10-K 1 dxyn10-k2016.htm 10-K Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016
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
dixielogoa01a01a02.jpg
The Dixie Group, Inc.
(Exact name of registrant as specified in its charter)
Tennessee
 
62-0183370
(State or other jurisdiction of incorporation of organization)
 
(I.R.S. Employer Identification No.)
 
 
 
475 Reed Road, Dalton, GA 30720
 
(706) 876-5800
(Address of principal executive offices and zip code)
 
(Registrant's telephone number, including area code)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of Class
 
Name of each exchange on which registered
Common Stock, $3.00 par value
 
NASDAQ Stock Market, LLC
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
Title of class
 
 
None
 
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes þ 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 þ 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.  þ 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). þ 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 þ

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

The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 24, 2016 (the last business day of the registrant's most recently completed fiscal second quarter) was $46,495,937. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.  In making this calculation, the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 10% of a class of outstanding Common Stock, and no other persons, are affiliates. No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act.

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

Class
 
Outstanding as of February 24, 2017
Common Stock, $3.00 Par Value
 
15,248,338

 
shares
Class B Common Stock, $3.00 Par Value
 
870,714

 
shares
Class C Common Stock, $3.00 Par Value
 
0

 
shares

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the following document are incorporated by reference:
Proxy Statement of the registrant for annual meeting of shareholders to be held May 3, 2017 (Part III).





THE DIXIE GROUP, INC.

Index to Annual Report
on Form 10-K for
Year Ended December 31, 2016

PART I
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
Item 15.
 
 
 
 
 
 
 
 
 
 
 
 








FORWARD-LOOKING INFORMATION

This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include the use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such forward-looking statements relate to, among other matters, our future financial performance, business prospects, growth strategies or liquidity. The following important factors may affect our future results and could cause those results to differ materially from our historical results; these factors include, in addition to those "Risk Factors" detailed in Item 1A of this report, and described elsewhere in this document, the cost and availability of capital, raw material and transportation costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant customer or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and other risks detailed from time to time in our filings with the Securities and Exchange Commission.






PART I.

Item 1.
BUSINESS
 
General
 
Our business consists principally of marketing, manufacturing and selling floorcovering products to high-end residential and commercial customers through our various sales forces and brands. We focus exclusively on the upper-end of the floorcovering market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer relationships. Our Fabrica, Masland, and Dixie Home brands have a significant presence in the high-end residential floorcovering markets. Our Atlas Carpet Mills, Masland Contract and Masland Hospitality brands, participate in the upper-end specified commercial marketplace. Dixie International sells all of our brands outside of the North American market.

Our business is primarily concentrated in areas of the soft floorcovering markets where innovative styling, design, color, quality and service, as well as limited distribution, are welcomed and rewarded.  However, the growth rate, measured as market sales volume in square feet, has been substantially higher for hard surface products than soft surface products over the past several years. Therefore, during the fourth quarter of 2016, we began offering luxury vinyl tile (“LVT”) products under the Calibre brand which was our first hard surface offering in the commercial markets. These new LVT products are being sold by our existing Masland Contract sales force. Residentially, our Dixie Home and Masland Residential brands will be supplying Stainmaster PetProtect® luxury vinyl. Finally, we are preparing to launch a high-end engineered wood line through our Fabrica brand.

We have one line of business, floorcovering.

Our Brands

Our brands are well known, highly regarded and complementary; by being differentiated, we offer meaningful alternatives to the discriminating customer.

Fabrica markets and manufactures luxurious residential carpet and custom rugs, at selling prices that we believe are approximately five times the average for the residential soft floorcovering industry. Its primary customers are interior decorators and designers, selected retailers and furniture stores, luxury home builders and manufacturers of luxury motor coaches and yachts. Fabrica is among the leading premium brands in the domestic marketplace and is known for styling innovation and unique colors and patterns. Fabrica consists of extremely high quality carpets and area rugs in both nylon and wool, with a wide variety of patterns and textures. Fabrica is viewed by the trade as the premier quality brand for very high-end carpet and enjoys an established reputation as a styling trendsetter and a market leader in providing both custom and designer products to the very high-end residential sector.

Masland Residential, founded in 1866, markets and manufactures design-driven specialty carpets and rugs for the high-end residential marketplace. Beginning in 2017, it will offer luxury vinyl tile products to the marketplace it serves. Its residential and commercial broadloom carpet products are marketed at selling prices that we believe are over three times the average for the residential soft floorcovering industry. Its products are marketed through the interior design community, as well as to consumers through specialty floorcovering retailers. Masland Residential has strong brand recognition within the upper-end residential market. Masland Residential competes through innovative styling, color, product design, quality and service.

Dixie Home provides stylishly designed, differentiated products that offer affordable fashion to residential consumers. Dixie Home markets an array of residential tufted broadloom and rugs to selected retailers and home centers under the Dixie Home and private label brands. Beginning in 2017, it will offer luxury vinyl tile products to the marketplace it serves. Its objective is to make the Dixie Home brand the choice for styling, service and quality in the more moderately priced sector of the high-end residential market. Its products are marketed at selling prices which we believe average two times the soft floorcovering industry's average selling price.

Atlas Carpet Mills is our premium commercial brand. Atlas has long been known for superior style and design. Atlas’ focus is the specified design community including architects and designers who serve the upper-end commercial marketplace. The Atlas brand has unique styling, as evident in both its broadloom and modular carpet tile product offerings. Atlas’ high quality offerings are manufactured utilizing just in time manufacturing techniques in our California operations.

Masland Contract markets and manufactures broadloom and modular carpet tile for the specified commercial marketplace. During 2016, Masland Contract began offering luxury vinyl tile to the commercial marketplace. Its commercial products are marketed to the architectural and specified design community and directly to commercial end users, as well as to consumers through specialty floorcovering retailers. Masland Contract has strong brand recognition within the upper-end contract market, and competes through innovative styling, color, patterns, quality and service.

Masland Hospitality focuses on the hospitality market with both custom designed and running line products. Utilizing computerized yarn placement technology, as well as offerings utilizing our state of the art Infinity tufting technology, this brand provides excellent service and design flexibility to the hospitality market serving upper-end hotels, conference centers and senior living markets. Its





broadloom and rug product offerings are designed for the interior designer in the upper-end of the hospitality market who appreciates sophisticated texture, color and patterns with excellent service.

Industry
 
We are a flooring manufacturer in an industry composed of a wide variety of companies from small privately held firms to large multinationals. In 2015, the U.S. floorcovering industry reported $23.1 billion in sales, up approximately 4.2% over 2014's sales of $22.2 billion. In 2015, the primary categories of flooring in the U.S., based on sales, were carpet and rug (46%), wood (16%), resilient (includes vinyl and LVT) and rubber (14%), ceramic tile (14%), stone (6%) and laminate (4%). In 2015, the primary categories of flooring in the U.S., based on square feet, were carpet and rug (55%), resilient (includes vinyl and LVT) and rubber (18%), ceramic tile (12%), wood (8%), laminate (5%) and stone (2%). Each of these categories is influenced by the residential construction, commercial construction, and residential remodeling markets. These markets are influenced by many factors including consumer confidence, spending for durable goods, turnover in housing and the overall strength of the economy.

The carpet and rug category has two primary markets, residential and commercial, with the residential market making up the largest portion of the industry's sales. A substantial portion of industry shipments is made in response to replacement demand. Residential products consist of broadloom carpets and rugs in a broad range of styles, colors and textures. Commercial products consist primarily of broadloom carpet and modular carpet tile for a variety of institutional applications such as office buildings, restaurant chains, schools and other commercial establishments. The carpet industry also manufactures carpet for the automotive, recreational vehicle, small boat and other industries.

The Carpet and Rug Institute (the "CRI") is the national trade association representing carpet and rug manufacturers. Information compiled by the CRI suggests that the domestic carpet and rug industry is comprised of fewer than 100 manufacturers, with a significant majority of the industry's production concentrated in a limited number of manufacturers focused on the lower end of the price curve. We believe that this industry focus provides us with opportunities to capitalize on our competitive strengths in selected markets where innovative styling, design, product differentiation, focused service and limited distribution add value.
 
Competition
 
The floorcovering industry is highly competitive. We compete with other carpet and rug manufacturers and other types of floorcoverings. In addition, the industry provides multiple floorcovering surfaces such as luxury vinyl tile and wood. Though soft floorcovering is still the dominant floorcovering surface, it has gradually lost market share to hard floorcovering surfaces over the last 25 years. We believe our products are among the leaders in styling and design in the high-end residential and high-end commercial carpet markets. However, a number of manufacturers produce competitive products and some of these manufacturers have greater financial resources than we do.

We believe the principal competitive factors in our primary floorcovering markets are styling, color, product design, quality and service. In the high-end residential and commercial markets, we compete with various other floorcovering suppliers. Nevertheless, we believe we have competitive advantages in several areas. We have an attractive portfolio of brands that we believe are well known, highly regarded by customers and complementary; by being differentiated, we offer meaningful alternatives to the discriminating customer. We believe our investment in new yarns, such as Stainmaster's® TruSoft™ and PetProtect™, and innovative tufting and dyeing technologies, strengthens our ability to offer product differentiation to our customers. In addition, we have established longstanding relationships with key suppliers, such as the providers of Stainmaster® for which we utilize both branded yarns and luxury vinyl tile, and significant customers in most of our markets. Finally, our reputation for innovative design excellence and our experienced management team enhance our competitive position. See "Risk Factors" in Item 1A of this report.
 
Backlog
 
Sales order backlog is not material to understanding our business, due to relatively short lead times for order fulfillment in the markets for the vast majority of our products.
 
Trademarks
 
Our floorcovering businesses own a variety of trademarks under which our products are marketed.  Among such trademarks, the names "Fabrica", "Masland", "Dixie Home", “Atlas Carpet Mills”, “Masland Contract” and "Masland Hospitality" are of greatest importance to our business. We believe that we have taken adequate steps to protect our interest in all significant trademarks.
 
Customer and Product Concentration
 
As a percentage of our net sales, one customer, Lowe's, a mass merchant, accounted for approximately 10% in 2016, 9% in 2015, and 9% in 2014. No other customer was more than 10 percent of our sales during the periods presented. During 2016, sales to our top ten customers accounted for 15% percent of our sales and our top 20 customers accounted for 18% percent of our sales. We do not make a material amount of sales in foreign countries.






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:
 
2016

 
2015

 
2014

Residential floorcovering products
66
%
 
64
%
 
67
%
Commercial floorcovering products
34
%
 
36
%
 
33
%

Seasonality
 
Our sales historically have normally reached their lowest level in the first quarter (approximately 23% of our annual sales), with the remaining sales being distributed relatively equally among the second, third and fourth quarters. Working capital requirements have normally reached their highest levels in the third and fourth quarters of the year.

Environmental
 
Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. See "Risk Factors” in Item 1A of this report.

Raw Materials
 
Our primary raw material is bulk continuous filament for yarn. Nylon is the primary yarn we utilize and, to a lesser extent, wool and polyester yarn is used. Additionally, we utilize polypropylene carpet backing, latex, dyes and chemicals, and man-made topical applications in the construction of our products. Our synthetic yarns are purchased primarily from domestic fiber suppliers and wool is purchased from a number of international sources. Our other raw materials are purchased primarily from domestic suppliers, although the majority of our luxury vinyl tile is sourced outside the United States. Where possible, we pass raw material price increases through to our customers; however, there can be no assurance that price increases can be passed through to customers and that increases in raw material prices will not have an adverse effect on our profitability. See "Risk Factors” in Item 1A of this report. We purchase a significant portion of our primary raw material (nylon yarn) from one supplier. We believe there are other sources of nylon yarn; however, an unanticipated termination or interruption of our supply arrangements could adversely affect our supplies of raw materials and could have a material effect on our operations. See "Risk Factors” in Item 1A of this report.
 
Utilities
 
We use electricity as our principal energy source, with oil or natural gas used in some facilities for dyeing and finishing operations as well as heating. We have not experienced any material problem in obtaining adequate supplies of electricity, natural gas or oil. Energy shortages of extended duration could have an adverse effect on our operations, and price volatility could negatively impact future earnings. See "Risk Factors” in Item 1A of this report.
 
Working Capital
 
We are required to maintain significant levels of inventory in order to provide the enhanced service levels demanded by the nature of our business and our customers, and to ensure timely delivery of our products. Consistent and dependable sources of liquidity are required to maintain such inventory levels. Failure to maintain appropriate levels of inventory could materially adversely affect our relationships with our customers and adversely affect our business. See "Risk Factors” in Item 1A of this report.
 
Employment Level
 
At December 31, 2016, we employed 1,746 associates in our operations.





Available Information
 
Our internet address is www.thedixiegroup.com. We make the following reports filed by us with the Securities and Exchange Commission available, free of charge, on our website under the heading "Investor Relations":
 
1.
annual reports on Form 10-K;
2.
quarterly reports on Form 10-Q;
3.
current reports on Form 8-K; and
4.
amendments to the foregoing reports.
 
The contents of our website are not a part of this report.

Item 1A. RISK FACTORS

In addition to the other information provided in this Report, the following risk factors should be considered when evaluating the results of our operations, future prospects and an investment in shares of our Common Stock. Any of these factors could cause our actual financial results to differ materially from our historical results, and could give rise to events that might have a material adverse effect on our business, financial condition and results of operations.
 
The floorcovering industry is sensitive to changes in general economic conditions and a decline in residential or commercial construction activity or corporate remodeling and refurbishment could have a material adverse effect on our business.

The floorcovering industry, in which we participate, is highly dependent on general economic conditions, such as consumer confidence and income, corporate and government spending, interest rate levels, availability of credit and demand for housing. We derive a majority of our sales from the replacement segment of the market. Therefore, economic changes that result in a significant or prolonged decline in spending for remodeling and replacement activities could have a material adverse effect on our business and results of operations.

The floorcovering industry is highly dependent on construction activity, including new construction, which is cyclical in nature. The U.S. and global economies, along with the residential and commercial markets in such economies, can negatively impact the floorcovering industry and our business. Although the impact of a decline in new construction activity is typically accompanied by an increase in remodeling and replacement activity, these activities typically lag during a cyclical downturn. Although the difficult economic conditions have improved since the last cyclical downturn in 2008, there may be additional downturns that could cause the industry to deteriorate in the foreseeable future. A significant or prolonged decline in residential or commercial construction activity could have a material adverse effect on our business and results of operations.

We have significant levels of sales in certain channels of distribution and reduction in sales through these channels could adversely affect our business.

A significant amount of our sales are generated through certain retail and mass merchant channels of distribution. A significant reduction of sales through such channels could adversely affect our business.

We have significant levels of indebtedness that could result in negative consequences to us.

We have a significant amount of indebtedness relative to our equity. Insufficient cash flow, profitability or the value of our assets securing our loans could materially adversely affect our ability to generate sufficient funds to satisfy the terms of our senior loan agreements and other debt obligations. Additionally, the inability to access debt or equity markets at competitive rates in sufficient amounts to satisfy our obligations could adversely impact our business.

Uncertainty in the credit market or downturns in the economy and our business could affect our overall availability and cost of credit.

Uncertainty in the credit markets could affect the availability and cost of credit. Despite recent improvement in overall economic conditions, market conditions could impact our ability to obtain financing in the future, including any financing necessary to refinance existing indebtedness. The cost and terms of such financing is uncertain. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.

We face intense competition in our industry, which could decrease demand for our products and could have a material adverse effect on our profitability.

The floorcovering industry is highly competitive. We face competition from a number of domestic manufacturers and independent distributors of floorcovering products and, in certain product areas, foreign manufacturers. Significant consolidation within the floorcovering industry has caused a number of our existing and potential competitors to grow significantly larger and have greater access to resources and capital than we do. Maintaining our competitive position may require us to make substantial additional





investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities. These additional investments may be limited by our access to capital, as well as restrictions set forth in our credit facilities. Competitive pressures and the accelerated growth of hard surface alternatives, have resulted in decreased demand for our soft floorcovering products and in the loss of market share to hard surface products. As a result, competition from providers of other soft surfaces has intensified and may result in decreased demand for our products. In addition, we face, and will continue to face, competitive pressures on our sales price and cost of our products. As a result of any of these factors, there could be a material adverse effect on our sales and profitability.

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our net revenues and profitability.

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. In addition, long lead times for certain of our products may make it hard for us to quickly respond to changes in consumer demands. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of flooring products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels, which could have a material adverse effect on our financial condition.

Raw material prices may vary and the inability to either offset or pass on such cost increases or avoid passing on decreases larger than the cost decrease to our customers could materially adversely affect our business, results of operations and financial condition.
We require substantial amounts of raw materials to produce our products, including nylon and polyester yarn, as well as wool yarns, synthetic backing, latex, and dyes. Substantially all of the raw materials we require are purchased from outside sources. The prices of raw materials and fuel-related costs vary significantly with market conditions. The fact that we source a significant amount of raw materials means that several months of raw materials and work in process are moving through our supply chain at any point in time. We are sourcing the majority of our new luxury vinyl tile and wood product lines from overseas. We are not able to predict whether commodity costs will significantly increase or decrease in the future. If commodity costs increase in the future and we are not able to reduce or eliminate the effect of the cost increases by reducing production costs or implementing price increases, our profit margins could decrease. If commodity costs decline, we may experience pressures from customers to reduce our selling prices. The timing of any price reductions and decreases in commodity costs may not align. As a result, our margins could be affected.

Unanticipated termination or interruption of our arrangements with third-party suppliers of nylon yarn could have a material adverse effect on us.

Nylon yarn is the principal raw material used in our floorcovering products. A significant portion of such yarn is purchased from one supplier. Our yarn supplier is one of the leading fiber suppliers within the industry and is the exclusive supplier of certain innovative branded fiber technology upon which we rely. We believe our offerings of this innovative fiber technology contribute materially to the competitiveness of our products. While we believe there are other sources of nylon yarns, an unanticipated termination or interruption of our current supply of branded nylon yarn could have a material adverse effect on our ability to supply our product to our customers and have a material adverse impact on our competitiveness if we are unable to replace our nylon supplier with another supplier that can offer similar innovative and branded fiber products. An interruption in the supply of these or other raw materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our operations, which could have a material adverse effect on our business.

We rely on information systems in managing our operations and any system failure or deficiencies of such systems may have an adverse effect on our business.

Our businesses rely on sophisticated systems to obtain, rapidly process, analyze and manage data. We rely on these systems to, among other things facilitate the purchase, manufacture and distribution of our products; receive, process and ship orders on a timely basis; and to maintain accurate and up-to-date operating and financial data for the compilation of management information. We rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and distribution systems, and certain of our production processes are managed and conducted by computer. Any damage by unforeseen events or system failure which causes interruptions to the input, retrieval and transmission of data or increase in the service time, whether caused by human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, various forms of cybercrimes including and not limited to hacking, intrusions and malware or otherwise, could disrupt our normal operations. There can be no assurance that we can effectively carry out our disaster recovery plan to handle the failure of our information systems, or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer satisfaction and harm to our reputation, which could result in loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects.






We may experience certain risks associated with internal expansion, acquisitions, joint ventures and strategic investments.

We have recently embarked on several strategic and tactical initiatives, including aggressive internal expansion, acquisitions and investment in new products, to strengthen our future and to enable us to return to sustained growth and profitability. Growth through expansion and acquisition involves risks, many of which may continue to affect us after the acquisition or expansion. An acquired company, operation or internal expansion may not achieve the levels of revenue, profitability and production that we expect. The combination of an acquired company’s business with ours involves risks. Further, internally generated growth that involves expansion involves risks as well. Such risks include the integration of computer systems, alignment of human resource policies and the retention of valued talent. Reported earnings may not meet expectations because of goodwill and intangible asset impairment, other asset impairments, increased interest costs and issuance of additional securities or debt as a result of these acquisitions. We may also face challenges in consolidating functions and integrating our organizations, procedures, operations and product lines in a timely and efficient manner.

The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on our revenues, level of expenses and operating results. Failure to successfully manage and integrate an acquisition with our existing operations or expansion of our existing operations could lead to the potential loss of customers of the acquired or existing business, the potential loss of employees who may be vital to the new or existing operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on our business, financial condition and results of operations. Even if integration occurs successfully, failure of the expansion or acquisition to achieve levels of anticipated sales growth, profitability or productivity, or otherwise perform as expected, may have a material adverse effect on our business, financial condition and results of operations.
We are subject to various environmental, safety and health regulations that may subject us to costs, liabilities and other obligations, which could have a material adverse effect on our business, results of operations and financial condition.

We are subject to various environmental, safety and health and other regulations that may subject us to costs, liabilities and other obligations which could have a material adverse effect on our business. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. We could incur material expenditures to comply with new or existing regulations, including fines and penalties and increased costs of its operations. Additionally, future laws, ordinances, regulations or regulatory guidelines could give rise to additional compliance or remediation costs that could have a material adverse effect on our business, results of operations and financial condition. For example, producer responsibility regulations regarding end-of-life disposal could impose additional cost and complexity to our business.

Various federal, state and local environmental laws govern the use of our current and former facilities. These laws govern such matters as:

Discharge to air and water;
Handling and disposal of solid and hazardous substances and waste, and
Remediation of contamination from releases of hazardous substances in our facilities and off-site disposal locations.

Our operations also are governed by laws relating to workplace safety and worker health, which, among other things, establish noise standards and regulate the use of hazardous materials and chemicals in the workplace. We have taken, and will continue to take, steps to comply with these laws. If we fail to comply with present or future environmental or safety regulations, we could be subject to future liabilities. However, we cannot ensure that complying with these environmental or health and safety laws and requirements will not adversely affect our business, results of operations and financial condition.

We may be exposed to litigation, claims and other legal proceedings in the ordinary course of business relating to our products or business, which could have a material adverse effect on our business, results of operations and financial condition.

In the ordinary course of business, we are subject to a variety of work-related and product-related claims, lawsuits and legal proceedings, including those relating to product liability, product warranty, product recall, personal injury, and other matters that are inherently subject to many uncertainties regarding the possibility of a loss to our business. Such matters could have a material adverse effect on our business, results of operations and financial condition if we are unable to successfully defend against or resolve these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlements relating to these matters. Although we have product liability insurance, the policies may not provide coverage for certain claims against us or may not be sufficient to cover all possible liabilities. Further, we may not be able to maintain insurance at commercially acceptable premium levels. Additionally, adverse publicity arising from claims made against us, even if the claims are not successful, could adversely affect our reputation or the reputation and sales of our products.






Our business operations could suffer significant losses from natural disasters, catastrophes, fire or other unexpected events.

Many of our business activities involve substantial investments in manufacturing facilities and many products are produced at a limited number of locations. These facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes and earthquakes, or by fire or other unexpected events such as adverse weather conditions or other disruptions to our facilities, supply chain or our customer's facilities. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition and results of operations.


Item 1B.
UNRESOLVED STAFF COMMENTS

None.

Item 2.
PROPERTIES

The following table lists our facilities according to location, type of operation and approximate total floor space as of February 24, 2017:
Location
 
Type of Operation
 
Approximate Square Feet
Administrative:
 
 
 
 
Saraland, AL
 
Administrative
 
29,000

Commerce, CA*
 
Administrative
 
21,800

Santa Ana, CA
 
Administrative
 
4,000

Calhoun, GA
 
Administrative
 
10,600

Dalton, GA*
 
Administrative
 
47,900

Chattanooga, TN*
 
Administrative
 
3,500

 
 
Total Administrative
 
116,800

 
 
 
 
 
Manufacturing and Distribution:
 
 
Atmore, AL
 
Carpet Manufacturing, Distribution
 
610,000

Roanoke, AL
 
Carpet Yarn Processing
 
204,000

Saraland, AL
 
Carpet, Rug and Tile Manufacturing, Distribution
 
384,000

Commerce, CA*
 
Carpet Manufacturing, Distribution
 
253,800

Santa Ana, CA
 
Carpet and Rug Manufacturing, Distribution
 
200,000

Adairsville, GA
 
Samples and Rug Manufacturing, Distribution
 
292,000

Calhoun, GA *
 
Carpet Wool Manufacturing
 
99,000

Calhoun, GA
 
Carpet Dyeing & Processing
 
193,300

Chickamauga, GA*
 
Carpet Manufacturing
 
107,000

Eton, GA
 
Carpet Manufacturing, Distribution
 
408,000

 
 
Total Manufacturing and Distribution
 
2,751,100

 
 
 
 
 
* Leased properties
 
TOTAL
 
2,867,900


In addition to the facilities listed above, we lease a small amount of office space in various locations.

In our opinion, our manufacturing facilities are well maintained and our machinery is efficient and competitive. Operations of our facilities generally vary between 120 and 168 hours per week. Substantially all of our owned properties are subject to mortgages, which secure the outstanding borrowings under our senior credit facilities.

Item 3.
LEGAL PROCEEDINGS

We have been sued, together with the 3M Company and approximately 30 other carpet manufacturers, by the Gadsden (Alabama) Water Works in the circuit court of Etowah County Alabama [The Water Works and Sewer Board of the City of Gadsden v. 3M Company, et al, civil action No. 31-CV-2016-900676.00], in a case seeking monetary damages and injunctive relief related to the use of certain chemical compounds in the manufacture and finishing of carpet products “in and around Dalton Georgia.” On motion of the defendants, the case was removed to the U.S. District Court for the Northern District of Alabama (Middle Division) Case No. 4:16-CV-01755-SGC. As alleged in the lawsuit, the chemicals are perflourinated compounds (“PFC”) perflourinated acid (“PFOA”) and perfluorooctane sulfonate (“PFOS”) manufactured by 3M and used in certain finishing and treatment processes by the defendants





and, as a consequence of such use, either discharged into or leached into the water systems around Dalton, Georgia. The Complaint seeks damages “in excess of $10 thousand dollars”, but otherwise unspecified in amount in addition to injunctive relief. We intend to defend the matter vigorously and are unable to estimate our potential exposure to loss, if any, at this time.

We are one of multiple parties to two lawsuits, both filed in Madison County Illinois, styled Sandra D. Watts, Individually and as Special Administrator of the Estate of Dianne Averett, Deceased vs. 4520 Corp., Inc. f/k/a Benjamin F. Shaw Company, et al No. 12-L-2032 and styled Brenda Bridgeman, Individually and as Special Administrator of the Estate of Robert Bridgeman, Deceased, vs. American Honda Motor Co., Inc., f/k/a Metropolitan Life Insurance Co., et al No. 15-L-374. Each lawsuit entails a claim for damages to be determined in excess of $50,000 filed on behalf of the estate of an individual which alleges that the deceased contracted mesothelioma as a result of exposure to asbestos while employed by the Company. Discovery in both matters is ongoing, and tentative trial dates have been set. We have denied liability, are defending the matters vigorously and are unable to estimate our potential exposure to loss, if any, at this time.

Item 4.
MINE SAFETY DISCLOSURES

Not applicable

Pursuant to instruction G of Form 10-K the following is included as an unnumbered item to PART I.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages, positions and offices held by the executive officers of the registrant as of February 24, 2017, are listed below along with their business experience during the past five years.

Name, Age and Position
 
Business Experience During Past Five Years
 
 
 
Daniel K. Frierson, 75
Chairman of the Board, and Chief Executive Officer, Director
 
Director since 1973, Chairman of the Board since 1987 and Chief Executive Officer since 1980. He is the Chairman of the Company's Executive Committee. He is currently Chairman of The Carpet and Rug Institute. He serves as Director of Astec Industries, Inc. headquartered in Chattanooga, Tennessee; and Louisiana-Pacific Corporation headquartered in Nashville, Tennessee.
 
 
 
D. Kennedy Frierson, Jr., 49
Vice President and Chief Operating Officer
 
Director since 2012 and Vice President and Chief Operating Officer since August 2009. Vice President and President Masland Residential from February 2006 to July 2009. President Masland Residential from December 2005 to January 2006. Executive Vice President and General Manager, Dixie Home, 2003 to 2005. Business Unit Manager, Bretlin, 2002 to 2003.
 
 
 
Jon A. Faulkner, 56
Vice President and Chief Financial Officer
 
Vice President and Chief Financial Officer since October 2009. Vice President of Planning and Development from February 2002 to September 2009. Executive Vice President of Sales and Marketing for Steward, Inc. from 1997 to 2002.
 
 
 
Paul B. Comiskey, 65
Vice President and President, Dixie Residential
 
Vice President and President of Dixie Residential since August 2009. Vice President and President, Dixie Home from February 2007 to July 2009. President, Dixie Home from December 2006 to January 2007. Senior Vice President of Residential Sales, Mohawk Industries, Inc. from 1998 to 2006. Executive Vice President of Sales and Marketing for World Carpets from 1996 to 1998.
 
 
 
E. David Hobbs, 65
Vice President and President, Masland Contract
 
President, Masland Contract since September 2016. Executive President of Operations, Masland Contract from 2012 to September 2016. Vice President of Planning, Mohawk Industries from 2010 to 2011, Interface Americas from 1984 to 2010, President, Interface Americas from 2005 to 2009.
 
 
 
W. Derek Davis, 66
Vice President, Human Resources and Corporate Secretary
 
Vice President of Human Resources since January 1991 and Corporate Secretary since January 2016. Corporate Employee Relations Director, 1988 to 1991.

The executive officers of the registrant are generally elected annually by the Board of Directors at its first meeting held after each annual meeting of our shareholders.






PART II.

Item 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock trades on the NASDAQ Global Market under the symbol DXYN. No market exists for our Class B Common Stock.

As of February 24, 2017, the total number of holders of our Common Stock was approximately 3,000 including an estimated 2,600 shareholders who hold our Common Stock in nominee names. The total number of holders of our Class B Common Stock was 10.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

 
 
 
 
 
 
 
 
 
Fiscal Month Ending
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Maximum Number (or approximate dollar value) of Shares That May Yet Be Purchased Under Plans or Programs
October 29, 2016
 

 
$

 

 
 
November 26, 2016
 
4,234

 
3.96

 
4,234

 
 
December 31, 2016
 
200

 
3.40

 
200

 
 
Three Fiscal Months Ended December 31, 2016
 
4,434

 
$
3.93

 
4,434

 
$
2,344,158


(1) During the three months ended December 31, 2016, 4,234 shares were withheld from an employee in lieu of cash payments for withholding taxes due for a total amount of $16,767.

Quarterly Financial Data, Dividends and Price Range of Common Stock

Following are quarterly financial data, dividends and price range of Common Stock for the four quarterly periods in the years ended December 31, 2016 and December 26, 2015. Due to rounding, the totals of the quarterly information for each of the years reflected below may not necessarily equal the annual totals. There is a restriction on the payment of dividends under our revolving credit facility.





THE DIXIE GROUP, INC.
QUARTERLY FINANCIAL DATA, DIVIDENDS AND PRICE RANGE OF COMMON STOCK
(unaudited) (dollars in thousands, except per share data)
2016
 
1ST
 
2ND
 
3RD
 
4TH (1)
Net sales
 
$
89,234

 
$
105,316

 
$
100,297

 
$
102,606

Gross profit
 
19,506

 
28,242

 
25,831

 
21,846

Operating income (loss)
 
(5,840
)
 
3,403

 
1,916

 
(2,894
)
Income (loss) from continuing operations
 
(4,757
)
 
1,615

 
573

 
(2,638
)
Loss from discontinued operations
 
(10
)
 
(3
)
 
(39
)
 
(79
)
Income (loss) on disposal of discontinued operations
 

 
65

 

 
(5
)
Net income (loss)
 
$
(4,767
)
 
$
1,677

 
$
534

 
$
(2,722
)
Basic earnings (loss) per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.30
)
 
$
0.10

 
$
0.04

 
$
(0.17
)
Discontinued operations
 

 

 

 
(0.01
)
Net income (loss)
 
$
(0.30
)
 
$
0.10

 
$
0.04

 
$
(0.18
)
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.30
)
 
$
0.10

 
$
0.04

 
$
(0.17
)
Discontinued operations
 

 

 

 
(0.01
)
Net income (loss)
 
$
(0.30
)
 
$
0.10

 
$
0.04

 
$
(0.18
)
 
 
 
 
 
 
 
 
 
Common Stock Prices:
 
 
 
 
 
 
 
 
High
 
$
5.66

 
$
4.89

 
$
5.15

 
$
5.56

Low
 
3.25

 
3.00

 
3.15

 
3.20

 
 
 
 
 
 
 
 
 
2015
 
1ST
 
2ND
 
3RD
 
4TH
Net sales
 
$
95,855

 
$
109,957

 
$
108,908

 
$
107,763

Gross profit
 
23,339

 
29,306

 
27,265

 
26,320

Operating income (loss)
 
(2,683
)
 
2,177

 
1,253

 
1,243

Income (loss) from continuing operations
 
(2,380
)
 
516

 
84

 
(498
)
Loss from discontinued operations
 
(88
)
 
(12
)
 
(18
)
 
(30
)
Net income (loss)
 
$
(2,468
)
 
$
504

 
$
66

 
$
(528
)
Basic earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.15
)
 
$
0.03

 
$
0.01

 
$
(0.03
)
Discontinued operations
 
(0.01
)
 

 

 

Net income (loss)
 
$
(0.16
)
 
$
0.03

 
$
0.01

 
$
(0.03
)
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.15
)
 
$
0.03

 
$
0.01

 
$
(0.03
)
Discontinued operations
 
(0.01
)
 

 

 

Net income (loss)
 
$
(0.16
)
 
$
0.03

 
$
0.01

 
$
(0.03
)
 
 
 
 
 
 
 
 
 
Common Stock Prices:
 
 
 
 
 
 
 
 
High
 
$
9.60

 
$
11.40

 
$
11.50

 
$
9.89

Low
 
7.77

 
8.76

 
8.81

 
4.75



(1) The fourth quarter of 2016 contains 14 weeks, all other quarters presented in 2016 and 2015 contain 13 weeks.







Shareholder Return Performance Presentation

We compare our performance to two different industry indexes published by Dow Jones, Inc. The first of these is the Dow Jones Furnishings Index, which is composed of publicly traded companies classified by Dow Jones in the furnishings industry. The second is the Dow Jones Building Materials & Fixtures Index, which is composed of publicly traded companies classified by Dow Jones in the building materials and fixtures industry.

In accordance with SEC rules, set forth below is a line graph comparing the yearly change in the cumulative total shareholder return on our Common Stock against the total return of the Standard & Poor's 600 Stock Index, plus both the Dow Jones Furnishings Index and the Dow Jones Building Materials & Fixtures Index, in each case for the five year period ended December 31, 2016. The comparison assumes that $100.00 was invested on December 31, 2011, in our Common Stock, the S&P 600 Index, and each of the two Peer Groups, and assumes the reinvestment of dividends.


a5yearchart2016a01.jpg



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.






Item 6.
SELECTED FINANCIAL DATA

The Dixie Group, Inc.
Historical Summary
(dollars in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
 
FISCAL YEARS
 
2016 (1)
 
2015 (2)
 
2014 (3)(4)
 
2013 (5)
 
2012
OPERATIONS
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
397,453

 
$
422,483

 
$
406,588

 
$
344,374

 
$
266,372

Gross profit
 
95,425

 
106,230

 
95,497

 
85,570

 
65,372

Operating income (loss)
 
(3,415
)
 
1,990

 
(5,236
)
 
8,855

 
1,815

Income (loss) from continuing operations before taxes
 
(8,829
)
 
(2,992
)
 
1,726

 
4,979

 
(1,054
)
Income tax provision (benefit)
 
(3,622
)
 
(714
)
 
1,053

 
(577
)
 
(401
)
Income (loss) from continuing operations
 
(5,207
)
 
(2,278
)
 
673

 
5,556

 
(653
)
Depreciation and amortization
 
13,515

 
14,119

 
12,850

 
10,230

 
9,396

Dividends
 

 

 

 

 

Capital expenditures
 
4,904

 
6,826

 
9,492

 
11,438

 
3,386

Assets purchased under capital leases & notes, including deposits utilized and accrued purchases
 
427

 
5,403

 
23,333

 
1,865

 
666

FINANCIAL POSITION
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
268,987

 
$
298,218

 
$
290,447

 
$
243,557

 
$
196,820

Working capital
 
81,727

 
98,632

 
100,602

 
89,057

 
71,343

Long-term debt
 
98,256

 
115,907

 
117,153

 
100,521

 
79,040

Stockholders' equity
 
87,122

 
90,804

 
92,977

 
70,771

 
64,046

PER SHARE
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.33
)
 
$
(0.15
)
 
$
0.03

 
$
0.42

 
$
(0.05
)
Diluted
 
(0.33
)
 
(0.15
)
 
0.03

 
0.42

 
(0.05
)
Dividends:
 
 
 
 
 
 
 
 
 
 
Common Stock
 

 

 

 

 

Class B Common Stock
 

 

 

 

 

Book value
 
5.40

 
5.67

 
5.90

 
5.32

 
4.88

GENERAL
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
 
15,638,112

 
15,535,980

 
14,381,601

 
12,736,835

 
12,637,657

Diluted
 
15,638,112

 
15,535,980

 
14,544,073

 
12,851,917

 
12,637,657

Number of shareholders (6)
 
3,000

 
3,000

 
3,000

 
2,350

 
1,800

Number of associates
 
1,746

 
1,822

 
1,740

 
1,423

 
1,200


(1)
Includes expenses of $1,456, or $859 net of tax, for facility consolidation expenses in 2016.
(2)
Includes expenses of $2,946, or $1,915 net of tax, for facility consolidation expenses in 2015.
(3)
Includes the results of operations of Atlas Carpet Mills, Inc. and Burtco Enterprises, Inc. subsequent to their acquisitions on March 19, 2014 and September 22, 2014, respectively.
(4)
Includes expenses of $5,514, or $3,364 net of tax, for facility consolidation expenses, $1,133, or $691 net of tax, for impairment of assets and income of $11,110, or $6,777 net of tax, for bargain purchases on the acquisitions of Atlas Carpet Mills and Burtco Enterprises.
(5)
Includes the results of operations of Robertex, Inc subsequent to its acquisition on June 30, 2013.
(6)
The approximate number of record holders of our Common Stock for 2012 through 2016 includes Management's estimate of shareholders who held our Common Stock in nominee names as follows:  2012 - 1,255 shareholders; 2013 - 1,900 shareholders; 2014 - 2,550 shareholders; 2015 - 2,550 shareholders; 2016 - 2,600 shareholders.






Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Our business consists principally of marketing, manufacturing and selling floorcovering products to high-end residential and commercial customers through our various sales forces and brands. We focus exclusively on the upper-end of the floorcovering market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer relationships. Our Fabrica, Masland, and Dixie Home brands have a significant presence in the high-end residential floorcovering markets. Our Atlas Carpet Mills, Masland Contract and Masland Hospitality brands, participate in the upper-end specified commercial marketplace. Dixie International sells all of our brands outside of the North American market.

During 2016, our net sales decreased 5.9%, or 7.2% on a “net sales as adjusted” basis, compared with 2015. Sales of residential products decreased 1.8%, or 3.0% on a “net sales as adjusted” basis, in 2016 versus 2015, while, we estimate, the industry was down in low single digits. We anticipate the residential housing market will have steady but moderate growth over next several years. Commercial product sales decreased 10.0%, or 11.5% on a “net sales as adjusted” basis, during 2016, while, we believe, the industry was down slightly. We anticipate the commercial market to have moderate growth for next year. (See Reconciliation of Net Sales to Net Sales as Adjusted below.)

In 2016, we incurred an operating loss of $3.4 million compared with operating income of $2.0 million in 2015. Despite improvements in quality-related costs due to more strict and consistent quality standards and reduced associate medical expenses from a new plan design, the unabsorbed fixed cost due to the lower sales volume substantially offset those cost savings in 2016. In addition, operations were impacted by the reduction of inventories as we under produced our sales volume, thus negatively affecting our cost structure during the year.

During 2016, we completed our capacity expansion and facility consolidation plans which began in 2014. Under these plans, we aligned our warehousing, distribution and manufacturing with our growth and manufacturing strategy. They were designed to create a better cost structure as well as improve distribution capabilities and provide for more efficient manufacturing processes. In addition, we consolidated three of our leased divisional and corporate offices to a single leased facility. Total expenses of the plans since inception were $9.9 million including $1.5 million during 2016.

Despite a difficult year from a profitability perspective, we have made several changes to improve our results in the future. By completing our restructuring plans earlier in the year, we have set the stage for a more productive manufacturing environment. We reduced our claims expense significantly as our workforce training has taken affect and improved our quality. We have reduced inventory to levels commensurate with our sales and our service is in line with our customers expectations. In addition, the industry announced a price increase based on increases in cost of both labor and raw material. This price increase includes both residential and commercial products.

In response to the high rate of growth for hard surface products in the last several years, we decided to initiate a series of product launches in luxury vinyl tile and engineered wood hard surface flooring products. During the fourth quarter of 2016, we began offering luxury vinyl tile (“LVT”) products under the Calibre brand which was our first hard surface offering in the commercial markets. These new LVT products are being sold by our existing Masland Contract sales force. Residentially, our Dixie Home and Masland Residential brands will be supplying Stainmaster PetProtect® luxury vinyl tile in 2017. Finally, we are preparing to launch a high-end engineered wood line through our Fabrica brand. The growth rate, measured as market sales volume in square feet, has been substantially higher for hard surface products than soft surface products over the past 4 years.








RESULTS OF OPERATIONS

Fiscal Year Ended December 31, 2016 Compared with Fiscal Year Ended December 26, 2015

 
Fiscal Year Ended
 
 
 
 
December 31, 2016
% of Net Sales
 
December 26, 2015
% of Net Sales
 
Increase (Decrease)
% Change
Net sales
397,453

100.0
 %
 
422,483

100.0
 %
 
(25,030
)
(5.9
)%
Cost of sales
302,028

76.0
 %
 
316,253

74.9
 %
 
(14,225
)
(4.5
)%
Gross profit
95,425

24.0
 %
 
106,230

25.1
 %
 
(10,805
)
(10.2
)%
Selling and administrative expenses
96,983

24.4
 %
 
100,422

23.8
 %
 
(3,439
)
(3.4
)%
Other operating expense, net
401

0.1
 %
 
872

0.2
 %
 
(471
)
(54.0
)%
Facility consolidation expenses, net
1,456

0.4
 %
 
2,946

0.7
 %
 
(1,490
)
(50.6
)%
Operating income (loss)
(3,415
)
(0.9
)%
 
1,990

0.4
 %
 
(5,405
)
(271.6
)%
Interest expense
5,392

1.4
 %
 
4,935

1.2
 %
 
457

9.3
 %
Other expense, net
22

 %
 
47

 %
 
(25
)
(53.2
)%
Loss before taxes
(8,829
)
(2.3
)%
 
(2,992
)
(0.8
)%
 
(5,837
)
195.1
 %
Income tax benefit
(3,622
)
(0.9
)%
 
(714
)
(0.2
)%
 
(2,908
)
407.3
 %
Loss from continuing operations
(5,207
)
(1.4
)%
 
(2,278
)
(0.6
)%
 
(2,929
)
128.6
 %
Loss from discontinued operations
(131
)
 %
 
(148
)
 %
 
17

(11.5
)%
Income on disposal of discontinued operations
60

 %
 

 %
 
60

 %
Net loss
(5,278
)
(1.4
)%
 
(2,426
)
(0.6
)%
 
(2,852
)
117.6
 %

Our fiscal year ended December 31, 2016 had 53 weeks and fiscal year ended December 26, 2015 had 52 weeks. Discussions below related to percentage changes in net sales for the annual periods have been adjusted to reflect the comparable number of weeks and are qualified with the term “net sales as adjusted”. For comparative purposes, we define "net sales as adjusted" as net sales less the last week of sales in a 53 week fiscal year. We believe “net sales as adjusted” will assist our financial statement users in obtaining comparable data between the reporting periods. (See reconciliation of net sales to net sales as adjusted in the table below.)

Reconciliation of Net Sales to Net Sales as Adjusted

 
Fiscal Year Ended
 
 
December 31, 2016
Week 53
Net Sales as Adjusted December 31, 2016
 
December 26, 2015
Increase (Decrease)
Net Sales as Adjusted % Change
Net sales as adjusted
$
397,453

$
(5,380
)
$
392,073

 
$
422,483

$
(30,410
)
(7.2
)%


Net Sales. Net sales for the year ended December 31, 2016 were $397.5 million compared with $422.5 million in the year-earlier period, a decrease of 5.9%, or 7.2% on a “net sales as adjusted” basis, for the year-over-year comparison. Sales for the carpet industry were down slightly for 2016 compared with the prior year. Our 2016 year-over-year carpet sales comparison reflected a decrease of 4.7%, or 6.0% on a “net sales as adjusted” basis, in net sales. Sales of residential carpet were down 1.8%, or 3.0% on a “net sales as adjusted” basis, and sales of commercial carpet decreased 10.0%, or 11.5% on a “net sales as adjusted” basis. Revenue from carpet yarn processing and carpet dyeing and finishing services decreased 45.4%, or 45.7% on a “net sales as adjusted” basis, in 2016 compared with 2015. We experienced weaker demand across all brands during 2016 compared with 2015.

Cost of Sales. Cost of sales, as a percentage of net sales, increased 1.1 percentage points, as a percentage of net sales in 2016 compared with 2015. During 2015, we were challenged with high quality-related costs as we consolidated several of our facilities. In addition, we experienced high associate medical expenses. During 2016, we reduced our quality-related costs through several quality improvement initiatives and lowered our associate medical expenses with a new plan design. These improvements were substantially offset by unabsorbed fixed cost due to the lower sales volumes experienced in 2016. In addition, operations were impacted by the reduction of inventories as we under produced our sales volume, thus negatively affecting our cost structure during the year.






Gross Profit. Gross profit, as a percentage of net sales, decreased 1.1 percentage points in 2016 compared with 2015. The decrease in gross profit as a percentage of net sales was attributable to the factors discussed above.

Selling and Administrative Expenses. Selling and administrative expenses were $97.0 million in 2016 compared with $100.4 million in 2015, or an increase of 0.6% as a percentage of sales. Selling and administrative expenses increased as a percentage of sales primarily as a result of the lower sales volumes offset in part to lower sample expenses during 2016.

Other Operating Expense, Net. Net other operating (income) expense was an expense of $401 thousand in 2016 compared with expense of $872 thousand in 2015. We recognized a gain of $841 thousand from a settlement related to the 2010 BP oil spill offset by a $460 thousand expense related to the disposal of certain machinery and equipment.

Facility Consolidation Expenses, Net. Facility consolidation expenses were $1.5 million in 2016 compared with $2.9 million in the year-earlier period. Facility consolidation expenses decreased in 2016 as we completed our consolidation plans during the year. During 2016, we initially accrued $690 thousand to finalize the cleanup of the site of our former waste water treatment plant that was disposed of in 2014. During the fourth quarter of 2016, we lowered the accrual by $359 thousand as we were able to refine the plan. Accordingly, if the actual costs are higher or lower, we would record an additional charge or benefit, respectively, as appropriate.

Operating Income (Loss). Operations reflected an operating loss of $3.4 million in 2016 compared with operating income of $2.0 million in 2015. The increase in operating loss was attributable to the factors above.

Interest Expense. Interest expense increased $457 thousand in 2016 principally due to long-term fixed interest rate swap contracts that are at higher rates than a year ago offset by lower levels of debt during 2016.

Other (Income) Expense, Net. Other (income) expense, net was an expense of $22 thousand compared with expense of $47 thousand in 2015.

Income Tax Provision (Benefit). Our effective income tax rate was a benefit of 41.0% in 2016. In 2016, we increased our valuation allowances by $106 thousand related to state income tax loss carryforwards and state income tax credit carryforwards. Additionally, 2016 included approximately $395 thousand of federal tax credits. Our effective income tax rate was a benefit of 23.9% in 2015. In 2015, we increased our valuation allowances by $977 thousand related to state income tax loss carryforwards and state income tax credit carryforwards. Additionally, 2015 included approximately $441 thousand of federal tax credits.

Net Income (Loss). Continuing operations reflected a loss of $5.2 million, or $0.33 per diluted share in 2016, compared with a loss from continuing operations of $2.3 million, or $0.15 per diluted share in 2015. Our discontinued operations reflected a loss of $131 thousand, or $0.01 per diluted share and income on disposal of discontinued operations of $60 thousand, or $0.00 per diluted share in 2016 compared with a loss of $148 thousand, or $0.01 per diluted share in 2015. Including discontinued operations, we had a net loss of $5.3 million, or $0.34 per diluted share, in 2016 compared with a net loss of $2.4 million, or $0.16 per diluted share, in 2015.







Fiscal Year Ended December 26, 2015 Compared with Fiscal Year Ended December 27, 2014

 
Fiscal Year Ended
 
 
 
 
December 26, 2015
% of Net Sales
 
December 27, 2014
% of Net Sales
 
Increase (Decrease)
% Change
Net sales
422,483

100.0
 %
 
406,588

100.0
 %
 
15,895

3.9
 %
Cost of sales
316,253

74.9
 %
 
311,091

76.5
 %
 
5,162

1.7
 %
Gross profit
106,230

25.1
 %
 
95,497

23.5
 %
 
10,733

11.2
 %
Selling and administrative expenses
100,422

23.8
 %
 
93,182

22.9
 %
 
7,240

7.8
 %
Other operating expense, net
872

0.2
 %
 
904

0.2
 %
 
(32
)
(3.5
)%
Facility consolidation expenses, net
2,946

0.7
 %
 
5,514

1.4
 %
 
(2,568
)
100.0
 %
Impairment of assets

 %
 
1,133

0.3
 %
 
(1,133
)
100.0
 %
Operating income (loss)
1,990

0.4
 %
 
(5,236
)
(1.3
)%
 
7,226

(138.0
)%
Interest expense
4,935

1.2
 %
 
4,302

1.1
 %
 
633

14.7
 %
Other (income) expense, net
47

 %
 
(154
)
 %
 
201

(130.5
)%
Gain on purchase of businesses

 %
 
(11,110
)
(2.7
)%
 
11,110

100.0
 %
Income (loss) before taxes
(2,992
)
(0.8
)%
 
1,726

0.3
 %
 
(4,718
)
(273.3
)%
Income tax provision (benefit)
(714
)
(0.2
)%
 
1,053

0.3
 %
 
(1,767
)
(167.8
)%
Income (loss) from continuing operations
(2,278
)
(0.6
)%
 
673

 %
 
(2,951
)
(438.5
)%
Loss from discontinued operations
(148
)
 %
 
(608
)
(0.1
)%
 
460

(75.7
)%
Loss on disposal of discontinued operations

 %
 
(1,467
)
(0.4
)%
 
1,467

100.0
 %
Net loss
(2,426
)
(0.6
)%
 
(1,402
)
(0.5
)%
 
(1,024
)
73.0
 %


Net Sales. Net sales for the year ended December 26, 2015 were $422.5 million compared with $406.6 million in the year-earlier period, an increase of 3.9% for the year-over-year comparison. Sales for the carpet industry were down slightly for annual 2015 compared with the prior year. Our 2015 year-over-year carpet sales comparison reflected an increase of 4.5% in net sales. Sales of residential carpet were down 0.4% and sales of commercial carpet increased 14.4%. Revenue from carpet yarn processing and carpet dyeing and finishing services decreased 11.9% in 2015 compared with 2014. We believe our growth in both the residential and commercial sales were positively affected by the introduction of new and innovative product offerings.

Cost of Sales. Cost of sales, as a percentage of net sales, decreased 1.6 percentage points, as a percentage of net sales in 2015 compared with 2014. During the expansion and restructuring initiatives, we have experienced high training, quality and waste costs. These costs were offset by improvements in operating efficiencies and lower raw material costs.

Gross Profit. Gross profit, as a percentage of net sales, increased 1.6 percentage points in 2015 compared with 2014. The increase in gross profit as a percentage of net sales was attributable to the factors discussed above.

Selling and Administrative Expenses. Selling and administrative expenses were $100.4 million in 2015 compared with $93.2 million in 2014, or an increase of 0.9% as a percentage of sales. Our increase in selling and administrative expenses as a percentage of sales was primarily driven by the higher levels of investment in new products in our Residential and Commercial brands compared with the prior year.

Other Operating Expense, Net. Net other operating (income) expense was an expense of $872 thousand in 2015 compared with expense of $904 thousand in 2014.

Operating Income (Loss). Operations reflected operating income of $2.0 million in 2015 compared with an operating loss of $5.2 million in 2014. Facility consolidation expenses of $2.9 million and $5.5 million were included in the 2015 and 2014 results, respectively. In addition, related asset impairment expenses of $1.1 million were included in the 2014 operating results.

Interest Expense. Interest expense increased $633 thousand in 2015 principally due to higher interest rates associated with previously locked in future interest rate swaps from 2015 until 2021 to fix a portion of the Company's revolving credit facility.

Other (Income) Expense, Net. Other (income) expense, net was an expense of $47 thousand compared with income of $154 thousand in 2014. Earnings from equity investments of $209 thousand were included in 2014.






Gain on Purchase of Businesses. During 2014, we recognized gains of $11.1 million on business acquisitions. The acquisition of Atlas resulted in a gain of $10.9 million and the acquisition of Burtco resulted in a gain of $173 thousand.

Income Tax Provision (Benefit). Our effective income tax rate was a benefit of 23.9% in 2015. In 2015, we increased our valuation allowances by $977 thousand related to state income tax loss carryforwards and state income tax credit carryforwards. This was the result of a pretax loss in 2015 that put the Company in a three-year cumulative loss. Therefore, we cannot rely on future earnings to project the utilization of these carryforwards. Additionally, 2015 included approximately $441 thousand of federal tax credits. Our effective income tax rate was 61.0% in 2014 and included an increase of $569 thousand in increased valuation allowances related to state income tax carryforwards and state income tax credit carryforwards.

Loss from Discontinued Operations and Loss on Disposal of Discontinued Operations, net of tax. In the fourth quarter of 2014, we discontinued the Carousel specialty tufting and weaving operation that was part of the 2013 Robertex, Inc. acquisition. As a result, we recognized a loss on the disposal of the discontinued operation of $1.5 million, net of tax, which included the impairment of certain intangibles associated with Carousel and its related machinery and equipment. Additionally, 2014 included a loss from the discontinued Carousel operations of $598 thousand, net of tax.

Net Income (Loss). Continuing operations reflected a loss of $2.3 million, or $0.15 per diluted share in 2015, compared with income from continuing operations of $673 thousand, or $0.03 per diluted share in 2014. Our discontinued operations reflected a loss of $148 thousand, or $0.01 per diluted share in 2015 compared with a loss of $608 thousand, or $0.04 per diluted share, and a loss on disposal of discontinued operations of $1.5 million, or $0.10 per diluted share in 2014. Including discontinued operations, we had a net loss of $2.4 million, or $0.16 per diluted share, in 2015 compared with a net loss of $1.4 million, or $0.11 per diluted share, in 2014.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 2016, cash provided by operations was $23.9 million. Inventories decreased $17.9 million and receivables decreased $7.2 million which was offset by a decrease in accounts payable and accrued expenses of $6.8 million. In order to better service our customers during our facility consolidations, we had increased inventory levels over the past few years. In addition, inventories were increased last year to build inventories from a supplier that was going through a year-end software conversion. Now that those activities are complete, we decreased inventories to more normal levels. Receivables decreased on lower sales volume.

Capital asset acquisitions for the year ended December 31, 2016 were $5.3 million; $4.9 million of cash used in investing activities, $169 thousand of equipment acquired under capital leases and $258 thousand for accrued purchases. Depreciation and amortization for the year ended December 31, 2016 were $13.5 million. We expect capital expenditures to be approximately $8.0 million in 2017 while depreciation and amortization is expected to be approximately $13.3 million. Planned capital expenditures in 2017 are primarily for new equipment.

During the year ended December 31, 2016, cash used in financing activities was $19.2 million. We had payments of $10.0 million on the revolving credit facility and payments of $10.5 million on notes payable and lease obligations.

We believe our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under our current operating conditions. As of December 31, 2016, the unused borrowing availability under our revolving credit facility was $45.6 million. Our revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $16.5 million. As of the date hereof, our fixed coverage ratio was less than 1.1 to 1.0, accordingly the unused availability accessible by us was $29.1 million (the amount above $16.5 million) at December 31, 2016. Significant additional cash expenditures above our normal liquidity requirements or significant deterioration in economic conditions could affect our business and require supplemental financing or other funding sources. There can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us.

Debt Facilities

Revolving Credit Facility. On September 23, 2016, we amended our revolving credit facility to revise certain definitions and extend the maturity date from March 2019 to September 2021. The revolving credit facility provides for a maximum of $150.0 million of revolving credit, subject to borrowing base availability. The borrowing base is currently equal to specified percentages of our eligible accounts receivable, inventories, fixed assets and real property less reserves established, from time to time, by the administrative agent under the facility. The revolving credit facility is secured by a first priority lien on substantially all of our assets.

At our election, advances of the revolving credit facility bear interest at annual rates equal to either (a) LIBOR for 1, 2 or 3 month periods, as selected by us, plus an applicable margin ranging between 1.50% and 2.00%, or (b) the higher of the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate plus 1.00%, plus an applicable margin ranging between 0.50% and 1.00%. The applicable margin is determined based on availability under the revolving credit facility with margins increasing as availability decreases, with the exception that the applicable margin cannot go below 1.75% until after March 31, 2017. As of December 31, 2016, the applicable margin on our revolving credit facility was 1.75%. We pay an unused line fee on the average amount by which





the aggregate commitments exceed utilization of the revolving credit facility equal to 0.375% per annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 4.40% at December 31, 2016 and 3.12% at December 26, 2015.

The revolving credit facility includes certain affirmative and negative covenants that impose restrictions on our financial and business operations. The revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability was less than $16.5 million. As of December 31, 2016, the unused borrowing availability under the revolving credit facility was $45.6 million; however, since our fixed charge coverage ratio was less than 1.1 to 1.0, the unused availability accessible by us was $29.1 million (the amount above $16.5 million) at December 31, 2016.

Notes Payable - Buildings. On November 7, 2014, we entered into a ten-year $8.3 million note payable to purchase a previously leased distribution center in Adairsville, Georgia. The note payable is scheduled to mature on November 7, 2024 and is secured by the distribution center. The note payable bears interest at a variable rate equal to one month LIBOR plus 2.0% and is payable in equal monthly installments of principal of $35 thousand, plus interest calculated on the declining balance of the note, with a final payment of $4.2 million due on maturity. In addition, we entered into an interest swap with an amortizing notional amount effective November 7, 2014 which effectively fixes the interest rate at 4.50%.

On January 23, 2015, we entered into a ten-year $6.3 million note payable to finance an owned facility in Saraland, Alabama. The note payable is scheduled to mature on January 7, 2025 and is secured by the facility. The note payable bears interest at a variable rate equal to one month LIBOR plus 2.0% and is payable in equal monthly installments of principal of $26 thousand, plus interest calculated on the declining balance of the note, with a final payment of $3.1 million due on maturity. In addition, we entered into a forward interest rate swap with an amortizing $5.7 million notional amount effective January 7, 2017 which will effectively fix the interest rate at 4.30%.
    
Acquisition Note Payable - Development Authority of Gordon County. On November 2, 2012, we signed a 6% seller-financed note of $5.5 million with Lineage PCR, Inc. (“Lineage”) related to the acquisition of the continuous carpet dyeing facility in Calhoun, Georgia. Effective December 28, 2012 through a series of agreements between us, the Development Authority of Gordon County, Georgia (the “Authority”) and Lineage, obligations with identical payment terms as the original note to Lineage are now payment obligations to the Authority. These transactions were consummated in order to provide us with a tax abatement to the related real estate and equipment at this facility. The tax abatement plan provides for abatement for certain components of the real and personal property taxes for up to ten years. At any time, we have the option to pay off the obligation, plus a nominal amount. The debt to the Authority bears interest at 6% and is payable in equal monthly installments of principal and interest of $106 thousand over 57 months.

Acquisition Note Payable - Robertex. On July 1, 2013, we signed a 4.5% seller-financed note of $4.0 million, which was recorded at a fair value of $3.7 million with Robert P. Rothman related to the acquisition of Robertex Associates, LLC ("Robertex") in Calhoun, Georgia. The note is payable in five annual installments of principal of $800 thousand plus interest. The note matures June 30, 2018.

Notes Payable - Equipment and Other. Our equipment financing notes have terms ranging from five to seven years, bear interest ranging from 1.00% to 6.86% and are due in monthly or quarterly installments through their maturity dates. The notes are secured by the specific equipment financed and do not contain financial covenants. (See Note 10 to our Consolidated Financial Statements).

Capital Lease Obligations. Our capital lease obligations have terms ranging from three to seven years, bear interest ranging from 2.90% to 7.37% and are due in monthly or quarterly installments through their maturity dates. The capital lease obligations are secured by the specific equipment leased. (See Note 10 to our Consolidated Financial Statements).

Contractual Obligations
The following table summarizes our future minimum payments under contractual obligations as of December 31, 2016
 
 
Payments Due By Period
 
 
(dollars in millions)
 
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Debt
 
$
6.8

 
$
4.6

 
$
2.8

 
$
1.9

 
$
72.3

 
$
9.7

 
98.1

Interest - debt (1)
 
4.5

 
4.2

 
4.0

 
3.9

 
3.0

 
1.1

 
20.7

Capital leases
 
3.3

 
3.1

 
1.9

 
1.7

 
1.1

 

 
11.1

Interest - capital leases
 
0.5

 
0.3

 
0.2

 
0.1

 

 

 
1.1

Operating leases
 
3.1

 
2.8

 
1.9

 
1.4

 
1.0

 
4.3

 
14.5

Purchase commitments
 
4.2

 
0.4

 

 

 

 

 
4.6

Totals
 
22.4

 
15.4

 
10.8

 
9.0

 
77.4

 
15.1

 
150.1


(1) Interest rates used for variable rate debt were those in effect at December 31, 2016.






Stock-Based Awards

We recognize compensation expense related to share-based stock awards based on the fair value of the equity instrument over the period of vesting for the individual stock awards that were granted. At December 31, 2016, the total unrecognized compensation expense related to unvested restricted stock awards was $1.9 million with a weighted-average vesting period of 6.9 years. At December 31, 2016, the total unrecognized compensation expense related to Directors' Stock Performance Units was $41 thousand with a weighted-average vesting period of 0.3 years. At December 31, 2016, there was no unrecognized compensation expense related to unvested stock options.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements at December 31, 2016 or December 26, 2015.

Income Tax Considerations

During 2016, we increased our valuation allowances by $106 thousand related to state income tax loss carryforwards and state income tax credit carryforwards. The increase was based on a number of factors including current and future earnings assumptions by taxing jurisdictions.

During 2017 and 2018, we do not anticipate any cash outlays for income taxes. This is due to tax loss carryforwards and tax credit carryforwards that will be used to offset taxable income. At December 31, 2016, we were in a net deferred tax asset position of $7.6 million. We performed an analysis, including an evaluation of certain tax planning strategies available to us, related to the net deferred tax asset and believe that the net deferred tax asset is recoverable in future periods. Approximately $20.0 million of future taxable income would be required to realize the deferred tax asset.

Discontinued Operations - Environmental Contingencies

We have reserves for environmental obligations established at five previously owned sites that were associated with our discontinued textile businesses. We have a reserve of $1.7 million for environmental liabilities at these sites as of December 31, 2016. The liability established represents our best estimate of loss and is the reasonable amount to which there is any meaningful degree of certainty given the periods of estimated remediation and the dollars applicable to such remediation for those periods. The actual timeline to remediate, and thus, the ultimate cost to complete such remediation through these remediation efforts, may differ significantly from our estimates. Pre-tax cost for environmental remediation obligations classified as discontinued operations were primarily a result of specific events requiring action and additional expense in each period.

Fair Value of Financial Instruments

At December 31, 2016, we had $200 thousand of liabilities measured at fair value that fall under a level 3 classification in the hierarchy (those subject to significant management judgment or estimation).

Certain Related Party Transactions

During 2016, we purchased a portion of our product needs in the form of fiber, yarn and carpet from Engineered Floors, an entity substantially controlled by Robert E. Shaw, a shareholder of our company. An affiliate of Mr. Shaw reported holding approximately 7.4% of our Common Stock, which as of year-end represented approximately 3.4% of the total vote of all classes of our Common Stock. Engineered Floors is one of several suppliers of such materials. Total purchases from Engineered Floors for 2016, 2015 and 2014 were approximately $7.3 million, $8.8 million and $11.3 million, respectively; or approximately 2.4%, 2.8% and 3.6% of our consolidated costs of sales in 2016, 2015 and 2014, respectively. Purchases from Engineered Floors are based on market value, negotiated prices. We have no contractual commitments with Mr. Shaw associated with our business relationship with Engineered Floors. Transactions with Engineered Floors are reviewed annually by our board of directors.

We are party to a 5-year lease with the seller of Atlas Carpet Mills, Inc. to lease three manufacturing facilities as part of the acquisition in 2014. The lessor is controlled by an associate of our company. Rent paid to the lessor during 2016, 2015 and 2014 was $793 thousand, $458 thousand and $343 thousand, respectively. The lease was based on current market values for similar facilities.

We are party to a 10-year lease with the Rothman Family Partnership to lease a manufacturing facility as part of the Robertex acquisition in 2013. The lessor is controlled by an associate of our company. Rent paid to the lessor during 2016, 2015 and 2014 was $267 thousand, $262 thousand and $257 thousand, respectively. The lease was based on current market values for similar facilities. In addition, we have a note payable to Robert P. Rothman related to the acquisition of Robertex, Inc. (See Note 10 to our Consolidated Financial Statements).






Recent Accounting Pronouncements

See Note 2 in the Notes to the Consolidated Financial Statements of this Form 10-K for a discussion of new accounting pronouncements which is incorporated herein by reference.

Critical Accounting Policies

Certain estimates and assumptions are made when preparing our financial statements. Estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict. As a result, actual amounts could differ from estimates made when our financial statements are prepared.
 
The Securities and Exchange Commission requires management to identify its most critical accounting policies, defined as those that are both most important to the portrayal of our financial condition and operating results and the application of which requires our most difficult, subjective, and complex judgments. Although our estimates have not differed materially from our experience, such estimates pertain to inherently uncertain matters that could result in material differences in subsequent periods.
 
We believe application of the following accounting policies require significant judgments and estimates and represent our critical accounting policies. Other significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements.
 
Revenue recognition. Revenues, including shipping and handling amounts, are recognized when the following criteria are met:  there is persuasive evidence that a sales agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collection is reasonably assured. Delivery is considered to have occurred when the customer takes title to products, which is generally on the date of shipment. At the time revenue is recognized, we record a provision for the estimated amount of future returns including product warranties and customer claims based primarily on historical experience and any known trends or conditions.

Customer claims and product warranties. We provide product warranties related to manufacturing defects and specific performance standards for our products. We record reserves for the estimated costs of defective products and failure to meet applicable performance standards. The levels of reserves are established based primarily upon historical experience and our evaluation of pending claims. Because our evaluations are based on historical experience and conditions at the time our financial statements are prepared, actual results could differ from the reserves in our Consolidated Financial Statements. 

Accounts receivable allowances. We provide allowances for expected cash discounts and doubtful accounts based upon historical experience and periodic evaluations of the financial condition of our customers. If the financial conditions of our customers were to significantly deteriorate, or other factors impair their ability to pay their debts, credit losses could differ from allowances recorded in our Consolidated Financial Statements. 

Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO), which generally matches current costs of inventory sold with current revenues, for substantially all inventories. Reserves are also established to adjust inventories that are off-quality, aged or obsolete to their estimated net realizable value. Additionally, rates of recoverability per unit of off-quality, aged or obsolete inventory are estimated based on historical rates of recoverability and other known conditions or circumstances that may affect future recoverability. Actual results could differ from assumptions used to value our inventory.

Goodwill. Goodwill is tested annually for impairment during the fourth quarter or earlier if significant events or substantive changes in circumstances occur that may indicate that goodwill may not be recoverable. The goodwill impairment tests are based on determining the fair value of the specified reporting units based on management judgments and assumptions using the discounted cash flows and comparable company market valuation approaches. We have identified our reporting unit as our floorcovering business for the purposes of allocating goodwill and assessing impairments. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about sales growth rates, operating margins, the weighted average cost of capital (“WACC”) and comparable company market multiples. When developing these key judgments and assumptions, we consider economic, operational and market conditions that could impact the fair value of the reporting unit. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Should a significant or prolonged deterioration in economic conditions occur or a decline in comparable company market multiples, then key judgments and assumptions could be impacted. We performed our annual assessment of goodwill in the fourth quarters of 2016, 2015 and 2014 and no impairment was indicated.

Contingent Consideration. Contingent consideration liabilities represent future amounts we may be required to pay in conjunction with various business combinations. The ultimate amount of future payments is based on incremental gross margin growth related to the contingent liability. We estimate the fair value of the contingent consideration liability by forecasting estimated cash payments based on incremental gross margin growth and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate. We evaluate our estimates of the fair





value of contingent consideration liabilities on a periodic basis. Any changes in the fair value of contingent consideration liabilities are recorded through earnings. The total estimated fair value of contingent consideration liabilities was $200 thousand and $584 thousand at December 31, 2016 and December 26, 2015, respectively, and was included in accrued expenses and other liabilities in our consolidated balance sheets.
 
Self-insured accruals. We estimate costs required to settle claims related to our self-insured medical, dental and workers' compensation plans. These estimates include costs to settle known claims, as well as incurred and unreported claims. The estimated costs of known and unreported claims are based on historical experience. Actual results could differ from assumptions used to estimate these accruals.
 
Income taxes. Our effective tax rate is based on income, statutory tax rates and tax planning opportunities available in the jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in a future period. We evaluate the recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates, including business forecasts and other projections of financial results over an extended period of time. In the event that we are not able to realize all or a portion of our deferred tax assets in the future, a valuation allowance is provided. We would recognize such amounts through a charge to income in the period in which that determination is made or when tax law changes are enacted. We had valuation allowances of $5.4 million at December 31, 2016 and $5.3 million at December 26, 2015. For further information regarding our valuation allowances, see Note 14 to the consolidated financial statements.
 
Loss contingencies. We routinely assess our exposure related to legal matters, environmental matters, product liabilities or any other claims against our assets that may arise in the normal course of business. If we determine that it is probable a loss has been incurred, the amount of the loss, or an amount within the range of loss, that can be reasonably estimated will be recorded.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands)

Our earnings, cash flows and financial position are exposed to market risks relating to interest rates, among other factors. It is our policy to minimize our exposure to adverse changes in interest rates and manage interest rate risks inherent in funding our Company with debt. We address this financial exposure through a risk management program that includes maintaining a mix of fixed and floating rate debt and the use of interest rate swap agreements (See Note 12 to the Consolidated Financial Statements).

At December 31, 2016, $26,270, or approximately 24% of our total debt, was subject to floating interest rates. A one-hundred basis point fluctuation in the variable interest rates applicable to this floating rate debt would have an annual after-tax impact of approximately $155.

Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

Item 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.  We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13(a)-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2016, the date of the financial statements included in this Form 10-K (the “Evaluation Date”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

(b) Changes in Internal Control over Financial Reporting. No changes in our internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.






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.






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 3, 2017 are incorporated herein by reference. Information regarding the executive officers of the registrant is presented in PART I of this report.

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

Audit Committee Financial Expert

The Board has determined that Michael L. Owens is an audit committee financial expert as defined by Item 407 (e)(5) of Regulation S-K of the Securities Exchange Act of 1934, as amended, and is independent within the meaning of the applicable Securities and Exchange Commission rules and NASDAQ standards. For a brief listing of Mr. Owens' relevant experience, please refer to the "Election of Directors" section of the Company's Proxy Statement.

Audit Committee

We have a standing audit committee.  At December 31, 2016, members of our audit committee are Michael L. Owens, Chairman, William F. Blue, Jr., Charles E. Brock, Walter W. Hubbard, Lowry F. Kline, Hilda W. Murray and John W. Murrey, III.

Item 11.
EXECUTIVE COMPENSATION

The sections entitled "Compensation Discussion and Analysis", "Executive Compensation Information" and "Director Compensation" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 3, 2017 are incorporated herein by reference.

Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The section entitled "Principal Shareholders", as well as the beneficial ownership table (and accompanying notes), in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 3, 2017 are incorporated herein by reference.

Equity Compensation Plan Information as of December 31, 2016

The following table sets forth information as to our equity compensation plans as of the end of the 2016 fiscal year:
 
(a)
 
(b)
 
(c)
Plan Category
Number of securities to be issued upon exercise of the outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity Compensation Plans approved by security holders
219,732

(1)
$
5.94

(2)
774,800


(1)
Includes the options to purchase 103,500 shares of Common Stock under our 2006 Stock Awards Plan and 116,232 Performance Units issued under the Directors Stock Plan, each unit being equivalent to one share of Common Stock. Does not include shares of Common Stock issued but not vested pursuant to outstanding restricted stock awards.
(2)
Includes the aggregate weighted-average of (i) the exercise price per share for outstanding options to purchase 103,500 shares of Common Stock under our 2006 Stock Awards Plan and (ii) the price per share of the Common Stock on the grant date for each of 116,232 Performance Units issued under the Directors' Stock Plan (each unit equivalent to one share of Common Stock).

Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The section entitled "Certain Transactions Between the Company and Directors and Officers" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 3, 2017 is incorporated herein by reference.

Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES

The section entitled "Audit Fees Discussion" in the Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held May 3, 2017 is incorporated herein by reference.






PART IV.

Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(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)





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 13, 2017
 
The Dixie Group, Inc.
 
 
 
 
 
/s/ DANIEL K. FRIERSON      
 
       
By: Daniel K. Frierson
 
 
Chairman of the Board and Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Capacity
 
Date
 
 
 
 
 
/s/ DANIEL K. FRIERSON
 
Chairman of the Board, Director and Chief Executive Officer
 
March 13, 2017
Daniel K. Frierson
 
 
 
 
 
 
 
 
 
/s/ JON A. FAULKNER
 
Vice President, Chief Financial Officer
 
March 13, 2017
Jon A. Faulkner
 
 
 
 
 
 
 
 
 
/s/ D. KENNEDY FRIERSON, JR.
 
Vice President, Chief Operating Officer and Director
 
March 13, 2017
D. Kennedy Frierson, Jr.
 
 
 
 
 
 
 
 
 
/s/ WILLIAM F. BLUE, JR.
 
Director
 
March 13, 2017
William F. Blue, Jr.
 
 
 
 
 
 
 
 
 
/s/ CHARLES E. BROCK
 
Director
 
March 13, 2017
Charles E. Brock
 
 
 
 
 
 
 
 
 
/s/ WALTER W. HUBBARD
 
Director
 
March 13, 2017
Walter W. Hubbard
 
 
 
 
 
 
 
 
 
/s/ LOWRY F. KLINE
 
Director
 
March 13, 2017
Lowry F. Kline
 
 
 
 
 
 
 
 
 
/s/ HILDA S. MURRAY
 
Director
 
March 13, 2017
Hilda S. Murray
 
 
 
 
 
 
 
 
 
/s/ JOHN W. MURREY, III
 
Director
 
March 13, 2017
John W. Murrey, III
 
 
 
 
 
 
 
 
 
/s/ MICHAEL L. OWENS
 
Director
 
March 13, 2017
Michael L. Owens
 
 
 
 






ANNUAL REPORT ON FORM 10-K

ITEM 8 AND ITEM 15(a)(1) AND ITEM 15(a)(2)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED DECEMBER 31, 2016

THE DIXIE GROUP, INC.

DALTON, GEORGIA







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
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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.





Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures, as well as diverse interpretation of U. S. generally accepted accounting principles by accounting professionals. It is also possible that internal control over financial reporting can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. These inherent limitations are known features of the financial reporting process; therefore, while it is possible to design into the process safeguards to reduce such risk, it is not possible to eliminate all risk.

Management, including our principal executive officer and principal financial officer, has used the criteria set forth in the report entitled “Internal Control - Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) to evaluate the effectiveness of its internal control over financial reporting. Management has concluded that its internal control over financial reporting was effective as of December 31, 2016, based on those criteria.

Daniel K. Frierson
Chairman of the Board and
Chief Executive Officer

Jon A. Faulkner
Chief Financial Officer









Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders of The Dixie Group, Inc.
We have audited the accompanying consolidated balance sheets of The Dixie Group, Inc. (the "Company") as of December 31, 2016 and December 26, 2015, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as of December 31, 2016. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Dixie Group, Inc. as of December 31, 2016 and December 26, 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Dixon Hughes Goodman LLP

Atlanta, Georgia
March 13, 2017





THE DIXIE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
 
December 31,
2016
 
December 26,
2015
ASSETS
 
 
 

CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
140

 
$
281

Receivables, net
43,605

 
50,806

Inventories, net
97,237

 
115,146

Prepaid expenses
4,376

 
3,362

TOTAL CURRENT ASSETS
145,358

 
169,595

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, NET
92,807

 
101,146

GOODWILL AND OTHER INTANGIBLES
6,156

 
6,461

OTHER ASSETS
24,666

 
21,016

TOTAL ASSETS
$
268,987

 
$
298,218

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
20,683

 
$
26,483

Accrued expenses
32,826

 
34,338

Current portion of long-term debt
10,122

 
10,142

TOTAL CURRENT LIABILITIES
63,631

 
70,963

 
 
 
 
LONG-TERM DEBT
98,256

 
115,907

OTHER LONG-TERM LIABILITIES
19,978

 
20,544

TOTAL LIABILITIES
181,865

 
207,414

 
 
 
 
COMMITMENTS AND CONTINGENCIES (See Note 18)

 

 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
Common Stock ($3 par value per share):  Authorized 80,000,000 shares, issued and outstanding - 15,248,338 shares for 2016 and 15,155,274 shares for 2015
45,745

 
45,466

Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued and outstanding - 870,714 shares for 2016 and 851,693 shares for 2015
2,612

 
2,555

Additional paid-in capital
156,381

 
155,734

Accumulated deficit
(115,656
)
 
(110,378
)
Accumulated other comprehensive income (loss)
(1,960
)
 
(2,573
)
TOTAL STOCKHOLDERS' EQUITY
87,122

 
90,804

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
268,987

 
$
298,218


See accompanying notes to the consolidated financial statements.





THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
 
Year Ended
 
December 31,
2016
 
December 26,
2015
 
December 27,
2014
NET SALES
$
397,453

 
$
422,483

 
$
406,588

Cost of sales
302,028

 
316,253

 
311,091

GROSS PROFIT
95,425

 
106,230

 
95,497

 
 
 
 
 
 
Selling and administrative expenses
96,983

 
100,422

 
93,182

Other operating expense, net
401

 
872

 
904

Facility consolidation expenses, net
1,456

 
2,946

 
5,514

Impairment of assets

 

 
1,133

OPERATING INCOME (LOSS)
(3,415
)
 
1,990

 
(5,236
)
 
 
 
 
 
 
Interest expense
5,392

 
4,935

 
4,302

Other (income) expense, net
22

 
47

 
(154
)
Gain on purchase of businesses

 

 
(11,110
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
(8,829
)
 
(2,992
)
 
1,726

Income tax provision (benefit)
(3,622
)
 
(714
)
 
1,053

INCOME (LOSS) FROM CONTINUING OPERATIONS
(5,207
)
 
(2,278
)
 
673

Loss from discontinued operations, net of tax
(131
)
 
(148
)
 
(608
)
Income (loss) on disposal of discontinued operations, net of tax
60

 

 
(1,467
)
NET LOSS
$
(5,278
)
 
$
(2,426
)
 
$
(1,402
)
 
 
 
 
 
 
BASIC EARNINGS (LOSS) PER SHARE:
 
 
 
 
 
Continuing operations
$
(0.33
)
 
$
(0.15
)
 
$
0.03

Discontinued operations
(0.01
)
 
(0.01
)
 
(0.04
)
Disposal of discontinued operations
(0.00
)
 

 
(0.10
)
Net loss
$
(0.34
)
 
$
(0.16
)
 
$
(0.11
)
 
 
 
 
 
 
BASIC SHARES OUTSTANDING
15,638

 
15,536

 
14,382

 
 
 
 
 
 
DILUTED EARNINGS (LOSS) PER SHARE:
 
 
 
 
 
Continuing operations
$
(0.33
)
 
$
(0.15
)
 
$
0.03

Discontinued operations
(0.01
)
 
(0.01
)
 
(0.04
)
Disposal of discontinued operations
(0.00
)
 

 
(0.10
)
Net loss
$
(0.34
)
 
$
(0.16
)
 
$
(0.11
)
 
 
 
 
 
 
DILUTED SHARES OUTSTANDING
15,638

 
15,536

 
14,544

 
 
 
 
 
 
DIVIDENDS PER SHARE:
 
 
 
 
 
Common Stock
$

 
$

 
$

Class B Common Stock

 

 


See accompanying notes to the consolidated financial statements. 

Table of Contents    34    




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

 
Year Ended
 
December 31,
2016
 
December 26,
2015
 
December 27,
2014
NET LOSS
$
(5,278
)
 
$
(2,426
)
 
$
(1,402
)
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
 
 
 
 
 
Unrealized loss on interest rate swaps
(263
)
 
(2,410
)
 
(3,110
)
Income taxes
(100
)
 
(916
)
 
(1,182
)
Unrealized loss on interest rate swaps, net
(163
)
 
(1,494
)
 
(1,928
)
 
 
 
 
 
 
Reclassification of loss into earnings from interest rate swaps (1)
1,291

 
777

 
372

Income taxes
491

 
295

 
141

Reclassification of loss into earnings from interest rate swaps, net
800

 
482

 
231

 
 
 
 
 
 
Unrecognized net actuarial gain (loss) on postretirement benefit plans
(3
)
 
48

 
67

Income taxes
(1
)
 
18

 
26

Unrecognized net actuarial gain (loss) on postretirement benefit plans, net
(2
)
 
30

 
41

 
 
 
 
 
 
Reclassification of net actuarial gain into earnings from postretirement benefit plans (2)
(33
)
 
(40
)
 
(31
)
Income taxes
(13
)
 
(15
)
 
(12
)
Reclassification of net actuarial gain into earnings from postretirement benefit plans, net
(20
)
 
(25
)
 
(19
)
 
 
 
 
 
 
Reclassification of prior service credits into earnings from postretirement benefit plans (2)
(4
)
 
(86
)
 
(88
)
Income taxes
(2
)
 
(33
)
 
(34
)
Reclassification of prior service credits into earnings from postretirement benefit plans, net
(2
)
 
(53
)
 
(54
)
 

 

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
613

 
(1,060
)
 
(1,729
)
 
 
 
 
 
 
COMPREHENSIVE LOSS
$
(4,665
)
 
$
(3,486
)
 
$
(3,131
)

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

See accompanying notes to the consolidated financial statements.

Table of Contents    35    




THE DIXIE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
 
Year Ended
 
December 31,
2016
 
December 26,
2015
 
December 27,
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

 
 

Income (loss) from continuing operations
$
(5,207
)
 
$
(2,278
)
 
$
673

Loss from discontinued operations
(131
)
 
(148
)
 
(608
)
Income (loss) on disposal of discontinued operations
60

 

 
(1,467
)
Net loss
(5,278
)
 
(2,426
)
 
(1,402
)
 
 
 
 
 
 
Adjustments to reconcile net loss to net cash provided by operating activities, net of acquisitions:
 
 
 
 
 
Depreciation and amortization -
 
 
 
 
 
Continuing operations
13,515

 
14,119

 
12,850

Discontinued operations

 

 
59

Provision (benefit) for deferred income taxes
(3,260
)
 
(730
)
 
264

Net (gain) loss on property, plant and equipment disposals
725

 
(114
)
 
11

Impairment of assets -
 
 
 
 
 
Continuing operations

 

 
1,133

Discontinued operations

 

 
2,363

Gain on purchase of businesses

 

 
(11,110
)
Stock-based compensation expense
1,324

 
1,406

 
1,195

Excess tax benefits from stock-based compensation
(3
)
 
(318
)
 
(379
)
Bad debt expense
38

 
146

 
399

Changes in operating assets and liabilities:
 
 
 
 
 
Receivables
7,163

 
(335
)
 
(1,686
)
Inventories
17,909

 
(10,939
)
 
743

Other current assets
(1,014
)
 
751

 
679

Accounts payable and accrued expenses
(6,827
)
 
7,606

 
(925
)
Other operating assets and liabilities
(371
)
 
(557
)
 
(733
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
23,921

 
8,609

 
3,461

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
Net proceeds from sales of property, plant and equipment
1

 
68

 
473

Deposits on property, plant and equipment

 

 
(1,184
)
Purchase of property, plant and equipment
(4,904
)
 
(6,826
)
 
(9,492
)
Proceeds from sale of equity investment

 

 
870

Proceeds from sale of assets held for sale

 

 
5,501

Net cash paid in business acquisitions