials. And now,
Dixie Home stands up to any lifestyle,
because we don’t want to be remembered
just for our good looks. Today, our mission
continues. With beauty that surprises and
comfort that performs, Dixie Home we make
style work. Live your life on us.
Masland Carpets and Rugs
Empowerment, creative and limitless. At
Masland, we believe in giving customers
creative freedom to express themselves.
The Masland difference is versatility by
design, to give customers what they need
to create and transform the space they
want, the way they want. To accomplish
this, Masland offers a robust selection of
flooring types and styles to complement
and enhance a wide range of décor. The
Masland legacy lives on today through cut-
ting edge designs that are fashion forward,
bold and market-centric.
Fabrica
Uncompromising Craftsmanship. Being
“Best in Class” takes tremendous focus and
a remarkable commitment to detail. Our
Foundational Décor is understated ele-
gance and timeless in its beauty. When it
comes to style and design, Fabrica’s rich
foundational décor doesn’t overpower,
dominate, or compete with the troves of
treasures and trophies that rest upon and
surround it. We continue our pursuit of
quality without compromise, combining
innovative yarn technology with manufac-
turing excellence to push boundaries in
broadloom carpeting.
6
SUSTAINABLE
COMMERCIAL CRAFTSMANSHIP
THE DIXIE GROUP 2019 Annual Report
7
AtlasMasland
The Dixie Group has combined the Atlas
and Masland sales forces and product
portfolios creating a unified commercial
flooring brand: AtlasMasland. This unifi-
cation is an exciting opportunity for us to
be a greater resource to our customers in
the hyper-competitive commercial floor-
ing market. The combined product port-
folios of Atlas and Masland leverage a
diversity in technologies, yarn systems,
and styling which positions AtlasMasland
as a comprehensive resource to the
commercial flooring market. Whether a
project calls for broadloom carpet, modu-
lar carpet tile, area rugs, walk-off material
or luxury vinyl flooring, AtlasMasland has
the product and expertise to service any
commercial segment.
AtlasMasland has led the efforts in the development of environmental
responsibility as we help our customers achieve the diverse spaces we
build products for—hotels, office buildings, government facilities, wor-
ship spaces, restaurants, senior living communities, universities, retail
and more. All are important aesthetically as we style and manufacture
products that will reflect a positive brand image in the best possible way.
Additionally, we believe that outstanding design is a two-fold proposition;
that environmental responsibility must be on equal footing with interior
architecture and design. To that end, our environmental initiatives are
solid and serious.
We are especially excited about the launch of our Sustaina™ modular
tile backing system. This system is a PVC and polyurethane free cushion
modular carpet tile backing with very high recycled content. The product
is breathable and able to be installed in environments up to 99% rela-
tive humidity and up to a pH of 12 when utilizing our custom formulated
Sustaina™ 99 adhesive. The product provides the cushion backing ben-
efits of increased under foot comfort, appearance retention and sound
absorption. We have just launched “Crafted” with our Sustaina™ backing
system. This product has an 82% total recycled content, which is com-
prised of 56% pre-consumer and 26% post-consumer, the highest avail-
able on the market today. In the Atmore and Saraland facilities for 2018
and 2019, we diverted just under eight million pounds of waste from the
landfill. Of the diverted material, 90% has been repurposed into new and
usable raw materials. Operationally, since 2014, our commercial manufac-
turing has reduced electricity by 29%, natural gas by 85%, and water an
astounding 97% reduction. Our production facilities are also offset 100%
with renewable energy credits where the amount of energy consumed is
matched by energy generated through a clean power facility and added
back to the national electric grid.
8
THE DIXIE GROUP is the preeminent provider of premium
carpets and rugs to both the residential and corporate markets.
We are committed to sophistication and style, contemporary
color palettes, unique design, and excellent quality in the mid
to upper-end categories of flooring. The Dixie Group empha-
sizes superior product design that continues to lead trends
and satisfy the discerning consumer and corporate customer.
We aim to satisfy the consumer with recognition, trust, quality,
value and inspiration.
Fabrica, Masland and Dixie Home encompass the brands of
our sophisticated residential offerings. These brands are known
for fine quality and innovative styling that provide beauty
and comfort to home interiors. Our residential brands target
both great price points as well as fashion-oriented patterns.
In 2018, The Dixie Group united Atlas and Masland to create a
unified commercial brand. AtlasMasland services the exclusive
corporate and hospitality sectors along with all areas of the
specified commercial markets. Our commitment is to provide
a unique line of brands that satisfy the needs of the premium
floor covering market.
THE DIXIE GROUP 2019 Annual Report
2 0 1 9 1 0 - K R E P O R T
2 0 1 9 1 0 - K R E P O R T
2 0 1 9 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 28, 2019
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)
(State or other jurisdiction of incorporation of organization)
(I.R.S. Employer Identification No.)
Tennessee
62-0183370
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 29, 2019 (the last business day of the registrant's most recently
completed fiscal second quarter) was $7,846,814. 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 21, 2020
14,983,013
shares
836,669
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 6, 2020 (Part III).
DOCUMENTS INCORPORATED BY REFERENCE
1
THE DIXIE GROUP, INC.
Index to Annual Report
on Form 10-K for
Year Ended December 28, 2019
PART I
Page
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
PART II
Item 5.
Item 6.
Item 7.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
Item 16.
Form 10-K Summary
Signatures
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 28, 2019 and December 29, 2018
Consolidated Statements of Operations - Years ended December 28, 2019, December 29, 2018, and
December 30, 2017
Consolidated Statements of Comprehensive Income (Loss) - Years ended December 28, 2019,
December 29, 2018, and December 30, 2017
Consolidated Statements of Cash Flows - Years ended December 28, 2019, December 29, 2018,
and December 30, 2017
Consolidated Statements of Stockholders' Equity - December 28, 2019, December 29, 2018, and
December 30, 2017
Notes to Consolidated Financial Statements
Exhibit Index
2
4
7
11
11
11
12
13
14
17
18
26
26
26
26
26
27
27
27
27
27
28
28
29
33
34
35
36
37
38
39
68
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, the ability to attract,
develop and retain qualified personnel, 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 | Masland Contract brand participates 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 which include broadloom carpet, carpet tiles and
rugs. However, over the past few years, there has been a significant shift in the flooring marketplace as hard surface products
have grown at a rate much faster than soft surface products. We have responded to this accelerated shift to hard surface flooring
by launching several initiatives in both our residential and commercial brands. Our commercial business offers luxury vinyl flooring
(“LVF”) products under the Calibré brand in the commercial markets. Within the residential markets we launched TRUCOR™
and TRUCOR Prime™ offering LVF products. In 2020 we are increasing the number of items in our TRUCOR™ family of products
by over 40%. We are featuring a new innovation in LVF tile with our “Integrated Grout Technology” where the locking system is
engineered to simulate a real grout line. We are launching our new TRUCOR Prime™ WPC program, including 18 oversized planks,
featuring our XXL plank, the longest and widest rigid core plank product on the market. We are expanding our Fabrica wood program
with nine new products including European White Oak and American Hickory. We continue to innovate in our soft floorcovering
residential markets with around 50 new styles launching in 2020, including STAINMASTER®, EnVision 6,6™, and Strongwool. We
continue to be a leading manufacturer in STAINMASTER® carpet and are proud to launch some of the most unique and beautiful
STAINMMASTER® products on the market. We are diversifying our product offering with our new EnVision 6,6™ program. We are
featuring a patent pending yarn innovation, Colorplay, in a new PetProtect® product named Grace, in our Masland product line.
This Colorplay innovation gives us a unique color story for solution dyed nylon, with natural striations across 16 different colors.
We are very excited about a new tufting technology, “TECHnique”, which is being showcased in our Masland and Fabrica lines.
TECHnique delivers a woven visual with a crisp clean finish and products that are more work of art than floor covering. In the soft
floorcovering commercial market, we have introduced one of the most unique innovations: Crafted Collection with Sustaina™
backing. This environmentally conscious and installer friendly product line comes in a beautiful set of patterns. The Sustaina™
modular tile backing system is a PVC and polyurethane free cushion modular carpet tile backing with very high recycled content.
We have one reportable segment, Floorcovering, which is comprised of two operating segments, Residential and Commercial. We
have aggregated the two operating segments into one reporting segment because they have similar economic characteristics, and
the operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the
production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their
products or provide their services; and (e) the nature of the regulatory environment.
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, custom rugs, and engineered wood 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. In addition, it offers luxury vinyl flooring 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 carpet and rugs to selected retailers and home centers under the Dixie Home and
private label brands. In addition, it offers luxury vinyl flooring products to the marketplace it serves. Its objective is to make the Dixie
4
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 | Masland Contract is our combined brand of the former Atlas Carpet Mills and Masland Contract. We strategically re-aligned
our business in 2018 by merging the two brands into one cohesive operating unit with a broader array of products but a single
management, marketing, back office, manufacturing and sales structure to serve the specified commercial marketplace. Its
commercial products are marketed to the architectural and specified design community and directly to commercial end users, as
well as to consumers through specialty floorcovering retailers. Atlas | Masland Contract also sells to 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 broadloom, rug product and luxury vinyl flooring 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. Atlas | Masland Contract has strong brand recognition within the upper-end contract market, and competes
through innovative styling, color, patterns, quality and 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 2018, according to the most recent information available, the U.S. floorcovering industry reported $27.2 billion
in sales, up approximately 5.7% over 2017's sales of $25.7 billion. In 2018, the primary categories of flooring in the U.S., based on
sales dollars, were carpet and rug (43%), ceramic tile (14%), wood (13%), luxury vinyl flooring (LVF) (13%), vinyl (7%), stone
(6%) and laminate and other (4%). In 2018, the primary categories of flooring in the U.S., based on square feet, were carpet and
rug (48%), ceramic tile (14%), vinyl (12%), luxury vinyl flooring (12%), wood (7%), laminate (4%) and stone and other (3%). 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, rug and hard surface manufacturers. 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® LiveWell™ 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 flooring, 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.
5
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", “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, a mass merchant, accounted for approximately 11% in 2019, 13% in 2018, and
14% in 2017 and as a percentage of our customer's trade accounts receivable, accounted for approximately 18% in 2019 and 34%
in 2018. No other customer was more than 10 percent of our sales during the periods presented. During 2019, sales to our top ten
customers accounted for approximately 15% of our sales and our top 20 customers accounted for approximately 18% of our sales.
We do not make a material amount of sales in foreign countries.
We do not have any single class of products that accounts for more than 10 percent of our sales. However, sales of our floorcovering
products may be classified by significant end-user markets into which we sell, and such information for the past three years is
summarized as follows:
Residential floorcovering products
Commercial floorcovering products
Seasonality
2019
72%
28%
2018
72%
28%
2017
68%
32%
Our sales historically have normally reached their lowest level in the first quarter (approximately 24% 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. 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.
6
Employment Level
At December 28, 2019, we employed 1,526 associates in our operations.
Available Information
Our internet address is www.thedixiegroup.com. We make the following reports filed by us with the Securities and Exchange
Commission available, free of charge, on our website under the heading "Investor Relations":
1.
2.
3.
4.
annual reports on Form 10-K;
quarterly reports on Form 10-Q;
current reports on Form 8-K; and
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 a certain mass merchant retailer. A significant reduction of sales through
this channel could adversely affect our business. Such a shift could occur if this retailer decided to reduce the amount of emphasis
on soft surface flooring or determine that our concentration of better goods was not advantageous to their marketing program. We
have seen a change in strategy by this customer to emphasize products at a lower price point than we currently offer.
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 have a material adverse effect on 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. Further, our trade relations depend on our economic
viability and insufficient capital could harm our ability to attract and retain customers and or supplier relationships.
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. Continued operating losses could affect our ability to
continue to access the credit markets under our current terms and conditions. These and other economic factors could have a
material adverse effect on demand for our products and on our financial condition and operating results.
7
If our stock price were to fall below $1.00 for an extended time, our common stock may be subject to delisting from The
NASDAQ Stock Market.
NASDAQ Marketplace Rule 5550(a)(2) requires that, for continued listing on the exchange, we must maintain a minimum bid price
of $1 per share. Should the price of our stock close below $1 per share for 30 consecutive business days we will have 180 days
to bring the price per share up above $1. If we are not able stay in compliance with the relevant NASDAQ bid price listing rule,
there is a risk that our common stock may be delisted from NASDAQ, which would adversely impact liquidity of our common stock
and potentially result in even lower bid process for our common stock.
Our stock price has been and could remain volatile, which could further adversely affect the market price of our stock,
our ability to raise additional capital and/or cause us to be subject to securities class action litigation.
The market price of our common stock has historically experienced and may continue to experience significant volatility. Our progress
in restructuring our business, our quarterly operating results, our perceived prospects, lack of securities analysts’ recommendations
or earnings estimates, changes in general conditions in the economy or the financial markets, adverse events related to our strategic
relationships, significant sales of our common stock by existing stockholders, and other developments affecting us or our competitors
could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has
experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many
companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock. Such
market price volatility could adversely affect our ability to raise additional capital. In addition, we may be subject to securities class
action litigation as a result of volatility in the price of our common stock, which could result in substantial costs and diversion of
management’s attention and resources and could harm our stock price, business, prospects, results of operations and financial
condition.
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
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 products may make it hard for us to quickly respond to changes in consumer
demands. Recently we have seen the supply of white dyeable yarns for the commercial business decline and that has forced us
to transition to new products faster than was originally intended. If we fail to successfully replace those products with equally
desirable products to the marketplace, we will lose sales volume. 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 have a material adverse effect on 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 flooring 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
8
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 products
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. We have had a disruption in our supply of white dyeable
yarns for the commercial market place which has resulted in our taking additional charges for the write down of certain inventories.
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
continually evaluate our sources of yarn for competitive costs, performance characteristics, brand value, and diversity of supply.
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.
The long-term performance of our business relies on our ability to attract, develop and retain qualified personnel.
To be successful, we must attract, develop and retain qualified and talented personnel in management, sales, marketing, product
design and operations. We compete with other floorcovering companies for these employees and invest resources in recruiting,
developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect
our business, financial condition and results of operations.
We are subject to various governmental actions that may interrupt our supply of materials.
We import most of our luxury vinyl flooring ("LVF"), some of our wood offering, some of our rugs and broadloom offerings. Though
currently a small part of our business, the growth in LVF products is an important product offering to provide our customers a
complete selection of flooring alternatives. Recently there have been trade proposals that threatened these product categories with
added tariffs which would make our offerings less competitive compared to those manufactured in other countries or produced
domestically. These proposals, if enacted, or if expanded, or imposed for a significant period of time, would materially interfere with
our ability to successfully enter into these product categories and could have a material adverse effect upon the company's cost of
goods and results of operations. Further, our suppliers have experienced disruptions relative to actions taken by the Chinese
government to control the COVID-19 coronavirus.
We may experience certain risks associated with internal expansion, acquisitions, joint ventures and strategic investments.
We continually look for strategic and tactical initiatives, including internal expansion, acquisitions and investment in new products,
to strengthen our future and to enable us to return to sustained growth and to achieve 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
9
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 our
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.
Our business operations could suffer significant losses from natural disasters, pandemics, 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.
Our operations, suppliers, customers and the consumers and markets they serve could be disrupted by a pandemic, such as the
COVID-19 coronavirus. Such a pandemic could adversely impact our business, directly or indirectly, through market disruption,
supply chain interruption or reduced demand for our products. Our suppliers for a portion of our hard surface products have
experienced disruptions in operations as a result of the COVID-19 coronavirus.
10
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 21,
2020:
Location
Administrative:
Saraland, AL*
Santa Ana, CA*
Calhoun, GA
Dalton, GA*
Type of Operation
Administrative
Administrative
Administrative
Administrative
Total Administrative
Manufacturing and Distribution:
Atmore, AL
Roanoke, AL
Saraland, AL*
Porterville, CA*
Santa Ana, CA*
Adairsville, GA
Calhoun, GA *
Calhoun, GA
Eton, GA
Dalton, GA*
Carpet Manufacturing, Distribution
Carpet Yarn Processing
Carpet, Rug and Tile Manufacturing, Distribution
Carpet Yarn Processing
Carpet and Rug Manufacturing, Distribution
Samples and Rug Manufacturing, Distribution
Distribution
Carpet Dyeing & Processing
Carpet Manufacturing, Distribution
Samples Warehouse and Distribution
Total Manufacturing and Distribution
* Leased properties
TOTAL
Approximate Square Feet
29,000
4,000
10,600
50,800
94,400
610,000
204,000
384,000
249,000
200,000
292,000
99,000
193,300
408,000
40,000
2,679,300
2,773,700
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 3M Company and approximately 30 other named defendants and unnamed "fictitious defendants"
including various carpet manufacturers and suppliers, in four lawsuits whereby the plaintiffs seek monetary damages and injunctive
relief related to the manufacture, supply, and/or use of certain chemical products in the manufacture, finishing, and treatment of
carpet products in the Dalton, Georgia area. These chemical products allegedly include without limitation perflourinated compounds
("PFC") such as perflourinated acid ("PFOA") and perfluorooctane sulfonate ("PFOS"). In each lawsuit, the plaintiff(s) alleges that,
as a consequence of these actions, these chemical compounds discharge or leach into the water systems around Dalton and then
flow into the waters in or near the water bodies from which the plaintiff(s) draw for drinking water.
Two of these lawsuits were filed in Alabama. The first lawsuit in Alabama was filed on September 22, 2016 by The Water Works
and Sewer Board of the City of Gadsden (Alabama) in the Circuit Court of Etowah County, Alabama (styled The Water Works and
Sewer Board of the City of Gadsden v. 3A1 Company, et al., Civil Action No. 31-CV-2016-900676.00). The second lawsuit in
Alabama was filed on May 15, 2017 by The Water Works and Sewer Board of the Town of Centre (Alabama) in the Circuit Comi
of Cherokee County, Alabama (styled The Water Works and Sewer Board of the Town of Centre v. 3M Company, et al., Civil Action
No. 13-CV- 2017-900049.00). In each of these Alabama lawsuits, the plaintiff seeks damages that include but are not limited to
the expenses associated with the future installation and operation of a filtration system capable of removing from the water the
chemicals that are allegedly present as a result of the manufacturing and treatment process described above. Each plaintiff requests
a jury trial, does not specify an amount of damages other than an assertion that its damages exceed $10,000.00, and requests
11
injunctive relief. We have answered the complaint in each of these lawsuits, intend to defend those matters vigorously, and are
unable to estimate our potential exposure to loss, if any, for these lawsuits at this time.
The other two lawsuits were filed in Georgia. The first lawsuit in Georgia was filed on November 19, 2019 by the City of Rome
(Georgia) in the Superior Court of Floyd County, Georgia (styled The City of Rome, Georgia v. 3A1 Company, et al., No.
19CV02405JFL003). The plaintiff in that case also seeks damages that include without limitation the expenses associated with
the future installation and operation of a filtration system capable of removing from the water the chemicals that are allegedly
present as a result of the manufacturing and treatment process described above. The plaintiff requests a jury trial and also seeks
injunctive relief. While the amount of damages is unspecified, the plaintiff asserts it has spent "tens of millions" to remove the
chemicals from the county's water supply and will incur additional costs related to removing such chemicals in the future. We have
answered the complaint, intend to defend the matter vigorously, and are unable to estimate our potential exposure to loss, if any,
at this time.
The second lawsuit in Georgia was filed on November 26, 2019 and is presented as a class action lawsuit by and on behalf of a
class of persons who obtain drinking water from the City of Rome, Georgia and the Floyd County Water Department (and similarly
situated persons) (generally, for these purposes, residents of Floyd County) (styled Jarrod Johnson v. 3M Company, et al., Civil
Action No. 19-CV-02448-JFL-003) (the "Class Action Lawsuit"). The plaintiffs in this case allege their damages include without
limitation the surcharges incurred for the costs of partially filtering the chemicals from their drinking water. The Complaint requests
a jury trial and asserts damages unspecified in amount, in addition to requests for injunctive relief.
The Canyons Grand Summit Resort Hotel Owner's Association, Inc. has filed a lawsuit against us in the state of Utah (styled The
Canyons Grand Summit Resort Hotel Owners Association, Inc. v. The Dixie Group Inc. dba Masland Contract Carpet, in the Third
District Court, State of Utah, Summit County, Silver Summit Department, Civil No. 190500139) regarding a large quantity of carpet
purchased for a hotel. The claim asserts that we manufactured and delivered carpet that did not meet the proper specifications.
The plaintiff seeks damages "in an amount not less than $500,000" and does not request a jury trial. We have answered the
complaint, intend to defend the matter vigorously, and are unable to estimate our potential exposure to loss, if any, at this time.
On November 16, 2018 the Superior Court of the State of California granted preliminary approval of a class action settlement in
the matter of Carlos Garcia v. Fabrica International, Inc. et al Orange County Superior Court Case No. 30-2017-00949461-CU-
OE-CXC. The court further approved the procedures for Settlement Class Members to opt-out of or object to the Settlement. The
terms of the settlement provide that Fabrica, a wholly owned subsidiary of ours, has agreed to pay $1,514,000 (the “Gross Settlement
Amount”) to fully resolve all claims in the Lawsuit, including payments to Settlement Class Members, Class Counsel’s attorneys’
fees and expenses, settlement administration costs, and the Class Representative’s Service Award. The amount of the proposed
settlement was recorded during the quarter ended June 30, 2018. The deadline for class members to opt-out was February 1,
2019. The deadline for the plaintiff to file a motion for final approval of the class action settlement was March 29, 2019. The final
fairness hearing took place on April 12, 2019 with final approval being granted. The payment of the settlement occurred in October,
2019.
We are one of multiple parties to three lawsuits filed in Madison County Illinois, 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, styled Charles Anderson, Pltf., vs. 3M Company, et al, No. 17-L-525 and styled Danny Atkins
and Pamela Atkins, Pltfs., vs. Aurora Pump Company, et al. No. 18-L-2. All three lawsuits entail a claim for damages to be
determined in excess of $50,000 filed on behalf of either a former employee or the estate of an individual which alleges that the
deceased contracted mesothelioma as a result of exposure to asbestos while employed by us. Discovery in each matter is ongoing,
and a tentative trial date has been set for one of the cases. We have denied liability, are defending the matters vigorously and
are unable to estimate our potential exposure to loss, if any, at this time. In August of 2017, the lawsuit 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 was placed in the category of "special closed with settlements and bankruptcy claims pending" to
all remaining defendants. In March 2018, the lawsuit styled Charles Anderson, Individually and as Special Administrator of the
Estate of Charles Anderson, Deceased vs. 3M Company, et al, No. 17-L-525 was dismissed without prejudice. In October 2018,
the lawsuit styled Danny Atkins and Pamela Atkins, Pltfs., vs. Aurora Pump Company, et al. No. 18-L-2 was dismissed without
prejudice.
See Note 21 under the Notes to Consolidated Financial Statements for discussion of a series of workers compensation claims
filed related to the closure of manufacturing facilities in California.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
12
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 21, 2020, 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, 78
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 past Chairman of
The Carpet and Rug Institute. He serves as Director of Astec Industries, Inc. headquartered
in Chattanooga, Tennessee.
D. Kennedy Frierson, Jr., 52
Vice President and Chief
Operating Officer, Director
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.
Allen L. Danzey, 50
Chief Financial Officer
Chief Financial Officer since January 2020. Director of Accounting from May 2018 to December
2019. Commercial Division Controller from July 2009 to May 2018. Residential Division
Controller and Senior Accountant from February 2005 to July 2009.
Jon A. Faulkner, 59
Vice President Strategic
Initiatives
Vice President Strategic Initiatives since January 2020. Vice President and Chief Financial
Officer from October 2009 to December 2019. 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.
Thomas M. Nuckols, 52
Vice President and President,
Dixie Residential
Vice President and President of Dixie Residential since November 2017. Executive Vice
President, Dixie Residential from February 2017 to November 2017. Dupont/Invista, from 1989
to 2017, Senior Director of Mill Sales and Product Strategy from 2015 to 2017.
W. Derek Davis, 69
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.
13
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 21, 2020, the total number of holders of our Common Stock was approximately 2,800 including an estimated 2,400
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
November 2, 2019
November 30, 2019
December 28, 2019
Three Fiscal Months Ended December 28, 2019
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
83,527 * $
263,485 *
153,042 *
500,054
$
1.92
1.58
1.46
1.60
Maximum
Number (or
approximate
dollar value) of
Shares That May
Yet Be
Purchased
Under Plans or
Programs
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
83,527
263,485
153,042
500,054
$
5,085,356
*During the fourth quarter of 2019, the Company's previously announced stock repurchase authorization became effective upon
completion of the sale of the Susan Street facility. Pursuant to the previously announced authorization, the Company is authorized
to purchase up to $5,900 of its shares during a period beginning with the date of the completion of the sale and ending in March
2020. All shares repurchased during the fourth quarter were related to this authorization. This plan has superseded all other
previously announced plans.
Quarterly Financial Data, Dividends and Price Range of Common Stock
Following are quarterly financial data, dividends and price range of Common Stock for the four quarterly periods in the years ended
December 28, 2019 and December 29, 2018. 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 and we have not paid any dividends in the years ended December 28, 2019 and December 29, 2018.
14
THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
(unaudited) (dollars in thousands, except per share data)
2019
Net sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Net income (loss)
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Net income (loss)
Common Stock Prices:
High
Low
2018
Net sales
Gross profit
Operating loss
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Net loss
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Net loss
Common Stock Prices:
High
Low
1ST
2ND
3RD
4TH
$
88,606
$
100,394
$
95,447
$
18,919
(4,863)
(6,641)
(31)
23,493
574
(1,181)
(35)
21,074
(1,042)
(2,577)
23
90,135
22,719
26,680
26,018
(305)
$
$
$
$
$
$
$
$
$
$
$
$
$
(6,672) $
(1,216) $
(2,554) $
25,713
(0.42) $
(0.07) $
(0.16) $
(0.00)
(0.00)
(0.00)
(0.42) $
(0.07) $
(0.16) $
(0.42) $
(0.07) $
(0.16) $
(0.00)
(0.00)
(0.00)
(0.42) $
(0.07) $
(0.16) $
1.61
(0.02)
1.59
1.60
(0.02)
1.58
$
1.47
0.70
$
0.97
0.34
$
1.50
0.51
2.09
1.04
1ST
2ND
3RD
4TH
98,858
$
106,438
$
101,562
$
21,580
(1,515)
(2,884)
(23)
25,144
(355)
(1,972)
157
21,887
(1,179)
(2,922)
(40)
98,175
18,380
(12,765)
(13,700)
1
(2,907) $
(1,815) $
(2,962) $
(13,699)
(0.18) $
(0.13) $
(0.19) $
(0.00)
0.01
(0.00)
(0.18) $
(0.12) $
(0.19) $
(0.18) $
(0.13) $
(0.19) $
(0.00)
0.01
(0.00)
(0.18) $
(0.12) $
(0.19) $
(0.87)
0.00
(0.87)
(0.87)
0.00
(0.87)
$
4.05
2.60
$
3.27
2.20
$
2.40
1.40
1.85
0.62
15
Shareholder Return Performance Presentation
We compare our performance to two different industry indices published by Dow Jones, Inc. The first of these is the Dow Jones
US Furnishings Index, which is composed of publicly traded companies classified by Dow Jones in the furnishings industry. The
second is the Dow Jones US 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 Small Cap 600 Stock Index, plus both the Dow Jones US
Furnishings Index and the Dow Jones US Building Materials & Fixtures Index, in each case for the five year period ended December
31, 2019. The comparison assumes that $100.00 was invested on December 31, 2014, in our Common Stock, the S&P Small Cap
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.
16
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
2019 (1)
2018 (2)
2017 (3)
2016 (4)
2015 (5)(6)
$
374,582
$
405,033
$
412,462
$
397,453
$
422,483
86,205
21,349
86,991
(15,816)
101,213
3,947
14,962
(22,310)
(657)
15,619
11,440
—
4,235
240
(831)
(21,479)
12,653
—
4,052
389
(1,813)
7,509
(9,322)
12,947
—
12,724
95,425
(3,436)
(8,829)
(3,622)
(5,207)
13,515
—
4,904
106,230
1,882
(2,992)
(714)
(2,278)
14,119
—
6,826
5,403
859
427
$
247,659
$
252,778
$
283,907
268,987*
298,218*
88,237
81,667
73,211
96,534
120,251
58,984
105,113
123,446
79,263
81,727
98,256
87,122
98,632
115,907
90,804
$
0.96
0.95
—
—
4.62
$
(1.36) $
(0.59) $
(0.33) $
(1.36)
(0.59)
(0.33)
—
—
3.60
—
—
4.91
—
—
5.40
(0.15)
(0.15)
—
—
5.67
Weighted-average common shares outstanding:
Basic
Diluted
Number of shareholders (7)
Number of associates
15,821,574
15,763,890
15,698,915
15,638,112
15,535,980
15,925,822
15,763,890
15,698,915
15,638,112
15,535,980
2,800
1,526
2,800
1,646
2,800
1,930
3,000
1,746
3,000
1,822
*These periods do not have prior period adoption adjustment or the right to return asset for the ASC 606 adoption.
(1) 2019 results include expenses of $5,019 for facility consolidation and severance expenses and a gain of $25,121 for the sale of the Susan
Street facility, see Note 20.
(2) 2018 results include expenses of $3,167 for facility consolidation and severance expenses and $6,709 for the impairment of tangible and
intangible assets.
(3) Includes expenses of $636 for facility consolidation and severance expenses in 2017.
(4) Includes expenses of $1,456, or $859 net of tax, for facility consolidation expenses in 2016.
(5) Includes expenses of $2,946, or $1,915 net of tax, for facility consolidation expenses in 2015.
(6) 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.
(7) The approximate number of record holders of our Common Stock for 2015 through 2019 includes Management's estimate of shareholders who
held our Common Stock in nominee names as follows: 2015 - 2,550 shareholders; 2016 - 2,600 shareholders; 2017 - 2,400 shareholders;
2018 - 2,400 shareholders; 2019 - 2,400 shareholders.
17
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 | Masland Contract brand participates 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 which include broadloom carpet, carpet tiles and
rugs. However, in response to a significant shift in the flooring marketplace toward hard surface products, we have launched multiple
hard surface initiatives in both our residential and commercial brands over the last few years. Our commercial brands offer Luxury
Vinyl Flooring (“LVF”) products under the Calibré brand in the commercial markets. Our residential brands, Dixie Home and Masland
Residential, offer Stainmaster® PetProtect™ Luxury Vinyl Flooring and our premium residential brand, Fabrica, offers a high-end
engineered wood line. In 2019, we successfully launched TRUCOR™, our new solid polymer core or “SPC” Luxury Vinyl Flooring
line. This latest addition to our rigid core Luxury Vinyl Flooring offering is designed to create an extremely durable and waterproof
Luxury Vinyl Flooring product with a broader range of price points to meet the needs of various consumers. To build on the momentum
of TRUCOR™ in 2020 we have planned a significant increase in the product offerings of this line. Additional hard surface initiatives
planned in 2020 include the introduction of new styles in the Fabrica line of wood products, new LVF tiles utilizing "Integrated Grout
Technology", and a TRUCOR PRIME WPC program to include oversize planks in contemporary styles. In addition to our hard
surface initiatives, we continue to grow our soft surface business through innovative product offerings such as the Crafted Collection
of modular tile featuring our Sustaina backing. Our Sustaina cushion backing for modular tile is PVC and polyurethane free and it
is composed of 81.5% total recycled content allowing us to offer an appealing set of patterns to our environmentally conscious
customers.
During 2019, our net sales decreased 7.5% compared with net sales in 2018. Sales of residential products decreased 7.2% in 2019
versus 2018. Residential soft surface sales were down 8.8% in 2019 as compared to 2018, while, we estimate, the industry was
down in the mid to upper single digits. Our residential soft surface sales in 2019 were negatively impacted by a change in emphasis
to hard surfaces by certain mass merchant customers. Residential hard surface sales increased by 47% in 2019 relative to sales
in 2018. Despite recent slow activity, we anticipate the residential housing market will have steady but moderate growth over the
next several years. Commercial product sales decreased 9.4% during 2019. Soft surface sales of commercial products were down
12.4%, while, we believe, the industry was down marginally. We anticipate the commercial market to be relatively flat in 2020.
In 2019, we had an operating income of $21.3 million compared with an operating loss of $15.8 million in 2018. In 2019, we recorded
a $25.1 million gain on the sale of our building in Santa Ana, California. Without this gain on sale we had an operating loss of $3.8
million. Gross profit as a percent of sales improved year over year despite the reduced sales volume in 2019 and the resulting
under absorbed manufacturing costs. This was primarily the result of non-recurring costs incurred in the prior year and improvements
in operations, both related to the Profit Improvement Plan (the "Plan"). We also reduced plant running schedules in the fourth quarter
to reduce inventories to a more appropriate level. We incurred $5 million in restructuring expenses related to the Plan and an
additional $572 thousand in cost of sales for inventory write downs related to the Plan. Since inception, the Plan has resulted in
the reduction of over 300 associates. The Plan, begun in the fourth quarter of 2017, was completed at the end of 2019. Our debt
declined by $39.7 million over the course of 2019.
Expenses related to the Plan totaled approximately $5.6 million in 2019. The Plan expenses included inventory write downs,
restructuring costs, and asset impairments as we re-configured our commercial business and right sized our residential
manufacturing operations for lower unit demand. Total cost reductions as a result of the Plan are expected to be in excess of $18
million on an annual basis when compared to the 2017 cost structure. We began the structural consolidation of our commercial
business with the closure of our Chickamauga tufting operation as we moved the equipment to other facilities. This plant closure,
complete at the end of 2018, lowered our cost and improved our response time to this segment of the marketplace. We exited our
Commerce, California Atlas tufting facilities in 2019. The bulk of the Atlas equipment was transferred to our Atmore, Alabama
commercial tufting operation with various other items moved to our Santa Ana, California and Eton, Georgia operations. We moved
our commercial rug operation and commercial samples support function from California to our Saraland facility near Mobile, Alabama.
We reduced our staffing to better match production to meet our demand in our Atmore, Eton, Adairsville and Roanoke facilities as
we were able to take advantage of the increased productivity of our associates in these operations. In addition to the physical
movement of equipment and inventory, we consolidated our commercial design functions in Saraland as well as consolidated our
entire sales support functions. Our sales forces were merged to create Atlas | Masland Contract, now equipped with a much broader
product line and providing modular carpet tile, broadloom carpet, luxury vinyl flooring, and commercial wool and nylon rugs. This
combined sales force has the added benefit of not only a broad product line but distinct design capabilities in custom products as
well.
18
RESULTS OF OPERATIONS
Fiscal Year Ended December 28, 2019 Compared with Fiscal Year Ended December 29, 2018
Fiscal Year Ended (amounts in thousands)
December 28,
2019
% of Net
Sales
December 29,
2018
% of Net
Sales
Increase
(Decrease) % Change
Other operating (income) expense, net
(23,988)
(6.4)%
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Facility consolidation and severance expenses, net
Impairment of assets
Operating income (loss)
Interest expense
Other (income) expense, net
Income (loss) before taxes
Income tax provision (benefit)
$
374,582
100.0 % $
405,033
100.0 % $ (30,451)
318,042
78.5 %
(29,665)
288,377
86,205
83,825
77.0 %
23.0 %
22.4 %
5,019
—
21,349
6,444
(57)
14,962
1.3 %
— %
5.7 %
1.7 %
— %
4.0 %
86,991
92,473
458
3,167
6,709
21.5 %
22.8 %
0.1 %
0.8 %
1.7 %
(7.5)%
(9.3)%
(0.9)%
(9.4)%
(786)
(8,648)
(24,446)
(5,337.6)%
1,852
(6,709)
58.5 %
— %
(15,816)
(3.9)%
37,165
(235.0)%
6,491
3
1.6 %
— %
(47)
(0.7)%
(60)
(2,000.0)%
(22,310)
(5.5)%
37,272
(167.1)%
(657)
(0.2)%
(831)
(0.2)%
174
(20.9)%
Income (loss) from continuing operations
15,619
4.2 %
(21,479)
(5.3)%
37,098
(172.7)%
Income (Loss) from discontinued operations
(348)
(0.1)%
95
— %
(443)
(466.3)%
Net income (loss)
$
15,271
4.1 % $
(21,384)
(5.3)% $
36,655
(171.4)%
Net Sales. Net sales for the year ended December 28, 2019 were $374.6 million compared with $405.0 million in the year-earlier
period, a decrease of 7.5% for the year-over-year comparison. Sales of residential floorcovering products were down 7.2% primarily
due to our mass merchant customers shifting their emphasis from soft surface to hard surface floor coverings. Sales of commercial
floorcovering products decreased 9.4%. The decrease in commercial net sales was due to distractions caused by the restructuring
of our commercial operations and sales force during the first half of 2019.
Gross Profit. Gross profit, as a percentage of net sales, increased 1.5 percentage points in 2019 compared with 2018. Gross profit
in 2019 was favorably impacted by savings from our Profit Improvement Plan. Gross profit in 2018 was negatively impacted by
inventory write downs related to the Profit Improvement Plan.
Selling and Administrative Expenses. Selling and administrative expenses were $83.8 million in 2019 compared with $92.5
million in 2018, a decrease of .4% as a percentage of sales. The improved results in the 2019 selling expenses are the result of
changes made as part of our Profit Improvement Plan.
Other Operating Expense, Net. Net other operating expense was an income of $24.0 million in 2019 compared with expense of
$458 thousand in 2018. In 2019 we recognized a gain of $25.1 million for the sale of our Susan Street manufacturing facility in
Santa Ana, California.
Facility Consolidation and Severance Expenses, Net. Facility consolidation expenses were $5.0 million in 2019 compared with
$3.2 million in the year-earlier period. Facility consolidation expenses increased in 2019 as we completed our Profit Improvement
Plan, announced in 2017, which included the consolidation of our two commercial brands, consolidation of commercial manufacturing
operations and sales forces, and an overall review of corporate wide operations and functions. As a result of this plan, we incurred
expenses of $5.0 million during 2019 primarily related to facility consolidation expenses and severance costs.
Asset Impairments. There were no expenses related to asset impairments recorded in 2019. The asset impairments recorded in
2018 were $6.7 million. The asset impairments incurred in 2018 included the impairment of fixed assets as part of our Profit
Improvement Plan ($1.2 million). We also incurred intangible asset impairments ($2.1 million) and goodwill impairment ($3.4 million).
Operating Income (Loss). Operations reflected an operating income of $21.3 million in 2019 compared with an operating loss of
$15.8 million in 2018. The operating results for 2019 were heavily impacted by the $25.1 million gain on the sale of our building in
Santa Ana, California. This gain was partially offset by lower gross profit as a result of lower sales volume and expenses related to
the Profit Improvement Plan.
19
Interest Expense. Interest expense decreased $47 thousand in 2019 as compared to 2018 principally due to lower levels of debt
in the last quarter of the year as a result of the sale of our building in Santa Ana, California.
Income Tax Provision (Benefit). Our effective income tax rate was a benefit of 4.39% in 2019. The benefit relates to certain
federal and state credits and also includes a benefit for the reduction of certain indefinite lived assets not covered by our valuation
allowance. In 2019, we decreased our valuation allowance by $3.7 million related to our net deferred tax asset and specific state
net operating loss and state credit carryforwards.
Our effective income tax rate was a benefit of 3.72% in 2018. The benefit relates to certain federal and state credits and also
includes a benefit for the reduction of certain indefinite lived assets not covered by our valuation allowance. In 2018, we increased
our valuation allowance by $4 million related to our net deferred tax asset and specific state net operating loss and state credit
carryforwards.
Net Loss. Continuing operations reflected an income of $15.6 million, or $.95 per diluted share in 2019, compared with a loss from
continuing operations of $21.5 million, or $1.36 per diluted share in 2018. Our discontinued operations reflected a loss of $348
thousand, or $0.02 per diluted share in 2019 compared with income of $95 thousand, or $0.01 per diluted share in 2018. Including
discontinued operations, we had a net income of $15.3 million, or $0.96 per diluted share, in 2019 compared with a net loss of
$21.4 million, or $1.35 per diluted share, in 2018.
Fiscal Year Ended December 29, 2018 Compared with Fiscal Year Ended December 30, 2017
Fiscal Year Ended (amounts in thousands)
December 29,
2018
% of Net
Sales
December 30,
2017
% of Net
Sales
Increase
(Decrease) % Change
$
405,033
100.0 % $
412,462
100.0 % $
(7,429)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Other operating expense, net
Facility consolidation and severance expenses, net
Impairment of assets
Operating income (loss)
Interest expense
Other expense, net
Loss before taxes
Income tax provision (benefit)
Loss from continuing operations
Income (Loss) from discontinued operations
318,042
86,991
92,473
458
3,167
6,709
78.5 %
21.5 %
22.8 %
0.1 %
0.8 %
1.7 %
(15,816)
(3.9)%
6,491
3
(22,310)
(831)
(21,479)
95
1.6 %
— %
(5.5)%
(0.2)%
(5.3)%
— %
311,249
75.5 %
6,793
101,213
24.5 %
(14,222)
(14.1)%
96,189
23.3 %
(3,716)
(1.8)%
2.2 %
(3.9)%
3.9 %
398.0 %
— %
17
2,531
6,709
(19,763)
(500.7)%
752
(18)
13.1 %
(85.7)%
441
636
—
3,947
5,739
21
0.1 %
0.2 %
— %
0.9 %
1.4 %
— %
(1,813)
(0.5)%
(20,497)
1,130.6 %
7,509
1.8 %
(8,340)
(111.1)%
(9,322)
(2.3)%
(12,157)
130.4 %
(233)
(0.1)%
328
(140.8)%
Net loss
$
(21,384)
(5.3)% $
(9,555)
(2.4)% $ (11,829)
123.8 %
Net Sales. Net sales for the year ended December 29, 2018 were $405.0 million compared with $412.5 million in the year-earlier
period, a decrease of 1.8% for the year-over-year comparison. Sales of residential floorcovering products were up 3.6% and sales
of commercial floorcovering products decreased 13.2%. The decrease in commercial net sales was due to distractions caused by
the restructuring of our commercial operations and sales force during 2018.
Gross Profit. Gross profit, as a percentage of net sales, decreased 3.0 percentage points in 2018 compared with 2017. Gross
profit in 2018 was negatively impacted by inventory write downs of $2.7 million taken during the year as part of our Profit Improvement
Plan.
Selling and Administrative Expenses. Selling and administrative expenses were $92.5 million in 2018 compared with $96.2
million in 2017, or a decrease of .5% as a percentage of sales. The improved results in the 2018 selling expenses are the result of
changes made as part of our Profit Improvement Plan.
Other Operating Expense, Net. Net other operating expense was an expense of $458 thousand in 2018 compared with expense
of $441 thousand in 2017.
Facility Consolidation and Severance Expenses, Net. Facility consolidation expenses were $3.2 million in 2018 compared with
$636 thousand in the year-earlier period. Facility consolidation expenses increased in 2018 as we continued our Profit Improvement
20
Plan, announced in 2017, which includes the consolidation of our two commercial brands, consolidation of commercial manufacturing
operations and sales forces, and an overall review of corporate wide operations and functions. As a result of this plan, we incurred
expenses of $3.2 million during 2018 primarily related to facility consolidation expenses and severance costs.
Asset Impairments. The asset impairments recorded in 2018 were $6.7 million. There were no asset impairment expenses in
2017. The asset impairments incurred in 2018 included the impairment of fixed assets as part of our Profit Improvement Plan ($1.2
million). We also incurred intangible asset impairments ($2.1 million) and goodwill impairment ($3.4 million).
Operating Income (Loss). Operations reflected an operating loss of $15.8 million in 2018 compared with an operating income of
$3.9 million in 2017. The operating results for 2018 were impacted by the lower sales volume, settlement of a class action lawsuit,
and facility consolidation, asset impairments, and severance costs related to the Profit Improvement Plan.
Interest Expense. Interest expense increased $752 thousand in 2018 principally due to higher levels of debt and higher rates than
a year ago.
Income Tax Provision (Benefit). Our effective income tax rate was a benefit of 3.72% in 2018. The benefit relates to certain
federal and state credits and also includes a benefit for the reduction of certain indefinite lived assets not covered by our valuation
allowance. In 2018 we increased our valuation allowance by $4 million related to our net deferred tax asset and specific state net
operating loss and state credit carryforwards.
On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered
the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018.
The income tax expense for 2017 was $7.5 million, which included a charge of $1.4 million related to the re-measurement of certain
net deferred tax assets using the lower U.S. corporate income tax rate and a charge of $6.4 million to increase our valuation
allowance related to our net deferred tax asset. The majority of the increase in the valuation allowance is related to the revised
treatment of net operating losses under the Tax Act. Absent the impact of the Tax Act, our effective income tax benefit rate for 2017
would have been 36.4%.
Net Loss. Continuing operations reflected a loss of $21.5 million, or $1.36 per diluted share in 2018, compared with a loss from
continuing operations of $9.3 million, or $0.59 per diluted share in 2017. Our discontinued operations reflected an income of $95
thousand, or $0.01 per diluted share in 2018 compared with a loss of $233 thousand, or $0.01 per diluted share in 2017. Including
discontinued operations, we had a net loss of $21.4 million, or $1.35 per diluted share, in 2018 compared with a net loss of $9.6
million, or $0.60 per diluted share, in 2017.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 28, 2019, cash provided by operations was $11.7 million. Inventories decreased $9.7 million,
receivables decreased $5.2 million and accounts payable and accrued expenses decreased $3.7 million. Inventories were planned
more closely in 2019 and decreased with lower demand. Receivables decreased on lower sales volume. In addition to lower
operating demands on accounts payable as a result of lower volume, accounts payable and accrued expenses decreased due to
balances in the prior year end related to a class action lawsuit and severances related to restructuring that were paid in full or
significantly lower in the 2019 year end balances as compared to 2018.
Capital asset acquisitions for the year ended December 28, 2019 were $4.2 million. In 2019 proceeds from sale of equipment totaled
$37.2 million, primarily related to the sale of our building in Santa Ana, California. Depreciation and amortization for the year ended
December 28, 2019 were $11.4 million. We expect capital expenditures to be approximately $5.0 million in 2020 while depreciation
and amortization is expected to be approximately $11.0 million. Planned capital expenditures in 2020 are primarily for new equipment.
During the year ended December 28, 2019, cash used in financing activities was $43.9 million. We had net payments of $39.5
million on the revolving credit facility. Notes payable were reduced by payments, net of new borrowings, of $7.5 million and borrowings
on finance leases net of payments increased cash by $7.3 million. The balance in amount of checks outstanding in excess of cash
at year end 2019 decreased from prior year resulting in a cash outflow of $3.1 million.
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 current operating conditions. Included in the unused borrowing availability
under our credit line, as of the sale of our Susan Street facility in October, 2019 and the enactment of Amendment Thirteen to our
loan agreement, is an additional availability block of $5,000 to be reduced upon reaching a specially defined fixed charge coverage
ratio of 1.1 to 1.0 for a consecutive period of 3 months or 6 months. Contingent upon reaching the desired fixed coverage ratio,
the availability block will reduce to $2,500 when the three-month threshold is reached and $0 once reaching the six-month threshold.
As of December 28, 2019, the unused borrowing availability under our revolving credit facility was $33.8 million. However, our
revolving credit facility reduces our funds available to borrow by $15 million if our fixed charge coverage ratio is less than 1.1 to
1.0. 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 $18.8 million (the amount above $15.0 million) at December 28, 2019. Significant additional cash expenditures above our
normal liquidity requirements, significant deterioration in economic conditions or continued operating losses could affect our business
21
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. During the fourth quarter 2019, the Company amended its credit agreement with Wells Fargo Capital
Finance to reduce the size of the Senior Credit Facility from $150,000 to $120,000 and adjust the availability limitation related to
the fixed coverage ratio from $16,500 to $15,000 upon closing of the sale lease back of the Susan Street property. The changes
to the credit facility were implemented by the twelfth and thirteenth amendments to the credit agreement, effective October 3, 2019
and October 22, 2019, respectively. These amendments were intended to permit the sale and leaseback of the Company's Susan
Street Facility and, upon completion of the sale, to adjust the credit agreement's borrowing base. 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 matures on
September 23, 2021. 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. As of December 28, 2019, 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 4.79% at December 28, 2019 and 4.58% at December 29, 2018.
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 restricts the Company's borrowing availability if its fixed charge coverage ratio
is less than 1.1 to 1.0. During any period that the fixed charge coverage ratio is less than 1.1 to 1.0, the Company's borrowing
availability is reduced by $15,000. As part of Amendment Thirteen to the credit agreement an additional availability block of $5,000
was established to be reduced upon reaching a specially defined fixed charge coverage ratio of 1.1 to 1.0 for a consecutive period
of 3 months or 6 months. Contingent upon reaching the desired fixed coverage ratio, the availability block will reduce to $2,500
when the three-month threshold is reached and $0 once reaching the six-month threshold. Amendment Thirteen also adjusted the
size of the restricted borrowing availability that is triggered when the fixed charge coverage ratio is less than 1.1 to 1.0. Effective
with the thirteenth amendment, and after giving effect to the "availability block", availability under the credit agreement is reduced
by $20,000.
As of December 28, 2019, the unused borrowing availability under the revolving credit facility was $33,787; 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 $18,787
(the amount above $15,000) at December 28, 2019. Availability under the credit agreement will vary based on seasonal business
factors and periodic changes to the qualified asset base, which consists of accounts receivable, inventories and fixed assets.
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 rate swap with an amortizing notional amount
effective November 7, 2014 which effectively fixes the interest rate at 4.50%.
Notes Payable - Equipment and Other. Our equipment financing notes have terms ranging from 1 to 7 years, bear interest ranging
from 1.00% to 7.68% and are due in monthly installments through their maturity dates. Our equipment financing notes are secured
by the specific equipment financed and do not contain any financial covenants.
Finance Lease - Buildings. On January 14, 2019, the Company, entered into a purchase and sale agreement (the “Purchase and
Sale Agreement”) with Saraland Industrial, LLC, an Alabama limited liability company (the “Purchaser”). Pursuant to the terms of
the Purchase and Sale Agreement, the Company sold its Saraland facility, and approximately 17.12 acres of surrounding property
located in Saraland, Alabama (the “Property”) to the Purchaser for a purchase price of $11,500. Concurrent with the sale of the
Property, the Company and the Purchaser entered into a twenty-year lease agreement (the “Lease Agreement”), whereby the
Company will lease back the Property at an annual rental rate of $977, subject to annual rent increases of 1.25%. Under the Lease
Agreement, the Company has two (2) consecutive options to extend the term of the Lease by ten years for each such option. This
transaction was recorded as a failed sale and leaseback as the present value of lease payments exceeded 90% of its fair value.
The Company recorded a liability for the amounts received, will continue to depreciate the asset, and has imputed an interest rate
so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term. Concurrently
with the sale, the Company paid off the approximately $5,000 mortgage on the property to First Tennessee Bank National Association
and terminated the related fixed interest rate swap agreement.
22
Finance Lease Obligations. Our finance lease obligations have terms ranging from 3 to 7 years, bear interest ranging from 3.55%
to 7.76% and are due in monthly or quarterly installments through their maturity dates. Our 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 28, 2019
Payments Due By Period
(dollars in millions)
2020
2021
2022
2023
2024
Thereafter
Total
$
61.1
$
0.7
$
0.4
$
0.4
$
Debt
Interest - debt (1)
Finance leases
Interest - finance leases
Operating leases
Interest - operating leases
Purchase commitments
$
2.7
0.1
4.0
1.2
3.2
1.6
2.5
Totals
15.3
69.9
—
3.4
1.0
3.0
1.4
—
—
1.2
0.8
2.8
1.2
—
6.7
—
0.5
0.8
2.1
1.1
—
4.9
—
0.3
0.7
2.0
0.9
—
4.3
4.2
—
10.0
6.0
12.2
2.4
—
34.8
69.5
0.1
19.4
10.5
25.3
8.6
2.5
135.9
(1) Interest rates used for variable rate debt were those in effect at December 29, 2018.
Stock-Based Awards
We recognize compensation expense related to share-based stock awards based on the fair value of the equity instrument over
the period of vesting for the individual stock awards that were granted. At December 28, 2019, the total unrecognized compensation
expense related to unvested restricted stock awards was $989 thousand with a weighted-average vesting period of 8.6 years. At
December 28, 2019, the total unrecognized compensation expense related to Directors' Stock Performance Units was $5 thousand
with a weighted-average vesting period of 0.3 years. At December 28, 2019, there was no unrecognized compensation expense
related to unvested stock options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements at December 28, 2019 or December 29, 2018.
Income Tax Considerations
In the tax year ended December 28, 2019 we decreased our valuation allowances by $3.7 million related to our net deferred tax
asset and specific state net operating loss and state credit carryforwards.
During 2020 and 2021, we do not anticipate any cash outlays for income taxes to exceed $1.5 Million. This is due to tax loss
carryforwards and tax credit carryforwards that will be used to partially offset taxable income. At December 28, 2019, we were in
a net deferred tax liability position of $91 thousand.
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 $2.0 million for environmental liabilities at these sites as of December 28, 2019. 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 28, 2019, we had no liabilities measured at fair value that fall under a level 3 classification in the hierarchy (those
subject to significant management judgment or estimation).
23
Certain Related Party Transactions
We were a party to a five-year lease with the seller of Atlas Carpet Mills, Inc. to lease three manufacturing facilities as part of the
acquisition in 2014. The lessor was controlled by an associate of ours. Rent paid to the lessor during 2019, 2018, and 2017 was
$497, $1,003, and $978, respectively. The lease was based on current market values for similar facilities. These leases terminated
as of September, 2019.
We purchase 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 ours. An affiliate of Mr. Shaw holds approximately 7.5% of our Common Stock,
which represents approximately 3.5% of the total vote of all classes of our Common Stock. Engineered Floors is one of several
suppliers of such materials to us. Total purchases from Engineered Floors for 2019, 2018 and 2017 were approximately $5,900,
$8,200, and $7,200 respectively; or approximately 2.1%, 2.6%, and 2.3% of our cost of goods sold in 2019, 2018, and 2017,
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 a party to a ten-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 a former associate of ours. Rent paid to the lessor during 2019, 2018, and 2017
was $284, $278, and $273, respectively. The lease was based on current market values for similar facilities.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
"Leases (Topic 842)," which requires lessees to recognize on the Consolidated Balance Sheets right-of-use assets, representing
the 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. In July 2018, the FASB issued ASU No. 2018-11, "Leases (Topic 842)" providing an optional transition
method allowing entities to apply the new lease standard at the adoption date and recognize a cumulative effect adjustment in the
period of adoption. The Company elected this transition method.
The Company adopted the new standard effective December 30, 2018, the first day of the Company's fiscal year. Consistent with
the optional transition method allowed as part of the modified retrospective transition approach provided in ASU No. 2018-11, the
Company did not adjust comparative periods. The new standard applied to leases that have commenced as of the effective date,
December 30, 2018, with a cumulative effect adjustment recorded as of that date. The Company also elected to apply the package
of practical expedients allowed in ASC 842-10-65-1 whereby the Company need not reassess whether any expired or existing
contracts are or contain leases, the Company need not reassess the lease classification for any expired or existing leases, and the
Company need not reassess initial direct costs for any existing leases. The Company's adoption of the ASU resulted in the addition
of Right of Use Assets on the Consolidated Balance Sheet for the right to use the underlying assets of operating leases. The
Company did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee
options to extend or terminate a lease or purchase the underlying asset. In addition, the corresponding liability for the remaining
balance of the operating leases is included in the liability section of the Consolidated Balance Sheet. For all asset classes, the
Company elected to not recognize a right-of-use asset and lease liability for leases with a term of twelve months or less. The
adoption of this ASU did not result in a material adjustment to the Consolidated Statements of Stockholders' Equity or the Consolidated
Statements of Operations.
See Note 2 to our Consolidated Financial Statements of this Form 10-K for a discussion of the standard described above and other
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. The Company derives its revenues primarily from the sale of floorcovering products and processing
services. Revenues are recognized when control of these products or services is transferred to its customers, in an amount
that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Sales,
value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
24
Shipping and handling fees charged to customers are reported within revenue. Incidental items that are immaterial in the
context of the contract are recognized as expense. The Company does not have any significant financing components
as payment is received at or shortly after the point of sale. The Company determined revenue recognition through the
following steps:
Identification of the contract with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, the performance obligation is satisfied
•
•
•
•
•
•
•
Variable Consideration. The nature of the Company’s business gives rise to variable consideration, including rebates,
allowances, and returns that generally decrease the transaction price, which reduces revenue. These variable amounts
are generally credited to the customer, based on achieving certain levels of sales activity, product returns, or price
concessions.
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are
included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized
will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable
consideration are estimated based upon historical experience and known trends.
Customer claims and product warranties. The Company generally provides product warranties related to manufacturing
defects and specific performance standards for its products for a period of up to two years. The Company accrues for
estimated future assurance warranty costs in the period in which the sale is recorded. The costs are included in Cost of
Sales in the Consolidated Statements of Operations and the product warranty reserve is included in accrued expenses in
the Consolidated Balance Sheets. The Company calculates its accrual using the portfolio approach based upon historical
experience and known trends. The Company does not provide an additional service-type warranty.
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”), synergies from the viewpoint
of a market participant 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. We performed our annual assessment of goodwill in the
fourth quarter of 2018 and an impairment was indicated. In accordance with the results of our testing, the goodwill was
considered impaired and the asset was removed and a corresponding expense was recorded for asset impairment on the
Consolidated Statements of Operations. (See Note 7 to our Consolidated Financial Statements)
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
25
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
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 $13.3 million at December 28, 2019 and $17.0 million at December
29, 2018. At December 28, 2019, we were in a net deferred tax liability position of $91 thousand. For further information
regarding our valuation allowances, see Note 15 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 13 to the Consolidated Financial Statements).
At December 28, 2019, $9,693, or approximately 11% 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 pre-tax impact of approximately
$72.
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 28, 2019, 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.
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.
26
PART III.
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections entitled "Information about Nominees for Director" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 6, 2020 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 28, 2019, members of our audit committee are Michael L. Owens, Chairman,
William F. Blue, Jr., Charles E. Brock, Lowry F. Kline, and Hilda S. Murray.
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 6, 2020 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 6, 2020 are incorporated herein by reference.
Equity Compensation Plan Information as of December 28, 2019
The following table sets forth information as to our equity compensation plans as of the end of the 2019 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
278,320 (1)
$
4.57 (2)
204,720
(1)
(2)
Includes the options to purchase 166,000 shares of Common Stock under our 2016 Incentive Compensation Plan and 112,320 Performance
Units issued under the 2016 Incentive Compensation 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 166,000 shares of Common
Stock under our 2016 Incentive Compensation Plan and (ii) the price per share of the Common Stock on the grant date for each of 112,320
Performance Units issued under the 2016 Incentive Compensation Plan (each unit equivalent to one share of Common Stock).
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The sections entitled "Certain Transactions Between the Company and Directors and Officers" and "Independent Directors" in the
Proxy Statement of the registrant for the annual meeting of shareholders to be held May 6, 2020 are 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 6, 2020 is incorporated herein by reference.
27
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).
Item 16. FORM 10-K SUMMARY
None.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 12, 2020
The Dixie Group, Inc.
/s/ DANIEL K. FRIERSON
By: Daniel K. Frierson
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ DANIEL K. FRIERSON
Chairman of the Board, Director and Chief Executive Officer
March 12, 2020
Daniel K. Frierson
/s/ ALLEN L. DANZEY
Allen L. Danzey
Vice President, Chief Financial Officer
March 12, 2020
/s/ D. KENNEDY FRIERSON, JR.
Vice President, Chief Operating Officer and Director
March 12, 2020
D. Kennedy Frierson, Jr.
/s/ WILLIAM F. BLUE, JR.
Director
William F. Blue, Jr.
/s/ CHARLES E. BROCK
Director
Charles E. Brock
/s/ LOWRY F. KLINE
Lowry F. Kline
Director
/s/ HILDA S. MURRAY
Director
Hilda S. Murray
/s/ MICHAEL L. OWENS
Director
Michael L. Owens
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
29
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 28, 2019
THE DIXIE GROUP, INC.
DALTON, GEORGIA
30
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 28, 2019 and December 29, 2018
Consolidated statements of operations - Years ended December 28, 2019, December 29, 2018, and
December 30, 2017
Consolidated statements of comprehensive income (loss) - Years ended December 28, 2019, December 29,
2018, and December 30, 2017
Consolidated statements of cash flows - Years ended December 28, 2019, December 29, 2018, and
December 30, 2017
Consolidated statements of stockholders' equity - Years ended December 28, 2019, December 29, 2018, and
December 30, 2017
Notes to consolidated financial statements
Schedule II - Valuation and Qualifying Accounts
Page
32
33
34
35
36
37
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.
31
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of
its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures, as well as diverse interpretation of U. S. generally
accepted accounting principles by accounting professionals. It is also possible that internal control over financial reporting can be
circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements
may not be prevented or detected on a timely basis by internal control over financial reporting. Furthermore, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate. These inherent limitations are known
features of the financial reporting process; therefore, while it is possible to design into the process safeguards to reduce such risk,
it is not possible to eliminate all risk.
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 28, 2019, based on those criteria.
/s/ Daniel K. Frierson
Chairman of the Board and
Chief Executive Officer
/s/ Allen L. Danzey
Chief Financial Officer
32
The Shareholders and the Board of Directors of The Dixie Group, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of The Dixie Group, Inc. (the "Company") as of December 28, 2019
and December 29, 2018, the related consolidated statements of operations, comprehensive income (loss), cash flows and
stockholders’ equity for each of the three years in the period ended December 28, 2019, and the related notes and schedule listed
in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 28, 2019 and December 29, 2018, and
the results of its operations and its cash flows for each of the three years in the period ended December 28, 2019, in conformity
with U.S. generally accepted accounting principles.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in
fiscal year 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Dixon Hughes Goodman LLP
We have served as the Company's auditor since 2013.
Atlanta, Georgia
March 12, 2020
33
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
OPERATING LEASE RIGHT-OF-USE ASSETS
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses
Current portion of long-term debt
Current portion of operating lease liabilities
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
OPERATING LEASE LIABILITIES
OTHER LONG-TERM LIABILITIES
TOTAL LIABILITIES
December 28,
2019
December 29,
2018
$
769
$
$
$
37,138
95,509
6,179
139,595
65,442
24,835
17,787
247,659
$
$
16,084
25,418
6,684
3,172
51,358
81,667
22,123
19,300
174,448
18
42,542
105,195
5,204
152,959
84,111
—
15,708
252,778
17,779
30,852
7,794
—
56,425
120,251
—
17,118
193,794
COMMITMENTS AND CONTINGENCIES (See Note 19)
STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and
outstanding - 15,025,087 shares for 2019 and 15,522,588 shares for 2018
45,075
46,568
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares,
issued and outstanding - 836,669 shares for 2019 and 839,304 shares for 2018
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
TOTAL STOCKHOLDERS' EQUITY
2,510
157,547
(131,113)
(808)
73,211
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
247,659
$
2,518
156,390
(146,384)
(108)
58,984
252,778
See accompanying notes to the consolidated financial statements.
34
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Year Ended
December 28,
2019
December 29,
2018
December 30,
2017
NET SALES
Cost of sales
GROSS PROFIT
$
374,582
$
405,033
$
288,377
86,205
318,042
86,991
412,462
311,249
101,213
96,189
441
636
—
3,947
5,739
21
(1,813)
7,509
(9,322)
(233)
(9,555)
(0.59)
(0.01)
(0.60)
83,825
(23,988)
5,019
—
21,349
6,444
(57)
14,962
(657)
15,619
(348)
92,473
458
3,167
6,709
(15,816)
6,491
3
(22,310)
(831)
(21,479)
95
15,271
$
(21,384) $
0.96
(0.02)
0.94
$
$
(1.36) $
0.01
(1.35) $
15,822
15,764
15,699
0.95
(0.02)
0.93
$
$
(1.36) $
0.01
(1.35) $
(0.59)
(0.01)
(0.60)
15,926
15,764
15,699
— $
—
— $
—
—
—
Selling and administrative expenses
Other operating (income) expense, net
Facility consolidation and severance expenses, net
Impairment of assets
OPERATING INCOME (LOSS)
Interest expense
Other (income) expense, net
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
Income tax provision (benefit)
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from discontinued operations, net of tax
NET INCOME (LOSS)
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Net income (loss)
BASIC SHARES OUTSTANDING
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Net income (loss)
DILUTED SHARES OUTSTANDING
DIVIDENDS PER SHARE:
Common Stock
Class B Common Stock
See accompanying notes to the consolidated financial statements.
$
$
$
$
$
$
35
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized gain (loss) on interest rate swaps
Income taxes
Unrealized gain (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 28,
2019
December 29,
2018
December 30,
2017
$
15,271
$
(21,384) $
(9,555)
(1,109)
—
(1,109)
454
10
444
(6)
—
(6)
(27)
—
(27)
(2)
—
(2)
531
—
531
673
—
673
18
—
18
(27)
—
(27)
(4)
—
(4)
180
68
112
1,250
475
775
11
4
7
(30)
(11)
(19)
(4)
(1)
(3)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
(700)
1,191
872
COMPREHENSIVE INCOME (LOSS)
$
14,571
$
(20,193) $
(8,683)
(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 Statements 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 Statements of Operations.
See accompanying notes to the consolidated financial statements.
36
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
December 28,
2019
Year Ended
December 29,
2018
December 30,
2017
$
$
15,619
(348)
15,271
(21,479) $
95
(21,384)
(9,322)
(233)
(9,555)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization
Provision (benefit) for deferred income taxes
Net loss (gain) on property, plant and equipment disposals
Impairment of assets
Impairment of goodwill and intangibles
Stock-based compensation (credit) expense
Bad debt expense
Changes in operating assets and liabilities:
Receivables
Inventories
Prepaids and other current assets
Accounts payable and accrued expenses
Other operating assets and liabilities
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sales of property, plant and equipment
Purchase of property, plant and equipment
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit facility
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
Borrowings on finance leases
Payments on finance leases
Change in outstanding checks in excess of cash
Repurchases of Common Stock
Payments for debt issuance costs
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
11,440
(487)
(25,281)
—
—
483
240
5,164
9,686
(975)
(3,678)
(176)
11,687
37,205
(4,235)
32,970
(39,524)
(5,475)
—
1,379
(3,375)
11,500
(4,166)
(3,141)
(827)
(277)
(43,906)
12,653
(537)
(1,047)
1,164
5,545
(29)
163
3,775
8,462
(535)
(4,198)
1,073
5,105
1,856
(4,052)
(2,196)
1,512
(731)
(791)
3,273
(4,260)
—
(4,617)
2,762
(58)
—
(2,910)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
751
18
769
$
$
(1)
19
18
$
SUPPLEMENTAL CASH FLOW INFORMATION:
Right-of-use assets obtained in exchange for new finance lease liabilities
Equipment purchased under capital leases
Equipment purchased under notes payable
Right-of-use assets obtained in exchange for new operating lease
liabilities
Accrued purchases of equipment
See accompanying notes to the consolidated financial statements.
52
—
—
18,167
188
—
223
—
—
166
37
12,947
8,181
170
—
—
940
70
(2,945)
(16,420)
776
(3,161)
(609)
(9,606)
—
(12,724)
(12,724)
27,125
(731)
(1,920)
7,612
(4,145)
—
(3,921)
(1,695)
(116)
—
22,209
(121)
140
19
—
621
59
—
179
THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
Balance at December 31, 2016
45,745
2,612
156,381
(115,656)
(1,960)
87,122
Common
Stock
Class B
Common
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Repurchases of Common Stock - 33,112
shares
Restricted stock grants issued - 60,000
shares
Restricted stock grants forfeited - 4,629
shares
Class B converted into Common Stock -
9,215 shares
Stock-based compensation expense
Net loss
Other comprehensive income
Reclassification of stranded tax effects
(100)
180
(14)
28
—
—
—
—
—
—
—
(28)
—
—
—
—
(16)
(180)
12
—
942
—
—
—
—
—
—
—
—
(9,555)
—
211
—
—
—
—
—
—
872
(211)
(116)
—
(2)
—
942
(9,555)
872
—
Balance at December 30, 2017
45,839
2,584
157,139
(125,000)
(1,299)
79,263
Common Stock issued - 39,711 shares
Repurchases of Common Stock - 20,226
shares
Restricted stock grants issued - 307,292
shares
Restricted stock grants forfeited - 106,196
shares
Class B converted into Common Stock -
6,250 shares
Stock-based compensation expense
Net loss
Other comprehensive income
119
(61)
677
—
—
(119)
4
245
(922)
(25)
(292)
(621)
19
—
—
—
(19)
—
—
—
—
909
—
—
—
—
—
—
—
—
(21,384)
—
—
—
—
—
—
—
—
1,191
—
(57)
—
(938)
—
909
(21,384)
1,191
Balance at December 29, 2018
$ 46,568
$
2,518
$ 156,390
$ (146,384) $
(108) $
58,984
Common Stock issued - 29,001 shares
87
Repurchases of Common Stock - 511,353
shares
Restricted stock grants forfeited - 17,784
shares
Class B converted into Common Stock -
2,635 shares
Stock-based compensation expense
Net income
Other comprehensive loss
(1,535)
(53)
8
—
—
—
—
—
—
(8)
—
—
—
(87)
708
42
—
494
—
—
—
—
—
—
—
15,271
—
—
—
—
—
—
—
(700)
—
(827)
(11)
—
494
15,271
(700)
Balance at December 28, 2019
$ 45,075
$
2,510
$ 157,547
$ (131,113) $
(808) $
73,211
See accompanying notes to the consolidated financial statements.
38
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 flooring
in the domestic floorcovering market. 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.
Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering
comprising of two operating segments, Residential and Commercial. Pursuant to accounting standards, the Company has
aggregated the two operating segments into one reporting segment because they have similar economic characteristics, and the
operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production
processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or
provide their services; and (e) the nature of the regulatory environment.
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 consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP")
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 "2019," "2018," and "2017," mean the
fiscal years ended December 28, 2019, December 29, 2018, and December 30, 2017, respectively. All years presented contained
52 weeks.
Reclassifications
The Company reclassified certain amounts in 2018 and 2017 to conform to the 2019 presentation.
Discontinued Operations
The consolidated financial statements separately report discontinued operations and the results of continuing operations (See Note
22).
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 11% in 2019, 13% in 2018 and 14%
in 2017. No other customer accounted for more than 10% of net sales in 2019, 2018, or 2017, nor did the Company make a significant
amount of sales to foreign countries during 2019, 2018, or 2017.
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.
As a percentage of customer's trade accounts receivable, one customer accounted for approximately 18% in 2019, 34% in 2018,
39
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
and 31% in 2017. 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.
Property, Plant and Equipment
Property, plant and equipment are 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 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
assessment, the impairment would be measured as the amount by which the reporting unit's carrying value exceeds its fair value,
not to exceed the carrying value of goodwill. (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).
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 evaluates the
recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources. In the
event that the Company is not able to realize all or a portion of the deferred tax assets in the future, a valuation allowance is provided.
The Company recognizes such amounts through a charge to income in the period in which that determination is made or when tax
law changes are enacted. The Company accounts for uncertainty in income tax positions according to FASB guidance relating to
uncertain tax positions. 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 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
The Company derives its revenues primarily from the sale of floorcovering products and processing services. Revenues are
recognized when control of these products or services is transferred to its customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those products and services. Sales, value add, and other taxes the Company
collects concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers
are reported within revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The
Company does not have any significant financing components as payment is received at or shortly after the point of sale. The
Company determined revenue recognition through the following steps:
•
•
•
•
•
Identification of the contract with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, the performance obligation is satisfied
Performance Obligations
For performance obligations related to residential floorcovering and commercial floorcovering products, control transfers at a point
in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the
customer and the customer must have the significant risks and rewards of ownership. The Company’s principal terms of sale are
FOB Shipping Point and FOB Destination and the Company transfers control and records revenue for product sales either upon
shipment or delivery to the customer, respectively. Revenue is allocated to each performance obligation based on its relative stand-
alone selling prices. Stand-alone selling prices are based on observable prices at which the Company separately sells the products
or services.
41
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Variable Consideration
The nature of the Company’s business gives rise to variable consideration, including rebates, allowances, and returns that generally
decrease the transaction price, which reduces revenue. These variable amounts are generally credited to the customer, based on
achieving certain levels of sales activity, product returns, or price concessions.
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the
transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are estimated based upon
historical experience and known trends.
Advertising Costs
The Company engages in promotional and 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. Costs related
to cooperative advertising programs are normally recorded as selling and administrative expenses when the Company can
reasonably identify the 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 2019, 2018, or 2017.
Warranties
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its
products for a period of up to two years. The Company accrues for estimated future assurance warranty costs in the period in which
the sale is recorded. The costs are included in cost of sales in the Consolidated Statements of Operations and the product warranty
reserve is included in accrued expenses in the Consolidated Balance Sheets. The Company calculates its accrual using the portfolio
approach based upon historical experience and known trends. (See Note 9.) The Company does not provide an additional service-
type warranty.
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
The Company determines if an arrangement is an operating lease or a financing lease at inception. A lease exists if the Company
obtains substantially all of the economic benefits of, and has the right to control the use of, an asset for a period of time. Right-of-
use assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's
obligation to make lease payments arising from the lease agreement. Lease assets and obligations are recognized at the lease
commencement date based on the present value of lease payments over the term of the lease. Right-of-use assets may also be
adjusted to reflect any prepayments made or any incentive payments received. Generally, the Company's leases do not provide a
readily determinable implicit interest rate, therefore, the Company uses its incremental borrowing rate, which is based on information
available at the lease commencement date, to determine the present value of lease payments.
The Company has operating leases primarily for real estate and equipment used in manufacturing. Operating lease expense is
recognized in continuing operations on a straight-line basis over the lease term within cost of sales and selling and administrative
expenses. Financing lease expense is comprised of both interest expense, which is recognized using the effective interest method,
and amortization of the right-of-use assets. These expenses are presented consistently with the presentation of other interest
expense and amortization or depreciation of similar assets. In determining lease asset values, the Company considers fixed and
variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination, or purchase
options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
42
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Stock-Based Compensation
The Company recognizes compensation expense relating to stock-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 17). The Company accounts for forfeitures when they actually occur.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Adopted in Fiscal 2019
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
"Leases (Topic 842)," which requires lessees to recognize on the Consolidated Balance Sheets right-of-use assets, representing
the 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. In July 2018, the FASB issued ASU No. 2018-11, "Leases (Topic 842)" providing an optional transition method
allowing entities to apply the new lease standard at the adoption date and recognize a cumulative effect adjustment in the period
of adoption. The Company elected this transition method.
The Company adopted the new standard effective December 30, 2018, the first day of the Company's fiscal year. Consistent with
the optional transition method allowed as part of the modified retrospective transition approach provided in ASU No. 2018-11, the
Company did not adjust comparative periods. The new standard applied to leases that have commenced as of the effective date,
December 30, 2018, with a cumulative effect adjustment recorded as of that date. At adoption, the Company recorded Right-of-use
assets of $9,401 and a corresponding liability of $9,842. The Company also elected to apply the package of practical expedients
allowed in ASC 842-10-65-1 whereby the Company need not reassess whether any expired or existing contracts are or contain
leases, the Company need not reassess the lease classification for any expired or existing leases, and the Company need not
reassess initial direct costs for any existing leases. The Company's adoption of the ASU resulted in the addition of Right of Use
Assets on the Consolidated Balance Sheet for the right to use the underlying assets of operating leases. The Company did not
elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee options to extend
or terminate a lease or purchase the underlying asset. In addition, the corresponding liability for the remaining balance of the
operating leases is included in the liability section of the Consolidated Balance Sheet. For all asset classes, the Company elected
to not recognize a right-of-use asset and lease liability for leases with a term of twelve months or less. The adoption of this ASU
did not result in a material adjustment to the Consolidated Statements of Stockholders' Equity or the Consolidated Statements of
Operations.
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities." The amendments in this ASU update current guidance by more closely aligning the results of cash flow and
fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance
for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company's adoption of
this ASU did not have a significant impact on its consolidated financial statements.
In October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing
Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” This update
permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes. For entities that
have not already adopted Update 2017-12, the amendments in this Update are required to be adopted concurrently with the
amendments in Update 2017-12. The Company's adoption of this ASU did not have a significant impact on its consolidated financial
statements.
Accounting Standards Yet to Be Adopted
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 current
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. The Company does not
believe the adoption of this ASU, including the subsequently issued codification improvements update ("Codification Improvements
to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,"
ASU 2019-04) and the targeted transition relief update ("Financial Instruments-Credit Losses (Topic 326)," ASU 2019-05), will have
a significant impact on the consolidated financial statements due to the nature of the Company's customers and the limited amount
of write-offs in past years.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement.” This update is a part of FASB’s disclosure framework project to improve
the effectiveness of disclosures in the notes to financial statements. The amendments in this update remove, modify, and add certain
43
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
disclosure requirements within Topic 820. This standard is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. Early adoption is permitted upon issuance of this update and an entity is permitted to early
adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until the
effective date. Certain disclosure amendments are to be applied prospectively for only the most recent interim or annual period
presented, while other amendments are to be applied retrospectively to all periods presented. The Company does not believe that
the adoption of this ASU will have a significant impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic
715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This update is a part of
FASB’s disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. The
amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other
postretirement plans. This standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted.
Upon adoption, this update is to be applied on a retrospective basis to all periods presented. The Company does not believe that
the adoption of this ASU will have a significant impact on its consolidated financial statements.
NOTE 3 - REVENUE
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by end-user markets for the years ended December 28, 2019, December
29, 2018, and December 30, 2017:
Residential floorcovering products
Commercial floorcovering products
Other services
Total net sales
2019
2018
2017
$
$
268,186
$
289,129
$
103,286
3,110
113,971
1,933
279,038
131,372
2,052
374,582
$
405,033
$
412,462
Residential floorcovering products. Residential floorcovering products include broadloom carpet, rugs, luxury vinyl flooring and
engineered hardwood. These products are sold into the designer, retailer, mass merchant and builder markets.
Commercial floorcovering products. Commercial floorcovering products include broadloom carpet, carpet tile, rugs, and luxury vinyl
flooring. These products are sold into the corporate, hospitality, healthcare, government, and education markets through the use
of designers and architects.
Other services. Other services include carpet yarn processing and carpet dyeing services.
Contract Balances
The Company often receives cash payments from customers in advance of the Company’s performance for limited production run
orders resulting in contract liabilities. These contract liabilities are classified in accrued expenses in the Consolidated Balance Sheets
based on the timing of when the Company expects to recognize revenue, which is typically less than a year. The net decrease or
increase in the contract liabilities is primarily driven by order activity for limited runs requiring deposits offset by the recognition of
revenue and application of deposit on the receivables ledger for such activity during the period. The activity in the advanced deposits
for the year ended December 28, 2019, December 29, 2018, and December 30, 2017 is as follows:
Beginning contract liability
Revenue recognized from contract liabilities included in the beginning
balance
Increases due to cash received, net of amounts recognized in revenue
during the period
Ending contract liability
2019
2018
2017
$
$
6,013
$
5,717
$
8,212
(5,873)
(5,717)
(7,820)
4,545
6,013
4,685
$
6,013
$
5,325
5,717
44
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 4 - RECEIVABLES, NET
Receivables are summarized as follows:
Customers, trade
Other receivables
Gross receivables
Less: allowance for doubtful accounts
Receivables, net
Bad debt expense was $240 in 2019, $163 in 2018, and $70 in 2017.
NOTE 5 - INVENTORIES, NET
Inventories are summarized as follows:
Raw materials
Work-in-process
Finished goods
Supplies and other
LIFO reserve
Inventories, net
2019
2018
$
$
34,285
$
3,115
37,400
(262)
37,138
$
40,121
2,595
42,716
(174)
42,542
2019
2018
$
32,377
$
18,642
64,978
260
(20,748)
$
95,509
$
36,875
20,274
67,085
190
(19,229)
105,195
In March 2019, the Company incurred an inventory liquidation due to a consignment agreement with a primary vendor of raw
materials. The former inventory levels are not expected to be reinstated. The Company recognized the effect within 2019 which
resulted in liquidations of LIFO inventories carried at prevailing costs established in prior years and reduced cost of sales by $281.
NOTE 6 - 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
2019
2018
$
3,422
$
51,432
179,993
1,459
236,306
(170,864)
8,528
63,389
183,900
2,675
258,492
(174,381)
$
65,442
$
84,111
Depreciation of property, plant and equipment, including amounts for finance leases, totaled $11,219 in 2019, $12,141 in 2018 and
$12,436 in 2017.
45
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amount of goodwill is $0 as of December 28, 2019 and December 29, 2018, respectively. The Company performed
its annual assessment of goodwill in the fourth quarters of 2018 and 2017 with no impairment indicated in 2017. At the end of 2018,
it was determined that the carrying value was greater than calculated fair value. Also at the end of 2018, the intangibles were
determined to not be recoverable based on revised projections. Impairment costs incurred are classified as "impairment of assets"
in the Company's Consolidated Statements of Operations.
The following table represents the details of the Company's intangible assets that were subject to amortization during 2018:
Customer relationships
Rug design coding
Trade names
Total
Amortization expense for intangible assets is summarized as follows:
Customer relationships
Rug design coding
Trade names
Amortization expense
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
2018
Gross
Accumulated
Amortization
Impairment
Net
$ 208
$
(96) $
(112) $
144
3,300
(86)
(1,314)
(58)
(1,986)
$3,652
$
(1,496) $
(2,156) $
2019
2018
2017
$
$
— $
—
—
— $
16
14
275
305
$
$
—
—
—
—
16
15
275
306
2019
2018
$
8,804
$
7,682
4,685
—
4,247
8,186
9,300
6,013
3,141
4,212
$
25,418
$
30,852
(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 $2,744.
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 Balance Sheets. 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
Notes payable - equipment and other
Finance lease - buildings
Finance lease obligations
Deferred financing costs, net
Total long-term debt
Less: current portion of long-term debt
Long-term debt
Revolving Credit Facility
2019
2018
$
$
1,069
$
1,667
(1,695)
(39)
1,002
$
1,173
2,341
(2,380)
(65)
1,069
2019
2018
$
59,693
$
6,213
3,533
11,296
8,187
(571)
88,351
6,684
99,219
11,688
5,528
—
12,096
(486)
128,045
7,794
$
81,667
$
120,251
During the fourth quarter, the Company amended its credit agreement with Wells Fargo Capital Finance to reduce the size of the
Senior Credit Facility from $150,000 to $120,000 and adjust the availability limitation related to the fixed coverage ratio from $16,500
to $15,000 upon closing of the sale lease back of the Susan Street property. The changes to the credit facility were implemented
by the twelfth and thirteenth amendments to the credit agreement, effective October 3, 2019 and October 22, 2019, respectively.
These amendments were intended to permit the sale and leaseback of the Company's Susan Street Facility and, upon completion
of the sale, to adjust the credit agreement's borrowing base. 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 matures on September 23, 2021. 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. As of December 28, 2019, 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 4.79% at December 28, 2019 and 4.58% at December 29, 2018.
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 restricts the Company's borrowing availability if its fixed charge coverage ratio
is less than 1.1 to 1.0. During any period that the fixed charge coverage ratio is less than 1.1 to 1.0, the Company's borrowing
availability is reduced by $15,000. As part of Amendment Thirteen to the credit agreement an additional availability block of $5,000
was established to be reduced upon reaching a specially defined fixed charge coverage ratio of 1.1 to 1.0 for a consecutive period
of 3 months or 6 months. Contingent upon reaching the desired fixed coverage ratio, the availability block will reduce to $2,500
when the three-month threshold is reached and $0 once reaching the six-month threshold. Amendment Thirteen also adjusted the
size of the restricted borrowing availability that is triggered when the fixed charge coverage ratio is less than 1.1 to 1.0.
47
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
As of December 28, 2019, the unused borrowing availability under the revolving credit facility was $33,787; 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 $18,787
(the amount above $15,000) at December 28, 2019. Availability under the credit agreement will vary based on seasonal business
factors and periodic changes to the qualified asset base, which consists of accounts receivable, inventories and fixed assets.
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
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%.
Notes Payable - Equipment and Other
The Company's equipment financing notes have terms ranging from 1 to 7 years, bear interest ranging from 1.00% to 7.68% and
are due in monthly 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.
Finance Lease - Buildings
On January 14, 2019, the Company, entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with
Saraland Industrial, LLC, an Alabama limited liability company (the “Purchaser”). Pursuant to the terms of the Purchase and Sale
Agreement, the Company sold its Saraland facility, and approximately 17.12 acres of surrounding property located in Saraland,
Alabama (the “Property”) to the Purchaser for a purchase price of $11,500. Concurrent with the sale of the Property, the Company
and the Purchaser entered into a twenty-year lease agreement (the “Lease Agreement”), whereby the Company will lease back
the Property at an annual rental rate of $977, subject to annual rent increases of 1.25%. Under the Lease Agreement, the Company
has two (2) consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded
as a failed sale and leaseback as the present value of lease payments exceeded 90% of its fair value. The Company recorded a
liability for the amounts received, will continue to depreciate the asset, and has imputed an interest rate so that the net carrying
amount of the financial liability and remaining assets will be zero at the end of the lease term. Concurrently with the sale, the
Company paid off the approximately $5,000 mortgage on the property to First Tennessee Bank National Association and terminated
the related fixed interest rate swap agreement.
Finance Lease Obligations
The Company's capitalized lease obligations have terms ranging from 3 to 7 years, bear interest ranging from 3.55% to 7.76% 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
Cash paid for interest for continuing operations was $6,303 in 2019, $6,290 in 2018, and $5,373 in 2017. These amounts include
cash paid for financing leases of $1,378 in 2019, $791 in 2018, and $611 in 2017. Maturities of long-term debt for periods following
December 28, 2019 are as follows:
2020
2021
2022
2023
2024
Thereafter
Total maturities of long-term debt
Deferred financing costs, net
Total long-term debt
Long-Term
Debt
Finance Leases
(See Note 11)
Total
2,673
$
61,116
687
416
382
4,165
69,439
$
(571)
4,011
$
3,392
1,209
535
322
10,014
19,483
$
—
68,868
$
19,483
$
6,684
64,508
1,896
951
704
14,179
88,922
(571)
88,351
$
$
$
48
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 11 - LEASES
Balance sheet information related to right-of-use assets and liabilities is as follows:
Balance Sheet Location
December 28, 2019
Operating Leases:
Operating lease right-of-use assets
Operating lease right-of-use assets
Current portion of operating lease liabilities
Current portion of operating lease liabilities
Noncurrent portion of operating lease liabilities
Operating lease liabilities
Total operating lease liabilities
Finance Leases:
Finance lease right-of-use assets
Property, plant, and equipment, net
Current portion of finance lease liabilities
Current portion of long-term debt
Noncurrent portion of finance lease liabilities
Long-term debt
Lease cost recognized in the consolidated financial statements is summarized as follows:
Operating lease cost
Finance lease cost:
Amortization of lease assets
Interest on lease liabilities
Total finance lease costs
Other supplemental information related to leases is summarized as follows:
Weighted average remaining lease term (in years):
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
Cash paid for amounts included in the measurement of lease liabilities for
the twelve months ended December 28, 2019:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
49
$
$
$
$
$
$
24,835
3,172
22,123
25,295
15,152
4,011
15,472
19,483
December 28, 2019
3,528
3,000
1,378
4,378
December 28, 2019
8.42
12.03
6.98%
6.72%
3,518
1,378
4,166
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
The following table summarizes the Company's undiscounted future minimum lease payments under non-cancellable contractual
obligations for operating and financing liabilities as of December 28, 2019:
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments (undiscounted)
Less: Present value discount
Total lease liability
Operating Leases
Finance Leases
4,833
4,455
4,062
3,190
2,883
14,465
33,888
(8,593)
25,295
5,207
4,347
2,015
1,283
1,042
16,041
29,935
(10,452)
19,483
On October 22, 2019, the Company sold its Susan Street facility in Santa Ana, California to CenterPoint Properties Trust. The sale
price was $37,195. The gain on the sale transaction was $25,121. The transaction was accounted for as a successful sale-leaseback.
Concurrent with the sale of the Susan Street facility, the Company (by a wholly-owned subsidiary) entered into an operating lease
to lease back the property for a term of 10 years with two 5 year renewal options. The initial annual rental is $2,083 increasing at
2% per year for the term of the lease. The lease requires the landlord to make certain required capital improvements, at no further
rental increase or charge to the Company. The Company is responsible for normal maintenance of the building and facilities. The
company concurrently executed a lease guaranty, pursuant to which it guaranteed the prompt payment when due of all rent payments
to be made under the lease agreement.
Commitments for minimum rentals under non-cancelable leases, including any applicable rent escalation clauses, were as follows
under Topic 840 for 2018:
2019
2020
2021
2022
2023
Thereafter
Total commitments
Less amounts representing interest
Total
Capital
Leases
Operating
Leases
$
4,590
$
4,205
3,333
989
244
—
13,361
(1,265)
$
12,096
$
3,002
2,533
2,121
1,667
882
3,155
13,360
—
13,360
Rental expense was approximately $4,453 and $3,687 during 2018 and 2017, respectively.
NOTE 12 - 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
50
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires significant
management judgment or estimation.
The following table reflects the fair values of assets and liabilities measured and recognized at fair value on a recurring basis on
the Company's Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018:
Assets:
Interest rate swaps (1)
Liabilities:
Interest rate swaps (1)
2019
2018
Fair Value
Hierarchy Level
— $
36
Level 2
1,653
$
1,008
Level 2
$
$
(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.
Changes in the fair value measurements using significant unobservable inputs (Level 3) during the years ending December 28,
2019 and December 29, 2018 were as follows:
Beginning balance
Fair value adjustments
Settlements
Ending balance
2019
2018
$
$
— $
—
—
— $
25
1
(26)
—
There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during 2019 or 2018. If any, the Company
recognizes the transfers in or transfers out at the end of the reporting period.
The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
Financial assets:
Cash and cash equivalents
Notes receivable, including current portion
Interest rate swaps
Financial liabilities:
Long-term debt, including current portion
Finance leases, including current portion
Operating leases, including current portion
Interest rate swaps
2019
2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
769
$
769
$
18
$
—
—
68,868
19,483
25,295
1,653
—
—
72,115
20,361
25,295
1,653
282
36
115,949
12,096
—
1,008
18
282
36
112,519
11,723
—
1,008
The fair values of the Company's long-term debt and finance 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.
51
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 13 - DERIVATIVES
The Company's earnings, cash flows and financial position are exposed to market risks relating to interest rates. It is the Company's
policy to minimize its exposure to adverse changes in interest rates and manage interest rate risks inherent in funding the Company
with debt. The Company addresses this risk by maintaining a mix of fixed and floating rate debt and entering into interest rate swaps
for a portion of its variable rate debt to minimize interest rate volatility.
The following is a summary of the Company's interest rate swaps as of December 28, 2019:
Type
Interest rate swap
Interest rate swap
Interest rate swap
$
$
$
Notional
Amount
25,000
25,000
Effective Date
September 1, 2016 through September 1, 2021
Fixed
Rate
3.105%
Variable Rate
1 Month LIBOR
September 1, 2015 through September 1, 2021
3.304%
1 Month LIBOR
6,213 (1) November 7, 2014 through November 7, 2024
4.500%
1 Month LIBOR
(1) Interest rate swap notional amount amortizes by $35 monthly to maturity.
The following table summarizes the fair values of derivative instruments included in the Company's Consolidated Balance Sheets:
Location on Consolidated Balance
Sheets
Fair Value
2019
2018
Asset Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps - current portion
Prepaids and other current assets
Interest rate swaps - long-term portion
Other Assets
Total Asset Derivatives
Liability Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps, current portion
Accrued Expenses
Interest rate swaps, long-term portion
Other Long-Term Liabilities
Total Liability Derivatives
$
$
$
$
— $
—
— $
14
22
36
841
812
1,653
$
$
335
673
1,008
The following tables summarize the pre-tax impact of derivative instruments on the Company's consolidated financial statements:
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps
$
(1,109) $
531
$
180
Amount of Gain or (Loss) Recognized in AOCIL on the
effective portion of the Derivative
2019
2018
2017
Amount of Gain or (Loss) Reclassified from AOCIL on
the effective portion into Income (1)(2)
2019
2018
2017
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps
$
(454) $
(673) $
(1,250)
(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 2019 is $841.
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.
52
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 14 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers a significant portion, or approximately 85% 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 $418 in 2019, $448 in 2018 and $484 in 2017.
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 15% 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 $143 in 2019, $123 in 2018 and $125 in 2017.
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 $16,203 at December 28, 2019 and $13,943 at
December 29, 2018 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 $16,500 at December 28, 2019 and $13,822 at December 29, 2018 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 15% 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 2019 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 2019 and 2018 is for the plan's year-end at 2018 and 2017, respectively. The zone
status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors,
plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded and plans in the green
zone are at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates a plan for which a financial improvement
plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the
collective-bargaining agreement to which the plan is subject.
Pension Fund
EIN/Pension Plan
Number
Pension
Protection Act
Zone Status
2019
2018
FIP/RP Status
Pending/
Implemented
(1)
Contributions (2)
2019
2018
2017
Surcharge
Imposed
(1)
Expiration
Date of
Collective-
Bargaining
Agreement
The Pension Plan of the
National Retirement Fund
13-6130178 - 001 Red
Red
Implemented $ 335 $ 320 $ 313
Yes
6/4/2022
(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, a surcharge equal to $0.02 per hour (from $0.53 to $0.55) effective June 1, 2016
to May 31, 2017, a surcharge equal to $0.03 per hour (from $0.55 to $0.58) effective June 1, 2017 to May 31, 2018, a surcharge equal to $0.02
per hour (from $0.58 to $0.60) effective June 1, 2018 to May 31, 2019, and a surcharge equal to $0.03 per hour (from $0.60 to $0.63) effective
June 1, 2019 to May 31, 2020. Based upon current employment and benefit levels, the Company's contributions to the multi-employer pension
plan are expected to be approximately $342 for 2020.
53
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
(2) The Company's contributions to the plan do not represent more than 5% of the total contributions to the plan for the most recent plan year
available.
Postretirement Plans
The Company sponsors a postretirement benefit plan that provides 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 plan is summarized as follows:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Benefits paid
Fair value of plan assets at end of year
2019
2018
$
331
$
7
17
6
(1)
360
—
1
(1)
—
325
8
17
(18)
(1)
331
—
1
(1)
—
Unfunded amount
$
(360) $
(331)
The balance sheet classification of the Company's liability for the postretirement benefit plan is summarized as follows:
Accrued expenses
Other long-term liabilities
Total liability
2019
2018
$
$
16
$
344
360
$
15
316
331
Benefits expected to be paid on behalf of associates for the postretirement benefit plan during the period 2020 through 2029 are
summarized as follows:
Years
2020
2021
2022
2023
2024
2025 - 2029
Postretirement
Plan
$
16
15
15
14
14
75
Assumptions used to determine the benefit obligation of the Company's postretirement benefit plan are summarized as follows:
Weighted-average assumptions as of year-end:
Discount rate (benefit obligation)
54
2019
2018
3.50%
4.00%
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
Components of net periodic benefit cost (credit) for the postretirement plan are summarized as follows:
Service cost
Interest cost
Amortization of prior service credits
Recognized net actuarial gains
Net periodic benefit cost (credit)
2019
2018
2017
$
$
$
7
17
(3)
(27)
$
8
17
(4)
(28)
(6) $
(7) $
7
16
(4)
(30)
(11)
Pre-tax amounts included in AOCIL for the Company's postretirement benefit plan at 2019 are summarized as follows:
Prior service credits
Unrecognized actuarial gains
Totals
NOTE 15 - INCOME TAXES
Postretirement Benefit Plan
Balance at 2019
2020 Expected
Amortization
$
$
— $
(339)
(339) $
(3)
(27)
(30)
The provision (benefit) for income taxes on income (loss) from continuing operations consists of the following:
2019
2018
2017
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
$
(287) $
107
(180)
(385)
(92)
(477)
(178) $
(116)
(294)
(434)
(103)
(537)
Income tax provision (benefit)
$
(657) $
(831) $
278
(950)
(672)
7,535
646
8,181
7,509
55
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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
Executive compensation limitation
Federal tax credits
Reserve for uncertain tax positions
Change in valuation allowance
Tax reform
Stock-based compensation
Other items
Income tax provision (benefit)
2019
2018
2017
21%
21%
35%
$
3,142
$
(4,685)
$
12
3,154
77
—
(545)
39
(3,400)
—
86
(68)
$
(657)
$
(173)
(4,858)
90
258
(286)
27
3,990
—
82
(134)
(831)
$
(635)
(198)
(833)
161
—
(200)
8
6,470
1,749
146
8
7,509
On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered
the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The Company substantially completed its provisional
analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects during the fourth quarter of
2017. Pursuant to Staff Accounting Bulletin No. 118, the Company has completed its analysis and all adjustments have been included
in income from continuing operations as an adjustment to income tax expense.
The income tax benefit for the twelve months ended December 28, 2019 was $657 compared with an income tax benefit of $831
for the twelve months ended December 29, 2018. During the fourth quarter of 2017, the Company recorded a full valuation allowance
against the deferred tax assets resulting in only refundable credits, a small amount of state taxes, and benefits for the reduction of
certain indefinite lived assets not covered by the Company's valuation allowance being recognized in the tax benefit for 2018 and
2019. The Company is in a net deferred tax liability position of $91 and $568 at December 28, 2019 and December 29, 2018,
respectively. These amounts are included in other long-term liabilities in the Company's Consolidated Balance Sheets.
The income tax expense for 2017 was $7,509, which included a charge of $1,749 related to the re-measurement of certain net
deferred tax assets using the lower U.S. corporate income tax rate and a charge of $6,420 to increase the Company's valuation
allowance related to its net deferred tax asset. The majority of the increase in the valuation allowance was related to the revised
treatment of net operating losses under the Tax Act. Absent the impact of the Tax Act, the effective income tax benefit rate for 2017
would have been 36.4%.
Income tax payments, net of (income tax refunds) received for continuing and discontinued operations were $128 in 2019, $20 in
2018 and $44 in 2017.
56
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:
2019
2018
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
$
3,336
$
1,394
3,362
715
1,688
4,282
1,978
4,039
20,794
(13,264)
7,530
7,621
7,621
4,128
1,718
4,142
4,560
1,688
3,721
2,199
5,646
27,802
(16,993)
10,809
11,377
11,377
Net deferred tax liability
$
(91) $
(568)
At December 28, 2019, $715 of deferred tax assets related to approximately $3,404 of federal net operating loss carryforwards and
$3,362 of deferred tax assets related to approximately $63,244 of state net operating loss carryforwards. In addition, $4,282 of
federal tax credit carryforwards and $1,688 of state tax credit carryforwards were available to the Company. The federal tax credit
carryforwards will expire between 2029 and 2040. The federal net operating loss carryforwards generated in 2018 have no expiration.
The state net operating loss carryforwards and the state tax credit carryforwards will expire between 2019 and 2040. A valuation
allowance of $13,264 is recorded to reflect the estimated amount of deferred tax assets that may not be realized during the
carryforward periods. At December 28, 2019, the Company is in a net deferred tax liability position of $91 which is included in other
long-term liabilities in the Company's Consolidated Balance Sheets.
Tax Uncertainties
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions.
Unrecognized tax benefits were $480 at December 28, 2019, $441 at December 29, 2018, and $414 at December 30, 2017. Such
benefits, if recognized, would affect the Company's effective tax rate. There were no significant interest or penalties accrued as of
December 28, 2019, December 29, 2018, or December 30, 2017.
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
$
$
2019
2018
2017
441
$
414
$
39
—
27
—
480
$
441
$
406
8
—
414
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 2015 remain open to examination for U.S. federal income taxes. The majority of state
jurisdictions remain open for tax years subsequent to 2015. A few state jurisdictions remain open to examination for tax years
subsequent to 2014.
57
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 16 - COMMON STOCK AND EARNINGS (LOSS) PER SHARE
Common & Preferred Stock
The Company's charter authorizes 80,000,000 shares of Common Stock with a $3 par value per share and 16,000,000 shares of
Class B Common Stock with a $3 par value per share. Holders of Class B Common Stock have the right to twenty votes per share
on matters that are submitted to Shareholders for approval and to dividends in an amount not greater than dividends declared and
paid on Common Stock. Class B Common Stock is restricted as to transferability and may be converted into Common Stock on a
one share for one share basis. The Company's charter also authorizes 200,000,000 shares of Class C Common Stock, $3 par
value per share, and 16,000,000 shares of Preferred Stock. No shares of Class C Common Stock or Preferred Stock have been
issued.
Earnings (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)
$
$
$
$
$
2019
2018
2017
15,619
$
(21,479) $
(9,322)
(468)
—
—
15,151
15,822
0.96
$
$
(21,479) $
15,764
(1.36) $
(9,322)
15,699
(0.59)
15,151
$
(21,479) $
(9,322)
3
—
—
15,154
$
(21,479) $
15,822
15,764
—
104
15,926
—
—
15,764
(9,322)
15,699
—
—
15,699
(0.59)
Diluted earnings (loss) per share - continuing operations
$
0.95
$
(1.36) $
(1)
Includes Common and Class B Common shares, excluding 461, 570, and 434 unvested participating securities, in thousands, for 2019, 2018,
and 2017, respectively.
(2) 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 to the extent they are anti-dilutive. Aggregate shares
excluded were 166 in 2019, 422 in 2018 and 448 in 2017.
NOTE 17 - 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 Statements of
Operations. The number of shares to be issued is determined by dividing the specified dollar value of the award by the market value
58
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
per share on the grant date. The Company's stock compensation expense (credit) was $483 in 2019, $(29) in 2018 and $940 in
2017. The credit in 2018 is related to the reversal of stock compensation that did not vest.
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 three years. For participants over age 60, Career Shares awards fully vest when the participant
becomes (i) qualified to retire from the Company and (ii) has retained such shares two years following the grant date. For the
participants under age 60, Career Shares vest ratably over five years beginning on the participant's 61st birthday.
On March 12, 2018, the Company granted 297,292 shares of restricted stock to certain key employees. The grant-date fair value
of the awards was $832, or $2.80 per share, and will be recognized as stock compensation expense over a weighted-average
period of 6.1 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 July 30, 2018, the Company granted 10,000 shares of restricted stock to an employee. The grant-date fair value of the award
was $20, or $2.00 per share and will be recognized as stock compensation over a three-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.
On March 10, 2017, the Company granted 40,000 shares of restricted stock to certain key employees. The grant-date fair value of
the awards was $140, or $3.50 per share, and will be recognized as stock compensation expense over a three-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.
On September 1, 2017, the Company granted 10,000 shares of restricted stock to a key employee. The grant-date fair value of the
award was $42, or $4.15 per share, and will be recognized as stock compensation expense over a three-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.
On September 18, 2017, the Company granted 10,000 shares of restricted stock to a key employee. The grant-date fair value of
the award was $41, or $4.05 per share, and will be recognized as stock compensation expense over a three-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.
59
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 28, 2019 is summarized as follows:
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 30, 2017
Granted
Vested
Forfeited
Outstanding at December 29, 2018
Vested
Forfeited
Outstanding at December 28, 2019
Number of Shares
457,378
$
60,000
(78,908)
(4,629)
433,841
307,292
(64,939)
(106,196)
569,998
(90,791)
(17,784)
461,423
$
Weighted-
Average Grant-
Date Fair Value
7.41
3.70
8.79
5.96
6.66
2.77
6.58
9.51
4.04
2.83
3.48
4.30
As of December 28, 2019, unrecognized compensation cost related to unvested restricted stock was $989. That cost is expected
to be recognized over a weighted-average period of 8.6 years. The total fair value of shares vested was approximately $94, $173
and $276 during 2019, 2018 and 2017, 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). 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 28, 2019, 112,320 Stock
Performance Units were outstanding under this plan. As of December 28, 2019, unrecognized compensation cost related to Stock
Performance Units was $5. 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 and the 2016 Plan were exercisable for periods determined at the time the awards
are granted. Effective 2009, the Company established a $5.00 minimum price for calculating the number of options to be granted.
On May 30, 2017, the Company granted 203,000 options with a market condition to certain key employees of the Company at a
weighted-average exercise price of $4.30. The grant-date fair value of these options was $306. These options vest over a two-year
period and require the Company's stock to trade at or above $7.00 for five consecutive trading days after the two-year period and
within five years of issuance to meet the market condition.
The fair value of each option was estimated on the date of grant using a lattice model. Expected volatility was based on historical
volatility of the Company's stock, 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 lives of options.
The following weighted-average assumptions were used to estimate the fair value of stock options granted:
Expected Volatility
Risk-free interest rate
Dividend yield
Expected life of options (yrs)
2019 (1)
2018 (1)
2017
—%
—%
—%
0
—%
—%
—%
0
47.80%
1.79%
—%
5
(1) No options were granted during the years ended December 28, 2019 and December 29, 2018.
60
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 28, 2019 is summarized as follows:
Number of Shares
Weighted-
Average Exercise
Price
Weighted-Average
Remaining
Contractual Life
(in years)
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
103,500
$
203,000
—
—
Outstanding at December 30, 2017
306,500
Granted
Exercised
Forfeited
Outstanding at December 29, 2018
Granted
Exercised
Forfeited
Outstanding at December 28, 2019
Options exercisable at:
December 30, 2017
December 29, 2018
December 28, 2019
—
—
(8,000)
298,500
—
—
(132,500)
166,000
103,500
$
103,500
166,000
5.00
4.30
—
—
4.54
—
—
4.17
4.55
—
—
4.82
4.33
5.00
5.00
4.33
Weighted-
Average Fair
Value of Options
Granted During
the Year
$
—
1.51
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.40
$
2.40
At December 28, 2019, 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 2019, 2018 and 2017 was $0, $0 and $0, respectively. At December 28, 2019,
there was no unrecognized compensation expense related to unvested stock options.
61
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
NOTE 18 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Components of accumulated other comprehensive income (loss), net of tax, are as follows:
Balance at December 31, 2016
Unrealized gain on interest rate swaps, net of tax of $68
Reclassification of loss into earnings from interest rate swaps, net of tax of $475
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of $4
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $11
Reclassification of prior service credits into earnings from postretirement benefit
plans, net of tax of $1
Reclassification of stranded tax effects
Balance at December 30, 2017
Unrealized gain on interest rate swaps, net of tax of $0
Reclassification of loss into earnings from interest rate swaps, net of tax of $0
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of $0
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $0
Reclassification of prior service credits into earnings from postretirement benefit
plans, net of tax of $0
Balance at December 29, 2018
Unrealized gain on interest rate swaps, net of tax of $0
Reclassification of loss into earnings from interest rate swaps, net of tax of $10
Unrecognized net actuarial gain on postretirement benefit plans, net of tax of $0
Reclassification of net actuarial gain into earnings from postretirement benefit
plans, net of tax of $0
Reclassification of prior service credits into earnings from postretirement benefit
plans, net of tax of $0
Interest
Rate Swaps
Post-
Retirement
Liabilities
Total
(2,216)
256
(1,960)
112
775
—
—
—
(258)
(1,587)
531
673
—
—
—
(383)
(1,109)
444
—
—
—
—
—
7
(19)
(3)
47
288
—
—
18
(27)
(4)
275
—
—
(6)
(27)
(2)
112
775
7
(19)
(3)
(211)
(1,299)
531
673
18
(27)
(4)
(108)
(1,109)
444
(6)
(27)
(2)
(808)
Balance at December 28, 2019
$
(1,048) $
240
$
NOTE 19 - COMMITMENTS AND CONTINGENCIES
Commitments
The Company had purchase commitments of $2,380 at December 28, 2019, 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 $431 in 2019, $428 in 2018 and $640 in 2017. At December 28, 2019, the Company has
commitments to purchase natural gas of $72 for 2020.
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
62
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
changed from the previous estimate, an adjustment to the liability would be recorded in the period in which such determination is
made. (See Note 22).
Legal Proceedings
The Company has been sued, together with 3M Company and approximately 30 other named defendants and unnamed "fictitious
defendants" including various carpet manufacturers and suppliers, in four lawsuits whereby the plaintiffs seek monetary damages
and injunctive relief related to the manufacture, supply, and/or use of certain chemical products in the manufacture, finishing, and
treatment of carpet products in the Dalton, Georgia area. These chemical products allegedly include without limitation perflourinated
compounds ("PFC") such as perflourinated acid ("PFOA") and perfluorooctane sulfonate ("PFOS"). In each lawsuit, the plaintiff(s)
alleges that, as a consequence of these actions, these chemical compounds discharge or leach into the water systems around
Dalton and then flow into the waters in or near the water bodies from which the plaintiff(s) draw for drinking water.
Two of these lawsuits were filed in Alabama. The first lawsuit in Alabama was filed on September 22, 2016 by The Water Works
and Sewer Board of the City of Gadsden (Alabama) in the Circuit Court of Etowah County, Alabama (styled The Water Works and
Sewer Board of the City of Gadsden v. 3A1 Company, et al., Civil Action No. 31-CV-2016-900676.00). The second lawsuit in
Alabama was filed on May 15, 2017 by The Water Works and Sewer Board of the Town of Centre (Alabama) in the Circuit Comi
of Cherokee County, Alabama (styled The Water Works and Sewer Board of the Town of Centre v. 3M Company, et al., Civil Action
No. 13-CV- 2017-900049.00). In each of these Alabama lawsuits, the plaintiff seeks damages that include but are not limited to
the expenses associated with the future installation and operation of a filtration system capable of removing from the water the
chemicals that are allegedly present as a result of the manufacturing and treatment process described above. Each plaintiff requests
a jury trial, does not specify an amount of damages other than an assertion that its damages exceed $10, and requests injunctive
relief. The Company has answered the complaint in each of these lawsuits, intends to defend those matters vigorously, and is
unable to estimate its potential exposure to loss, if any, for these lawsuits at this time.
The other two lawsuits were filed in Georgia. The first lawsuit in Georgia was filed on November 19, 2019 by the City of Rome
(Georgia) in the Superior Court of Floyd County, Georgia (styled The City of Rome, Georgia v. 3A1 Company, et al., No.
19CV02405JFL003). The plaintiff in that case also seeks damages that include without limitation the expenses associated with
the future installation and operation of a filtration system capable of removing from the water the chemicals that are allegedly
present as a result of the manufacturing and treatment process described above. The plaintiff requests a jury trial and also seeks
injunctive relief. While the amount of damages is unspecified, the plaintiff asserts it has spent "tens of millions" to remove the
chemicals from the county's water supply and will incur additional costs related to removing such chemicals in the future. The
Company has answered the complaint, intends to defend the matter vigorously, and is unable to estimate its potential exposure
to loss, if any, at this time.
The second lawsuit in Georgia was filed on November 26, 2019 and is presented as a class action lawsuit by and on behalf of a
class of persons who obtain drinking water from the City of Rome, Georgia and the Floyd County Water Department (and similarly
situated persons) (generally, for these purposes, residents of Floyd County) (styled Jarrod Johnson v. 3M Company, et al., Civil
Action No. 19-CV-02448-JFL-003) (the "Class Action Lawsuit"). The plaintiffs in this case allege their damages include without
limitation the surcharges incurred for the costs of partially filtering the chemicals from their drinking water. The Complaint requests
a jury trial and asserts damages unspecified in amount, in addition to requests for injunctive relief.
The Canyons Grand Summit Resort Hotel Owner's Association, Inc. has filed a lawsuit against the Company in the state of Utah
(styled The Canyons Grand Summit Resort Hotel Owners Association, Inc. v. The Dixie Group Inc. dba Masland Contract Carpet,
in the Third District Court, State of Utah, Summit County, Silver Summit Department, Civil No. 190500139) regarding a large
quantity of carpet purchased for a hotel. The claim asserts that the Company manufactured and delivered carpet that did not meet
the proper specifications. The plaintiff seeks damages "in an amount not less than $500" and does not request a jury trial. The
Company has answered the complaint, intends to defend the matter vigorously, and is unable to estimate its potential exposure
to loss, if any, at this time.
On November 16, 2018 the Superior Court of the State of California granted preliminary approval of a class action settlement in
the matter of Carlos Garcia v. Fabrica International, Inc. et al Orange County Superior Court Case No. 30-2017-00949461-CU-
OE-CXC. The court further approved the procedures for Settlement Class Members to opt-out of or object to the Settlement. The
terms of the settlement provide that Fabrica, a wholly owned subsidiary of the Company, has agreed to pay $1,514 (the “Gross
Settlement Amount”) to fully resolve all claims in the Lawsuit, including payments to Settlement Class Members, Class Counsel’s
attorneys’ fees and expenses, settlement administration costs, and the Class Representative’s Service Award. The amount of the
proposed settlement was recorded during the quarter ended June 30, 2018. The deadline for class members to opt-out was
February 1, 2019. The deadline for the plaintiff to file a motion for final approval of the class action settlement was March 29,
2019. The final fairness hearing took place on April 12, 2019 with final approval being granted. The payment of the settlement
occurred in October, 2019.
63
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
The Company is one of multiple parties to three lawsuits filed in Madison County Illinois, 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, styled Charles Anderson, Pltf., vs. 3M Company, et al, No. 17-L-525 and styled Danny
Atkins and Pamela Atkins, Pltfs., vs. Aurora Pump Company, et al. No. 18-L-2. All three lawsuits entail a claim for damages to be
determined in excess of $50 filed on behalf of either a former employee or 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 each matter
is ongoing, and a tentative trial date has been set for one of the cases. 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. In August of 2017, the lawsuit 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 was placed in the category of "special closed with settlements and bankruptcy claims
pending" to all remaining defendants. In March 2018, the lawsuit styled Charles Anderson, Individually and as Special Administrator
of the Estate of Charles Anderson, Deceased vs. 3M Company, et al, No. 17-L-525 was dismissed without prejudice. In October
2018, the lawsuit styled Danny Atkins and Pamela Atkins, Pltfs., vs. Aurora Pump Company, et al. No. 18-L-2 was dismissed
without prejudice.
See Note 21 under the Notes to Consolidated Financial Statements for discussion of a series of workers compensation claims
filed related to the closure of manufacturing facilities in California.
NOTE 20 - OTHER (INCOME) EXPENSE, NET
Other operating expense, net is summarized as follows:
Other operating expense, net:
(Gain) loss on property, plant and equipment disposals
$
353
$
(1,047) $
2019
2018
2017
Gain on sale of building
(Gain) loss on currency exchanges
Amortization of intangibles
Retirement expenses
Miscellaneous (income) expense
Other operating expense, net
Other (income) expense, net is summarized as follows:
Other (income) expense, net:
Interest Income
Post-retirement income
Miscellaneous (income) expense
Other (income) expense, net
(25,121)
41
—
72
667
—
126
305
64
1,010
$
(23,988) $
458
$
2019
2018
2017
$
$
(49) $
(14)
6
(57) $
— $
(15)
18
3
$
170
—
(72)
306
155
(118)
441
—
(18)
39
21
NOTE 21 - FACILITY CONSOLIDATION AND SEVERANCE EXPENSES, NET
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.
2017 Profit Improvement Plan
During the fourth quarter of 2017, the Company announced a Profit Improvement Plan to improve profitability through lower cost
and streamlined decision making and aligning processes to maximize efficiency. The plan included consolidating the management
of the Company's two commercial brands, Atlas Carpet Mills and Masland Contract, under one management team, sharing operations
64
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
in sales, marketing, product development and manufacturing. Specific to this plan, the Company is focusing nearly all commercial
solution dyed make-to-order production in its Atmore, Alabama operations where the Company has developed such make-to-order
capabilities over the last 5 years. Further, the Company aligned its west coast production facilities, better utilizing its west coast
real estate by moving production to its Santa Ana, California and Atmore, Alabama operations to more efficiently distribute its west
coast products. Furthermore, the Company re-configured its east coast distribution facilities to provide more efficient distribution of
its products. In addition, the Company realized reductions in related support functions such as accounting and information services.
The plan is now substantially complete.
Costs related to the facility consolidation plans are summarized as follows:
As of December 28,
2019
Accrued
Balance at
December 29,
2018
2019
Expenses
(1)
2019 Cash
Payments
Accrued
Balance at
December 28,
2019
Total Costs
Incurred to
Date
Total
Expected
Costs
98
846
944
$
13
5,006
5,019
— $
3
$
$
$
$
73
5,547
5,620
$
38
305
343
$
829
8,800
9,629
— $
— $
3,323
829
8,800
9,629
3,323
$
$
Corporate Office Consolidation Plan
Profit Improvement Plan
Total All Plans
Asset Impairments
Corporate Office Consolidation Plan
Profit Improvement Plan
Total All Plans
Asset Impairments
$
$
$
2018 Cash
Payments
Accrued
Balance at
December 29,
2018
Accrued
Balance at
December 30,
2017
2018
Expenses
(1)
9
$
$
3,158
3,167
$
$
171
334
505
82
2,646
2,728
$
$
— $
3,320
$
— $
98
846
944
—
(1) Costs incurred under these plans are classified as "facility consolidation and severance expenses, net" in the Company's Consolidated Statements
of Operations.
NOTE 22 - 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:
Income (loss) from discontinued operations:
Workers' compensation costs from former textile operations
Environmental remediation costs from former textile operations
Income (loss) from discontinued operations, before taxes
Income tax benefit
Income (loss) from discontinued operations, net of tax
2019
2018
2017
$
$
$
38
$
(386)
(348) $
—
(348) $
212
(117)
95
—
95
$
$
$
(155)
(225)
(380)
(147)
(233)
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.
65
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
(Continued)
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 $1,987 as of December 28, 2019 and $1,728 as of
December 29, 2018. 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 the Company's 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 23 - RELATED PARTY TRANSACTIONS
The Company was 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 was controlled by an associate of the Company. Rent paid to the lessor during 2019, 2018,
and 2017 was $497, $1,003, and $978, respectively. The lease was based on current market values for similar facilities. These
leases terminated as of September, 2019.
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 7.5% of the
Company's Common Stock, which represents approximately 3.5% 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 2019,
2018, and 2017 were approximately $5,900, $8,200 and $7,200, respectively; or approximately 2.1%, 2.6%, and 2.3% of the
Company's cost of goods sold in 2019, 2018, and 2017, 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.
The Company is a party to a ten-year lease with the Rothman Family Partnership to lease a facility as part of the Robertex acquisition
in 2013. The controlling principle of the lessor was an associate of the Company until June 30, 2018. Rent paid to the lessor during
2019, 2018, and 2017 was $284, $278, and $273, respectively. The lease was based on current market values for similar facilities.
66
Item 15(a)(2)
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 28, 2019:
Reserves deducted from asset accounts:
Allowance for doubtful accounts
$
174
$
240
$
—
$
152 (1) $
262
Reserves classified as liabilities:
Provision for claims, allowances and
warranties
Year ended December 29, 2018:
Reserves deducted from asset accounts:
5,717
10,538
—
11,714 —
4,541
Allowance for doubtful accounts
$
133
$
162
$
—
$
121 (1) $
174
Reserves classified as liabilities:
Provision for claims, allowances and
warranties (As Adjusted) *
Year ended December 30, 2017:
Reserves deducted from asset accounts:
6,360
11,995
—
12,638 (2)
5,717
Allowance for doubtful accounts
$
107
$
70
$
—
$
44 (1) $
133
Reserves classified as liabilities:
Provision for claims, allowances and
warranties (As Adjusted) *
7,039
11,760
—
12,439 (2)
6,360
* In calculating the current period Additions and Deductions as related to the Provision for Claims, Allowances, and Warranties, the Company
identified errors in the classification of certain amounts for these columns in prior periods. The beginning and ending balances, as previously
reported, were not affected by these errors and they remain unchanged as presented. The Company evaluated the effects of the corrections and
deemed them to be immaterial.
(1) Uncollectible accounts written off, net of recoveries.
(2) Net reserve reductions for claims, allowances and warranties settled.
67
ANNUAL REPORT ON FORM 10-K
ITEM 15(b)
EXHIBITS
YEAR ENDED DECEMBER 28, 2019
THE DIXIE GROUP, INC.
DALTON, GEORGIA
Exhibit Index
EXHIBIT NO. DESCRIPTION
(1.1)*
(2.1)*
(3.1)*
(3.2)*
(5.1)*
(10.1)*
(10.2)*
(10.3)*
(10.4)*
(10.5)*
(10.6)*
(10.7)*
(10.8)*
(10.9)*
(10.10)*
(10.11)*
(10.12)*
(10.13)*
Underwriting Agreement for 2,500,000 Shares of The Dixie Group, Inc. (Incorporated by reference to Exhibit
(1.1) to Dixie's Current Report on Form 8-K dated May 20, 2014.)
Securities Purchase Agreement between Masland Carpets, LLC and Robert P. Rothman dated as of June 30,
2013. (Incorporated by reference to Exhibit (2.1) to Dixie's Current Report on Form 8-K dated June 30, 2013.)
Text of Restated Charter of The Dixie Group, Inc. as Amended - Blackline Version. (Incorporated by reference
to Exhibit (3.4) to Dixie's Annual Report on Form 10-K for the year ended December 27, 2003.)
Amended By-Laws of The Dixie Group, Inc. as of February 22, 2007. (Incorporated by reference to Exhibit 3.1
to Dixie's Current Report on Form 8-K dated February 26, 2007.)
Shelf Registration Statement on Form S-3. (Incorporated by reference to Exhibit (5.1) to Dixie's Current Report
on Form 8-K dated May 20, 2014.)
The Dixie Group, Inc. New Non-qualified Retirement Savings Plan effective August 1, 1999. (Incorporated by
reference to Exhibit (10.1) to Dixie's Quarterly Report on Form 10-Q for the quarter ended June 26, 1999.)**
The Dixie Group, Inc. 2006 Stock Awards Plan. (Incorporated by reference to Annex A to the Company's Proxy
Statement for its 2006 Annual Meeting of Shareholders, filed March 20, 2006.)**
Summary Description of the 2006 Incentive Compensation Plan, approved February 23, 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. (Incorporated by reference to Current Report on Form
8-K dated March 20, 2006.)**
Form of Award of Career Shares under the 2006 Incentive Compensation Plan for Participants holding only
shares of the Company's Common Stock. (Incorporated by reference to Exhibit (10.1) to Dixie's Current Report
on Form 8-K dated June 6, 2006.)**
Form of Award of Career Shares under the 2006 Incentive Compensation Plan for Participants holding shares
of the Company's Class B Common Stock. (Incorporated by reference to Exhibit (10.2) to Dixie's Current
Report on Form 8-K dated June 6, 2006.)**
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. (Incorporated by reference to Exhibit (10.3)
to Dixie's Current Report on Form 8-K dated June 6, 2006.)**
Form of Award of Long Term Incentive Plan Shares under the 2006 Incentive Compensation Plan for
Participants holding shares of the Company's Class B Common Stock. (Incorporated by reference to Exhibit
(10.4) to Dixie's Current Report on Form 8-K dated June 6, 2006.)**
Master Lease Agreement, Corporate Guaranty and Schedule to the Master Lease Agreement by and between
General Electric Capital Corporation and Masland Carpets, LLC dated August 21, 2009. (Incorporated by
reference to Exhibit (10.1, 10.2, 10.3) to Dixie's Current Report on Form 8-K dated August 25, 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.
(Incorporated by reference to Exhibit (10.1) to Dixie's Current Report on Form 8-K 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. (Incorporated by reference to Exhibit (10.2) to Dixie's Current
Report on Form 8-K 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. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual
Report on Form 10-K for the year ended December 29, 2012.)
68
(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)*
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Bill of Sale,
dated December 28, 2012. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual Report on Form 10-K
for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Lease
Agreement, dated December 28, 2012. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual Report on
Form 10-K for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Short Form
Lease Agreement, dated December 28, 2012. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual
Report on Form 10-K for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Option
Agreement, dated December 28, 2012. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual Report on
Form 10-K for the year ended December 29, 2012.)
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. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual Report on
Form 10-K for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Loan and
Security Agreement, dated December 28, 2012. (Incorporated by reference to Exhibit (4.12) to Dixie's Annual
Report on Form 10-K for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Deed to
Secure Debt and Security Agreement, dated December 28, 2012. (Incorporated by reference to Exhibit (4.12)
to Dixie's Annual Report on Form 10-K for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Notice and
Consent to Assignment, dated December 28, 2012. (Incorporated by reference to Exhibit (4.12) to Dixie's
Annual Report on Form 10-K for the year ended December 29, 2012.)
Obligation to the Development Authority of Gordon County; by and among Masland Carpets, LLC, Absolute
Assignment of Deed to Secure Debt and Security Agreement and Other Loan Documents, dated December 28,
2012. (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 Murray County; by and among TDG Operations, LLC, Series 2014
Bond, dated October 17, 2014. (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.)
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. (Incorporated by reference to Exhibit
(10.53) to Dixie's Annual Report on Form 10-K for the year ended December 27, 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. (Incorporated
by reference to Exhibit (10.54) to Dixie's Annual Report on Form 10-K for the year ended December 27, 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. (Incorporated by reference to Exhibit (10.10) to Dixie's Current Report on Form 8-K dated September
14, 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. (Incorporated by reference to Exhibit (10.11) to Dixie's Current Report on Form 8-K dated
September 14, 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. (Incorporated by reference to Exhibit (10.12) to Dixie's Current Report on Form 8-K dated
September 14, 2011.)
69
(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)*
(10.50)*
(10.51)*
(10.52)*
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. (Incorporated by reference to Exhibit (10.20) to
Dixie's Current Report on Form 8-K dated September 14, 2011.)
Security Agreement, by and between The Dixie Group, Inc. and certain of its subsidiaries named therein, and
Wells Fargo Bank, N.A. as lender, dated September 13, 2011. (Incorporated by reference to Exhibit (10.21) to
Dixie's Current Report on Form 8-K dated September 14, 2011.)
First Mortgage, by and between The Dixie Group, Inc. and certain of its subsidiaries named therein, and Wells
Fargo Bank, N.A. as lender, dated September 13, 2011. (Incorporated by reference to Exhibit (10.22) to Dixie's
Current Report on Form 8-K dated September 14, 2011.)
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.
(Incorporated by reference to Exhibit (10.1) to Dixie's Current Report on Form 8-K dated November 5, 2012.)
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. (Incorporated by reference to Exhibit (10.2) to Dixie's Current Report on Form 8-K dated November 5,
2012.)
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. (Incorporated by
reference to Exhibit (10.3) to Dixie's Current Report on Form 8-K dated November 5, 2012.)
Second Amendment to Credit Agreement dated as of April 1, 2013, by and among The Dixie Group, Inc. certain
of its subsidiaries and Wells Fargo Capital Finance, LLC, as Agent and the persons identified as Lenders
therein. (Incorporated by reference to Exhibit (10.01) to Dixie's Current Report on Form 8-K dated April 3,
2013.)
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. (Incorporated by reference to Exhibit (10.57) to Dixie's Annual Report on Form 10-K for the year ended
December 28, 2013.)
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. (Incorporated by reference to Exhibit (10.58) to Dixie's Annual Report on Form 10-K for the year ended
December 28, 2013.)
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.
(Incorporated by reference to Exhibit (10.1) to Dixie's Current Report on Form 10-Q dated August 7, 2013.)
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. (Incorporated by reference to Exhibit (10.1) to Dixie's Current Report on Form 10-Q dated
November 6, 2013.)
Seventh Amendment to Credit Agreement dated as of January 20, 2014, by and among The Dixie Group, Inc.
certain of its subsidiaries and Wells Fargo Capital Finance, LLC, as Agent and the persons identified as
Lenders therein. (Incorporated by reference to Exhibit (10.1) to Dixie's Current Report on Form 8-K dated
January 21, 2014.)
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. (Incorporated by reference to Exhibit (10.2) to Dixie's Current Report on Form 8-K dated
March 20, 2014.)
Term Note 1 dated November 7, 2014, by TDG Operations, LLC, a Georgia limited liability company and First
Tennessee Bank National Association. (Incorporated by reference to Exhibit (10.71) to Dixie's Annual Report on
Form 10-K for the year ended December 27, 2014.)
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. (Incorporated by reference to Exhibit (10.72) to Dixie's Annual Report on Form 10-K for the
year ended December 27, 2014.)
Term Note 2 dated November 7, 2014, by TDG Operations, LLC, a Georgia limited liability company and First
Tennessee Bank National Association. (Incorporated by reference to Exhibit (10.73) to Dixie's Annual Report on
Form 10-K for the year ended December 27, 2014.)
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. (Incorporated by reference to Exhibit
(10.74) to Dixie's Annual Report on Form 10-K for the year ended December 27, 2014.)
Term Note 3 dated January 23, 2015, by TDG Operations, LLC, a Georgia limited liability company and First
Tennessee Bank National Association. (Incorporated by reference to Exhibit (10.75) to Dixie's Annual Report on
Form 10-K for the year ended December 27, 2014.)
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.
(Incorporated by reference to Exhibit (10.76) to Dixie's Annual Report on Form 10-K for the year ended
December 27, 2014.)
70
(10.53)*
(10.54)*
(10.55)*
(10.56)*
(10.57)*
(10.58)*
(10.59)*
(10.60)*
(10.61)*
(10.62)*
(10.63)*
(10.64)*
(10.65)*
(10.66)*
(10.67)*
(10.68)*
(10.69)*
(10.70)*
(10.71)*
(10.72)*
(10.73)*
(10.74)*
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. (Incorporated by reference to Exhibit (10.77) to Dixie's Annual Report on
Form 10-K for the year ended December 27, 2014.)
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. (Incorporated by reference to Exhibit (10.78) to
Dixie's Annual Report on Form 10-K for the year ended December 27, 2014.)
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. (Incorporated by reference to Exhibit (10.79) to Dixie's Annual Report on
Form 10-K for the year ended December 27, 2014.)
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 (10.2) to Dixie's Current Report on Form 8-K dated
March 20, 2014.)
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.)**
Form of LTIP award (B shareholder). (Incorporated by reference to Exhibit (10.2) to Dixie's Current Report on
Form 8-K dated March 13, 2015.)**
Form of LTIP award (common only). (Incorporated by reference to Exhibit (10.3) to Dixie's Current Report on
Form 8-K dated March 13, 2015.)**
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.)**
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.)**
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.)**
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.)**
Form of Award of 100,000 share 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 April 30, 2015.)**
Thornton Edge LLC Lease for Reed Road Facility. (Incorporated by reference to Exhibit (10.1) to Dixie's
Current Report on Form 10-Q dated November 4, 2015.)
Thornton Edge LLC First Lease Amendment for Reed Road Facility. (Incorporated by reference to Exhibit
(10.2) to Dixie's Current Report on Form 10-Q dated November 4, 2015.)
Thornton Edge LLC Second Lease Amendment for Reed Road Facility. (Incorporated by reference to Exhibit
(10.3) to Dixie's Current Report on Form 10-Q dated November 4, 2015.)
2016 Incentive Compensation Plan. (Incorporate by reference to Appendix A to Dixie's Proxy Statement for the
Registrant's Annual Meeting of Shareholders held May 3, 2016.)**
Summary of Incentive Plan for 2016. (Incorporated by Reference to Exhibit (10.1) to Dixie's Current Report on
Form 8-K dated March 11, 2016.)**
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.)**
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.)**
Career Shares B Shareholder. (Incorporated by Reference to Exhibit (10.4) to Dixie's Current Report on Form
8-K dated March 11, 2016.)**
Career Shares Common. (Incorporated by Reference to Exhibit (10.5) to Dixie's Current Report on Form 8-K
dated March 11, 2016.)**
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.)
(10.75)*
Summary of Incentive Plan for 2017. (Incorporated by Reference to Exhibit (10.1) to Dixie's Current Report on
Form 8-K dated March 10, 2017.)**
(10.76)*
(10.77)*
(10.78)*
Form of Stock Option Agreement - Common Stock - 2016 Stock Plan. (Incorporated by Reference to Exhibit
(10.1) to Dixie's Current Report on Form 8-K dated May 31, 2017.)**
Form of Stock Option Agreement - Class B Holder - 2016 Stock Plan. (Incorporated by Reference to Exhibit
(10.2) to Dixie's Current Report on Form 8-K dated May 31, 2017.)**
Royalty Carpet Mills Lease for Porterville, California Facility. (Incorporated by Reference to Exhibit (10.78) to
Dixie's Current Report on Form 10-K dated March 13, 2018.)
71
(10.79)*
Summary of Incentive Plan for 2018. (Incorporated by Reference to Exhibit (10.1) to Dixie's Current Report on
Form 8-K dated March 9, 2018.)**
(10.80)*
(10.81)*
(10.82)*
(10.83)*
(10.84)*
(10.85)*
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 9, 2018.)**
Long Term Incentive Plan Award Common. (Incorporated by Reference to Exhibit (10.3) to Dixie's Current
Report on Form 8-K dated March 9, 2018.)**
Career Shares B Shareholder. (Incorporated by Reference to Exhibit (10.4) to Dixie's Current Report on Form
8-K dated March 9, 2018.)**
Career Shares Common. (Incorporated by Reference to Exhibit (10.5) to Dixie's Current Report on Form 8-K
dated March 9, 2018.)**
Eleventh Consent and Amendment to Credit Agreement. (Incorporated by Reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated January 17, 2019.)
Agreement For the Purchase and Sale of Real Property between Saraland Industrial, LLC and TDG
Operations, LLC. (Incorporated by Reference to Exhibit (10.2) to Dixie's Current Report on Form 8-K dated
January 17, 2019.)
(10.86)*
Summary of Incentive Plan for 2019. (Incorporated by Reference to Exhibit (10.1) to Dixie's Current Report on
Form 8-K dated March 8, 2019.)**
(10.87)*
(10.88)*
(10.89)*
(10.90)*
(10.91)*
(10.92)*
(10.93)*
(10.94)*
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 8, 2019.)**
Long Term Incentive Plan Award Common. (Incorporated by Reference to Exhibit (10.3) to Dixie's Current
Report on Form 8-K dated March 8, 2019.)**
Career Shares B Shareholder. (Incorporated by Reference to Exhibit (10.4) to Dixie's Current Report on Form
8-K dated March 8, 2019.)**
Career Shares Common. (Incorporated by Reference to Exhibit (10.5) to Dixie's Current Report on Form 8-K
dated March 8, 2019.)**
Stock Repurchase Plan, pursuant to Securities and Exchange Act Rule 10b5-1. (Incorporated by Reference to
Dixie's Current Report on Form 8-K dated August 28, 2019.)
Twelfth Consent and Amendment to Credit Agreement. (Incorporated by Reference to Exhibit (10.1) to Dixie's
Current Report on Form 8-K dated October 4, 2019.)
Thirteenth Consent and Amendment to Credit Agreement. (Incorporated by Reference to Exhibit (10.1) to
Dixie's Current Report on Form 8-K dated October 22, 2019.)
Agreement For the Purchase and Sale of Real Property between CenterPoint Properties Trust and TDG
Operations, LLC. (Incorporated by Reference to Exhibit (10.2) to Dixie's Current Report on Form 8-K dated
October 22, 2019.)
(10.95)*
Form of Lease between CenterPoint Properties Trust and TDG Operations, LLC. (Incorporated by Reference to
Exhibit (10.3) to Dixie's Current Report on Form 8-K dated October 22, 2019.)
(14)*
(16)*
(21)
(23)
(31.1)
(31.2)
(32.1)
(32.2)
Code of Ethics, as amended and restated, February 15, 2010. (Incorporated by reference to Exhibit 14 to
Dixie's Annual Report on Form 10-K for year ended December 26, 2009.)
Letter from Ernst & Young LLP regarding change in certifying accountant. (Incorporated by reference to Exhibit
16 to Dixie's Form 8-K dated November 15, 2013.)
Subsidiaries of the Registrant. (Filed herewith.)
Consent of Dixon Hughes Goodman LLP Independent Registered Public Accounting Firm.(Filed herewith.)
CEO Certification pursuant to Securities Exchange Act Rule 13a-14(a). (Filed herewith.)
CFO Certification pursuant to Securities Exchange Act Rule 13a-14(a). (Filed herewith.)
CEO Certification pursuant to Securities Exchange Act Rule 13a-14(b). (Filed herewith.)
CFO Certification pursuant to Securities Exchange Act Rule 13a-14(b). (Filed herewith.)
(101.INS)
XBRL Instance Document. (Filed herewith.)
(101.SCH)
XBRL Taxonomy Extension Schema Document. (Filed herewith.)
(101.CAL)
XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
(101.DEF)
XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
(101.LAB)
XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
(101.PRE)
XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
* Commission File No. 0-2585.
** Indicates a management contract or compensatory plan or arrangement.
72
P R O X Y S TAT E M E N T
P R O X Y S TAT E M E N T
P R O X Y S TAT 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 6, 2020 at 8:00 a.m., Eastern Time, for the following purposes:
1.
2.
3.
4.
5.
6.
To elect seven individuals to the Board of Directors for a term of one year each;
To approve amendment of the Company's 2016 Incentive Compensation Plan to increase by 500,000 the
number of shares subject to the Plan;
To cast an advisory vote on the Company’s Executive Compensation for its named executive officers (“Say-on-
Pay”);
To cast an advisory vote on the frequency of future say-on-pay votes;
To ratify appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants
of the Company for 2020; 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 21,
2020, 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 20, 2020
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 6, 2020
The proxy statement and annual report to shareholders are available under "Annual Report and Proxy Materials" at
www.dixiegroup.com/Investor.
THE DIXIE GROUP, INC.
475 Reed Road
Dalton, Georgia 30720
Phone (706) 876-5800
ANNUAL MEETING OF SHAREHOLDERS
May 6, 2020
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 20, 2020, to shareholders of record of the Company’s Common Stock and Class B Common Stock as of the close of business
on February 21, 2020.
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 seven (7) individuals to the Board
of Directors for a term of one year each, (ii) approve the amendment of the Company's 2016 Incentive Compensation Plan to
increase by 500,000 the number of shares subject to the Plan; (iii) cast an advisory vote on the Company’s executive compensation
for its named executive officers; (iv) cast an advisory vote on the frequency of the shareholder advisory vote on executive
compensation; (v) ratify the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants
of the Company for 2020, and (vi) 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 seven (7) nominees for
director; (ii) FOR approval of the amendment of the Company's 2016 Incentive Compensation Plan to increase by 500,000 the
number of shares subject to the Plan; (iii) FOR approving the Company’s executive compensation of its named executive officers;
(iv) FOR setting the frequency of the shareholder advisory vote on executive compensation at an annual vote; (v) FOR ratifying
the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of the Company for 2020.
RECORD DATE, VOTE REQUIRED AND RELATED MATTERS
The Board has fixed the close of business on February 21, 2020, 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 21, 2020, 14,983,013 shares of Common Stock, representing 14,983,013 votes, were held of record by approximately
2,800 shareholders (including an estimated 2,400 shareholders whose shares are held in nominee names) and 836,669 shares of
Class B Common Stock, representing 16,733,380 votes, were held by 10 individual shareholders, together representing an aggregate
of 31,716,393 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 seven (7) nominees for director; (ii) FOR approval of the amendment of the Company's 2016 Incentive Compensation
Plan to increase by 500,000 the number of shares subject to the Plan; (iii) FOR approving the Company’s executive compensation
of its named executive officers; (iv) FOR setting the frequency of the shareholder advisory vote on executive compensation at an
annual vote; (v) FOR ratifying the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants
of the Company for 2020.
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 Michael L. Owens. The cost of solicitation of Proxies will be borne by the Company.
1
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.
Approval of the amendment to the 2016 Incentive Compensation Plan will be deemed to have been obtained if the affirmative
vote of a majority of the total votes cast is received in favor of such amendment.
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.
With respect to the advisory vote on the frequency of say-on-pay advisory votes, the option that receives the highest
number of votes will be deemed to have been selected by shareholders.
Ratification of the appointment of Dixon Hughes Goodman LLP to serve as independent registered public accountants of
the Company for 2020 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 28, 2019, 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 21, 2020, 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 21, 2020 (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
926,206
836,669
(3)
(4)
5.9 %
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
Robert E. Shaw
115 West King Street
Dalton, GA 30722-1005
Terry Ledbetter, Jr.
400 West Louisiana Street
McKinney, TX 75009
Jeffrey L. Gendell
Common Stock
881,902
(5)
5.9 %
Common Stock
1,722,415
(6)
11.5 %
Common Stock
1,125,000
(7)
7.5 %
Common Stock
1,054,237
(8)
7.0 %
1 Sound Shore Drive, Suite 304
Common Stock
880,113
(9)
5.9 %
Greenwich, CT 06830-7251
3
Additional Directors and Executive Officers
Title of Class
Number of
Shares
Beneficially
Owned (1)
% of Class
William F. Blue, Jr.
Common Stock
29,971
(10)
Charles E. Brock
Common Stock
21,741
(11)
Allen L. Danzey
W. Derek Davis
Jon A. Faulkner
Common Stock
6,705
(12)
Common Stock
99,655
(13)
Common Stock
172,536
(14)
1.1 %
*
*
*
*
D. Kennedy Frierson, Jr.
Common Stock
Class B Common Stock
250,057
230,384
(15)
(4)
1.5 %
27.5 %
Lowry F. Kline
Hilda S. Murray
Common Stock
65,099
(16)
Common Stock
21,741
(17)
T.M. Nuckols, Jr.
Common Stock
49,956
(18)
Michael L. Owens
Common Stock
17,575
(19)
*
*
*
*
All Directors, Named Executive Officers and
Executive Officers as Group (11 Persons) **
Common Stock
Class B Common Stock
1,413,485
836,669
(20)
(21)
8.9 %
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 17,310,196 votes or 54.6% 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 180,809 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 Bank of America, N.A. 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
Exercisable Stock Option
Deemed conversion of his Class B Common Stock
Total
Total does not include 40,000 shares of Non Exercisable Stock Options.
(a) Sole voting and investment power
(b) Shared voting and investment power
(c) Sole voting and shared investment power
Number of
Shares
Common Stock
27,443
3,567
796
—
35,623
22,108
—
— (a)
(a)
(a)
(b)
(a)
836,669
926,206
Number of
Shares Class B
Common Stock
408,529
17,061
—
94,879
288,606
22,108
5,486
—
—
836,669
(a)
(a)
(c)
(c)
(a)
(a)
(4)
(5)
(6)
(7)
(8)
(9)
The 836,669 includes 388,971 shares of Class B Common Stock held subject to a Shareholder's Agreement among Daniel
K. Frierson, his wife, two of their five children (including D. Kennedy Frierson, Jr., his son) 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 881,902 shares of Common Stock,
as follows: 862,415 shares of Common Stock, for which it has sole voting power, and 881,902 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 12, 2020.
Hodges Capital Holdings, Inc. Craig Hodges, Hodges Capital Management, Inc., Hodges Fund, and Hodges Small Intrinsic
Value Fund has reported beneficial ownership of an aggregate of 1,722,415 shares of Common Stock. Hodges Capital
Holdings, Inc. reports having shared voting power of 1,344,765 and 1,722,415 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 5, 2020.
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
Schedule 13G filed by Mr. Shaw with the Securities and Exchange Commission on February 14, 2020.
Terry Ledbetter, Jr. has reported the beneficial ownership of an aggregate of 1,054,237 shares of Common Stock for which
he has 673,470 shared voting power and 1,054,237 shared dispositive power. The reported information is based upon the
Schedule 13G filed by Kopion Asset Management, LLC and Mr. Ledbetter, founder and manager of Kopion Asset Management,
LLC, with the Securities and Exchange Commission on February 10, 2020.
Jeffrey L. Gendell. has reported the beneficial ownership of an aggregate of 880,113 shares of Common Stock for which he
has 880,113 shared voting power and 880,113 shared dispositive power. The reported information is based upon the Schedule
13G filed by Tontine Asset Associates, LLC and Mr. Gendell, managing member of Tontine Asset Associates, LLC, with the
Securities and Exchange Commission on January 3, 2020.
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. Allen L. Danzey's beneficial ownership may be summarized as follows:
Shares held outright
Unvested Restricted Stock
Held in 401(k) Plan
Total
Total does not include 4,000 shares of Non Exercisable Stock Options.
(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
Total does not include 15,000 shares of Non Exercisable Stock Options.
(14) Mr. Jon A. Faulkner's beneficial ownership may be summarized as follows:
Shares held outright
Unvested Restricted Stock
Exercisable Stock Options
Total
Total does not include 15,000 shares of Non Exercisable Stock Options.
6
Number of Shares
Common Stock
12,609
17,362
29,971
Number of Shares
Common Stock
—
21,741
21,741
Number of Shares
Common Stock
—
6,150
555
6,705
Number of Shares
Common Stock
76,174
4,500
14,724
4,257
—
99,655
Number of Shares
Common Stock
72,060
100,476
—
172,536
(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
Exercisable Stock Options
Deemed conversion of Class B Stock
Total
Number of
Shares
Common Stock
Number of
Shares Class B
Common Stock
10,000
100
2,585
2,301
4,687
—
230,384
250,057
94,214 (a)
—
15,540 (a)
—
120,630 (a)
—
— (a)
230,384
Total does not include 25,000 shares of Non Exercisable Stock Options.
(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. 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
(17) 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
(18) Mr. T.M. Nuckols, Jr.'s beneficial ownership may be summarized as follows:
Shares held outright
Unvested Restricted Stock
Total
Total does not include 15,000 shares of Non Exercisable Stock Options.
(19) 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
Total
7
Number of Shares
Common Stock
31,198
33,901
65,099
Number of Shares
Common Stock
—
21,741
21,741
Number of Shares
Common Stock
4,628
45,328
49,956
Number of Shares
Common Stock
—
17,575
17,575
(20)
Includes: (i) 234,112 shares of Common Stock owned directly by individuals in this group; (ii) 7,908 shares of Common Stock
allocated to accounts in the 401(k) Plan of members of this group; (iii) 112,320 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; (iv)
25,436 shares of Common Stock owned by immediate family members of certain members of this group; (v) 3,567 shares
held in individual retirement accounts; (vi) 193,473 unvested restricted shares of Common Stock held by individuals in this
group, which shares may be voted by such individuals; and (vii) 836,669 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. This total excludes options
which are not yet vested of 114,000 shares of Common Stock. The options excluded will vest once the average of the high
and low share price of the Company’s Common Stock shall be at least $7.00 per share for a period of 5 consecutive days,
prior to the option expiration date of May 30, 2022.
(21)
Includes: (i) 836,669 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 61, 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, Executive Committee and Compensation Committee. He has been a director of the Company since October
2014.
Charles E. Brock, age 55, is the owner of Brock Partnerships, an entrepreneurial advisory and investment firm. From
2013-2018, Mr. Brock served as 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 Nominating and Corporate Governance Committee. He has been a director of the Company since 2012.
Daniel K. Frierson, age 78, 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 Printpack, Inc., a world leading Flexible Packaging Company, headquartered in
Atlanta, Georgia. Mr. Frierson is Chairman of the Executive Committee.
D. Kennedy Frierson, Jr., age 53, 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.
Lowry F. Kline, age 79, 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 former director of Jackson Furniture Industries,
Inc., headquarter in Cleveland, Tennessee and 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 65, 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 has been a Director of the Company since
2012 and is a member of the Company’s Audit Committee and is Chairman of the Company’s Nominating and Corporate Governance
Committee.
Michael L. Owens, age 63, 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 a
member of the Company's Nominating and Corporate Governance Committee and Chairman of the Company's Audit Committee.
9
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 2020, 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 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 Atlas | Masland Commercial business. 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. 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 seven (7)
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 five (5) times in 2019.
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.dixiegroup.com/Investor.
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 met four (4) times
in 2019.
Members of the Audit Committee are Michael L. Owens, Chairman, William F. Blue, Jr., Charles E. Brock, Lowry F. Kline,
and Hilda S. Murray. 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 2019.
Members of the Compensation Committee are Lowry F. Kline, Chairman, and William F. Blue, Jr. 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 2019, see Compensation Discussion and Analysis - Compensation for 2019.
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 2019.
The members of the Nominations and Corporate Governance Committee in 2019 were Hilda S. Murray, Chairman, Charles
E. Brock, and Michael L. Owens. 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 2019.
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 2019, 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, Lowry F. Kline, Hilda S. Murray, 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 2019, 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 28, 2019, 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 7.5% of the Company’s Common Stock, which, as of year-end, represented
approximately 3.5% 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 2019 were approximately $5.9 million; or approximately
2.1% of the Company’s cost of goods sold in 2019. 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 five members, each of whom is an independent, non-
employee director. The Audit Committee operates under a written Audit Committee Charter adopted and approved by the Board of
Directors. The Charter is reviewed at least annually by the Committee. While the Committee has the responsibilities and powers
set forth in its written charter, it is not the duty of the Committee to plan or conduct audits. This function is conducted by the Company’s
management and its independent registered public accountants.
The Committee has reviewed and discussed with management the audited financial statements of the Company for the
year ended December 28, 2019 (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 28, 2019, to be filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Michael L. Owens, Chairman
William F. Blue, Jr.
Charles E. Brock
Lowry F. Kline
Hilda S. Murray
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 two 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 2019. Effective February of 2019, the Compensation Committee selected performance goals and a
range of possible incentives for the Company’s 2019 Incentive Compensation Plan (the “2019 Plan”). Pursuant to the 2019 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.
No incentive awards other than Career Shares were awarded to the Company's Named Executive Officers for 2019.
For 2019, each executive officer also received customary retirement plan benefits and other customary employment
benefits, as in prior years.
Salary for 2019 and 2020. The base salaries for the executive officers were not adjusted during 2019. See the 2019
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. As of January 1st, 2020, Mr. Danzey’ s compensation was increased to
$200,000 along with his assuming his duties as Chief Financial officer.
Potential Incentive Awards for 2019. 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.
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 2019 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
2019.
In accordance with past practice, any such award, if earned, would be granted in 2020. 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
15
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.
2019 Incentive Awards. Career Share Awards were granted in 2020 for 2019 for the following named executive officers:
Mr. Daniel K. Frierson - 25,000 shares, Mr. D. Kennedy Frierson, Jr. - 22,400 shares, Mr. Jon A. Faulkner - 16,200 shares, Mr. T.M.
Nuckols - 11,000 shares, Mr. W. Derek Davis - 9,200.
Incentive Compensation Applicable to 2020. Following year-end, the Committee adopted an incentive plan for 2020
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 2019. Any such awards, if earned,
will be paid, in the case of the cash award, or granted, in the case of the restricted stock awards, in March 2021.
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 2019 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 2019 and 2020. 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
deductibility, for tax purposes, of compensation paid to named executive officers is subject to limits imposed by Section 162 of the
Internal Revenue Code. Annual compensation exceeding $1 million is non-deductible. Accordingly, all compensation in excess of
$1 million paid to any of the Company's named executive officers (and the Chief Financial Officer) in any given year will be non-
deductible.
The Company held a “Say on Pay” vote at its annual meeting in 2019. At that meeting, in excess of 94% 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 Mr. W. Derek Davis were the only Named Executive Officers eligible for retirement in
accordance with the terms of the restricted stock awards. If Mr. Frierson had retired at year end, the number of shares subject to
such awards that would have vested and the value of such shares would have been 23,729 shares and $27,289. If Mr. Davis had
retired at year end, the number of shares subject to such awards that would have vested and the value of such shares would have
been 8,732 shares and $10,042. For purposes of valuing the foregoing awards, the Company used the year-end market value of
the Company’s Common Stock, which was $1.15/share.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, set forth above,
with management.
Based on our review and the discussions we held with management, we have recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the Company’s Proxy Materials.
Respectfully submitted,
Lowry F. Kline, Chairman
William F. Blue, Jr.
16
EXECUTIVE COMPENSATION INFORMATION
The following table sets forth information as to all compensation earned during the fiscal years ended December 30, 2017,
December 29, 2018 and December 28, 2019 for (i) the Company's Chief Executive Officer; and (ii) the Company's Chief Financial
Officer, (iii) the three other most highly compensated executive officers who served as such during the fiscal year ended December
28, 2019 (the “Named Executive Officers”). For a more complete discussion of the elements of executive compensation, this
information should be read in conjunction with the other tabular information presented in the balance of this section.
Summary Compensation Table
Name and Principal
Position (a)
Year
(b)
Salary ($)
(c)(1)
Bonus ($)
(d)(2)
Stock
Awards ($)
(e)(3)
Option
Awards ($)
(f)
Nonqualified
Compensation
Earnings ($)
(h)(4)
All Other
Compensation ($)
(i)(5)
Total ($)
(j)
Daniel K Frierson
Chief Executive Officer
2019
2018
2017
625,000
625,000
—
—
625,000
257,656
203,210
D. Kennedy Frierson, Jr.
Chief Operating Officer
Jon A. Faulkner, Chief
Financial Officer
T.M. Nuckols, Vice
President, President
Residential
W. Derek Davis, Vice
President, Human
Resources
—
—
—
—
2019
320,000
2018
320,000
125,975
130,026
2017
320,000
2019
270,000
—
—
—
—
2018
270,000
84,351
98,840
2017
270,000
2019
275,000
—
—
2018
275,000
123,750
2017
248,958
2019
230,000
—
—
—
—
90,980
70,000
—
2018
230,000
51,747
68,281
—
55,748
—
—
34,842
—
—
23,366
—
—
23,366
—
—
2017
230,000
—
—
23,366
(1) Includes all amounts deferred at the election of the Named Executive Officer.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,629
5,529
5,087
5,366
5,307
4,874
5,229
5,163
4,602
5,094
4,647
2,172
4,480
4,636
4,636
630,629
1,091,395
685,835
325,366
581,308
359,716
275,229
458,354
297,968
280,094
494,377
344,496
234,480
354,664
258,002
(2) Cash bonuses are shown in the year granted, not earned, because employment through year-end is a condition of earning
the award. Therefore, the bonus shown in the column for 2018 relates to performance achieved in 2017.
(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. Continued employment is a condition of the Plan so the grant
date is in the year after the year for which the performance was earned.
(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).
17
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.
Jon A. Faulkner
T.M. Nuckols
W. Derek Davis
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2,750
2,650
2,208
2,750
2,650
2,208
2,700
2,650
2,208
2,750
2,475
—
2,300
2,300
2,300
2,879
2,879
2,879
2,616
2,657
2,666
2,529
2,513
2,394
2,344
2,172
2,172
2,180
2,336
2,336
5,629
5,529
5,087
5,366
5,307
4,874
5,229
5,163
4,602
5,094
4,647
2,172
4,480
4,636
4,636
(1) No named Executive Officer received any tax reimbursement, discounted securities purchases, or payment or accrual on
termination plans for the period presented.
18
No equity incentive awards were awarded during 2019.
Grants of Plan-Based Awards
All awards of restricted stock made to the Named Executive Officers under the 2019 Incentive Compensation Plan were granted
in 2020, in accordance with the terms of the plan. Such awards are as follows:
Name
Daniel K. Frierson*
D. Kennedy Frierson, Jr.*
Jon A. Faulkner
T.M. Nuckols
W. Derek Davis
Long-Term Incentive
Award Shares (1)
Career Shares (1)
Total Shares
—
—
—
—
—
25,000
22,400
16,200
11,000
9,200
25,000
22,400
16,200
11,000
9,200
*Pursuant to Mr. Daniel K. Frierson’s election 22,628 shares of the total of his awards were granted as shares of Class B
Common Stock and pursuant to Mr. D. Kennedy Frierson, Jr.'s election, 21,016 shares of the total of his awards were granted as
Class B Common Stock.
(1) Share awards are subject to a $5.00 minimum valuation per share when determining the amount of shares to be rewarded.
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Jon A. Faulkner
T.M. Nuckols
W. Derek Davis
Option Exercises and Stock Vested
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise (#)(b)
Value Realized on
Exercise ($)(c) (1)
Number of Shares
Acquired on
Vesting (#)(d)
Value Realized on
Vesting ($)(e)(2)
—
—
—
—
—
—
—
—
—
—
28,359
30,202
8,013
6,367
7,165
9,662
8,534
6,781
7,631
10,290
(1) The value realized is calculated as average of the high and low price on the relevant exercise date minus the option price
times the number of acquired shares.
(2) The value realized is calculated as the average of the high and low price on the relevant vesting date times the number of
vested shares.
19
The following table sets forth information concerning the Company’s Non-Qualified Defined Contribution Plan for each of the Named
Executive Officers for the fiscal year ended December 28, 2019. The Company does not maintain any other non-tax qualified
deferred compensation plans. There were two withdrawals or distributions by the Named Executive Officers in the fiscal year ended
2019.
Name (a)
Daniel K. Frierson
D. Kennedy Frierson, Jr.
Jon A. Faulkner
T.M. Nuckols
W. Derek Davis
Nonqualified Deferred Compensation
Executive
Contribution
in Last FY ($)
(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
—
—
—
—
—
—
—
—
314,426
204,957
—
—
1,322,198
862,267
292,050
(36,648)
1,570,487
—
4,129
—
—
—
14,949
(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 2019 Summary Compensation Table.
(2) None of the amounts reported in this column (d) are reported in column (h) of the 2019 Summary Compensation Table
because the Company does not pay guaranteed, above-market or preferential earnings on deferred compensation.
(3) Amounts reported in this column (f) for each named executive officer include amounts previously reported in the Company's
Summary Compensation Table last year when earned if that officer's compensation was required to be disclosed in the
previous year. This total reflects the cumulative value of each named executive officer's deferrals and investment experience.
20
The following table sets forth information concerning outstanding equity awards for each of the Named Executive Officers at fiscal
year-end.
Outstanding Equity Awards at Fiscal Year-End
Option Awards
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
—
40,000
—
4.59
5/30/2022
44,216
50,848
D. Kennedy
Frierson, Jr.
—
25,000
—
4.59
5/30/2022
125,317
144,115
Jon A. Faulkner
—
15,000
—
4.17
5/30/2022
100,476
115,547
T.M. Nuckols
—
15,000
—
4.17
5/30/2022
45,328
52,127
W. Derek Davis
—
15,000
—
4.17
5/30/2022
14,724
16,933
(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 ($1.15/share) by the number of shares of unvested restricted stock subject to the
award.
21
DIRECTOR COMPENSATION
Name (a)
Fees earned or
paid in cash ($)
(b)(1)
Stock Awards ($)
(c)(2)
Option Awards ($)
(d)(3)
All Other
Compensation ($)
(e)(4)
William F. Blue, Jr.
34,500
2,718
Charles E. Brock
30,500
2,718
Lowry F. Kline
42,500
2,718
Hilda S. Murray
34,500
2,718
Michael L. Owens
38,500
2,718
—
—
—
—
—
—
—
—
—
—
Total ($)
37,218
33,218
45,218
37,218
41,218
(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 2017, 2018 and 2019, to a $5.00 minimum value per
unit). For 2019 the value awarded was $11,520 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.
(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 Company's 2018 Incentive Compensation
Plan was $11,520.
At fiscal year-end, each non-employee director was issued the following outstanding equity awards, with respect to service for 2019:
Name (a)
William F. Blue, Jr.
Charles E. Brock
Lowry F. Kline
Hilda S. Murray
Michael L. Owens
Performance Units
(#)(b)(1)
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 $20,700 determined by multiplying the number of performance units issued by the year-end per
share market value of the Company's Common Stock ($1.15/share).
22
APPROVE THE AMENDMENT OF OUR 2016 INCENTIVE COMPENSATION PLAN
PROPOSAL TWO
On March 4, 2020, the Compensation Committee recommended and the Board of Directors unanimously approved the
amendment of our 2016 Incentive Compensation Plan (the “Amended 2016 Plan”). The amendment increases the maximum number
of shares of common Stock we may issue under the amended plan by 500,000 shares (to 1,300,000 shares) in connection with
the grant of stock based or stock denominated awards under the plan. The Compensation Committee and the Board of Directors
recommended that amendment of the plan be submitted to shareholders for approval at the annual meeting. If approved, the
amendment will become effective on May 6, 2020. A copy of the 2016 Plan showing the proposed amendment is attached as Annex
A.
The purpose of the amendment is to make available an adequate number of shares of common and Class B common
stock to fund the grant of potential equity awards under the plan, including, but not limited to, Primary Long term Incentive Awards,
Career Share Awards, Option Awards, and other equity based or denominated awards. The Compensation Committee and the
Board feel that this number of additional shares, together with those remaining under the plan will be adequate to allow the Company
to continue awarding equity incentives for the duration of the plan. Such equity initiatives are an important element of our
compensation structure. If such additional shares are awarded, the Committee and Board feel that such awards would represent
a reasonable level of equity dilution for the Company's Shareholders. The Committee and the Board reached their decision after
considering both the number and type of outstanding equity awards currently issued under the plan, and the possibility that some
portion of those outstanding awards might not ultimately vest.
As of the date of this Proxy Statement 106,367 shares remain available for issuance under the 2016 Incentive Compensation
Plan. The maximum number of shares that could be awarded for all participants under the annual 2020 Incentive Compensation
Plan is 297,570.
The affirmative vote of the holders of a majority of shares represented in person or by proxy and entitled to vote on this
item will be required for approval of the amendment of the plan. Abstentions will be counted as represented and entitled to vote
and will therefore have the effect of a negative vote. Broker non-votes will not be considered entitled to vote on this item and will
therefore not be counted in determining the number of votes necessary for approval.
The 2016 Plan includes the following features that protect the interests of our shareholders and will continue to include
such features if the amendment is approved:
Administration by a compensation committee composed entirely of independent directors.
The number of shares available for grant will not automatically increase because of an “evergreen” feature.
Exercise prices (if applicable) must be at least 100% of fair market value on the date of the award.
Option Awards (and other awards granted with applicable exercise prices) may not be re-priced by any action
that has the effect of reducing the exercise price of such option (or other such award).
The 2016 Incentive Compensation Plan sets the maximum number of options that may be granted to any one
Participant during any fiscal year of the Company at 150,000. The maximum number of shares of restricted stock
that may be granted to any one employee during any fiscal year of the Company is set at 330,000, and the
maximum number of performance units that may be granted to any non-employee director in any one fiscal year
is set at 20,000.
No material amendments will be made without the approval of shareholders.
Description of The Dixie Group, Inc. 2016 Incentive Compensation Plan
The following is a brief description of certain important features of the 2016 Incentive Compensation Plan, the full text of
which is attached as Annex A. This summary does not purport to be complete and is qualified in its entirety by reference to Appendix
A. If the proposal to adopt the 2016 Incentive Compensation Plan is approved, we intend to promptly file a registration statement
on Form S-8 under the Securities Act of 1933, as amended, registering the shares available for issuance under the 2016 Incentive
Compensation Plan.
General. The 2016 Incentive Compensation Plan provides for various types of awards denominated in shares of Common
Stock and/or Class B Common Stock to employees, officers, directors and agents of the Company and its participating subsidiaries.
The primary purposes of the 2016 Incentive Compensation Plan are to attract and retain such persons by providing competitive
compensation opportunities, to provide incentives for those who contribute to the long-term performance and growth of the Company,
and to align employee and director interests with those of our shareholders.
23
Administration. The 2016 Incentive Compensation Plan is administered by the Compensation Committee of the Board.
All members of the Compensation Committee must satisfy the requirements for independence of the Securities Exchange Act Rule
16b-3 and remain qualified as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended.
The Compensation Committee has the authority to administer and interpret the 2016 Incentive Compensation Plan, to
determine the employees to whom awards will be granted under the 2016 Incentive Compensation Plan and, subject to the terms
of the 2016 Incentive Compensation Plan, the type and size of each award, the terms and conditions for vesting, cancellation and
forfeiture of awards and the other features applicable to each award or type of award. The Committee may accelerate or defer the
vesting or payment of awards, cancel or modify outstanding awards, waive any conditions or restrictions imposed with respect to
awards or the stock issued pursuant to awards and make any and all other determinations that it deems appropriate, subject to the
limitations contained in the 2016 Incentive Compensation Plan, including minimum vesting requirements, prohibitions against re-
pricing, and provisions designed to maintain compliance with the requirements of Sections 422 (for incentive stock options), 162
(m) and 409A of the Internal Revenue Code, as well as other applicable laws and stock exchange rules.
The Committee may delegate some or all of its authority over administration of the 2016 Incentive Compensation Plan to
one or more officers or directors, except with respect to persons who are Section 16(a) officers or covered employees (as defined
in the 2016 Incentive Compensation Plan).
Eligibility. All “employees” of the Company - within the SEC’s broad definition set forth in the instructions to the Form S-8
registration statement, which includes employees, officers, directors and (subject to certain restrictions) consultants and advisors
to the Company - are eligible to receive awards under the 2016 Incentive Compensation Plan. Participation is discretionary - awards
are subject to approval by the Compensation Committee.
Shares Subject to the Plan. The maximum number of shares of Common Stock and/or Class B Common Stock that may
be issued as awards pursuant to the 2016 Incentive Compensation Plan if this amendment is approved will be 1,300,000 shares.
The maximum number of shares of Common Stock that may be issued under the 2016 Incentive Compensation Plan will
not be affected by the payment in cash of dividends or dividend equivalents in connection with outstanding awards, the granting or
payment of stock-denominated awards that by their terms may be settled only in cash, or awards that are granted through the
assumption of, or in substitution for, outstanding awards previously granted to individuals who have become employees as a result
of a merger, consolidation, or acquisition or other corporate transaction involving the Company or a subsidiary. Additionally, shares
used by a participant to exercise an option, and shares withheld by the Company to cover the withholding tax liability associated
with the exercise of an award are not counted toward the maximum number of shares that may be issued under the 2016 Incentive
Compensation Plan and, accordingly, will not reduce the number of shares that will be available for future awards.
Shares of Common Stock and/or Class B Common Stock issued in connection with awards under the 2016 Incentive
Compensation Plan may be shares that are authorized but unissued, or previously issued shares that have been reacquired, or
both. If an award under the 2016 Incentive Compensation Plan is forfeited, canceled, terminated or expires prior to the issuance
of shares, the shares subject to the award will be available for future grants under the 2016 Incentive Compensation Plan. Shares
subject to outstanding awards granted under other plans shall not be subject to future issuance under the 2016 Incentive
Compensation Plan, if such awards are forfeited, canceled, terminated or expire prior to the issuance of shares.
Limit on Awards. The aggregate number of shares of Common Stock and/or Class B Common Stock subject to awards
of stock options that may be granted to any one Participant during any fiscal year of the Company may not exceed 150,000. The
maximum number of shares of restricted stock that may be granted to any one Participant during any fiscal year of the Company
is set at 330,000, and the maximum number of performance units that may be granted to any non-employee director in any fiscal
year is set at 20,000. Performance units may be granted annually to non-employee directors in payment of up to one half of such
directors' annual retainer, which may be set at the beginning of each annual term.
Proportional Exercise for Common Stock and Class B Common Stock. All awards granted under the 2016 Plan shall
be denominated and documented with reference to the number of shares of Common Stock subject to such award; provided,
however, that any participant who owns shares of the Company’s Class B Common Stock shall be entitled to elect, on the election
date applicable to any award, to receive a portion of such award in shares of Class B Common Stock in an amount no greater than
the proportion of Class B Common Stock then held by such participant.
Types of Awards. The following types of awards may be granted under the 2016 Incentive Compensation Plan. All of the
awards described below are subject to the conditions, limitations, restrictions, vesting and forfeiture provisions determined by the
Compensation Committee, in its sole discretion, subject to such limitations as are provided in the 2016 Incentive Compensation
Plan. The number of shares subject to any award is also determined by the Compensation Committee, in its discretion. At the
discretion of the Compensation Committee, awards may be made subject to or may vest on an accelerated basis upon the
achievement of performance criteria, which may be established on a Company-wide basis or with respect to one or more business
units or divisions or subsidiaries and may be based upon the attainment of criteria as may be determined by the Committee and
set forth in the participant’s Award Agreement. Awards which vest in less than six (6) months from the date of grant may be made
to employees who are exempt from the overtime pay provisions of the Federal Fair Labor Standards Act.
24
Qualifying Performance Award. The Committee may, in its sole discretion, grant a Qualifying Performance Award to any
Section 162(m) Participant, which shall be subject to the terms and conditions established by the Committee in connection with the
award and specified in the applicable award document, but in all events subject to the attainment of Section 162(m) Performance
Goals as may be specified by the Committee, in accordance with the 2016 Incentive Compensation Plan. The material terms of
the Performance Goals (applicable to 2016-2020) are discussed below. Awards to Section 162(m) Participants need not be structured
as Qualifying Performance Awards.
Restricted Stock. A restricted stock award is an award of outstanding shares of Common Stock and/or Class B Common
Stock that does not vest until after a specified period of time, or upon the satisfaction of other vesting conditions as determined by
the Compensation Committee, and which may be forfeited if conditions to vesting are not met. Participants generally receive dividend
payments on the shares subject to an award of restricted stock during the vesting period, and are also generally entitled to vote
the shares underlying their awards.
Stock Unit; Performance Units. A stock unit is an award denominated in shares of Common Stock and/or Class B
Common Stock that may be settled either in shares and/or cash, subject to terms and conditions determined by the Compensation
Committee. Awards of stock units to non-employee directors as part of their annual director's fee are called Performance Units.
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, payable one-half in cash and one-half in value of Performance
Units. Performance Units are redeemable upon a director's retirement for an equivalent number of shares of the Company's Common
Stock, and the number of units issued is determined by the market value of the Company's Common Stock on the date of grant of
the units. The maximum number of performance units that may be granted to any non-employee director in any one fiscal year is
set at 20,000.
Stock Payment. The Compensation Committee may issue unrestricted shares of Common Stock and/or Class B Common
Stock under the 2016 Incentive Compensation Plan, alone or in tandem with other awards, in such amounts and subject to such
terms and conditions as the Compensation Committee shall determine. A stock payment may be granted as, or in payment of, a
bonus (including without limitation any compensation that is intended to qualify as performance-based compensation for purposes
of Section 162(m) of the Code), or to provide incentives or recognize special achievements or contributions.
Non-Qualified Stock Options. An award of a non-qualified stock option under the 2016 Plan grants a participant the right
to purchase a certain number of shares of Common Stock and/or Class B Common Stock during a specified term in the future,
after a vesting period, at an exercise price equal to at least 100% of the fair market value of the Common Stock on the grant date.
The exercise price may be paid by any of the means described below under “Payment of Exercise Price.” A non-qualified stock
option is an option that does not qualify under Section 422 of the Code.
Incentive Stock Options. An incentive stock option is a stock option that meets the requirements of Section 422 of the
Code, which include an exercise price of no less than 100% of fair market value on the grant date, a term of no more than 10 years,
and that the option be granted from a plan that has been approved by shareholders. Additional requirements apply to an incentive
stock option granted to a participant who beneficially owns stock representing more than 10% of the total voting power of all
outstanding stock of the Company on the date of grant. If certain holding period requirements are met and there is no disqualifying
disposition of the shares, the participant will be able to receive capital gain (rather than ordinary income) treatment under the Code
with respect to any gain related to the exercise of the option.
Payment of Exercise Price. Payment of the exercise price of a non-qualified stock option or incentive stock option may
be made in cash or, if permitted by the Compensation Committee, by tendering shares of Common Stock and/or Class B Common
Stock owned by the participant and acquired at least six (6) months prior to exercise, having a fair market value equal to the exercise
price, by a combination of cash and shares of Common Stock and/or Class B Common Stock or by authorizing the sale of shares
otherwise issuable upon exercise, with the sale proceeds applied towards the exercise price. Additionally, the Committee may
provide that stock options can be net exercised - that is exercised by issuing shares having a value approximately equal to the
difference between the aggregate value of the shares as to which the option is being exercised and the aggregate exercise price
for such number of shares.
Prohibition Against Re-pricing. The 2016 Incentive Compensation Plan prohibits any adjustment to an award of options
that would constitute a re-pricing (within the meaning of U.S. generally accepted accounting principles or any applicable stock
exchange rule) of awards, and defined, for these purposes, as any action that would have the effect of reducing the exercise price
of an option or other such awards.
Additional Forfeiture Provisions. Awards granted under the 2016 Incentive Compensation Plan may be made subject
to forfeiture if, after a termination of employment, the Participant engages in certain activities that breach an obligation or duty of
the Participant to the Company, or that are materially injurious to or in competition with the Company.
Deferrals. The Compensation Committee may postpone the exercise of awards, or the issuance or delivery of shares or
cash pursuant to any award for such periods and upon such terms and conditions as the Compensation Committee determines,
but not in contravention of Section 409A of the Code. In addition, the Compensation Committee may, but not in contravention of
25
Section 409A of the Code, determine that all or a portion of a payment to a participant, whether in cash and/or shares, will be
deferred in order to prevent the Company or any subsidiary from being denied a United States federal income tax deduction under
Section 162(m) of the Code with respect to an award granted under the 2016 Incentive Compensation Plan.
Non-Transferability. During the vesting period, awards granted under the 2016 Incentive Compensation Plan are not
transferable other than by will or the laws of descent and distribution, and the shares underlying any award are not transferable
until they have been issued and all applicable restrictions have either lapsed or been waived by the Compensation Committee.
However, the Compensation Committee may permit non-qualified stock options, or shares issued as a result of an option exercise
that are subject to a restriction on transferability, to be transferred one time to a participant’s immediate family member or a trust
for the benefit of a participant’s immediate family members. During a participant’s lifetime, all rights with respect to an award maybe
exercised only by the participant (or, if applicable pursuant to the preceding sentence, by a permitted transferee).
Adjustments. Subject to certain limitations, the maximum number of shares available for issuance under the 2016 Incentive
Compensation Plan, the number of shares covered by outstanding awards, the exercise price applicable to outstanding awards
and the limit on awards to a single employee may be adjusted by the Compensation Committee if it determines that any stock split,
extraordinary dividend, stock dividend, distribution (other than ordinary cash dividends), recapitalization, merger, consolidation,
reorganization, combination or exchange of shares or other similar event equitably requires such an adjustment.
Change of Control. Upon a “Change of Control,” as defined in the 2016 Incentive Compensation Plan, the Compensation
Committee, may, in its discretion and as it deems appropriate as a consequence of such Change in Control, accelerate, purchase,
adjust, modify or terminate awards or cause awards to be assumed by the surviving corporation in the transaction that triggered
such Change in Control. Any such actions that would cause awards under the 2016 Incentive Compensation Plan to become
subject to Section 409A of the Code, however, generally may not be taken unless the Compensation Committee affirmatively
determines to subject the 2016 Incentive Compensation Plan to the provisions of Section 409A.
Amendment and Termination. The 2016 Incentive Compensation Plan may be amended or terminated by the
Compensation Committee at any time, provided that no amendment that would require stockholder approval under any applicable
law or regulation (including the rules of any exchange on which the Company’s shares are then listed for trading) or under any
provision of the Code, may become effective without stockholder approval. A termination, suspension or amendment of the 2016
Incentive Compensation Plan may not adversely affect the rights of any participant with respect to a previously granted award,
without the participant’s written consent.
New Plan Benefits Under the 2016 Plan. Future benefits under the 2016 Incentive Compensation Plan as amended
are not currently determinable. The amounts and terms of any future awards under the 2016 Incentive Compensation Plan, as well
as the participants to which such awards may be made, depend on discretionary decisions of the Compensation Committee. While
the Compensation Committee expects that any shares which ultimately may become issuable for 2016 will be issued as restricted
stock awards under the 2016 Incentive Compensation Plan, the number of shares (if any) to be issued pursuant to such awards
cannot be determined until it is known whether, and to what extent, the related performance goals have been met.
The following table provides information as of March 4, 2020 with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the registrant are authorized for issuance.
(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))
2016 Incentive Compensation Plan
Equity Compensation Plan Approved by Security Holders
524,544 (1)
$3.97 (2)
106,378
(1)
Does not include 242,877 shares of unvested Common Stock pursuant to restricted stock grants consisting of,
40,320 of Performance Units issued to Directors, and 202,557 shares of restricted stock grants awarded under prior
incentive compensation plans.
(2)
Includes the aggregate weighted-average of (i) the exercise price per share for outstanding options to purchase
166,000 shares of Common Stock under our 2016 Incentive Compensation Plan and (ii) the price per share of the Common
Stock on the grant date for each of 72,000 Performance Units issued to Directors (each unit equivalent to one share of
Common Stock). If all plans are included, the weighted average exercise price is $4.57.
26
Material Terms of the Performance Goals Applicable to 2016 - 2020
Under the 2016 Incentive Compensation Plan, both cash incentive and stock based incentive awards may be granted.
The material terms of the performance goals for such awards consist of: (i) the class of employees eligible to receive the awards,
see Eligible Employees; (ii) the performance criteria on which goals are based, see Performance Criteria; and (iii) the maximum
payout of an award that can be provided to any employee and to all covered employees under the plan during a specified period,
see Maximum Payout.
Eligible Employees. All Covered Employees (as defined under IRC Section 162(m) of the Code) and any additional key
executives chosen by the compensation committee are eligible to receive awards under the plan. This group currently consists of
approximately 30 individuals.
Performance Criteria. The performance goals related to awards that may be paid to participants under the Plan include
one or more of the following measures in the discretion of the Compensation Committee: minimum annual levels of profitability;
minimum annual levels of corporate and/or business unit Operating Income, as adjusted for specific and unusual items; corporate
and/or business unit earnings before interest (EBIT) or earnings before interest taxes, and depreciation, as adjusted (EBITDA);
total shareholder return, return on capital, return on equity, pre-tax earnings, earnings growth, revenue growth, operating income,
operating profit, earnings per share, and return on investment or working capital, any one or more of which may be measured with
respect to the Company, or any one or more of its subsidiaries or business units, and either in absolute terms or as compared to
another company or other companies. Maximum payouts for each category of awards are described below.
Cash Incentive Awards. A cash incentive award component may be established for each participant in an amount
expressed as a percentage of such participant’s base salary as of the beginning of the applicable year. Such percentage or
percentages may be set annually by the Compensation Committee.
Share Based Awards. The Compensation Committee may elect annually to establish awards of restricted stock, stock
options, performance units or other types of awards permitted under the Company’s 2016 Incentive Compensation Plan, to each
participant, the value of which may be equal to a percentage of the sum of such participant’s base salary at the beginning of the
applicable year plus any cash incentive award paid for such year. The Committee shall determine such percentage annually. All
such awards may be made contingent upon attainment of one or more of the performance goals listed above and as set annually
by the Committee.
Maximum Payout. The maximum annual Cash Incentive Award that could be paid to any one participant for 2016 - 2020
is $750,000 and the maximum annual amount of cash awards that can be paid to all covered employees is $3,000,000.
The maximum annual value of stock based awards that could be issued to any one participant for 2016 - 2020 would be
$1,650,000 or 330,000 shares and the maximum annual value of stock awards that could be issued to all covered employees would
be $3,750,000 or 750,000 shares using the $5.00 per share minimum price provided by the incentive plan, as approved by the
Compensation Committee.
Within the terms of the 2016 Incentive Compensation Plan, and subject to the limitations of the material terms of the
performance goals as approved by shareholders, the Committee will select annual performance criteria, specific targets, and types
and amounts of potential incentive awards applicable to each year in the 2016 - 2020 period. Thereafter, the material terms of the
Performance Goals will be again submitted to shareholder for approval.
Certain United States Federal Income Tax Consequences
The following is a brief summary of the principal United States federal income tax consequences of transactions under
the 2016 Incentive Compensation Plan, based on current United States federal income tax laws. This summary is not intended to
be exhaustive, does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences,
which may be substantially different.
Restricted Stock. A participant generally will not be taxed at the time a restricted stock award is granted, but will recognize taxable
income when the award vests or otherwise is no longer subject to a substantial risk of forfeiture. The amount of taxable income
recognized will equal the fair market value of the shares subject to the award (or the portion of the award that is then vesting) at
that time. Participants may elect to be taxed based on the fair market value of the shares at the time of grant by making an election
under Section 83(b) of the Code within 30 days of the award date. If a restricted stock award with respect to which a participant
has made such an election under Section 83(b) is subsequently canceled, no deduction or tax refund will be allowed for the amount
previously recognized as income.
Unless a participant makes a Section 83(b) election, dividends paid to a participant on shares of an unvested restricted
stock award will be taxable to the participant as ordinary income. If the participant made a Section 83(b) election, the dividends will
be taxable to the participant as dividend income, which generally is subject to the same rate as capital gains income.
Except as provided under “Certain Limitations on Deductibility of Executive Compensation” below, the Company will
ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant
27
with respect to an award of restricted stock. Unless a participant has made a Section 83(b) election, the Company will also be
entitled to a deduction, for federal income tax purposes, for dividends paid on unvested restricted stock awards.
Stock Units. A participant will generally not recognize taxable income on the grant of a stock unit award. Subsequently,
when the terms and conditions prescribed by the Compensation Committee for payment of the award have been satisfied and
settlement is made in either cash or stock, the participant will recognize ordinary income equal to the amount of any cash received
and the fair market value of any shares of the Company’s Common Stock received as of the date of such settlement, reduced by
the amount (if any) that the participant is required to pay to exercise the award. Any dividend equivalents paid on the unvested
stock unit awards are taxable as ordinary income when paid to the participant.
Except as provided under “Certain Limitations on Deductibility of Executive Compensation” below, the Company will
ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant
with respect to an award of stock units. The Company will also be entitled to a deduction, for federal income tax purposes, on any
dividend equivalent payments made to the participant.
Stock Awards. A participant will recognize taxable income on the grant of unrestricted stock, in an amount equal to the
fair market value of the shares on the grant date. Except as provided under “Certain Limitations on Deductibility of Executive
Compensation” below, the Company will ordinarily be entitled to a deduction at the same time and in the same amounts as the
ordinary income recognized by the participant with respect to such a stock award.
Non-Qualified Stock Options. Generally, a participant will not recognize taxable income on the grant of a non-qualified
stock option provided the exercise price of the option is equal to the fair market value of the underlying stock at the time of grant.
Upon the exercise of a non-qualified stock option, a participant will recognize ordinary income in an amount equal to the difference
between the fair market value of the Common Stock received on the date of exercise and the option cost (number of shares
purchased multiplied by the exercise price per share). The participant will recognize ordinary income upon the exercise of the option
even though the shares acquired may be subject to further restrictions on sale or transferability. Except as provided under “Certain
Limitations on Deductibility of Executive Compensation” below, the Company will ordinarily be entitled to a deduction on the exercise
date equal to the ordinary income recognized by the participant upon exercise.
Generally, upon a subsequent sale of shares acquired in an option exercise, the difference between the sale proceeds
and the cost basis of the shares sold will be taxable as a capital gain or loss, including any sale of shares freed from sale restrictions
to fund the payment of taxes incurred at exercise.
Incentive Stock Options (ISOs). No taxable income is recognized by a participant on the grant of an ISO. If a participant
exercises an ISO in accordance with the terms of the ISO and does not dispose of the shares acquired within two years from the
date of the grant of the ISO, nor within one year from the date of exercise, the participant will be entitled to treat any gain or loss
related to the exercise of the ISO as capital gain or loss (instead of ordinary income), and the Company will not be entitled to a
deduction by reason of the grant or exercise of the ISO. The amount of the gain or loss upon a subsequent sale will be long-term
capital gain or loss equal to the difference between the amount realized on the sale and the participant’s basis in the shares acquired.
If a participant sells or otherwise disposes of the shares acquired without satisfying the required minimum holding period, such
“disqualifying disposition” will give rise to ordinary income equal to the excess of the fair market value of the shares acquired on
the exercise date (or, if less, the amount realized upon disqualifying disposition) over the participant’s tax basis in the shares
acquired. Additionally, the exercise of an ISO will give rise to an item of tax preference that may result in alternative minimum tax
liability for the participant. Except as provided under “Certain Limitations on Deductibility of Executive Compensation” below, the
Company will ordinarily be entitled to a deduction equal to the amount of the ordinary income taxable to a participant as a result of
any disqualifying disposition.
Withholding. The Company retains the right to deduct or withhold, or require the participant to remit to his or her employer,
an amount sufficient to satisfy federal, state and local and foreign taxes, required by law or regulation to be withheld with respect
to any taxable event as a result of the 2016 Incentive Compensation Plan.
Certain Limitations on Deductibility of Executive Compensation. Section 162(m) of the Code limits the deduction to
the Company for compensation paid to certain executive officers to $1 million per executive per taxable year.
Treatment of “Excess Parachute Payments”. The accelerated vesting of awards under the 2016 Incentive Compensation
Plan upon a change of control of the Company could result in a participant being considered to receive “excess parachute
payments” (as defined in Section 280G of the Code), which payments are subject to a 20% excise tax imposed on the participant.
The Company would not be able to deduct the excess parachute payments made to a participant.
The Board of Directors recommends that the Company's shareholders vote FOR approval amendment of the Company's
2016 Incentive Compensation Plan to increase by 500,000 the number of shares subject to the Plan;
28
PROPOSAL THREE
ADVISORY VOTE ON EXECUTIVE COMPENSATION
As required under recent amendments to the Securities Exchange Act of 1934, our stockholders may cast an advisory
vote on the compensation of our Named Executive Officers, as described in this proxy statement.
Our executive compensation programs are designed to attract, motivate, and retain our Named Executive Officers, who
are critical to our success. Please read the Compensation Discussion and Analysis for additional details about our executive
compensation programs, including information about the fiscal 2019 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
Three.
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY SAY-ON-PAY VOTES
PROPOSAL FOUR
Our stockholders also have the opportunity to indicate how frequently we should seek an advisory vote on the compensation
of our named executive officers. By voting on Proposal Three, stockholders may indicate whether they would prefer an advisory
vote on named executive officer compensation once every one, two, or three years. You will have the opportunity to vote on this
issue at least once every six years.
Our Board of Directors has determined that an advisory vote on executive compensation that occurs every year is the
most appropriate alternative for our company. Accordingly, our Board of Directors recommends that you vote for a one-year interval
for the advisory vote on executive compensation.
You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, or three years.
You may also abstain from voting. The option that receives the highest number of advisory votes by shareholders will be the
frequency for the advisory vote on executive compensation deemed to have been selected by stockholders. Abstentions and broker
non-votes will have no effect on the outcome of the vote.
As the vote is advisory and not binding, the Board of Directors may decide that it is in the best interests of the Company
and its shareholders to hold an advisory vote on executive compensation more or less frequently than the option selected by our
shareholders (but not less often than once every three years). However, we value the opinions of our shareholders and will consider
the outcome of the advisory vote in deciding how often to hold the advisory vote on executive compensation in future years.
The Board of Directors recommends a vote FOR the frequency of the say-on-pay advisory vote to be "one year".
29
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2020
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 2020 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 Five.
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 2020, the Board of Directors will consider other alternatives, including appointment of another
firm to serve as independent registered public accountants for fiscal 2020.
30
The following table sets forth the fees paid to Dixon Hughes Goodman LLP for services provided during fiscal year 2018
and 2019:
AUDIT FEES DISCUSSION
Audit fees paid to Dixon Hughes Goodman LLP (1)
Audit related fees (2)
Tax fees (3)
All other fees (4)
Total Audit Fees
2019
2018
575,452 $
74,218 $
1,425 $
— $
651,095 $
610,026
3,354
45,495
5,716
664,591
$
$
$
$
$
(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 2018 and 2019.
(2) Represents fees for discussions of recent accounting pronouncements.
(3) Represents fees for tax compliance and tax planning services.
(4) Represents fees related to a sale leaseback transaction.
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 2021 Annual Meeting of Shareholders, such proposal
must be received by the Company on or before November 13, 2020, 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 20, 2020
The Dixie Group, Inc.
Daniel K. Frierson
Chairman of the Board
31
ANNEX A
THE DIXIE GROUP, INC.
THE AMENDED AND RESTATED 2016 INCENTIVE COMPENSATION PLAN
1. Purpose
The primary purposes of The Dixie Group, Inc. 2016 Incentive Compensation Plan are to attract, retain and motivate
employees, officers, agents and other eligible plan participants, including non-employee directors of the Company, and to
compensate them for their contributions to the growth and profits of the Company.
2. Definitions
Except as otherwise provided in an applicable Award Document, the following capitalized terms shall have the meanings
indicated below for purposes of the Plan and any Award:
“Administrator” means the Committee or subcommittee or individual appointed by the Committee.
“Award” means any award of Restricted Stock, Performance Units, Options, Cash or Other Awards (or any combination
thereof) made under and pursuant to the terms of the Plan.
“Award Date” means the date specified in a Participant’s Award Document as the grant date of the Award.
“Award Document” means a written document (including in electronic form) that sets forth the terms and conditions of
an Award. Award Documents shall be authorized in accordance with Section 11(c).
“Board” means the Board of Directors of The Dixie Group, Inc.
“Code” means the Internal Revenue Code of 1986, as amended, and the applicable rulings, regulations and guidance
thereunder.
“Committee” means the Compensation Committee of the Board, any successor committee thereto or any other committee
of the Board appointed by the Board to administer the Plan or to have authority with respect to the Plan, or any subcommittee
appointed by such Committee. With respect to any provision regarding the grant of Qualifying Performance Awards, the
Committee shall consist of at least two “outside directors” as defined under Section 162(m) of the Code.
“Company” means The Dixie Group, Inc. and all of its Subsidiaries.
“Eligible Individuals” means the individuals described in Section 6 who are eligible for Awards.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the applicable rulings and regulations
thereunder.
“Fair Market Value” means, with respect to a Share, the fair market value thereof as of the relevant date of determination,
as determined in accordance with a valuation methodology approved by the Committee.
“Incentive Stock Option” means an Option that is intended to qualify for special federal income tax treatment pursuant
to Sections 421 and 422 of the Code, as now constituted or subsequently amended, or pursuant to a successor provision
of the Code, and which is so designated in the applicable Award Document.
“Option” or “Stock Option” means a right, granted to a Participant pursuant to Section 9, to purchase Shares of The Dixie
Group, Inc. common stock.
"Other Award” means any other form of award authorized under Section 11.
"Participant” means an individual to whom an Award has been made.
“Performance Unit” means a right, granted to a non-employee Participant pursuant to Section 8, to receive Shares, as
authorized by the Committee.
“Plan” means The Dixie Group, Inc. 2016 Incentive Compensation Plan, as amended from time to time in accordance with
Section 14(e).
Annex A - 32
“Qualifying Performance Award” means an Award granted pursuant Section 10.
“Restricted Stock” means Shares granted or sold to a Participant pursuant to Section 7.
“Section 162(m) Participant” means, for a given performance period, any individual designated by the Committee by not
later than 90 days following the start of such performance period (or such other time as may be required or permitted by
Section 162(m) of the Code) as an individual whose compensation for such performance period may be subject to the
limit on deductible compensation imposed by Section 162(m) of the Code.
“Section 162(m) Performance Goals” means any performance goals approved by The Dixie Group, Inc. stockholders
and the performance objectives established by the Committee in accordance with Section 10 or any other performance
goals approved by The Dixie Group, Inc.’s stockholders pursuant to Section 162(m) of the Code.
“Section 409A” means Section 409A of the Code.
“Shares” means shares of Stock.
“Stock” means the Common Stock, Par Value $3.00 per share, of The Dixie Group, Inc., and, where permitted under the
Plan, the Class B Common Stock, Par Value $3.00 per share of The Dixie Group, Inc.
“Subsidiary” means (i) a corporation or other entity with respect to which The Dixie Group, Inc., directly or indirectly, has
the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the
members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or other entity
in which The Dixie Group, Inc., directly or indirectly, has an equity or similar interest and which the Committee designates
as a Subsidiary for purposes of the Plan.
3. Effective Date and Term of Plan
(a) Effective Date. The Plan shall become effective upon its adoption by the Board, subject to its approval by The Dixie
Group, Inc.’s stockholders. Prior to such stockholder approval, the Committee may grant Awards conditioned on stockholder
approval, but no Shares may be issued or delivered pursuant to any such Award until The Dixie Group, Inc.’s stockholders
have approved the Plan. If such stockholder approval is not obtained at or before the first annual meeting of stockholders
to occur after the adoption of the Plan by the Board, the Plan and any Awards made thereunder shall terminate ab initio
and be of no further force and effect.
(b) Term of Plan. No Awards may be made under the Plan after May 3, 2026.
4. Stock Subject to Plan
(a) Overall Plan Limit. The total number of Shares that may be delivered pursuant to Awards shall be 1,300,000 as calculated
pursuant to Section 4(c). The number of Shares available for delivery under the Plan shall be adjusted as provided in
Section 4(b). Shares delivered under the Plan may be authorized but unissued shares or treasury shares that The Dixie
Group, Inc. acquires in the open market, in private transactions or otherwise.
(b) Adjustments for Certain Transactions. In the event of a stock split, reverse stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, extraordinary dividend or distribution, split-up, spin-off, combination, reclassification
or exchange of shares, warrants or rights offering to purchase Stock at a price substantially below Fair Market Value or
other change in corporate structure or any other event that affects The Dixie Group, Inc.’s capitalization, the Committee
shall equitably adjust (i) the number and kind of shares authorized for delivery under the Plan, including the maximum
number of Shares available for Awards of Options as provided in Section 4(d), the maximum number of Incentive Stock
Options as provided in Section 4(e) and the individual Qualifying Performance Award maximum under Section 10, and (ii)
the number and kind of shares subject to any outstanding Award and the exercise or purchase price per share, if any,
under any outstanding Award. The Committee shall make all such adjustments, and its determination as to what adjustments
shall be made, and the extent thereof, shall be final. Unless the Committee determines otherwise, such adjusted Awards
shall be subject to the same vesting schedule and restrictions to which the underlying Award is subject.
(c) Calculation of Shares Available for Delivery. In calculating the number of Shares that remain available for delivery
pursuant to Awards at any time, the following rules shall apply (subject to the limitation in Section 4(e)):
(i) The number of Shares available for delivery shall be reduced by the number of Shares subject to an Award
and, in the case of an Award that is not denominated in Shares, the number of Shares actually delivered upon
payment or settlement of the Award.
Annex A - 33
(ii) The number of Shares tendered (by actual delivery or attestation) or withheld from an Award to pay the exercise
price of the Award or to satisfy any tax withholding obligation or liability of a Participant shall be added back to
the number of Shares available for delivery pursuant to Awards.
(iii) The number of Shares in respect of any portion of an Award that is canceled or that expires without having
been paid or settled by the Company shall be added back to the number of Shares available for delivery pursuant
to Awards to the extent such Shares were counted against the Shares available for delivery pursuant to clause
(i).
(iv) If an Award is settled or paid by the Company in whole or in part through the delivery of consideration other
than Shares, or by delivery of fewer than the full number of Shares that was counted against the Shares available
for delivery pursuant to clause (i), there shall be added back to the number of Shares available for delivery
pursuant to Awards the excess of the number of Shares that had been so counted over the number of Shares (if
any) actually delivered upon payment or settlement of the Award.
(v) Any Shares underlying Substitute Awards shall not be counted against the number of Shares available for
delivery pursuant to Awards and shall not be subject to Section 4(d).
(d) Individual Limit on Options. The maximum number of Shares that may be subject to Options granted to a Participant
in any fiscal year shall be 150,000 Shares. The limitation imposed by this Section 4(d) shall not include Options granted
to a Participant pursuant to Section 162(m) Performance Goals.
(e) ISO Limit. The full number of Shares available for delivery under the Plan may be delivered pursuant to Incentive Stock
Options, except that in calculating the number of Shares that remain available for Awards of Incentive Stock Options the
rules set forth in Section 4(c) shall not apply to the extent not permitted by Section 422 of the Code.
5. Administration
(a) Committee Authority Generally. The Committee shall administer the Plan and shall have full power and authority to
make all determinations under the Plan, subject to the express provisions hereof, including without limitation: (i) to select
Participants from among the Eligible Individuals; (ii) to make Awards; (iii) to determine the number of Shares subject to
each Award or the cash amount payable in connection with an Award; (iv) to establish the terms and conditions of each
Award, including, without limitation, those related to vesting, cancellation, payment, exercisability, and the effect, if any, of
certain events on a Participant’s Awards, such as the Participant’s termination of employment with the Company; (v) to
specify and approve the provisions of the Award Documents delivered to Participants in connection with their Awards; (vi)
to construe and interpret any Award Document delivered under the Plan; (vii) to prescribe, amend and rescind rules and
procedures relating to the Plan; (viii) to make all determinations necessary or advisable in administering the Plan and
Awards, including, without limitation, determinations as to whether (and if so as of what date) a Participant has commenced,
or has experienced a termination of, employment; provided, however, that to the extent full or partial payment of any Award
that constitutes a deferral of compensation subject to Section 409A is made upon or as a result of a Participant’s termination
of employment, the Participant will be considered to have experienced a termination of employment if, and only if, the
Participant has experienced a separation from service with the Participant’s employer for purposes of Section 409A; (ix)
to vary the terms of Awards to take account of securities law and other legal or regulatory requirements of jurisdictions in
which Participants work or reside or to procure favorable tax treatment for Participants; and (x) to formulate such procedures
as it considers to be necessary or advisable for the administration of the Plan.
(b) Authority to Construe and Interpret. The Committee shall have full power and authority, subject to the express provisions
hereof, to construe and interpret the Plan.
(c) Committee Discretion. All of the Committee’s determinations in carrying out, administering, construing and interpreting
the Plan shall be made or taken in its sole discretion and shall be final, binding and conclusive for all purposes and upon
all persons. In the event of any disagreement between the Committee and an Administrator, the Committee’s determination
on such matter shall be final and binding on all interested persons, including any Administrator. The Committee’s
determinations under the Plan need not be uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality
of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Award Documents, as to the persons receiving Awards under the Plan, and
the terms and provisions of Awards under the Plan.
(d) No Liability. Subject to applicable law: (i) no member of the Committee or any Administrator shall be liable for anything
whatsoever in connection with the exercise of authority under the Plan or the administration of the Plan except such
person’s own willful misconduct; (ii) under no circumstances shall any member of the Committee or any Administrator be
liable for any act or omission of any other member of the Committee or an Administrator; and (iii) in the performance of
its functions with respect to the Plan, the Committee and an administrator shall be entitled to rely upon information and
advice furnished by the Company’s officers, the Company’s accountants, the Company’s counsel and any other party the
Annex A - 34
Committee or the Administrator deems necessary, and no member of the Committee or any Administrator shall be liable
for any action taken or not taken in good faith reliance upon any such advice.
6. Eligibility
All “employees” of the Company - within the SEC’s broad definition set forth in the instructions to the Form S-8 registration
statement, which includes employees, officers, directors and (subject to certain restrictions) consultants and advisors to
the Company - are eligible to receive awards under the 2016 Incentive Compensation Plan. Participation is discretionary
- awards are subject to approval by the Compensation Committee.
7. Restricted Stock
An Award of Restricted Stock shall be subject to the terms and conditions established by the Committee in connection
with the Award and specified in the applicable Award Document. Restricted Stock may, among other things, be subject to
restrictions on transfer, vesting requirements or cancellation under specified circumstances.
8. Performance Units
Performance Units may be granted to non-employee directors as payment for a portion or all of such Participant’s annual
directors’ fees or other compensation to such persons who perform services for the Company. An Award of Performance
Units shall be subject to the terms and conditions established by the Committee in connection with the Award and specified
in the applicable Award Document. Each Performance Unit awarded to a Participant shall correspond to one Share. Upon
satisfaction of the terms and conditions of the Award, a Performance Unit will be payable in Stock equal to the Fair Market
Value on the grant date of one Share. As a holder of Performance Units, a Participant shall have only the rights of a general
unsecured creditor of The Dixie Group, Inc. A Participant shall not be a stockholder with respect to the Shares underlying
Performance Units unless and until the Performance Units convert to Shares. Performance Units may, among other things,
be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. For purposes
of such awards to non-employee directors, there shall be an annual limit of 20,000 Performance Units (20,000 shares)
per Participant.
9. Options
(a) Options Generally. An Award of Options shall be subject to the terms and conditions established by the Committee in
connection with the Award and specified in the applicable Award Document. The Committee shall establish (or shall
authorize the method for establishing) the exercise price of all Options awarded under the Plan, except that the exercise
price of an Option shall not be less than 100% of the Fair Market Value of one Share on the Award Date (110% in the case
of a 10% Shareholder). Upon satisfaction of the conditions to exercisability of the Award, a Participant shall be entitled to
exercise the Options included in the Award and to have delivered, upon The Dixie Group, Inc.’s receipt of payment of the
exercise price and completion of any other conditions or procedures specified by The Dixie Group, Inc., the number of
Shares in respect of which the Options shall have been exercised. Options may be either nonqualified stock options or
Incentive Stock Options. Options and the Shares acquired upon exercise of Options may, among other things, be subject
to restrictions on transfer, vesting requirements or cancellation under specified circumstances.
(b) Prohibition on Repricing of Options. Anything in the Plan to the contrary notwithstanding, the Committee may not reprice
any Option. “Reprice” means any action that has the effect of reducing the exercise price of such Option.
(c) Payment of Exercise Price. Subject to the provisions of the applicable Award Document and to the extent authorized
by rules and procedures of The Dixie Group, Inc. from time to time, the exercise price of the Option may be paid in cash,
by actual delivery or attestation to ownership of freely transferable Shares already owned by the person exercising the
Option, or by such other means as The Dixie Group, Inc. may authorize.
(d) Maximum Term on Stock Options. No Incentive Stock Option shall have an expiration date that is later than the tenth
anniversary of the Award Date thereof.
10. Qualifying Performance Awards
(a) The Committee may, in its sole discretion grant a Qualifying Performance Award to any Section 162(m) Participant.A
Qualifying Performance Award shall be subject to the terms and conditions established by the Committee in connection
with the Award and specified in the applicable Award Document, but in all events shall be subject to the attainment of
Section 162(m) Performance Goals as may be specified by the Committee. Qualifying Performance Awards may be
denominated as a cash amount, number of Shares or other securities of the Company, or a combination thereof. Subject
to the terms of the Plan, the Section 162(m) Performance Goals to be achieved during any performance period, the length
of any performance period, the amount of any Qualifying Performance Award granted and the amount of any payment or
transfer to be made pursuant to any Qualifying Performance Award shall be determined by the Committee. The Committee
Annex A - 35
shall have the discretion, by Section 162(m) Participant and by Award, to reduce (but not to increase) some or all of the
amount that would otherwise be payable under the Award by reason of the satisfaction of the Section 162(m) Performance
Goals set forth in the Award. In making any such determination, the Committee is authorized in its discretion to take into
account additional factors that the Committee may deem relevant to the assessment of individual or Company performance
for the performance period.
(b) In any calendar year, no one Section 162(m) Participant may be granted Awards pursuant to Section 10(a) that allow
for cash payments in an aggregate amount determined in excess of $750,000 and the maximum annual aggregate amount
that can be paid, in cash awards, to all Participants is $3,000,000.00. To the extent that one or more Qualifying Performance
Awards granted to any one Section 162(m) Participant during any calendar year are denominated in Shares, the maximum
value of any such Awards to any one Participant shall be $1,650,000, and the maximum annual number of shares that
could be issued to any one participant is 330,000 shares. The maximum annual value of stock Awards that may be issued
to all Participants for any given year is $3,750,000.00. The maximum annual number of shares that may be issued for all
Participants who are Covered Employees under this Section 10 is 750,000.
(c) Section 162(m) Performance Goals may vary by Section 162(m) Participant and by Award, and may be based upon
the attainment of specific or per-share amounts of, or changes in, one or more, or a combination of two or more, of the
following: minimum annual levels of profitability; minimum annual levels of corporate and/or business unit operating income,
as adjusted for specific and unusual items so designated by the Compensation Committee; corporate and/or business
unit earnings before interest (EBIT) or earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted
for specific and unusual items so designated by the Compensation Committee; total shareholder return; return on capital;
return on equity; pre-tax earnings; earnings growth; revenue growth operating profit; earnings per share; and return on
investment or working capital or other specific non-financial objective that enhances the value of the Company to its
shareholders. Any of the preceding measures may be set or determined with respect to the Company, or any one of its
subsidiaries or business units, and measured either in absolute terms or as compared to an external metric or another
company or other companies.
(d) Following the completion of any performance period applicable to a Qualifying Performance Award, the Committee
shall certify in writing the applicable performance and amount, if any, payable to Section 162(m) Participants for such
performance period. The amounts payable to a Section 162(m) Participant will be paid (or granted in the case of awards
of restricted stock granted subject to service conditions) following the end of the performance period after such certification
by the Committee in accordance with the terms of the Qualifying Performance Award, but no later than the first March 15
following the Performance Period.
(e) Without further action by the Board, this Section 10 shall cease to apply on the effective date of the repeal of Section
162(m) of the Code (and any successor provision thereof).
11. General Terms and Provisions
(a) Awards in General. Awards may be granted as an award of Cash, as Stock, as Restricted Stock, as a Qualified
Performance Award, as Options or as Performance Units. Awards may be granted independent of other Awards. The grant,
vesting or payment of an Award may, among other things, be conditioned on the attainment of performance objectives,
including without limitation objectives based in whole or in part on net income, pre-tax income, return on equity, earnings
per share, total shareholder return or book value per share. Performance objectives for Awards intended to qualify as
Qualifying Performance Awards shall be based on Performance Goals as specified in Section 10(c).
(b) Dividends and Distributions. If The Dixie Group, Inc. pays any dividend or makes any distribution to holders of Stock,
the Committee may in its discretion authorize payments (which may be in cash, Stock (including Restricted Stock) or
Performance Units or a combination thereof) with respect to the Shares corresponding to an Award, or may authorize
appropriate adjustments to outstanding Awards, to reflect such dividend or distribution. The Committee may make any
such payments subject to vesting, deferral, restrictions on transfer or other conditions. Any determination by the Committee
with respect to a Participant’s entitlement to receive any amounts related to dividends or distributions to holders of Stock,
as well as the terms and conditions of such entitlement, if any, will be part of the terms and conditions of the Award, and
will be included in the Award Document for such Award.
(c) Award Documentation and Award Terms. The terms and conditions of an Award shall be set forth in an Award Document
authorized by the Committee. The Award Document shall include any vesting, exercisability, payment and other restrictions
applicable to an Award (which may include, without limitation, the effects of termination of employment, cancellation of the
Award under specified circumstances, restrictions on transfer or provision for mandatory resale to the Company).
(d) Proportional Exercise for Common Stock and Class B Common Stock. All Awards granted under the Plan shall be
denominated and documented with reference to the number of shares of Common Stock subject to such Award; provided,
however, that any Participant who already owns shares of the Company's Class B Common Stock prior to exercising any
Award granted to him under the Plan shall be entitled to elect to receive shares of both Common Stock and Class B
Common Stock with respect to such Award, with the maximum number of shares of Class B Common Stock that the
Annex A - 36
Participant may elect to receive being limited to a number that will not increase the ratio of the number of shares of Class
B Common Stock held by the Participant to the total number of shares of Common Stock and Class B Common Stock
held by such Participant on the Election Date (as defined below). For any Award which is an ISO or Nonqualified Stock
Option (or portion thereof, in the case of Options which vest in installments over time), the Election Date shall be the date
on which such Award (or any applicable installment) is exercised, unless the Participant chooses to express such election
on the date of grant. For any Award of Restricted Stock, the Election Date shall be the date on which the Award is granted.
Any Participant who holds shares of Class B Common Stock and fails to effectively make the applicable election as
described above will receive only shares of Common Stock with respect to such Award. All references to “Common Stock”
in the Plan or in any Award agreement issued under the Plan shall be deemed to refer to the appropriate number of shares
of Common Stock and Class B Common Stock as applied to any eligible Participant who makes the election provided by
this Section 11(d).
(e) Voting. Participants shall have the right to vote shares of Common Stock (or Class B Common Stock) allocated to an
Award of Restricted Stock. The shares allocated to such Award shall be voted in accordance with instructions received
from Participants, or pursuant to such other method as the Committee may establish to enable Participants holding any
such Award to vote, or to direct the voting of, such shares.
12. Certain Restrictions
(a) Stockholder Rights. Except as otherwise provided in Section 4(b) or 11(b), no adjustments shall be made for dividends
or distributions on, or other events relating to, Shares subject to an Award for which the record date is prior to the date
such Shares are delivered. Except for the risk of cancellation and the restrictions on transfer that may apply to certain
Shares (including restrictions relating to any dividends or other rights) or as otherwise set forth in the applicable Award
Document, the Participant shall be the beneficial owner of any Shares delivered to the Participant in connection with an
Award and, upon such delivery shall be entitled to all rights of ownership, including, without limitation, the right to vote the
Shares and to receive cash dividends or other dividends (whether in Shares, other securities or other property) thereon.
(b) Transferability. No Award granted under the Plan shall be transferable, whether voluntarily or involuntarily, other than
by will or by the laws of descent and distribution; provided that, except with respect to Incentive Stock Options, the
Committee may permit transfers on such terms and conditions as it shall determine. During the lifetime of a Participant to
whom Incentive Stock Options were awarded, such Incentive Stock Options shall be exercisable only by the Participant.
13. Representation; Compliance with Law
The Committee may condition the grant, exercise, settlement or retention of any Award on the Participant making any
representations required in the applicable Award Document. Each Award shall also be conditioned upon the making of
any filings and the receipt of any consents or authorizations required to comply with, or required to be obtained under,
applicable law.
14. Miscellaneous Provisions
(a) Satisfaction of Obligations. As a condition to the making or retention of any Award, the vesting, exercise or payment
of any Award or the lapse of any restrictions pertaining thereto, The Dixie Group, Inc. may require a Participant to pay
such sum to the Company as may be necessary to discharge the Company’s obligations with respect to any taxes,
assessments or other governmental charges (including FICA and other social security or similar tax) imposed on property
or income received by a Participant pursuant to the Award or to satisfy any obligation that the Participant owes to the
Company. In accordance with rules and procedures authorized by The Dixie Group, Inc., (i) such payment may be in the
form of cash or other property, including the tender of previously owned Shares, and (ii) in satisfaction of such taxes,
assessments or other governmental charges or, exclusively in the case of an Award that does not constitute a deferral of
compensation subject to Section 409A, of other obligations that a Participant owes to the Company, The Dixie Group, Inc.
may make available for delivery a lesser number of Shares in payment or settlement of an Award, may withhold from any
payment or distribution of an Award or may enter into any other suitable arrangements to satisfy such withholding or other
obligation. To the extent an Award constitutes a deferral of compensation subject to Section 409A, the Company may not
offset from the payment of such Award amounts that a Participant owes to the Company with respect to any such other
obligation except to the extent such offset is not prohibited by Section 409A and would not cause a Participant to recognize
income for United States federal income tax purposes prior to the time of payment of the Award or to incur interest or
additional tax under Section 409A.
(b) No Right to Continued Employment. Neither the Plan nor any Award shall give rise to any right on the part of any
Participant to continue in the employ of the Company.
Annex A - 37
(c) Headings. The headings of sections herein are included solely for convenience of reference and shall not affect the
meaning of any of the provisions of the Plan.
(d) Governing Law. The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of
the State of Tennessee, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the
interpretation of the award to the substantive law of another jurisdiction.
(e) Amendments and Termination. The Board or Committee may modify, amend, suspend or terminate the Plan in whole
or in part at any time and may modify or amend the terms and conditions of any outstanding Award (including by amending
or supplementing the relevant Award Document at any time); provided, however, that no such modification, amendment,
suspension or termination shall, without a Participant’s consent, materially adversely affect that Participant’s rights with
respect to any Award previously made; and provided, further, that the Committee shall have the right at any time, without
a Participant’s consent and whether or not the Participant’s rights are materially adversely affected thereby, to amend or
modify the Plan or any Award under the Plan in any manner that the Committee considers necessary or advisable to
comply with any law, regulation, ruling, judicial decision, accounting standards, regulatory guidance or other legal
requirement. Notwithstanding the preceding sentence, neither the Board nor the Committee may accelerate the payment
or settlement of any Award, including, without limitation, any Award subject to a prior deferral election, that constitutes a
deferral of compensation for purposes of Section 409A except to the extent such acceleration would not result in the
Participant incurring interest or additional tax under Section 409A. No amendment to the Plan may render any Board
member who is not a Company employee eligible to receive an Award at any time while such member is serving on the
Board.
Annex A - 38
DIR ECTOR S
OFFICERS
Daniel K. Frierson
Chairman of the Board and
Chief Executive Officer
D. Kennedy Frierson, Jr.
Vice President and
Chief Operating Officer
Allen L. Danzey
Vice President and
Chief Financial Officer
W. Derek Davis
Corporate Secretary
and Vice President,
Human Resources
T.M. Nuckols
Vice President and President,
Dixie Residential
Jon A. Faulkner
Vice President,
Strategic Initiatives
Daniel K. Frierson (1)
Chairman of the Board and
Chief Executive Officer,
The Dixie Group, Inc.
William F. Blue, Jr. (1) (2) (4)
Chairman of the Board,
The Hopeway Foundation
Charles E. Brock (3) (4)
Owner, Brock Partnerships
Lowry F. Kline (1) (2) (4)
Retired Chairman,
Coca-Cola Enterprises, Inc.
D. Kennedy Frierson, Jr.
Chief Operating Officer,
The Dixie Group, Inc.
Michael L. Owens (3) (4)
Assistant Dean of Graduate
Programs & Lecturer,
College of Business,
University of Tennessee
at Chattanooga
Hilda S. Murray (3) (4)
Corporate Secretary and
Executive Vice President,
TPC Printing & Packaging
(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
The Dixie Group, Inc.
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
1200 Volunteer Building
832 Georgia Avenue
Chattanooga, Tennessee 37402
Investor Contact
Allen L. Danzey
Vice President and Chief
Financial Officer
The Dixie Group, Inc.
475 Reed Road
Dalton, Georgia 30720
(706) 876-5865
Form 10-K and Other
Information
A copy of the Company’s
Annual Report on Form 10-K
for the fiscal year ended
December 28, 2019, 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 6, 2020,
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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The Dixie Group, Inc.
475 Reed Road
Dalton, Georgia 30720