Company Quick10K Filing
Dixie Group
Price1.26 EPS-1
Shares16 P/E-2
MCap20 P/FCF3
Net Debt117 EBIT-5
TEV137 TEV/EBIT-26
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-06-27 Filed 2020-08-06
10-Q 2020-03-28 Filed 2020-05-29
10-K 2019-12-28 Filed 2020-03-12
10-Q 2019-09-28 Filed 2019-11-07
10-Q 2019-06-29 Filed 2019-08-08
10-Q 2019-03-30 Filed 2019-05-06
10-K 2018-12-29 Filed 2019-03-08
10-Q 2018-09-29 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-30 Filed 2018-03-13
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-07-01 Filed 2017-08-03
10-Q 2017-04-01 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-03-13
10-Q 2016-09-24 Filed 2016-11-03
10-Q 2016-06-25 Filed 2016-08-04
10-Q 2016-03-26 Filed 2016-05-04
10-K 2015-12-26 Filed 2016-03-09
10-Q 2015-09-26 Filed 2015-11-04
10-Q 2015-06-27 Filed 2015-08-03
10-Q 2015-03-28 Filed 2015-05-01
10-K 2014-12-27 Filed 2015-03-12
10-Q 2014-09-27 Filed 2014-11-05
10-Q 2014-06-28 Filed 2014-08-06
10-Q 2014-03-29 Filed 2014-05-07
10-K 2013-12-28 Filed 2014-03-12
10-Q 2013-09-28 Filed 2013-11-06
10-Q 2013-06-29 Filed 2013-08-07
10-Q 2013-03-30 Filed 2013-05-03
10-K 2012-12-29 Filed 2013-03-25
10-Q 2012-09-29 Filed 2012-11-09
10-Q 2012-03-31 Filed 2012-05-08
10-K 2011-12-31 Filed 2012-03-22
10-Q 2011-10-01 Filed 2011-11-09
10-Q 2011-07-02 Filed 2011-08-11
10-Q 2011-04-02 Filed 2011-05-12
10-K 2010-12-25 Filed 2011-03-14
10-Q 2010-09-25 Filed 2010-11-04
10-Q 2010-06-26 Filed 2010-07-30
10-Q 2010-03-27 Filed 2010-04-29
10-K 2009-12-26 Filed 2010-03-03
8-K 2020-09-01 Enter Agreement, Other Events, Exhibits
8-K 2020-08-06 Regulation FD, Exhibits
8-K 2020-08-06 Earnings, Exhibits
8-K 2020-07-15 Enter Agreement, Exhibits
8-K 2020-05-19
8-K 2020-05-19
8-K 2020-05-15
8-K 2020-05-07
8-K 2020-05-05
8-K 2020-04-30
8-K 2020-03-13
8-K 2020-03-05
8-K 2020-03-05
8-K 2019-11-08
8-K 2019-11-07
8-K 2019-11-07
8-K 2019-10-22
8-K 2019-10-04
8-K 2019-08-28
8-K 2019-08-09
8-K 2019-08-05
8-K 2019-08-05
8-K 2019-06-06
8-K 2019-05-07
8-K 2019-05-03
8-K 2019-05-03
8-K 2019-05-03
8-K 2019-03-08
8-K 2019-03-07
8-K 2019-03-07
8-K 2019-02-05
8-K 2019-02-04
8-K 2019-01-17
8-K 2018-11-16
8-K 2018-11-08
8-K 2018-11-08
8-K 2018-10-10
8-K 2018-10-03
8-K 2018-09-10
8-K 2018-08-02
8-K 2018-08-02
8-K 2018-07-02
8-K 2018-05-07
8-K 2018-05-03
8-K 2018-05-03
8-K 2018-03-09
8-K 2018-03-01
8-K 2018-03-01
8-K 2018-02-07

DXYN 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Recent Accounting Pronouncements
Note 3 - Revenue
Note 4 - Receivables, Net
Note 5 - Inventories, Net
Note 6 - Property, Plant and Equipment, Net
Note 7 - Accrued Expenses
Note 8 - Product Warranty Reserves
Note 9 - Long - Term Debt and Credit Arrangements
Note 10 - Leases
Note 11 - Fair Value Measurements
Note 12 - Derivatives
Note 13 - Employee Benefit Plans
Note 14 - Income Taxes
Note 15 - Earnings (Loss) per Share
Note 16 - Stock Compensation Expense
Note 17 - Accumulated Other Comprehensive Income (Loss)
Note 18 - Commitments and Contingencies
Note 19 - Other (Income) Expense, Net
Note 20 - Facility Consolidation and Severance Expenses, Net
Note 22 - Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk (Dollars in Thousands)
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31_1ceocertq22020.htm
EX-31.2 ex31_2cfocertq22020.htm
EX-32.1 ex32_1ceocertq22020.htm
EX-32.2 ex32_2cfocertq22020.htm

Dixie Group Earnings 2020-06-27

Balance SheetIncome StatementCash Flow
3202561921286402012201420172020
Assets, Equity
11086623814-102012201420172020
Rev, G Profit, Net Income
25167-2-11-202012201420172020
Ops, Inv, Fin

10-Q 1 a2020-10qxq2.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549
 
Form 10-Q
 
(Mark One)
R    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2020
OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________

Commission File Number: 0-2585

dixiegroupa58.jpg

THE DIXIE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Tennessee
 
     
 
62-0183370
(State or other jurisdiction of incorporation or organization)
 
 
 
(I.R.S. Employer Identification No.)
475 Reed Road, Dalton, Georgia
 
30720
 
(706) 876-5800
(Address of principal executive offices)
 
(zip code)
 
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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.  R Yes  o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 such files). R Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
Large accelerated filer
o
 
 
 Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
 
 Smaller reporting company
R
 
 
 
 
 Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) o Yes R No

The number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date.
Class
            
Outstanding as of July 30, 2020
Common Stock, $3 Par Value
 
14,933,373 shares
Class B Common Stock, $3 Par Value
 
880,313 shares
Class C Common Stock, $3 Par Value
 
0 shares






THE DIXIE GROUP, INC.

Table of Contents
PART I.  FINANCIAL INFORMATION
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 
 
 
 
 
 








PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
 
June 27,
2020
 
December 28, 2019
ASSETS
(Unaudited)
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
383

 
$
769

Receivables, net
32,007

 
37,138

Inventories, net
89,959

 
95,509

Prepaids and other current assets
6,773

 
6,179

TOTAL CURRENT ASSETS
129,122

 
139,595

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, NET
62,452

 
65,442

OPERATING LEASE RIGHT-OF-USE ASSETS
23,741

 
24,835

OTHER ASSETS
16,528

 
17,787

TOTAL ASSETS
$
231,843

 
$
247,659

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
19,758

 
$
16,084

Accrued expenses
26,948

 
25,418

Current portion of long-term debt
5,965

 
6,684

Current portion of operating lease liabilities
3,336

 
3,172

TOTAL CURRENT LIABILITIES
56,007

 
51,358

 
 
 
 
LONG-TERM DEBT
73,088

 
81,667

OPERATING LEASE LIABILITIES
20,968

 
22,123

OTHER LONG-TERM LIABILITIES
19,070

 
19,300

TOTAL LIABILITIES
169,133

 
174,448

 
 
 
 
COMMITMENTS AND CONTINGENCIES (See Note 18)

 

 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and outstanding - 14,933,373 shares for 2020 and 15,025,087 shares for 2019
44,800

 
45,075

Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued and outstanding - 880,313 shares for 2020 and 836,669 shares for 2019
2,641

 
2,510

Additional paid-in capital
157,657

 
157,547

Accumulated deficit
(140,862
)
 
(131,113
)
Accumulated other comprehensive loss
(1,526
)
 
(808
)
TOTAL STOCKHOLDERS' EQUITY
62,710

 
73,211

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
231,843

 
$
247,659


See accompanying notes to the consolidated condensed financial statements.





THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
 
Three Months Ended
 
Six Months Ended
 
June 27, 2020
 
June 29, 2019
 
June 27, 2020
 
June 29, 2019
NET SALES
$
60,824

 
$
100,394

 
$
141,401

 
$
189,001

Cost of sales
48,580

 
76,901

 
110,164

 
146,589

GROSS PROFIT
12,244

 
23,493

 
31,237

 
42,412

 
 
 
 
 
 
 
 
Selling and administrative expenses
16,523

 
21,114

 
36,920

 
42,774

Other operating expense, net
100

 
80

 
8

 
111

Facility consolidation and severance expenses, net
1,246

 
1,725

 
1,270

 
3,816

OPERATING INCOME (LOSS)
(5,625
)
 
574

 
(6,961
)
 
(4,289
)
 
 
 
 
 
 
 
 
Interest expense
1,357

 
1,717

 
2,642

 
3,437

Other expense (income), net
(3
)
 
4

 
(7
)
 
(38
)
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES
(6,979
)
 
(1,147
)
 
(9,596
)
 
(7,688
)
Income tax (benefit) provision

 
34

 
(4
)
 
134

LOSS FROM CONTINUING OPERATIONS
(6,979
)
 
(1,181
)
 
(9,592
)
 
(7,822
)
Loss from discontinued operations, net of tax
(81
)
 
(35
)
 
(157
)
 
(66
)
NET LOSS
$
(7,060
)
 
$
(1,216
)
 
$
(9,749
)
 
$
(7,888
)
 
 
 
 
 
 
 
 
BASIC EARNINGS (LOSS) PER SHARE:
 
 
 
 
 
 
 
Continuing operations
$
(0.46
)
 
$
(0.07
)
 
$
(0.63
)
 
$
(0.49
)
Discontinued operations
(0.01
)
 
(0.00
)
 
(0.01
)
 
0.00

Net loss
$
(0.47
)
 
$
(0.07
)
 
$
(0.64
)
 
$
(0.49
)
 
 
 
 
 
 
 
 
BASIC SHARES OUTSTANDING
15,331

 
15,885

 
15,344

 
15,847

 
 
 
 
 
 
 
 
DILUTED EARNINGS (LOSS) PER SHARE:
 
 
 
 
 
 
 
Continuing operations
$
(0.46
)
 
$
(0.07
)
 
$
(0.63
)
 
$
(0.49
)
Discontinued operations
(0.01
)
 
(0.00
)
 
(0.01
)
 
0.00

Net loss
$
(0.47
)
 
$
(0.07
)
 
$
(0.64
)
 
$
(0.49
)
 
 
 
 
 
 
 
 
DILUTED SHARES OUTSTANDING
15,331

 
15,885

 
15,344

 
15,847

 
 
 
 
 
 
 
 
DIVIDENDS PER SHARE:
 
 
 
 
 
 
 
Common Stock
$

 
$

 
$

 
$

Class B Common Stock

 

 

 


See accompanying notes to the consolidated condensed financial statements. 

Table of Contents    4    




THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)

 
Three Months Ended
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
NET LOSS
$
(7,060
)
 
$
(1,216
)
 
$
(9,749
)
 
$
(7,888
)
 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
 
 
 
 
 
 
 
Unrealized loss on interest rate swaps
(139
)
 
(705
)
 
(1,276
)
 
(1,104
)
Income taxes

 

 

 

Unrealized loss on interest rate swaps, net
(139
)
 
(705
)
 
(1,276
)
 
(1,104
)
 
 
 
 
 
 
 
 
Reclassification of loss into earnings from interest rate swaps (1)
365

 
93

 
573

 
149

Income taxes

 

 

 
10

Reclassification of loss into earnings from interest rate swaps, net
365

 
93

 
573

 
139

 
 
 
 
 
 
 
 
Reclassification of net actuarial gain into earnings from postretirement benefit plans (2)
(6
)
 
(7
)
 
(13
)
 
(14
)
Income taxes

 

 

 

Reclassification of net actuarial gain into earnings from postretirement benefit plans, net
(6
)
 
(7
)
 
(13
)
 
(14
)
 
 
 
 
 
 
 
 
Reclassification of prior service credits into earnings from postretirement benefit plans (2)
(1
)
 
(1
)
 
(2
)
 
(2
)
Income taxes

 

 

 

Reclassification of prior service credits into earnings from postretirement benefit plans, net
(1
)
 
(1
)
 
(2
)
 
(2
)
 

 

 

 
 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
219

 
(620
)
 
(718
)
 
(981
)
 
 
 
 
 
 
 
 
COMPREHENSIVE LOSS
$
(6,841
)
 
$
(1,836
)
 
$
(10,467
)
 
$
(8,869
)

(1)
Amounts for cash flow hedges reclassified from accumulated other comprehensive income (loss) to net loss were included in interest expense in the Company's Consolidated Condensed Statements of Operations.
(2)
Amounts for postretirement plans reclassified from accumulated other comprehensive income (loss) to net loss were included in selling and administrative expenses in the Company's Consolidated Condensed Statements of Operations.


See accompanying notes to the consolidated condensed financial statements.

Table of Contents    5    




THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Loss from continuing operations
$
(9,592
)
 
$
(7,822
)
Loss from discontinued operations
(157
)
 
(66
)
Net loss
(9,749
)
 
(7,888
)
 
 
 
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,595

 
5,906

Provision for deferred income taxes

 
64

Net loss (gain) on property, plant and equipment disposals
(37
)
 
62

Stock-based compensation expense
173

 
287

Bad debt expense
69

 
131

Changes in operating assets and liabilities:
 
 
 
Receivables
5,062

 
(4,952
)
Inventories
5,550

 
1,029

Prepaids and other current assets
(594
)
 
(1,325
)
Accounts payable and accrued expenses
4,572

 
10,826

Other operating assets and liabilities
400

 
(514
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
11,041

 
3,626

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net proceeds from sales of property, plant and equipment
40

 
4

Purchase of property, plant and equipment
(979
)
 
(2,043
)
NET CASH USED IN INVESTING ACTIVITIES
(939
)
 
(2,039
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net payments on revolving credit facility
(9,841
)
 
(2,956
)
Payments on notes payable - buildings
(139
)
 
(5,266
)
Payments on notes payable - equipment and other
(1,201
)
 
(1,955
)
Payments on finance leases
(1,747
)
 
(2,089
)
Borrowings on finance leases
2,220

 
11,500

Change in outstanding checks in excess of cash
427

 
(530
)
Repurchases of Common Stock
(207
)
 
(12
)
Payments for debt issuance costs

 
(277
)
NET CASH USED IN FINANCING ACTIVITIES
(10,488
)
 
(1,585
)
 
 
 
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(386
)
 
2

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
769

 
18

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
383

 
$
20

 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid
$
1,738

 
$
2,714

Interest paid for financing leases
691

 
685

Income taxes paid, net of tax refunds
(108
)
 
77

Right-of-use assets obtained in exchange for new operating lease liabilities
626

 
397

Right-of-use assets obtained in exchange for new finance lease liabilities


 
52

Equipment purchased under notes payable
1,314

 

Accrued purchases of equipment
205

 


See accompanying notes to the consolidated condensed financial statements.

Table of Contents    6    





THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)


 
Common Stock
 
Class B Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
Balance at December 28, 2019
$
45,075

 
$
2,510

 
$
157,547

 
$
(131,113
)
 
$
(808
)
 
$
73,211

Repurchases of Common Stock - 176,477 shares
(529
)
 

 
325

 

 

 
(204
)
Restricted stock grants issued - 131,867 shares
264

 
131

 
(395
)
 

 

 

Stock-based compensation expense

 

 
93

 

 

 
93

Net loss

 

 

 
(2,689
)
 

 
(2,689
)
Other comprehensive loss

 

 

 

 
(937
)
 
(937
)
Balance at March 28, 2020
$
44,810

 
$
2,641

 
$
157,570

 
$
(133,802
)
 
$
(1,745
)
 
$
69,474

Repurchases of Common Stock - 3,460 shares
(10
)
 

 
7

 

 

 
(3
)
Stock-based compensation expense

 

 
80

 

 

 
80

Net loss

 

 

 
(7,060
)
 

 
(7,060
)
Other comprehensive loss

 

 

 

 
219

 
219

Balance at June 27, 2020
$
44,800

 
$
2,641

 
$
157,657

 
$
(140,862
)
 
$
(1,526
)
 
$
62,710


 
Common Stock
 
Class B Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
Balance at December 29, 2018
$
46,568

 
$
2,518

 
$
156,390

 
$
(146,384
)
 
$
(108
)
 
$
58,984

Repurchases of Common Stock - 11,299 shares
(34
)
 

 
22

 

 

 
(12
)
Restricted stock grants forfeited - 6,681 shares
(20
)
 

 
9

 

 

 
(11
)
Class B converted into Common Stock - 2,635 shares
8

 
(8
)
 

 

 

 

Stock-based compensation expense

 

 
168

 

 

 
168

Net loss

 

 

 
(6,672
)
 

 
(6,672
)
Other comprehensive loss

 

 

 

 
(361
)
 
(361
)
Balance at March 30, 2019
$
46,522

 
$
2,510

 
$
156,589

 
$
(153,056
)
 
$
(469
)
 
$
52,096

Common Stock issued under Directors' Stock Plan - 29,001
87

 

 
(87
)
 

 

 

Stock-based compensation expense

 

 
130

 

 

 
130

Net loss

 

 

 
(1,216
)
 

 
(1,216
)
Other comprehensive loss

 

 

 

 
(620
)
 
(620
)
Balance at June 29, 2019
$
46,609

 
$
2,510

 
$
156,632

 
$
(154,272
)
 
$
(1,089
)
 
$
50,390


See accompanying notes to the consolidated condensed financial statements.


Table of Contents    7    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial statements which do not include all the information and notes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (generally consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Dixie Group, Inc.'s and its wholly-owned subsidiaries (the "Company") 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 28, 2019. Operating results for the three and six month periods ended June 27, 2020 are not necessarily indicative of the results that may be expected for the entire 2020 year.

Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering, comprised of two operating segments, Residential and Commercial. Pursuant to applicable 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.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in Fiscal 2020

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. In particular, the risk of cessation of the London Interbank Offered Rate (LIBOR). Among the amendments are expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the transition from LIBOR to alternative reference interest rates, but does not expect a significant impact to its operating results, financial position or cash flows.

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 smaller reporting entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The 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), is not expected to have a significant impact on the consolidated condensed 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 2018-14, “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 condensed financial statements.

NOTE 3 - REVENUE

Revenue Recognition Policy

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

Table of Contents    8    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


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

Disaggregation of Revenue from Contracts with Customers

The following table disaggregates the Company’s revenue by end-user markets for the three and six month periods ended June 27, 2020 and June 29, 2019:

 
Three Months Ended
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Residential floorcovering products
$
45,070

 
$
73,092

 
$
104,572

 
$
136,518

Commercial floorcovering products
15,453

 
26,708

 
36,082

 
51,218

Other services
301

 
594

 
747

 
1,265

Total net sales
$
60,824

 
$
100,394

 
$
141,401

 
$
189,001



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, architects, flooring contractors and independent retailers.

Other services. Other services include carpet yarn processing and carpet dyeing services.

Contract Balances

Other than receivables that represent an unconditional right to consideration, which are presented separately (See Note 4), the Company does not recognize any contract assets which give conditional rights to receive consideration, as the Company does not incur costs to obtain customer contracts that are recoverable. 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 Condensed 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.







Table of Contents    9    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


The activity in the advanced deposits for the three and six month periods ended June 27, 2020 and June 29, 2019 is as follows:

 
Three Months Ended
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Beginning contract liability
$
5,199

 
$
5,089

 
$
4,685

 
$
6,013

Revenue recognized from contract liabilities included in the beginning balance
(3,239
)
 
(3,326
)
 
(3,590
)
 
(4,817
)
Increases due to cash received, net of amounts recognized in revenue during the period
2,604

 
3,536

 
3,469

 
4,103

Ending contract liability
$
4,564

 
$
5,299

 
$
4,564

 
$
5,299

 
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.

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 based upon historical experience and known trends.

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 Condensed Statements of Operations and the product warranty reserve is included in accrued expenses in the Consolidated Condensed Balance Sheets. The Company calculates its accrual using the portfolio approach based upon historical experience and known trends. (See Note 8.) The Company does not provide an additional service-type warranty.

NOTE 4 - RECEIVABLES, NET

Receivables are summarized as follows:
 
June 27,
2020
 
December 28,
2019
Customers, trade
$
30,277

 
$
34,285

Other receivables
1,940

 
3,115

Gross receivables
32,217

 
37,400

Less: allowance for doubtful accounts
(210
)
 
(262
)
Receivables, net
$
32,007

 
$
37,138


Bad debt expense was $103 and $69 for the three and six months ended June 27, 2020 and $42 and $131 for the three and six months ended June 29, 2019.


Table of Contents    10    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


NOTE 5 - INVENTORIES, NET

Inventories are summarized as follows:
 
June 27,
2020
 
December 28,
2019
Raw materials
$
31,555

 
$
32,377

Work-in-process
12,835

 
18,642

Finished goods
64,196

 
64,978

Supplies and other
201

 
260

LIFO reserve
(18,828
)
 
(20,748
)
Inventories, net
$
89,959

 
$
95,509


NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consists of the following:
 
June 27,
2020
 
December 28,
2019
Land and improvements
$
3,422

 
$
3,422

Buildings and improvements
51,479

 
51,432

Machinery and equipment
179,758

 
179,993

Assets under construction
3,166

 
1,459

 
237,825

 
236,306

Accumulated depreciation
(175,373
)
 
(170,864
)
Property, plant and equipment, net
$
62,452

 
$
65,442


Depreciation of property, plant and equipment, including amounts for finance leases, totaled $2,505 and $5,485 in the three and six months ended June 27, 2020 and $2,734 and $5,777 in the three and six months ended June 29, 2019.

NOTE 7 - ACCRUED EXPENSES

Accrued expenses are summarized as follows:
 
June 27,
2020
 
December 28,
2019
Compensation and benefits
$
8,998

 
$
8,804

Provision for customer rebates, claims and allowances
6,887

 
7,682

Advanced customer deposits
4,564

 
4,685

Outstanding checks in excess of cash
1,014

 

Other
5,485

 
4,247

Accrued expenses
$
26,948

 
$
25,418



Table of Contents    11    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


NOTE 8 - PRODUCT WARRANTY RESERVES

The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products. Product warranty reserves are included in accrued expenses in the Company's Consolidated Condensed Balance Sheets. The following is a summary of the Company's product warranty activity:
 
Three Months Ended
 
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
 
June 27,
2020
 
June 29,
2019
Product warranty reserve at beginning of period
$
899

 
$
1,035

 
 
$
1,002

 
$
1,069

Warranty liabilities accrued
165

 
634

 
 
443

 
1,143

Warranty liabilities settled
(154
)
 
(563
)
 
 
(535
)
 
(1,091
)
Changes for pre-existing warranty liabilities

 
(24
)
 
 

 
(39
)
Product warranty reserve at end of period
$
910

 
$
1,082

 
 
$
910

 
$
1,082


NOTE 9 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS

Long-term debt consists of the following:
 
June 27,
2020
 
December 28,
2019
Revolving credit facility
$
49,852

 
$
59,693

Notes payable - buildings
6,074

 
6,213

Notes payable - equipment and other
3,646

 
3,533

Finance lease - buildings
11,258

 
11,296

Finance lease obligations
8,697

 
8,187

Deferred financing costs, net
(474
)
 
(571
)
Total long-term debt
79,053

 
88,351

Less: current portion of long-term debt
5,965

 
6,684

Long-term debt
$
73,088

 
$
81,667


Revolving Credit Facility

The Company, in response to the COVID-19 pandemic, adjusted the credit commitment of its senior loan facility to more closely resemble the amount of collateralized assets currently available as well as increasing the amount of credit available to the Company. The loan commitment for the Credit Agreement between The Dixie Group, Inc. and Wells Fargo Capital Finance, LLC, the Agent, dated as of September 13, 2011 and most recently amended by the Fourteenth Amendment dated as of May 14, 2020, was reduced from $120,000 to $100,000 and the availability limitation related to the fixed coverage ratio was reduced from $15,000 to $12,500. The fourteenth amendment included a covenant requiring the Company to pursue and consummate a permitted fixed asset loan. By letter agreement dated July 13, 2020, the Company was given until August 31, 2020 to obtain the additional financing. 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 of 3.25%, or (b) the higher of the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate plus 1.00%, plus an applicable margin of 2.25%. The Company’s applicable margin has been amended to no longer be subject to average daily excess availability. 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 7.39% at June 27, 2020 and 4.79% at December 28, 2019, respectively.

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 $12,500. Effective May 14, 2020, as part of the amendment, the Company’s availability block has been amended to $3,500. The availability block will increase to $6,500 after August 31, 2020.

Table of Contents    12    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)




As of June 27, 2020, the unused borrowing availability under the revolving credit facility was $29,012; 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 $16,512 (the amount above $12,500) at June 27, 2020. 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 $4,269 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 1.60% to 7.00% 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. 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 finance lease obligations have terms ranging from 3 to 7 years and are due in monthly or quarterly installments through their maturity dates. The Company's finance lease obligations are secured by the specific equipment leased.

See Note 10 for further discussion of the impact of COVID-19 on the Company's finance lease obligations.

Table of Contents    13    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


NOTE 10 - LEASES
COVID-19 Pandemic
In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic, and the resulting expected cost and complexity of applying the lease modification requirements in ASC 842, the FASB issued Staff Q&A-Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, in April 2020 as interpretive guidance to provide clarity in response to the crisis. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can then elect to apply or not to apply the lease modification guidance in ASC 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that will result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
The Company has made this election and, consequently, for such lease concessions, did not reassess each existing contract to determine whether enforceable rights and obligations for concessions existed and elected not to apply the lease modification guidance in ASC 842 to those contracts. The Company has accounted for the concessions as if no changes to the lease contract were made and has subsequently increased accounts payable and has continued to recognize expense during the deferral period.

Balance sheet information related to right-of-use assets and liabilities is as follows:
 
Balance Sheet Location
June 27, 2020
 
December 28, 2019
Operating Leases:
 
 
 
 
Operating lease right-of-use assets
Operating lease right-of-use assets
$
23,741

 
$
24,835

 
 
 
 
 
Current portion of operating lease liabilities
Current portion of operating lease liabilities
3,336

 
3,172

Noncurrent portion of operating lease liabilities
Operating lease liabilities
20,968

 
22,123

Total operating lease liabilities
 
$
24,304

 
$
25,295

 
 
 
 
 
Finance Leases:
 
 
 
 
Finance lease right-of-use assets (1)
Property, plant, and equipment, net
$
15,913

 
$
15,152

 
 
 
 
 
Current portion of finance lease liabilities (1)
Current portion of long-term debt
3,858

 
4,011

Noncurrent portion of finance lease liabilities (1)
Long-term debt
16,097

 
15,472

 
 
$
19,955

 
$
19,483

(1) Includes leases classified as failed sale-leaseback transactions.

Lease cost recognized in the consolidated condensed financial statements is summarized as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 27, 2020
 
June 29, 2019
 
June 27, 2020
 
June 29, 2019
Operating lease cost
 
$
1,307

 
$
815

 
$
2,599

 
$
1,723

 
 
 
 
 
 
 
 
 
Finance lease cost:
 
 
 
 
 
 
 
 
     Amortization of lease assets (1)
 
790

 
750

 
1,580

 
1,498

     Interest on lease liabilities (1)
 
348

 
335

 
691

 
685

Total finance lease costs (1)
 
$
1,138

 
$
1,085

 
$
2,271

 
$
2,183

(1) Includes leases classified as failed sale-leaseback transactions.


Table of Contents    14    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)



Other supplemental information related to leases is summarized as follows:
 
 
June 27, 2020

 
June 29, 2019

Weighted average remaining lease term (in years):
 
 
 
 
     Operating leases
 
8.02

 
6.20

     Finance leases (1)
 
11.53

 
11.62

 
 
 
 
 
Weighted average discount rate:
 
 
 
 
     Operating leases
 
6.93
%
 
8.47
%
     Finance leases (1)
 
9.19
%
 
6.65
%
 
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
     Operating cash flows from operating leases
 
2,330

 
1,762

     Operating cash flows from finance leases (1)
 
691

 
685

     Financing cash flows from finance leases (1)
 
1,747

 
2,089

(1) Includes leases classified as failed sale-leaseback transactions.

The following table summarizes the Company's future minimum lease payments under non-cancellable contractual obligations for operating and financing liabilities as of June 27, 2020:

Fiscal Year
 
Operating Leases
Finance Leases
2020
 
2,509

2,186

2021
 
4,683

5,457

2022
 
4,182

3,323

2023
 
3,247

2,284

2024
 
2,940

1,045

Thereafter
 
14,529

16,039

Total future minimum lease payments (undiscounted)
 
32,090

30,334

Less: Present value discount
 
7,786

10,379

Total lease liability
 
24,304

19,955



NOTE 11 - FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange value of an asset or a liability in an orderly transaction between market participants. The fair value guidance outlines a valuation framework and establishes a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and disclosures. The hierarchy consists of three levels as follows:

Level 1 - Quoted market prices in active markets for identical assets or liabilities as of the reported date;

Level 2 - Other than quoted market prices in active markets for identical assets or liabilities, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other than quoted prices for assets or liabilities and prices that are derived principally from or corroborated by market data by correlation or other means; and

Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires significant management judgment or estimation.


Table of Contents    15    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


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 Condensed Balance Sheets as of June 27, 2020 and December 28, 2019:
 
June 27,
2020
 
December 28,
2019
 
Fair Value Hierarchy Level
Liabilities:
 
 
 
 
 
Interest rate swaps (1)
$
2,419

 
$
1,653

 
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.

The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
 
June 27,
2020
 
December 28,
2019
 
Carrying
 
Fair
 
Carrying
 
Fair
 
Amount
 
Value
 
Amount
 
Value
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
383

 
$
383

 
$
769

 
$
769

Financial liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion
59,098

 
59,610

 
68,868

 
72,115

Finance leases, including current portion
19,955

 
20,204

 
19,483

 
20,361

Operating leases, including current portion
24,304

 
24,304

 
25,295

 
25,295

Interest rate swaps
2,419

 
2,419

 
1,653

 
1,653


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.

NOTE 12 - DERIVATIVES

The Company's earnings, cash flows and financial position are exposed to market risks relating to interest rates. It is the Company's policy to minimize its exposure to adverse changes in interest rates and manage interest rate risks inherent in funding the Company with debt. The Company addresses this risk by maintaining a mix of fixed and floating rate debt and entering into interest rate swaps for a portion of its variable rate debt to minimize interest rate volatility.

The following is a summary of the Company's interest rate swaps outstanding as of June 27, 2020:
Type
Notional Amount
 
Effective Date
Fixed Rate
Variable Rate
Interest rate swap
$
25,000

 
September 1, 2016 through September 1, 2021
3.105%
1 Month LIBOR
Interest rate swap
$
25,000

 
September 1, 2015 through September 1, 2021
3.304%
1 Month LIBOR
Interest rate swap
$
6,005

(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.



Table of Contents    16    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


The following table summarizes the fair values of derivative instruments included in the Company's financial statements:
 
Location on Consolidated Balance Sheets
 
Fair Value
 
 
June 27,
2020
 
December 28,
2019
Liability Derivatives:
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
Interest rate swaps, current portion
Accrued expenses
 
$
1,680

 
$
841

Interest rate swaps, long-term portion
Other long-term liabilities
 
739

 
812

Total Liability Derivatives
 
 
$
2,419

 
$
1,653


The following tables summarize the pre-tax impact of derivative instruments on the Company's financial statements:
 
Amount of Gain or (Loss) Recognized in AOCIL on the effective portion of the Derivative
 
Three Months Ended
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Cash flow hedges - interest rate swaps
$
(139
)
 
$
(705
)
 
$
(1,276
)
 
$
(1,104
)
 
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Reclassified from AOCIL on the effective portion into Earnings (1)(2)
 
Three Months Ended
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Cash flow hedges - interest rate swaps
$
(365
)
 
$
(93
)
 
$
(573
)
 
$
(149
)

(1)
The amount of gain (loss) reclassified from AOCIL is included in interest expense on the Company's consolidated condensed financial statements.
(2)
The amount of loss expected to be reclassified from AOCIL into earnings during the next 12 months subsequent to June 27, 2020 is $1,680.
 
NOTE 13 - EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

The Company sponsors a 401(k) defined contribution plan that covers approximately 84% of the Company's current 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 (credit) for this 401(k) plan was $67 and $(7) for the three months ended June 27, 2020 and June 29, 2019, respectively, and $173 and $223 for the six months ended June 27, 2020 and June 29, 2019, respectively. The reduction in the matching contribution expense for the three months ended June 29, 2019 was a result of revising the estimated match for the year.

Additionally, the Company sponsors a 401(k) defined contribution plan that covers approximately 16% of the Company's current associates at one facility who are under a collective-bargaining agreement. 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 $17 and $43 for the three months ended June 27, 2020 and June 29, 2019, respectively, and $43 and $77 for the six months ended June 27, 2020 and June 29, 2019, respectively.


Table of Contents    17    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


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 $15,113 at June 27, 2020 and $16,203 at December 28, 2019 and are included in other long-term liabilities in the Company's Consolidated Condensed Balance Sheets. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company utilizes a Rabbi Trust to hold, invest and reinvest deferrals and contributions under the plan. Amounts are invested in Company-owned life insurance in the Rabbi Trust and the cash surrender value of the policies was $15,155 at June 27, 2020 and $16,500 at December 28, 2019 and is included in other assets in the Company's Consolidated Condensed 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. Expenses related to the multi-employer pension plan were $55 and $87 for the three months ended June 27, 2020 and June 29, 2019, respectively, and $133 and $170 for the six months ended June 27, 2020 and June 29, 2019, respectively. If the Company were to withdraw from the multi-employer plan, a withdrawal liability would be due, the amount of which would be determined by the plan. The withdrawal liability, as determined by the plan, would be a function of contribution rates, fund status, discount rates and various other factors at the time of any such withdrawal.

NOTE 14 - INCOME TAXES

The benefit rate for the six months ending June 27, 2020 was 0.04% compared with an effective tax rate of 1.74% for the six months ending June 29, 2019. The Company maintains a full valuation allowance against the deferred tax assets resulting in only refundable credits and a small amount of state taxes being recognized in the tax expense for the first six months of 2020. The Company is in a net deferred tax liability position of $91 at June 27, 2020 and December 28, 2019, respectively, which is included in other long-term liabilities in the Company's Consolidated Condensed Balance Sheets.

The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $495 and $480 at June 27, 2020 and December 28, 2019, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were no significant interest or penalties accrued as of June 27, 2020 and December 28, 2019.

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.

NOTE 15 - 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 (loss) per share. Accounting guidance requires additional disclosure of earnings (loss) per share 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.


Table of Contents    18    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
 
Three Months Ended
 
Six Months Ended
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Loss from continuing operations
$
(6,979
)
 
$
(1,181
)
 
$
(9,592
)
 
$
(7,822
)
Less: Allocation of earnings to participating securities

 

 

 

Loss from continuing operations available to common shareholders - basic
$
(6,979
)
 
$
(1,181
)
 
$
(9,592
)
 
$
(7,822
)
Basic weighted-average shares outstanding (1)
15,331

 
15,885

 
15,344

 
15,847

Basic earnings (loss) per share - continuing operations
$
(0.46
)
 
$
(0.07
)
 
$
(0.63
)
 
$
(0.49
)
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Loss from continuing operations available to common shareholders - basic
$
(6,979
)
 
$
(1,181
)
 
$
(9,592
)
 
$
(7,822
)
Add: Undistributed earnings reallocated to unvested shareholders

 

 

 

Loss from continuing operations available to common shareholders - basic
$
(6,979
)
 
$
(1,181
)
 
$
(9,592
)
 
$
(7,822
)
Basic weighted-average shares outstanding (1)
15,331

 
15,885

 
15,344

 
15,847

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options (2)

 

 

 

Directors' stock performance units (2)

 

 

 

Diluted weighted-average shares outstanding (1)(2)
15,331

 
15,885

 
15,344

 
15,847

Diluted earnings (loss) per share - continuing operations
$
(0.46
)
 
$
(0.07
)
 
$
(0.63
)
 
$
(0.49
)

(1)
Includes Common and Class B Common shares, excluding unvested participating securities of 480 thousand as of June 27, 2020 and 476 thousand as of June 29, 2019.
(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 for the three and six months ended June 27, 2020 were 296 thousand and for the three and six months ended June 29, 2019 were 383 thousand.

NOTE 16 - 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 Condensed 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 per share on the grant date. The Company's stock compensation expense was $80 and $130 for the three months ended June 27, 2020 and June 29, 2019, respectively, and $173 and $287 for the six months ended June 27, 2020 and June 29, 2019, respectively.

On March 12, 2020, the Company issued 131,867 shares of restricted stock to officers and other key employees. The grant-date fair value of the awards was $132, or $1.00 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 8.4 years from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.


Table of Contents    19    


THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)


NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Components of accumulated other comprehensive loss, net of tax, are as follows:
 
Interest Rate Swaps
 
Post-Retirement Liabilities
 
Total
Balance at December 28, 2019
$
(1,048
)
 
$
240

 
$
(808
)
Unrealized gain on interest rate swaps
(1,276
)
 

 
(1,276
)
Reclassification of loss into earnings from interest rate swaps, net of tax of $0
573

 

 
573

Reclassification of net actuarial gain into earnings from postretirement benefit plans

 
(13
)
 
(13
)
Reclassification of prior service credits into earnings from postretirement benefit plans

 
(2
)